Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates. The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

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Answer 1

Question

Chapter IE, Problem 7E

1.

To determine

Introduction: Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates.

The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

2.

To determine

Introduction: Contribution format income statements are prepared for management use. Costs are classified by nature, whether variable or fixed costs.

Segment income statements are used by managers to make decisions. Managers are focused on different activities costs and revenue data in order to make sound decisions based on statements.

To prepare: To prepare a contribution format segmented income statement.

3.

To determine

Introduction: The company uses segmented income statements to evaluate which market earned the most profit and incurred the highest cost for the company. Companies use the segment margin percentage in determining whether to remove or modify a market. It helps management to focus on which market makes the most profit.

To draw: An insight into the segment income statement of the company’s market.

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Q. 8 Which following costs need to be considered for both make or buy options? O. Fixed overhead O. Variable overhead O. Rental revenue Q. 9 What is the per unit cost to purchase from the vendor? Round to the nearest penny. Q. 10 Based on your analysis, the CreativeStationary Co. should make the product in-house or buy them from the vender? O. Make O. Buy Do (Q8,9,10 plz)

CVP Application Problem 4: Segmented Income Statements — Costs of Activities Hunter, Inc., manufactures and distributes three principal product lines: sporting goods, housewares, and hardware. The company has suffered reduced profitability in the past few quarters, and the top managers have taken a number of actions to try to improve the situation. The most recent quarterly income statement, segmented by product line, follows. Indirect, common fixed costs are allocated to the lines based on relative sales or labor content. Hunter, Inc.Income Statement, Second Quarter(in thousands of dollars) Total Sporting Goods Housewares Hardware Sales $3,337.0 $650.0 $921.0 $1,766.0 Cost of Sales $1,928.8 $357.3 $545.7 $1,025.8 Gross Margin $1,408.2 $292.7 $375.3 $ 740.2 Operating Expenses: Selling Expenses $ 787.6 $157.1 $225.9 $ 404.6 Administrative Expenses $514.6 $94.2 $135.6 $284.8 Total Operating Expenses $1,302.2 $251.3 $361.5 $ 689.4 Income Before Taxes $ 106.0…

Problem 3, page 314 (Product Mix) Requirement: Provide the product ranking. Problem 3 (Product Mix) Data concerning four product lines are as follows: Product Line A Selling price per unit Variable cost per unit Hours required for each unit Market limit (unit) Total fixed cost Total hours available Р30 25 5 hrs. None P25 10 10 hrs. None P10 P8 4 1 hr. 4,000 4 hrs. 8,000 P100,000 96,000 hours SOLUTION & ANSWER:

Answer 2

Question

Chapter IE, Problem 7E

1.

To determine

Introduction: Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates.

The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

2.

To determine

Introduction: Contribution format income statements are prepared for management use. Costs are classified by nature, whether variable or fixed costs.

Segment income statements are used by managers to make decisions. Managers are focused on different activities costs and revenue data in order to make sound decisions based on statements.

To prepare: To prepare a contribution format segmented income statement.

3.

To determine

Introduction: The company uses segmented income statements to evaluate which market earned the most profit and incurred the highest cost for the company. Companies use the segment margin percentage in determining whether to remove or modify a market. It helps management to focus on which market makes the most profit.

To draw: An insight into the segment income statement of the company’s market.

Expert Solution & Answer

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Answer 3

Question

Chapter IE, Problem 7E

1.

To determine

Introduction: Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates.

The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

2.

To determine

Introduction: Contribution format income statements are prepared for management use. Costs are classified by nature, whether variable or fixed costs.

Segment income statements are used by managers to make decisions. Managers are focused on different activities costs and revenue data in order to make sound decisions based on statements.

To prepare: To prepare a contribution format segmented income statement.

3.

To determine

Introduction: The company uses segmented income statements to evaluate which market earned the most profit and incurred the highest cost for the company. Companies use the segment margin percentage in determining whether to remove or modify a market. It helps management to focus on which market makes the most profit.

To draw: An insight into the segment income statement of the company’s market.

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Answer 4

Question

Chapter IE, Problem 7E

1.

To determine

Introduction: Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates.

The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

2.

To determine

Introduction: Contribution format income statements are prepared for management use. Costs are classified by nature, whether variable or fixed costs.

Segment income statements are used by managers to make decisions. Managers are focused on different activities costs and revenue data in order to make sound decisions based on statements.

To prepare: To prepare a contribution format segmented income statement.

3.

To determine

Introduction: The company uses segmented income statements to evaluate which market earned the most profit and incurred the highest cost for the company. Companies use the segment margin percentage in determining whether to remove or modify a market. It helps management to focus on which market makes the most profit.

To draw: An insight into the segment income statement of the company’s market.

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Answer 5

Chapter IE, Problem 7E

1.

To determine

Introduction: Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates.

The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

2.

To determine

Introduction: Contribution format income statements are prepared for management use. Costs are classified by nature, whether variable or fixed costs.

Segment income statements are used by managers to make decisions. Managers are focused on different activities costs and revenue data in order to make sound decisions based on statements.

To prepare: To prepare a contribution format segmented income statement.

3.

To determine

Introduction: The company uses segmented income statements to evaluate which market earned the most profit and incurred the highest cost for the company. Companies use the segment margin percentage in determining whether to remove or modify a market. It helps management to focus on which market makes the most profit.

To draw: An insight into the segment income statement of the company’s market.

Answer 6

Chapter IE, Problem 7E

1.

To determine

Introduction: Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates.

The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

Answer 7

Chapter IE, Problem 7E

1.

To determine

Introduction: Manufacturing overhead costs are not directly affected by the one single activity base, so to get an accurate allocation, ABC comes into the picture. This method identifies major activities that cause overhead costs to be incurred. Costs are broken down into activities and each activity is going to have its own cost space making it more accurate. So, this allocates a portion of the manufacturing overhead to each activity using individual activity rates.

The computation of the activity rate for each cost pool and allocate each cost pool to the company’s commercial market, home market, and school market.

Answer 8

2.

To determine

Introduction: Contribution format income statements are prepared for management use. Costs are classified by nature, whether variable or fixed costs.

Segment income statements are used by managers to make decisions. Managers are focused on different activities costs and revenue data in order to make sound decisions based on statements.

To prepare: To prepare a contribution format segmented income statement.

Answer 9

2.

To determine

Introduction: Contribution format income statements are prepared for management use. Costs are classified by nature, whether variable or fixed costs.

Segment income statements are used by managers to make decisions. Managers are focused on different activities costs and revenue data in order to make sound decisions based on statements.

To prepare: To prepare a contribution format segmented income statement.

Answer 10

3.

To determine

Introduction: The company uses segmented income statements to evaluate which market earned the most profit and incurred the highest cost for the company. Companies use the segment margin percentage in determining whether to remove or modify a market. It helps management to focus on which market makes the most profit.

To draw: An insight into the segment income statement of the company’s market.

Answer 11

3.

To determine

Introduction: The company uses segmented income statements to evaluate which market earned the most profit and incurred the highest cost for the company. Companies use the segment margin percentage in determining whether to remove or modify a market. It helps management to focus on which market makes the most profit.

To draw: An insight into the segment income statement of the company’s market.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. IE - Activity Variance, Spending Variance, Materials...Ch. IE - Prob. 2E Ch. IE - Prob. 3E Ch. IE - Capital Budgeting, Return on Investment, Residual...Ch. IE - Prob. 6E Ch. IE - Prob. 7E Ch. IE - Prob. 8E Ch. IE - Prob. 9E Ch. IE - Prob. 10E Ch. IE - Prob. 11E

Solution Summary: The author explains how ABC allocates manufacturing overhead costs to the company's three markets: commercial, home, and school markets.

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