Question

Customer Profitability Analysis
Roland, Inc. provides residential painting services for three home building companies, Alpha, Beta, and Gamma, and it uses a job costing system for determining the costs for completing each job. The job cost system does not capture any cost incurred by Roland for return touchups and refinishes after the homeowner occupies the home. Roland paints each house on a square footage contract price, which includes painting as well as all refinishes and touchups required after the homes are occupied. Each year, Roland generates about one-third of its total revenues and gross profits from each of the three builders. Roland has observed that the builders, however, require substantially different levels of support following the completion of jobs. The following data have been gathered:
Support Activity   Driver   Costs per Driver Unit
Major refinishes   Hours on job   $60
Touchups   Number of visits   $130
Communication   Number of calls   $40

Builder   Major Refinishes   Touchups   Communication
Alpha   80   150   360
Beta   35   110   205
Gamma   42   115   190

Assuming that each of the three customers produces gross profits of $100,000, calculate the profitability from each builder after taking into account the support activity required for each builder.
Alpha
$Answer

Beta
$Answer

Gamma
$Answer

Q2
Activity-Based Costing and Conventional Costs Compared
Chef Grill Company manufactures two types of cooking grills: the Gas Cooker and the Charcoal Smoker. The Cooker is a premium product sold in upscale outdoor shops; the Smoker is sold in major discount stores. Following is information pertaining to the manufacturing costs for the current month.
   Gas Cooker   Charcoal Smoker
Units   1,000   4,000
Number of batches   60   10
Number of batch moves   80   20
Direct materials   $20,000   $100,000
Direct labor   $20,000   $27,000

Manufacturing overhead follows:
Activity   Cost   Cost Driver
Materials acquisition and inspection   $288,000   Amount of direct materials cost
Materials movement   16,900   Number of batch moves
Scheduling   42,000   Number of batches
   $346,900  

Rounding instructions: Do not round until your final answers. Round total cost answers to the nearest dollar and per unit answers to the nearest cent.

(a) Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming all manufacturing overhead is assigned on the basis of direct labor dollars.
HINT: Use 7.3809 for overhead rate calculations.
Total cost   Answer

Gas Cooker   Answer
per unit
Charcoal Smoker   Answer
per unit

(b) Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming manufacturing overhead is assigned using activity-based costing.
Total cost   Answer

Gas Cooker   Answer
per unit
Charcoal Smoker   Answer
per unit

Answer 1

1) Alpha 100,000 $ Beta Gamma 100,000 100,000 Gross Profit before support activity cost Less: Support activity cost Major refinishes ($60 per hour) Touch ups ($130 per visit) Communication ($40 per call) Gross Profit after support cost (4,800) (2,100) $ (2,520) (14,300) $(14,950) (8,200) $ (7,600) 75,400 $ 74,930 $ (19,500) $ $ (14,400) $ $ 61,300 $ 2a) Charcoal Total cost Gas Cooker Smoker Direct Material Direct Labor Manufacturing overhead* Total manufacturing cost Number of Units Per Unit manufacturing cost 20,000 $ $ 100,000 120,000 27,000 $47,000 199,283 $346,900 326,283 513,900 20,000 $ $ 147,617 $ 187,617 $ 1,000 $ 4,000 187.62 81.57

Note- Manufacturing overhead calculation Material acquisition and inspection $ 288,000 Material movement 16,900 $ Scheduling Total Manufacturing overhead -A 42,000 $ 346,900 Direct Labor cost-B 47,000 Manufacturing overhead rate (C-A/B) Gas Cooker manufacturing overhead(C*$20,000) Charcoal Smoker manufacturing overhead(C*$27,000) 7.3809 147,617 199,283 2b) Charcoal Gas Cooker Total cost Smoker Direct Material 20,000 $ 100,000 120,000 27,000 $ 47,000 Direct Labor 20,000 $ Manufacturing overhead* Material acquisition and inspection Material movement 240,000 288,000 3,380 16,900 6,000 $ 42,000 376,380 513,900 $ 48,000 $ 13,520 36,000 $ 137,520 $ $ $ Scheduling Total manufacturing cost Number of Units 1,000 $ 4,000 Per Unit manufacturing cost 137.52 94.10

Note- Manufacturing overhead calculation Total Manufacturing manufacturing Overhead overhead based on rate (E-D/A) Cost driver Activities overhead (A) Total cost driver cost drivers Charcoal Gas Gas Cooker Charcoal Cooker smoker smoker (C) (C E) (B) Total (D) (B*E) Direct material Material acquisition and inspection 288,000 cost 20,000 $ 100,000 $ 120,000 2.40 48,000 $240,000 Number of 16,900 batches move Number of 42,000 batches Material movement 20 $ 169 $ 13,520 $ 3,380 80 100 Scheduling 600 $36,000 $6,000 60 10 $ 70 $