2.99 See Answer

Question: Aerotech International Inc. of Montreal has

Aerotech International Inc. of Montreal has supported a research and development (R&D) department that for many years has been the sole contributor to the company's new products. The R&D activity is an overhead cost centre that provides services only to in-house manufacturing departments (four different product lines), all of which produce aerospace-related products. The department has never sold its services outside, but because of its long history of success, larger manufacturers of aerospace products have approached Aerotech to hire its R&D department for special projects. Because the costs of operating the R&D department have been spiraling uncontrollably, Aerotech's management is considering taking on these outside contracts to absorb the increasing costs. However, managers don't have any cost basis for charging R&D services to outsiders, and they need to gain control of their R&D costs. Management decides to implement an activity based costing system in order to determine the charges for both outsiders and the in-house users of the department's services. R&D activities fall into four pools with the following annual costs:
Aerotech International Inc. of Montreal has supported a research and development (R&D) department that for many years has been the sole contributor to the company's new products. The R&D activity is an overhead cost centre that provides services only to in-house manufacturing departments (four different product lines), all of which produce aerospace-related products.
The department has never sold its services outside, but because of its long history of success, larger manufacturers of aerospace products have approached Aerotech to hire its R&D department for special projects.
Because the costs of operating the R&D department have been spiraling uncontrollably, Aerotech's management is considering taking on these outside contracts to absorb the increasing costs. However, managers don't have any cost basis for charging R&D services to outsiders, and they need to gain control of their R&D costs. Management decides to implement an activity based costing system in order to determine the charges for both outsiders and the in-house users of the department's services.
R&D activities fall into four pools with the following annual costs:


Analysis determines that the appropriate cost drivers and their usage for the four activities are as follows:


Instructions
a. Calculate the activity-based overhead rate for each activity cost pool.
b. How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, was provided with 280 designs relating to 10 products, and requested 92 engineering tests?
c. How much cost would serve as the basis for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to three products, and result in 70 engineering tests?
d. What is the benefit to Aerotech of applying activity-based costing to its R&D activity to charge for both in-house and outside services?

Analysis determines that the appropriate cost drivers and their usage for the four activities are as follows:
Aerotech International Inc. of Montreal has supported a research and development (R&D) department that for many years has been the sole contributor to the company's new products. The R&D activity is an overhead cost centre that provides services only to in-house manufacturing departments (four different product lines), all of which produce aerospace-related products.
The department has never sold its services outside, but because of its long history of success, larger manufacturers of aerospace products have approached Aerotech to hire its R&D department for special projects.
Because the costs of operating the R&D department have been spiraling uncontrollably, Aerotech's management is considering taking on these outside contracts to absorb the increasing costs. However, managers don't have any cost basis for charging R&D services to outsiders, and they need to gain control of their R&D costs. Management decides to implement an activity based costing system in order to determine the charges for both outsiders and the in-house users of the department's services.
R&D activities fall into four pools with the following annual costs:


Analysis determines that the appropriate cost drivers and their usage for the four activities are as follows:


Instructions
a. Calculate the activity-based overhead rate for each activity cost pool.
b. How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, was provided with 280 designs relating to 10 products, and requested 92 engineering tests?
c. How much cost would serve as the basis for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to three products, and result in 70 engineering tests?
d. What is the benefit to Aerotech of applying activity-based costing to its R&D activity to charge for both in-house and outside services?

Instructions a. Calculate the activity-based overhead rate for each activity cost pool. b. How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, was provided with 280 designs relating to 10 products, and requested 92 engineering tests? c. How much cost would serve as the basis for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to three products, and result in 70 engineering tests? d. What is the benefit to Aerotech of applying activity-based costing to its R&D activity to charge for both in-house and outside services?





Transcribed Image Text:

Market analysis $1,050,000 Product development $3,600,000 Product design 2,350,000 Prototype testing 1,400,000 Activities Cost Drivers Total Estimated Drivers Market analysis Product design Hours of analysis 15,000 hours Number of designs 2,500 designs 90 products Product development Number of products Prototype testing Number of tests 500 tests



> How is foreign exchange risk sensitivity factored into the capital budgeting analysis of a foreign project?

> How close does the Big Mac Index conform to the theoretical requirements for a one price measurement of purchasing power parity?

> Define the two forms of purchasing power parity, absolute and relative.

> If transaction costs for undertaking covered or uncovered interest arbitrage were large, how do you think it would influence arbitrage activity?

> If someone you were working with argued that the current forward rate quoted on a currency pair is the market's expectation of where the future spot rate will end up, what would you say?

> Define uncovered interest arbitrage and explain what expectations an investor or speculator would need to undertake an uncovered interest arbitrage investment?

> Define the terms covered interest arbitrage and uncovered interest arbitrage. What is the difference between these two transactions?

> Define interest rate parity. What is the relationship between interest rate parity and forward rates?

> Define the international Fisher effect. To what extent do empirical tests confirm that the international Fisher effect exists in practice?

> Why is the approximate form of the Fisher effect frequently used instead of the precise formulation? Does this introduce significant analysis error?

> Define the Fisher effect. To what extent do empirical test confirm that the Fisher effect exists in practice?

> What are the differences in the cash flows used in a project point of view analysis and a parent point of view analysis?

> Define the law of one price carefully, noting its fundamental assumptions. Why are these assumptions so difficult to find in the real world in order to apply the theory?

> Define and give an example of each of the following quotes: a. Bid rate quote. b. Ask rate quote.

> With reference to foreign exchange turnover in 2013: a. Rank by volume the relative size of spot, forwards, and swaps. b. List the five most important geographic locations for foreign exchange turnover in descending order. c. List the three most importan

> What is a nondeliverable forward and why does it exist?

> Define and differentiate the different type of swap transactions in the foreign exchange markets.

> Define each of the following types of foreign exchange transactions: a. Spot b. Outright forward c. Forward-forward swaps

> For each of the foreign exchange market participants, identify their motive for buying or selling foreign exchange.

> How is the global foreign exchange market structured? Is digital telecommunications replacing people?

> What is the J-Curve adjustment path?

> What are the three major functions of the foreign exchange market?

> A foreign subsidiary does not have an independent cost of capital. However, in order to estimate the discount rate for a comparable host-country firm, the analyst should try to calculate a hypothetical cost of capital. How is this done?

> Capital budgeting for a foreign project uses the same theoretical framework as domestic capital budgeting. What are the basic steps in domestic capital budgeting?

> Culver Cheese Company has developed a new cheese slicer called the Slim Slicer. The company plans to sell this slicer through its monthly catalogue. Given market research, Culver management believes the company can charge $20 for the Slim Slicer. Prototy

> The fastener division of Northern Textile Industries manufactures zippers and then sells them to customers for $8 per unit. Its variable cost is $3 per unit, and its fixed cost per unit is $1.50. Management would like the fastener division to transfer 12

> Presented below are data for ProTech Appliance Repair Shop: Use time-and-material pricing to determine bill. Repair technicians' wages ……. $120,000 Fringe benefits ………………………. 40,000 Overhead ………………………………. 50,000 The desired profit margin per hour is $1

> Floor Show Corporation produces area rugs. The following perunit cost information is available: direct materials $18, direct labour $9, variable manufacturing overhead $5, fixed manufacturing overhead $6, variable selling and administrative expenses $3,

> Clear Water is considering introducing a water filtration device for its one-litre water bottles. Market research indicates that 1 million units can be sold if the price is no more than $3. If Clear Water decides to produce the filters, it will need to i

> Using the data in BE9.4, calculate the markup percentage using variable-cost pricing. Calculate markup percentage using variable-cost approach. Data from BE9.4: Schuman Corporation produces microwave units. The following per-unit cost information is ava

> Using the data in BE9.4, calculate the markup percentage using the absorption-cost approach. Calculate markup percentage using absorption-cost approach. Data from BE9.4: Schuman Corporation produces microwave units. The following per-unit cost informati

> Podrive Company manufactures computer hard drives. The market for hard drives is very competitive. The current market price for a computer hard drive is $45. Podrive would like a profit of $15 per drive. How can Podrive Company accomplish this objective?

> Quick Pix is a large digital processing centre that serves 130 outlets in grocery stores, service stations, camera and photo shops, and drugstores in 16 nearby towns. Quick Pix operates 24 hours a day, six days a week. Classify each of the following acti

> Wu and Martin is an architectural firm that is contemplating the installation of activity-based costing. The following activities are performed daily by staff architects. Classify these activities as valueadded or non–value-added: (a) designing and draft

> For Biswell Company, variable costs are 70% of sales and fixed costs are $195,000. Calculate the required sales in dollars that are needed to achieve management's target operating income of $75,000. (Use the contribution margin approach.) Calculate sales

> Milner Manufacturing uses a job-order costing system. On May 1, the company has a balance in Work in Process Inventory of $3,500 and two jobs in process: Job No. 429 $2,000, and Job No. 430 $1,500. During May, a summary of source documents reveals the fo

> Hirani Novelty Company identified the following activities in its production and support operations. Classify each of these activities as either value-added or non–value-added. Classify activities as value-added or non–value-added. a. Purchasing b. Recei

> Computer Parts Inc., a manufacturer of computer chips, employs activity-based costing. The following budgeted data for each of the activity cost pools are provided for the year 2020. Calculate activity-based overhead rates. // For 2020, the company had

> Look on the Internet for time management resources that are designed specifically for students. If you cannot find one, look at the University of Guelph library web page. Instructions Use the resources to answer the following questions. a. Why is it imp

> Marcus Lim, the cost accountant for Hi-Power Mower Company, recently installed activity-based costing at the company's western lawn tractor (riding mower) plant, where three models are manufactured: the 8-horsepower Bladerunner, the 12-horsepower Quickcu

> Java Inc. is a distributor and processor of a variety of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. Java Inc. currently offers 10 different coffees in 500-gram bags to

> Canadian Motorcycle Company (CMC) produces two models of motorcycles: Faster and Slower. The company has five categories of overhead costs: purchasing, receiving, machine operating, handling, and shipping. Each category represents the following percentag

> The CEO of Walker Ltd. is currently investigating ways to modernize the company's manufacturing process. At the first staff meeting, the chief engineer presented a proposal for automating the assembly department, and recommended that the company purchase

> Coats Galore Inc. uses activity-based costing as the basis for information to set prices for its six lines of seasonal coats. Calculate the activity-based overhead rates using the following budgeted data for each of the activity cost pools. Calculate act

> The Peace Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,900 per month. The other barbers are paid $1,900 per month. In addition, each barber is paid a commission of $2 per haircut. Other monthly cost

> Wet Ride Inc. manufactures and distributes three types of water skis: beginner, intermediate, and advanced. Production is highly automated for the beginner model, whereas the intermediate and advanced models require increasing degrees of labour, dependin

> For Dene Company, the predetermined overhead rate is 150% of direct labour cost. During the month, Dene incurred $100,000 of factory labour costs, of which $85,000 is direct labour and $15,000 is indirect labour. Actual overhead incurred was $120,000. Ap

> B & B Electronics Company manufactures two large-screen television models: the Deluxe, which has been produced for many years and sells for $900, and the Flat, a new model, which sells for $1,260. Based on the following income statement for 2020, the

> For the past five years, Collins Ltd. has been running a consulting practice in which it provides two major services: general management consulting and executive training seminars. The CFO is not quite sure that he is charging accurate fees for the diffe

> ProDriver Inc. (PDI) recently started operations to obtain a share of the growing market for golf equipment. PDI manufactures two models of specialty drivers: the Thunderbolt model and the Earthquake model. Two professional engineers and a professional g

> McDonald and O'Toole is a law firm that serves both individuals and corporations. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the ass

> Scalar Manufacturing produces automobile parts in batches in one continuous manufacturing process. The company uses direct labour hours to assign overhead to each part. Magda Malakova, the financial controller, is wondering what the reasons are for the l

> National Steel Company has budgeted manufacturing overhead costs of $2.5 million. It has allocated overhead on a plant-wide basis to its two products (Standard Steel and Deluxe Steel) using machine hours, which are estimated to be 100,000 for the current

> Quality Paints Inc. uses a traditional cost accounting system to apply quality-control costs uniformly to all its products at a rate of 30% of the direct labour cost. The monthly direct labour cost for the varnish paint line is $100,000. The company is c

> Ronald Enterprises Ltd. has estimated the following costs for producing and selling 15,000 units of its product: Calculate the break-even point in units and target income after tax. Direct materials ………………………………………….………. $75,000 Direct labour …………………………

> Prime Furniture designs and builds premium factory-made wood armoires for homes. All are made of white oak. Its budgeted manufacturing overhead costs for the year 2020 are as follows. Assign overhead costs using traditional costing and ABC; compare resul

> Ayala Company manufactures four products in a single production facility. The company uses activity-based costing. The company has identified the following activities through its activity analysis: (a) inventory control, (b) machine set-ups, (c) employee

> During the current month, Seeza Corporation completed Job 310 and Job 312. Job 310 cost $60,000 and Job 312 cost $40,000. Job 312 was sold on account for $90,000. Journalize the entries for the completion of the two jobs and the sale of Job 312. Prepare

> Mars Company has four categories of overhead: purchasing and receiving materials, machine operating costs, material handling, and shipping. The costs estimated for these categories for the coming year are as follows: Assign overhead costs using tradition

> Tough Thermos Inc. manufactures two plastic thermos containers at its plastic moulding facility in Lethbridge, Alberta. Its large container, called the Ice House, has a volume of five litres, side carrying handles, a snap-down lid, and a side drain and p

> VidPlayers Inc. manufactures two types of DVD players: a deluxe model and a superior model. The deluxe model is a multi-format progressive-scan DVD player with networking capability, Dolby digital, and DTS decoder. The superior model's primary feature is

> GoGo Ltd. manufactures three models of children's swing sets: Standard, Deluxe, and Super. The Standard set is made of steel, the Deluxe set is made of aluminum, and the Super set is made of a titanium aluminum alloy. Because of the different materials u

> Hy and van Lamsweerde is a public accounting firm that offers two primary services: auditing and tax return preparation. A controversy has developed between the partners of the two service lines regarding who is contributing the greater amount to the bot

> International Steel Company has budgeted manufacturing overhead costs of $1,930,000. It has allocated overhead on a plant-wide basis to its two products (soft steel and hard steel) using machine hours, which are estimated to be 90,000 for the current yea

> Stellar Stairs Co. designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, hand rails) permit installation of stairways of varying lengths and widths. All are made of white oak

> Imagen Arquitectónica of Tijuana, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftspersons. Alfredo Ayala, Imagen's owner, is considering replacing the draftspersons with a c

> Kiddy Company manufactures bicycles. It recently received a request to manufacture 10 units of a mountain bike at a price lower than it normally accepts. Bruce, the sales manager, indicated that, if the order were accepted at that price, the company coul

> Jacobson Electronics manufactures two HD television models: the Royale, which sells for $1,400, and a new model, the Majestic, which sells for $1,100. The production costs calculated per unit under traditional costing for each model in 2020 were as follo

> Allen Inc. is a manufacturer of quality shoes. The company has always used a plant-wide allocation rate for allocating manufacturing overhead to its products. The plant manager believes it is time to change to a better method of cost allocation. The acco

> Fishel Company is working on two job orders. The job cost sheets show the following: Assign costs to work in process. Prepare the three summary entries to record the assignment of costs to Work in Process from the data on the job cost sheets. Job 2

> Altex Co. identifies the following activities that pertain to manufacturing overhead: material handling, machine set-ups, factory machine maintenance, factory supervision, and quality control. For each activity, identify an appropriate cost driver. Ident

> FireOut Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-litre cylinder that holds 2.5 kilograms

> Otto Dieffenbach & Sons Inc. is a small manufacturing company that uses activity-based costing. Dieffenbach & Sons accumulates overhead in the following activity cost pools. Classify activities by level. 1. Hiring personnel 2. Managing parts inventory 3.

> Having itemized its costs for the first quarter of next year's budget, Galavic Corporation wants to install an activity-based costing system. First, it identified the activity cost pools in which to accumulate factory overhead; second, it identified the

> Duplessis and Najarali is a law firm that is initiating an activity-based costing system. Réjean Duplessis, the senior partner and a strong supporter of ABC, has prepared the following list of activities performed by a typical lawyer in a day at the firm

> Anna Bellatorre Inc. is interested in using its activity-based costing system to improve its operating efficiency and its profit margins by applying activity-based management techniques. As part of this undertaking, you have been asked to classify its pl

> The CVP income statements shown below are available for Billings Company and Bozeman Company. Calculate the degree of operating leverage and evaluate the impact of alternative cost structures on operating income. Instructions a. Calculate the degree of

> In an effort to expand the usefulness of its activity-based costing system, Peter Catalano's Verde Vineyards decides to adopt activity-based management techniques (ABM). One of these ABM techniques is classifying its activities as either value-added or n

> Lim Clothing Company manufactures its own designed and labelled sports attire and sells its products through catalogue sales and retail outlets. While Lim has used activity-based costing in its manufacturing activities for years, it has always used tradi

> H&Y Company uses four activity pools to apply overhead to its products. Each activity has a cost driver used to allocate the overhead costs to the product. The activities and related overhead costs are as follows: Calculate overhead rates and assign

> Fontillas Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, it produced 50 range instruments and 300 pressure gauges and incurred estimated overhead costs of $94,500. An analysis of estimated o

> During the current month, Dalmar Company incurs the following manufacturing costs: Prepare journal entries for manufacturing costs. 1. Purchased raw materials of $16,000 on account. 2. Incurred factory labour of $40,000. Of that amount, $31,000 relates t

> Peter Catalano's Verde Vineyards, in the Niagara Peninsula, produces three varieties of wine: merlot, viognier, and pinot noir. His winemaster, Kyle Pohle, has identified the following activities as cost pools for accumulating overhead and assigning it t

> Sassafras Inc. has conducted an analysis of overhead costs related to one of its product lines using a traditional costing system (volume based) and an activity-based costing system. Following are its results: Identify differences between costing systems

> Galavic Corporation manufactures snowmobiles in its Blue Mountain plant. It has budgeted the following costs for the first quarter's operations. Identify activity cost pools and cost drivers. Instructions Classify the above costs of Galavic Corporation

> Shady Lady sells window coverings to both commercial and residential customers. The following information relates to its budgeted operations for the current year: Assign overhead using traditional costing and ABC. The controller, Susan Chan, is concern

> Alonzo Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, YuYu Ortega, has developed the following information: Assign overhead using traditional costing and AB

> Mega Electronix sells television sets and Blu-ray DVD players. The business is divided into two divisions along product lines. A variable cost income statement for a recent quarter's activity is presented below: Determine the break-even point in dollars

> International Fabrics has budgeted overhead costs of $955,000. It has allocated overhead on a plant-wide basis to its two products (wool and cotton) using direct labour hours, which are estimated to be 477,500 for the current year. The company has decide

> Khan Inc. has conducted the following analysis related to its product lines using a traditional costing system (volume-based) and an activity-based costing system. Both the traditional and activity-based costing systems include direct materials and direc

> Elle Inc. makes two types of handbags: standard and custom. The controller has decided to use a plant-wide overhead rate based on direct labour costs. The president has heard of activity-based costing and wants to see how the results would differ if this

> Ready Ride is a trucking company. It provides local, short-haul, and long-haul services. It has developed the following three cost pools. Apply ABC to a service company. Instructions a. Calculate the activity-based overhead rates for each pool. b. Dete

> Good Harvest Company manufactures four lines of garden tools. As a result of an activity analysis, the accounting department has identified eight activity cost pools. Each of the product lines is produced in large batches, with the whole plant devoted to

> At December 31, balances in Manufacturing Overhead are Diaz Company—debit $1,200, Garcia Company—credit $900. Prepare the adjusting entry for each company at December 31, assuming the adjustment is made to cost of goods sold. Prepare adjusting entries fo

> Weber Industries has three activity cost pools and two products. It estimates production of 3,000 units of Product BC113 and 1,400 of Product AD908. Having identified its activity cost pools and the cost drivers for each pool, Weber accumulated the follo

> Tool Time Inc. operates 20 injection moulding machines in the production of tool boxes of four different sizes, named the Apprentice, the Handyman, the Journeyman, and the Professional. Classify each of the following costs as unit-level, batch-level, pro

> Infotrac Inc. sells a high-speed retrieval system for information. It provides the following information for the year. Identify differences between costing systems. Overhead is applied on the basis of machine hours. a. Calculate the predetermined overh

> Presented below are the CVP income statements for Finch Company and Sparrow Company. They are in the same industry, with the same operating incomes, but different cost structures. Calculate break-even point with change in operating leverage. Calculate

> Veejay Golf Accessories sells golf shoes, gloves, and a laser guided range-finder that measures distance. Shown below are unit cost and sales data: Calculate the break-even point in units for a company with multiple products. Fixed costs are $660,000.

> Sanjay's Shingle Corporation is considering the purchase of a new automated shingle-cutting machine. The new machine will reduce variable labour costs but will increase depreciation expense. The contribution margin is expected to increase from $160,000 t

2.99

See Answer