Cost-plus, time and materials, ethics. C & S Mechanical sells and services plumbing, heating, and air-conditioning systems. C & S’s cost accounting system tracks two cost categories: direct labor and direct materials. C & S uses a time-and-materials pricing system, with direct labor marked up 90% and direct materials marked up 40% to recover indirect costs of support staff, support materials, and shared equipment and tools and to earn a profit.
During a hot summer day, the central air-conditioning in Brooke Lee’s home stops working. C & S technician John Anderson arrives at Lee’s home and inspects the air conditioner. He considers two options: replace the compressor or repair it. The cost information available to Anderson follows:
Labor | Materials | |
Repair option | 5 hrs. | $140 |
Replace option | 2 hrs. | $240 |
Labor rate | $30 per hr. |
- 1. If Anderson presents Lee with the replace or repair options, what price would he quote for each? Required
- 2. If the two options were equally effective for the 3 years that Lee intends to live in the home, which option would she choose?
- 3. If Anderson’s objective is to maximize profits, which option would he recommend to Lee? What would be the ethical course of action?
Want to see the full answer?
Check out a sample textbook solutionChapter 13 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Additional Business Textbook Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Financial Accounting, Student Value Edition (5th Edition)
Managerial Accounting (4th Edition)
Principles of Accounting Volume 2
Cost Accounting (15th Edition)
- Apply the Concepts, Cost Reporting Medco Inc., a manufacturing firm, has four activities: purchasing materials, molding, inspecting molds, and grinding imperfect molds. Purchasing materials and molding are necessary activities; inspection and grinding are unnecessary. SQ provides the value-added quantity for each activity; AQ is the actual activity output. The following data pertain to the four activities for the year ending (actual price per unit of the activity driver is assumed to be equal to the standard price): Activity Activity Driver Purchasing Purchasing hours Molding Inspecting Inspection hours Molding hours Grinding. Number of units Required: SQ AQ SP 28,000 34,000 $20 42,000 47,600 121 0 8,400 15 0 6,000 6 1. Prepare a cost report for the year 1 ended that shows value-added costs, non-value-added costs, and total costs for each activity by completing the following table: Value-and Non-Value-Added Cost Report for the Year 1 Ended Activity Value-Added Costs Non-Value-Added…arrow_forwardMission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below (CMA adapted) Multiple Choice Units produced Material moves per product line Direct labor-hours per product line Budgeted material handling costs: $594,000 Under a traditional costing system that allocates overhead on the basis of direct labor-hours, the materials handling costs allocated to one unit of Wall Mirrors would be O $1000 $1.350 $5,400 Wall Mirrors 210 5 1,050 $22.000 Specialty Nindows 25 46arrow_forwardCustomer Profitability Analysis Elite Services, Inc. provides residential painting services for three home building companies, Brookside, Edgewater, and Hillrose, 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 Elite for return touchups and refinishes after the homeowner occupies the home. Elite 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, the company generates about one-third of its total revenues and gross profits from each of the three builders. The Elite owner 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 Major refinishes Hours on jobs Number of visits Touchups Communication Number of calls Major Builder Refinishes Touchups…arrow_forward
- Chrzan, Incorporated, manufactures and sells two products: Product EO and Product NO. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Product E0 Product Ne Total direct labor-hours Activity Cost Pools Labor-related Production orders Order size The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Overhead Cost Multiple Choice $33.94 per MH $54.20 per MH Direct Expected Labor-Hours Production Per Unit 10.1 410 1,550 9.1 $51.98 per MH $21.40 per MH Activity Measures DLHS orders MHs Total Direct Labor- Hours $ 301,890 61,087 585,366 $948,343 The activity rate for the Order Size activity cost pool under activity-based costing is closest to: 4,141 14, 105 18,246 Product E 4,141 850 5,550 Expected Activity Product NO 14, 105 950 5,250 Total 18,246 1,800 10,800arrow_forward9-45. Activity-Based versus Traditional Costing-Ethical Issues Cathedral City Services (CCS) is a not-for-profit organization offering two services in a mid-sized city. The services are "Elder Meals" and "Jobs4U." Elder Meals is a meals-on-wheels type program that delivers meals on a scheduled basis to seniors who are house-bound. Jobs4U is a jobs-training program focused on youth or adults who are looking to change careers. Participants in the program are sponsored by a local government agency, a charitable organization, or a local business. CCS charges a $240 fee per hour for each service. The revenues and costs for the year are shown in the following income statement: Revenue. Expenses:.. General office costs. Required The following data have been collected concerning activities at CCS: CATHEDRAL CITY SERVICES Income Statement Travel and transportation. Equipment lease and maintenance Operating profit...... Activity General office costs.... Travel and transportation Equipment lease…arrow_forwardTarget prices, target costs, activity-based costing. Snappy Tiles is a small distributor of marble tiles. Snappy identies its three major activities and cost pools as ordering, receiving and storage, and shipping, and it reports the following details for 2016:arrow_forward
- implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system Driver and guard wages Vehicle operating expense Vehicle depreciation. Customer representative salaries and i expenses office expenses Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses office expenses Administrative expenses Administrative expenses Total cost The distribution of resource consumption across the activity cost pools is as follows. Pickup and Delivery 35% 5% $1,000,000 510,000 390,000 Driver and guard wages Vehicle…arrow_forwardActivity-Based Costing and Customer Profitability Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Activity Base Activity Rate Bid preparation Number of bid requests $400 per request Shipment Number of shipments $ 80 per shipment Support standard items Number of standard items ordered $ 25 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $120,000 $200,000 $160,000 Cost of goods sold 76,800 110,000 83,200 Gross profit…arrow_forwardActivity-Based Costing and Customer Profitability Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Activity Base Activity Rate Bid preparation Number of bid requests $400 per request Shipment Number of shipments $ 80 per shipment Support standard items Number of standard items ordered $ 25 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $120,000 $200,000 $160,000 Cost of goods sold 76,800 110,000 83,200 Gross profit…arrow_forward
- Objective: Consider that you are an analyst at Regeneron Pharmaceuticals. You need to decide how to allocate administrative overhead costs to Regeneron's main commercial products (Eylea, Dupixent, Kevzara and Praluent). Determine how to appropriately allocate the costs in the table below to each of the commercial products using an allocation methodology of your choice. Department2019 Annual Operating ExpenseTime spent supporting Commercial productsCommercial$200MM100%IT$100MM25%Facilities$150MM0%Finance$25MM20%Human Resources$75MM10% Use the supporting document Net Product Sales of REGN Products to facilitate your analysis. Provide a written summary of how you allocated the overhead costs to each product in an outline of no more than one page. As a starting point, it's recommended that you revisit the material we covered in Chapter 12. Guidance on calculations:Start off with Net Product Sales of REGN Products. Your objective pertains to 2019 expenses, so you should be reviewing 2019…arrow_forwardDoede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts-equipment depreciation and supervisory expense-to three activity cost pools-Machining. Order Filing, and Other-based on resource consumption, Data to perform these allocations appear below: Overhead costs: Equipment depreciation Supervisory expense $ 30,000 $ 14,800 Distribution of Resource Consumption Across Activity Cost Pools: Equipment depreciation Supervisory expense Activity: Product W1 Product Me Total Machining Order Filling 0.50 0.50 In the second stage, Machining costs are assigned to products using machine-hours (Ms) and Order Filing costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Product W1 Product Me Total Activity Cost Pools MHS (Machining) 5,530 17,000 22,530 0.40 0.30 Show Transcribed Text 5,530 17,000 22,530 Orders (Order Filling)…arrow_forwardInfo in images Required: 1. Compute the product margins for the B300 and T500 under the company’s traditional costing system. 2. Compute the product margins for B300 and T500 under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. 1. Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) B300 T500 Total Product margin $0 2. Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product margin $0 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College