W5 Assignment
Complete homework exercises in Word or Excel.
Chapter 6: Exercises 2, 3, 4, 5
Chapter 7: Exercises 2, 4, 8, 10 and case 29
EXERCISE 6–2 First Stage Allocation [LO6–2]
SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $ 720,000 |
| Vehicle operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . | 280,000 |
| Vehicle depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 120,000 |
| Customer representative salaries and expenses . . . . . . . . | 160,000 |
| Office expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 30,000 |
| Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . | 320,000 |
| Total cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $1,630,000 |
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The distribution of resource consumption across the activity cost pools is as follows:
Required:
Complete the first stage allocations of costs to activity cost pools as illustrated in Exhibit 6–6.
EXERCISE 6–3 Compute Activity Rates [LO6–3]
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:
| Activity Cost Pool | Activity Measure |
| Caring for lawn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Square feet of lawn |
| Caring for garden beds—low maintenance . . . . . . . . . . . . . . | Square feet of low maintenance beds |
| Caring for garden beds—high maintenance. . . . . . . . . . . . . . | Square feet of high maintenance beds |
| Travel to jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Miles |
| Customer billing and service . . . . . . . . . . . . . . . . . . . . . . . . . . | Number of customers |
The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows:
| Activity Cost Pool | Estimated Overhead Cost | Expected Activity |
| Caring for lawn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $72,000 | 150,000 square feet of lawn |
| Caring for garden beds—low maintenance. . . . . . . . . . . . . . | $26,400 | 20,000 square feet of low maintenance beds |
| Caring for garden beds—high maintenance. . . . . . . . . . . . . | $41,400 | 15,000 square feet of high maintenance beds |
| Travel to jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $3,250 | 12,500 miles |
| Customer billing and service . . . . . . . . . . . . . . . . . . . . . . . . . . | $8,750 | 25 customers |
Required:
Compute the activity rate for each of the activity cost pools.