Case 05-68 Student Name:

Class:

1. Explain how activity-based costing differs from traditional product-

costing methods.

2.
Whitestone Company
Activity Cost Pools and Pool Rates

Machining #REF!
Overhead increase rate #REF!
Total activity cost pool #REF!
JR-14 machine hours #REF!
RM-13 machine hours #REF!
Pool rate per machine hour #REF!

Assembly #REF!
Overhead increase rate #REF!
Total activity cost pool #REF!
JR-14 assembly hours #REF!
RM-13 assembly hours #REF!
Pool rate per assembly hour #REF!

Material handling #REF!

Overhead increase rate #REF!
Total activity cost pool #REF!
JR-14 parts X units #REF!
RM-13 parts X units #REF!
Pool rate per part #REF!

Inspection #REF!
Overhead increase rate #REF!
Total activity cost pool #REF!
JR-14 inspection hours #REF!
RM-13 inspections hours #REF!
Pool rate per inspection hour #REF!

3.
Whitestone Company
 Estimated Product Costs

Direct material:
No cost increase
Direct labor:
Direct labor
Percentage cost increase #REF!
Machining:
Machining activity in hours
$ per hour #REF!
Assembly:
Assembly activity in hours
$ per hour #REF!
Material handling:
Number of parts
sales in hours

$ per unit #REF!

Inspection:
Inspection hours
$ per hour #REF!
Total cost

4.
Whitestone Company
Budgeted Statement of Gross Margin for 20x2

JR-14
Sales revenue #REF!
Cost of goods manufactured and sold:
Beginning finished-goods inventory #REF!
Add: Direct material #REF!
Direct labor #REF!
Machining #REF!
Assembly #REF!
Material handling #REF!
Inspection #REF!
Cost of goods available for sale #REF!
Less: Ending finished-goods inventory* #REF!
Cost of goods sold #REF!
Operating margin #REF!

*Ending finished-goods inventory

JR-14
 Total product cost #REF!
Units produced #REF!
Ending inventory in units #REF!
Ending finished-goods inventory #REF!
RM-13
Total product cost #REF!
Units produced #REF!
Ending inventory in units #REF!
Ending finished-goods inventory #REF!
any
Costs

JR-14 RM-13
Estimated Estimated
20x1 20x2 20x1 20x2
Cost Product Cost Product
Data Cost Data Cost

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RM-13 Total
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Case 05-68 Student Name: Instructor
Class: McGraw-Hill/Irwin

1. Explain how activity-based costing differs from traditional product-

costing methods.
Activity-based costing (ABC) differs from traditional costing in that it focuses on activities that
consume resources as the fundamental cost drivers. ABC is a two-stage cost assignment
process focused on causality and the determination of cost drivers. It usually uses several
different activities to assign costs to products or services. Therefore, it is more detailed and
more accurate than traditional costing. It also helps managers distinguish between value added
and non-value added activities.

2.
Whitestone Company
Activity Cost Pools and Pool Rates

Machining $ 424,528
Overhead increase rate 1.06
Total activity cost pool $ 450,000
JR-14 machine hours 15,000
RM-13 machine hours 30,000
Pool rate per machine hour $ 10.00

Assembly $ 216,981
Overhead increase rate 1.06
Total activity cost pool $ 230,000
JR-14 assembly hours 6,000
RM-13 assembly hours 5,500
Pool rate per assembly hour $ 20.00

Material handling $ 56,604

Overhead increase rate 1.06
Total activity cost pool $ 60,000
JR-14 parts X units 25,000
RM-13 parts X units 50,000
Pool rate per part $ 0.80

Inspection $ 117,925
Overhead increase rate 1.06
Total activity cost pool $ 125,000
JR-14 inspection hours 5,000
RM-13 inspections hours 7,500
Pool rate per inspection hour $ 10.00

3.
Whitestone Company
 Estimated Product Costs

JR-14
Estimated
20x1 20x2
Cost Product
Data Cost
Direct material:
No cost increase $1,000,000
Direct labor:
Direct labor $ 185,185
Percentage cost increase 108% 200,000
Machining:
Machining activity in hours 15,000
$ per hour $ 10.00 150,000
Assembly:
Assembly activity in hours 6,000
$ per hour $ 20.00 120,000
Material handling:
Number of parts 5
sales in hours 5,000
25,000
$ per unit $ 0.80 20,000
Inspection:
Inspection hours 5,000
$ per hour $ 10.00 50,000
Total cost $1,540,000

4.
Whitestone Company
Budgeted Statement of Gross Margin for 20x2

JR-14 RM-13 Total

Sales revenue $1,810,500 $2,229,500 $4,040,000
Cost of goods manufactured and sold:
Beginning finished-goods inventory $ 240,000 $ 300,000 $ 540,000
Add: Direct material 1,000,000 1,750,000 2,750,000
Direct labor 200,000 100,000 300,000
Machining 150,000 300,000 450,000
Assembly 120,000 110,000 230,000
Material handling 20,000 40,000 60,000
Inspection 50,000 75,000 125,000
Cost of goods available for sale $1,780,000 $2,675,000 $4,455,000
Less: Ending finished-goods invent 215,600 332,500 548,100
Cost of goods sold $1,564,400 $2,342,500 $3,906,900
Operating margin $ 246,100 $ (113,000) $ 133,100

*Ending finished-goods inventory

JR-14
 Total product cost $1,540,000
Units produced 5,000
Ending inventory in units 700
Ending finished-goods inventory $ 215,600
RM-13
Total product cost $2,375,000
Units produced 5,000
Ending inventory in units 700
Ending finished-goods inventory $ 332,500
 RM-13
Estimated
20x1 20x2
Cost Product
Data Cost

$1,750,000

$ 92,593
100,000

30,000
300,000

5,500
110,000

10
5,000
50,000
40,000

7,500
75,000
$2,375,000