5-23. ABC, PROCESS COSTING. Walsh Company produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented here: Total manufacturing overhead costs are as follows: Total Machining costs $440,000 Setup costs 110,000 Inspection costs 120,000 Required 1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product. 2. Compute the manufacturing cost per unit for each product. 3. How might Walsh’s managers use the new cost information from its activity-based costing system to better manage its business? 5-35. FIRST-STAGE ALLOCATION, TIME-DRIVEN ACTIVITY-BASED COSTING, SERVICE SECTOR. LawnCare USA provides lawn care and landscaping services to commercial clients. LawnCare USA uses activity-based costing to bid on jobs and to evaluate their profitability. LawnCare USA reports the following budgeted annual costs: John Gilroy, controller of LawnCare USA, has established four activity-cost pools and the following budgeted activity for each cost pool: Activity-Cost Pool Activity Measure Total Activity for the Year Estimating jobs Number of job estimates 250 estimates Lawn care Number of direct labor-hours 10,000 direct labor-hours Landscape design Number of design hours 500 design hours Other Facility-sustaining costs that are not allocated to jobs Not applicable Gilroy estimates that LawnCare USA’s costs are distributed to the activity-cost pools as follows: Estimating Jobs Lawn Care Landscape Design Other Total Wages and salaries 5% 70% 15% 10% 100% Depreciation 10% 65% 10% 15% 100% Supplies 0% 100% 0% 0% 100% Other overhead 15% 50% 20% 15% 100% Sunset Office Park, a new development in a nearby community, has contacted LawnCare USA to provide an estimate on landscape design and annual lawn maintenance. The job is estimated to require a single landscape design requiring 40 design hours in total and 250 direct labor-hours annually. LawnCare USA has a policy of pricing estimates at 150% of cost. Required 1. Allocate LawnCare USA’s costs to the activity-cost pools and determine the activity rate for each pool. 2. Estimate total cost for the Sunset Office Park job. How much would LawnCare USA bid to perform the job? 3. LawnCare USA does 30 landscape designs for its customers each year. Estimate the total cost for the Sunset Office park job if LawnCare USA allocated costs of the Landscape Design activity based on the number of landscape designs rather than the number of landscape design-hours. How much would LawnCare USA bid to perform the job? Which cost driver do you prefer for the Landscape Design activity? Why? 4. Sunset Office Park asks LawnCare USA to give an estimate for providing its services for a 2-year period. What are the advantages and disadvantages for LawnCare USA to provide a 2-year estimate? 5-38. CHOOSING COST DRIVERS, ACTIVITY-BASED COSTING, ACTIVITY-BASED MANAGEMENT. Pastel Bags (PB) is a designer of high-quality backpacks and purses. Each design is made in small batches. Each spring, PB comes out with new designs for the backpack and the purse. The company uses these designs for a year and then moves on to the next trend. The bags are all made on the same fabrication equipment that is expected to operate at capacity. The equipment must be switched over to a new design and set up to prepare for the production of each new batch of products. When completed, each batch of products is immediately shipped to a wholesaler. Shipping costs vary with the number of shipments. Budgeted information for the year is as follows: Other budget information follows: backpacks purses total Number of bags 6,175 3,075 9,250 Hours of production 1,665 2,585 4,250 Number of batches 120 80 200 Number of designs 2 2 4 Required 1. Identify the cost hierarchy level for each cost category. 2. Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver. 3. Calculate the budgeted cost per unit of cost driver for each cost category. 4. Calculate the budgeted total costs and cost per unit for each product line. 5. Explain how you could use the information in requirement 4 to reduce costs.