Fill in the blanks:

a. Under activitybased costing, all fixed expenses related to

each indirect resource are identified and combined into a

separate _______________ _______________.

b. A _______________ _______________ _______________ is

calculated by dividing each cost pool total by the quantity of

time available from the applicable resource.

c. _______________ is calculated by dividing revenue by related

expenses.

2. Assume a capacity cost rate of $50 per hour in a services firm and

the chargeout rate of $80 per hour. Calculate the markup.

3. Assume a capacity cost rate of $100 per hour for law firm

Employee A and $80 per hour for Employee B, a markup of 150%,

and variable costs of $50 per client file. If the law firm uses time

driven activitybased costing, and Employee A works five hours

and Employee B works eight hours on a file, calculate the total bill

for services rendered.

P 41

Ed's Enterprises is planning to develop a timedriven activitybased

costing system for its shipping and receiving department. The

departmental budget is $600,000, consisting of salaries and benefits

for 10 employees. Currently, these costs are allocated to activities

within the department as follows:

Activity

Time

percentage

Receiving materials 10%

Preparing purchase orders 75%

Moving materials in bulk 15%

Total 100%

There are 20,000 hours of practical capacity available. Based on

interviews with shipping and receiving personnel, the following

information has been gathered:

Activity

Estimated number of

activities

Hours for each

activity

Receiving materials 400 supplier deliveries 3.50

Preparing purchase orders 8,000 purchase orders .75

Moving materials in bulk 450 material moves 3.00

Required:

a. Show how the shipping and receiving budget is currently allocated

to each of the three activities within the department.

b. Compute the estimated cost to receive each material shipment,

process each purchase order, and move each batch of materials

using the current system.

c. Compute the estimated cost to receive each material shipment,

process each purchase order, and move each batch of materials

using TDABC.

d. Determine the resource costs assigned in total to each of the three

types of activities using TDABC.

e. Compare the results in parts (a) and (d), and comment on the

observed differences.

P 42

The following is the budgeted income statement for Quill and Pen LLC

for the year ended December 31, 2018:

Quill and Pen LLC

Budgeted Income Statement

For the Year Ended December 31, 2018

Fee revenue $700,000

Variable expenses

Client disbursements (100,000)

Contribution margin $600,000

Fixed expenses

Salaries $340,000

Rent 50,000

Office supplies 30,000

Depreciation 20,000 $(340,000)

Income before income taxes 160,000

Income tax expense (20%) (32,000)

Net income $128,000

The firm's staff consists of two lawyerowners and one legal assistant.

As the senior partner, Quill will be paid $180,000 per year including

benefits. Pen will be paid $120,000. The assistant will be paid $40,000

per year. The firm specializes in litigation (handled by Quill) and estate

work (handled by Pen). Total annual budgeted hours for each

employee is 1,500 (200 days/yr. x 7.5 hrs./day). The firm expects to

complete 10 litigation files and 200 estate files during fiscal 2018. Fees

are based on time spent on each file by each lawyer. Quill's hourly

chargeout rate is $300. Pen's hourly chargeout rate is $200 per hour.

Client disbursements for each litigation file should average $6,000.

Client disbursements for each estate file should average $200. Total

average estimated hours to complete a litigation file is 150 hours: 140

hours worked on each file by Quill and 10 hours worked on each file

by the legal assistant. Total average time to complete an estate file is

estimated at 13 hours: 7 hours worked on each file by Pen and 6

hours worked on each file by the legal assistant. The remaining hours

will be used for client relations, answering phones and email, breaks,

and other necessary (but unbillable) activities.

Office space, depreciation, and relevant expenses can be allocated as

follows: