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Exam 17: Activity-Based Costing and Analysis

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Question 81

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What is the reason for pooling costs?

A) To shift costs from low-volume to high-volume products.
B) It is a budgeting technique designed to accurately track fixed costs.
C) Determining a pool rate for all costs incurred by the same activity reduces the number of cost assignments required.
D) This procedure helps to determine which costs are directly related to production volume.
E) It simplifies departmental overhead costing procedures.

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Question 82

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Lemon Yellow Company produces children's clothing which require two processes, cutting and sewing, to complete. The company is concerned about one product, a hooded jacket, which hasn't been selling as well as it had in past years. Information related to the 20,000 jackets produced annually is shown below. Lemon Yellow's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on direct labor hours in the cutting department and machine hours in the sewing department. Assume this jacket currently sells for $10. How much profit does the company make per jacket?

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Cutting Dept overhead: $480,000/16,000 D...

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Question 83

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Orange Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product Q.

Yellow Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product RST.

Explain cost flows for the plantwide overhead rate method.

A company estimates that overhead costs for the next year will be $7,200,000 for indirect labor, $400,000 for factory utilities and $43,000 for depreciation on factory machinery. The company uses direct labor hours as its overhead allocation base. If 955,375 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Annual production and sales level of Product A1 is 8,480 units, and the annual production and sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of Product B2 under activity-based costing?

ABC allocates overhead costs to products based on input measures rather than output measures.

A company expects next year's overhead costs to be $400,000. During this time, the company also expects to produce 1,000,000 units, have 200,000 direct labor hours, and 800,000 machine hours. Make the following independent calculations. (a.) Compute a plantwide overhead rate using units of production as the allocation base. (b.) Compute a plantwide overhead rate using direct labor hours as the allocation base. (c.) Compute a plantwide overhead rate using machine hours as the allocation base.

Examples of volume-related measures include direct labor hours, direct labor cost dollars and machine hours.

Which of the following is true?

Heritage Industries produces miniature models of farm equipment. These collectibles are in great demand. It takes two operations, molding and finishing, to complete the miniatures. Next year's expected activities are shown below. -Heritage Industries uses departmental overhead rates and is planning on a $2 per machine hour overhead rate for the molding department. Compute the estimated manufacturing overhead cost for the molding department given the information above.

A company uses activity-based costing to determine the costs of its three products: A, B and C. The activity rates and activity levels for each of the company's three activity cost pools are shown below. $\begin{array} { | l | c | r | r | r | } \hline & & { \text { Budgeted Activity } } \\\hline \begin{array} { l } \text { Activity Cost } \\\text { Pool }\end{array} & \text { Activity Rate } & \text { Product A } & \text { Product B } & \text { Product C } \\\hline \text { Activity 1 } & \$ 19 & 700 & 1,150 & 650 \\\hline \text { Activity 2 } & \$ 27 & 2,400 & 2,100 & 1,500 \\\hline \text { Activity 3 } & \$ 62 & 600 & 1,350 & 1,050 \\\hline\end{array}$ Compute the company's budgeted cost for each of the three activities under activity-based costing.

ABC can be used to assign costs to any cost object that is of management interest.

Fischer Company identified the following activities, costs and activity drivers. $\begin{array} { | l | c | c | } \hline \text { Activity } & \text { Expected Costs } & \text { Expected Activity } \\\hline \text { Handling parts } & \$ 425,000 & \begin{array} { c } 25,000 \text { parts in } \\\text { stock }\end{array} \\\hline \text { Inspecting product } & \$ 390,000 & 940 \text { batches } \\\hline \text { Processing purchase orders } & \$ 220,000 & 440 \text { orders } \\\hline \text { Designing packaging } & \$ 230,000 & 5 \text { models } \\\hline\end{array}$ (a) Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals). (b) Compute separate rates for each of the four activities using the activity based costing.

Departments are the cost objects when the plantwide overhead rate method is used.

Rising Sun, Inc. produces granola which requires two processes, mixing and baking, to complete. The best selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown below. Rising Sun's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department. Determine the total product cost of this product line and each unit of cherry almond delight.

Management's pricing and cost decisions for a product are influenced by that product's cost assignments.

Which of the following companies would be best served by a plantwide overhead rate?

Rain Maker Company uses a plantwide overhead rate with direct-labor hours as the allocation base. Next year, 350,000 units are expected to be produced taking .80 direct-labor hours each. How much overhead will be assigned to each unit produced given the following estimated amounts? $\begin{array}{lcc}\text { Estimated: } & \text { Department } 1 & \text { Department 2 } \\\text { Manufacturing overhead costs } & \$ 2,730,000 & \$ 910,000 \\\text { Direct labor hours } & 168,000 \mathrm{DLH} & 112,000 \mathrm{DLH} \\\text { Machine hours } & 30,000 \mathrm{MH} & 7,000 \mathrm{MH}\end{array}$