Exam 4: Activity-Based Cost Management

Magenta Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the proportion of activity driver used for each of Magenta's two products, and the activity cost assigned to each product. Fill in the blanks below: Activity Cost Activity Driver Proportion used by Activity Cost: Prod. 1 Activity Cost: Prod. 2 Prod. 1 Prod. 2 Design $60,000 Design time 40% 60% a. b. Preparation $18,000 Labor hours 50% c. $9,000 d. Machining $90,000 Machine hours e. f. $27,000 g. Finishing h. Batches 40% i. $10,000 j. Inspection k. Units l. m. $3,000 $6,000 Packaging n. Orders o. 20% $13,500 p. Shipping $17,000 Packages 70% q. r. $5,100

Pima, Inc. manufactures calculators that sell for $40 each. Each calculator uses $15 in direct materials and $5 in direct labor per unit. Pima has two activities: Machining, which is applied at the rate of $4 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Pima made 400 calculators, using 1,000 machine hours in 40 batches. What is the gross profit for one calculator?

Which of the following is the best example of a facility-level activity?

Life cycle cost management takes into consideration the fact that costs and revenues:

Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows: What proportion of Inspection activity is used by Product 5?

The approach to cost management that calls for setting cost reduction goals across numerous stages such as product introduction, growth, maturity, and decline is:

Sherman, Inc. manufactures chainsaws that sell for $58. Each chainsaw uses $10 in direct materials and $3 in direct labor per unit. Sherman has two activities: Machining, which is applied at the rate of $2 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Sherman made 200 chainsaws, using 1,000 machine hours in 40 batches. What is the gross profit for one chainsaw?

A volume-based allocation measure is directly related to the number of units produced or the number of customers served

The cost of scrap and rework is an example of what type of quality cost?

Parsons and Sons Woodworks manufactures baseball bats and wooden tops. Currently, Parsons and Sons makes 5,000 baseball bats each month. Each bat uses $1.00 in direct materials and $0.50 in direct labor. Parsons and Sons uses two activities in manufacturing the baseball bats: Cutting and Finishing. The cost associated with Cutting is $7,500 a month, allocated on the basis of direct labor hours. The cost associated with Finishing is $12,000 a month, allocated on the basis of batches. Baseball bats use 1/3 of the direct labor hours, and 40% of total batches. What is the total manufacturing cost for one baseball bat?

A value-added activity is one that enhances the perceived value of the product or service to the customer

Cottonwood, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard uses 30% of total machine hours and 70% of total batches. What is the total activity cost assigned to Luxury?

Activity-based management is a method of assigning indirect costs to products or services based on the activities they require

Which of the following is not a type of quality cost?

Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Inspection activity is used by Luxury?

Activity-based costing systems include non-volume-based cost drivers

Which of the following should a manager using activity-based management attempt to reduce or eliminate?

To assign activity costs using the activity proportion method, multiply the activity rate by the activity requirements of each individual product

Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Inspection cost assigned to Product Z?

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: What is the amount of Inspection cost assigned to Product X?