Exam 4: Activity-Based Costing and Cost Management

Pecan Inc.produces water valves.Overhead costs have been identified as follows: Pecan makes 3 models of valves with the following details: Required: a.Calculate the activity rate for each activity. b.Determine the amount of indirect costs assigned to each of the products.

Harwell,Inc.uses a traditional volume-based costing system in which direct labor hours are the allocation base.Harwell produces two different products: Product A,which uses 40,000 direct labor hours,and Product B,which uses 60,000 direct labor hours.Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $400,000 across three activities: Setup,Production,and Finishing.Under the traditional volume-based costing system,the predetermined overhead rate is $4.00/direct labor hour.Under the ABC system,the cost of each activity and proportion of the activity drivers used by each product are as follows: Required: a.Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system. b.Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system. c.Calculate the indirect manufacturing costs assigned to Product A under the ABC system. d.Calculate the indirect manufacturing costs assigned to Product B under the ABC system. e.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

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 A?

Carter,Inc.produces two different products,Product A and Product B.Carter uses a traditional volume-based costing system in which direct labor hours are the allocation base.Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design,Production,and Inspection.Under the traditional volume-based costing system,the predetermined overhead rate is $2.50/direct labor hour.Under the ABC system,the rate for each activity and usage of the activity drivers are as follows: Required: a.Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system. b.Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system. c.Calculate the indirect manufacturing costs assigned to Product A under the ABC system. d.Calculate the indirect manufacturing costs assigned to Product B under the ABC system. e.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Which of the following is most likely to be true of the manufacturing overhead costs assigned to a product with relatively low volume and high complexity?

An activity that is performed to benefit the organization as a whole is a(n):

Parker Woodworks manufactures baseball bats and wooden tops.Currently,Parker makes 5,000 baseball bats each month.Each bat uses $1.00 in direct materials and $0.50 in direct labor.Parker 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.The activity drivers are used as follows: What is the total manufacturing cost for one baseball bat?

A volume-based cost system is likely to assign more manufacturing overhead costs to products:

Dogs for Diabetes (DFD)is a not-for-profit organization focused on training dogs and handlers to assist young children with diabetes.The dogs are trained to detect low and high blood sugar levels,and ring an alarm to notify parents or other caregivers of the potentially dangerous condition.DFD provides both education for the dogs,and training for handlers (kids or parent).Currently there are 60 dogs being trained and there are 14,000 hours per year of training scheduled for these dogs.DFD also provides training for the children and families who will host a dog,and there are 2,000 hours of such training scheduled for the 20 families who will host a dog this year.DFD has just hired a new controller who wants to utilize ABC.The controller has identified 2 key activities performed by the organization as it trains dogs and handlers,and the cost of each of these activities: • DFD has 1 building with a total of 30,000 square feet of space.Due to the large space requirements for kennels,dog runs,and other facilities for the dogs,the dog education service utilizes 20,000 square feet.The facility is rented at an annual cost of $60,000. • Salaries for training personnel,$240,000 annually. Required: a.Select a cost driver and compute an activity rate for each of the activities identified by the controller. b.Compute activity cost driver values and activity proportions for each of the two types of trainings (dogs & handlers). c.Determine the amount of costs assigned to each type of training and the cost per student to UDH to provide these trainings.

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?

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 Machining activity is used by Luxury?

Atlanta Systems produces two different products,Product A,which sells for $250 per unit,and Product B,which sells for $400 per unit,using three different activities: Design,which uses Engineering Hours as an activity driver;Machining,which uses machine hours as an activity driver;and Inspection,which uses number of batches as an activity driver.The cost of each activity and usage of the activity drivers are as follows: Atlanta manufactures 10,000 units of Product A and 7,500 units of Product B per month.Each unit of Product A uses $100 of direct materials and $45 of direct labor,while each unit of Product B uses $140 of direct materials and $75 of direct labor. Required: a.Calculate the Design activity proportions for Products A and B. b.Calculate the Machining activity proportions for Products A and B. c.Calculate the Inspection activity proportions for Products A and B. d.Determine the indirect costs assigned to Product A. e.Determine the indirect costs assigned to Product B. f.Determine the manufacturing cost per unit for Product A. g.Determine the manufacturing cost per unit for Product B. h.Determine the gross profit per unit for Product A. i.Determine the gross profit per unit for Product B.

The cost measurement system can impact how indirect costs are spread among product lines,which may affect decisions managers make.

Firms that use JIT often rely on:

Largo,Inc. ,which uses a volume-based cost system,produces cat condos,and has a gross profit margin of 50%.Direct materials cost $15 per unit,and direct labor costs $10 per unit.Manufacturing overhead is applied at a rate of 200% of direct labor cost.Nonmanufacturing costs are $27 per unit.How much does each cat condo sell for?

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

Harwell,Inc.produces two different products,Product A and Product B.Harwell uses a traditional volume-based costing system in which direct labor hours are the allocation base.Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Setup,Production,and Finishing.The cost of each activity and usage of the activity drivers are as follows: Harwell manufactures 10,000 units of Product A and 7,500 units of Product B per month. Required: a.Calculate the predetermined overhead rate under the traditional costing system. b.Calculate the activity rate for Setup. c.Calculate the activity rate for Production. d.Calculate the activity rate for Finishing. e.Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system. f.Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system g.Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system. h.Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system. i.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

An activity that is performed for a specific customer is a(n):

Under activity based management,cost management is achieved by:

Appraisal or inspection costs are costs that: