Exam 6: Cost Allocation and Activity-Based Costing

Full cost information

What costs are affected by the manager's decisions for which the manager should be held accountable?

Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats. The company makes 50,000 jackets and 20,000 hats each year. Information for overhead costs and for the two products appears below. Estimated Total Activity Driver Overhead Cost Jackets Hats Setups \# of setups \ 200,000 500 setups 1,500 setups Ordering parts \# of parts 300,000 60,000 parts 40,000 parts Machining \# of machine hours 600,000 12,000 machine hrs. 6,000 machine hrs. Inspections \# of inspections 400,000 10,000 inspections 40,000 inspections Shipping \# of shipments 300,000 10,000 shipments 10,000 shipments Total overhead \1 ,800,000 Fox Hunting Gear uses activity-based costing. What is the rate per inspection that should be used to assign inspection cost to hats?

Dewey, Cheatham, and How, Attorneys-at-Law, specialize in three areas: criminal, civil, and family law. When specifications for a new IT system were established, the partners agreed to allocate fixed costs based on gigabytes needed by each department. The criminal law division needed 40% of the capacity, civil law needed 35%, and family law needed 25%. Variable costs for the IT department are allocated on the amount of bandwidth used by each division used. The IT department's budgeted monthly fixed costs are $640,000, and the budgeted monthly variable costs are $160,000. The firm estimates that 8,000,000 gigabytes of computer time will be used in June. The criminal law division actually used 3,040,000 gigabytes of bandwidth during June. The family law division used 2,100,000 and the civil law division used 3,100,000 gigabytes of bandwidth during June. What amount of the IT fixed costs will be allocated to the civil law division during June? (Compute cost allocation rates to 3 significant digits.)

Kamber Designs produces floral bouquets for commercial businesses (i.e. hotels) and uses an activity-based costing system. The company estimated that it would design 15,000 bouquets, make 2,000 deliveries totaling 25,000 miles, and accept 300 online orders. Data concerning overhead costs and activity pools is as follows: Bouquet designs \ 60,000 Deliveries 21,000 Online ordering Total During May, the company made 1,400 bouquets using 1,300 designs, made 420 deliveries, and accepted 30 online orders. Using activity-based costing, what is the approximate overhead cost per bouquet during May?

Which of the following statements is true concerning lump-sum allocations of service department costs?

VelCraft allocates costs from its payroll department and the maintenance department to its production departments using the direct method of allocation. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet that the production department occupies within the factory. Information about the departments is presented below: Denartment Costs Number of Emplovees Number of Square Eeet Occupied Payroll \ 150,000 2 2,000 Maintenance \ 220,000 8 64,000 Molding 75 100,000 Finishing 50 60,000 Packaging 25 40,000 When the payroll department costs are allocated, what is the amount per employee that will be charged to each of the departments?

When fixed costs are unitized, they

Maintenance cost is allocated to Wakshaw's three producing departments based on the machine hours used in each department. The maintenance cost for June was $200,000. The three departments had the following usage for June: Denartment Machine hours used Direct lahor hours used Assembly 600 2,000 Fabrication 600 5,000 Testing 800 3,000 How much maintenance cost should be allocated to the fabrication department for June?

Lump-sum allocations

The process of determining major activities occurs before the resources used by each activity are identified in performing an activity-based management study.

Ernst & Gray, CPAs has three divisions: audit, tax, and business consulting. When the specifications for the new computer system were established, the audit division needed 50% of the capacity, the tax division required 30%, and business consulting required 20%. The fixed computer department costs are allocated based on computer needs. The variable costs of the computer department are allocated based on the minutes of computer time that each department uses. The computer division budget for fixed costs is $450,000, and the budget for variable costs is $145,600. The company anticipates using 520,000 minutes of computer time. If the business consulting division uses 78,000 minutes of computer time, what is the total amount of computer department costs that will be allocated to the business consulting division (round your intermediate calculation to two decimal places)?

Service department costs are allocated to producing departments

Unique Finds sells fine collectible statues and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping. Unique has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected. The final cost pool is used for general operations of the department and the cost driver is the number of orders. Information about the activities is summarized below: Cost Pool Estimated Total Costs Cost Driver Estimated Annual Activity Packaging and shipping \ 67,200 Number of boxes shipped 16,000 boxes Final inspection 200,000 Number of individual items inspected 100,000 items General operations 85,000 Number of orders 10,000 orders An order is shipped to a retail customer who has ordered 6 individual items. This order will be shipped in 3 separate boxes. What is the packing and shipping cost that will be allocated to the order?

PaperPro produces two models of staplers-Executive and Basic. The annual production and sales of Executive and Basic are 800 and 500 units, respectively. The company has traditionally used direct labor hours to apply manufacturing overhead. Executive requires 0.3 labor hours per unit and Basic requires 0.2 labor hours per unit. The company has decided to utilize activity-based costing with three cost pools. Estimated costs for each pool are as follows: Estimated Activity Overhead Expected Activity Cost Pool Costs Executive Basic Total Assembly \ 24,025 450 420 870 Packaging 16,880 2,000 750 2,750 General Factory 32,014 120 150 270 Total \7 2,919 Which of the following is closest to the overhead rate for assembly using activity-based costing?

Rather Bedding makes two types of pillow-down and foam. It is currently implementing an activity-based costing system. In the past, all overhead had been applied on the basis of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows per year. Cost Pool Driver and Level Estimated Costs Use of Driver by Down Pillows Use of Driver by Foam Pillows Equiument setup 360 setups \ 216,000 120 setups 240 setups Materials ordering 6,000 orders \ 60,000 2,400 orders 3,600 orders Quality control 2,000 inspections \ 36,000 800 inspections 1,200 inspections Machining 8,000 machine hours \8 6,000 4,200 machine hours 3,800 machine hours What is the overhead cost for each down pillow when all overhead is applied based on machine hours?

The building maintenance department for Advantage Toys budgets annual costs of $4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. The following data relate to the potential allocation bases: Production Dept. A Production Dept. B Square footage 15,000 45,000 Direct labor hours 25,000 50,000 If Advantage assigns costs to departments based on direct labor hours, how much maintenance cost will be allocated to Production Department B?

Dragon Fire Hot Sauce makes two types of hot sauces-meek and mild. Budgeted information for the two flavors appears below: Meek Mild Sales \ 600,000 \ 400,000 Direct materials \ 100,000 \ 120,000 Direct labor cost \ 108,000 \ 180,000 Labor hourly cost \ 12.00 \ 12.000 The company estimates it will incur $345,600 in overhead costs for the period. Dragon Fire allocates overhead cost to products based on the labor cost incurred. How much overhead is assigned to Mild?

Retirement Planning is a consulting firm with clients across the nation. Within the company is a travel group that arranges flights and hotel accommodations for its 250 consultants. The overhead cost of operating the travel group amounts to approximately $204,000 annually. Recently the company conducted an ABM study that has determined the following: .Each consultant completed approximately 15 business trips per year. .On average, 17 trips are scheduled, with 2 trips cancelled and rescheduled. .Benchmarking with a Retirement Planning's client indicates that the client incurs a cost of $60 per scheduled trip to book travel. How much overhead cost should be allocated to each completed trip?

Which of the following is not a reason that companies allocate costs?