Exam 4: Activity-Based Costing

Funland Manufacturing Company produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Engineering \ 125,000 Setups 112,500 Machining 250,000 Inspection 100,000 Providing space 31,250 Providing utilities 22,500 Activity drivers for each activity have been identified and their practical capacities listed: Machine hours 50,000 Setups 400 Engineering hours 10,000 Inspection hours 5,000 The cost of unit-level activities are assigned using machine hours The costs of batch-level activities are assigned using number of setups. The costs of facility-level activities are assigned using machine hours. Required: a.Identify the activities within each process as unit-level, batch-level, product-level, or facility-level. b.Build an activity relational table. c.Compute the pool rates (round to two decimal places).

Lawson Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows: Maintenance \ 180,000 Materials handling 27,000 Setups 24,000 Inspection 90,000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 20,000 direct labor hours are budgeted for next year. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent. Estimates for the proposed job are as follows: Direct materials \ 3,000 Direct labor (600 hours) \ 9,000 Number of material moves 4 Number of inspections 6 Number of setups 80 In the past, full manufacturing cost has been calculated by allocating overhead using a volumebased activity driver, directlabor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are: Machine hours 5,000 Material moves 600 Setups 200 Quality inspections 1,000 If the number of inspections is used to assign inspection costs, the amount of inspection costs allocated to the proposed job would be

If activity-based costing is used, electricity usage would be an example of a

The Foremost Company predicted factory overhead for 2018 and 2019 would be $120,000 for each year. The predicted activity for 2018 and 2019 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows: 2018 2019 Sales in units 25,000 25,000 Selling price per unit \ 20 \ 20 Direct materials and direct labor per unit \ 10 \ 10 The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2018 and 2019 was $120,000. Assume that it takes one direct labor hour to make one finished unit. When the annual estimated factory overhead rate is used, the gross profits for 2018 and 2019, respectively, are

A(n) __________ is a grouping of logically related information.

An __________costing database is the collected data sets that are organized and interrelated for use in a company's ABC information system.

Summer Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows: Maintenance \ 255,000 Materials handling 125,000 Setups 30,000 Inspection 105,000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000 direct labor hours are budgeted for next year. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent. Estimates for the proposed job are as follows: Direct materials \ 15,000 Direct labor (8,000 hours) \ 12,000 Number of material moves 100 Number of inspections 120 Number of setups 24 Number of machine hours 4,000 The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are: Machine hours 60,000 Material moves 20,000 Setups 3,000 Quality inspections 12,000 What is the total cost of the proposed job if Summer Manufacturing uses direct labor hours as its only activity driver?

The activity-based cost assignment is the most accurate method of costing because it follows a cause-and-effect pattern of overhead consumption.

A(n) __________ method first traces costs to a department and then to products.

Attraction Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Engineering \ 1,000,000 Setups 900,000 Machining 2,000,000 Inspection 800,000 Providing space 250,000 Providing utilities 180,000 Activity drivers for each activity have been identified and their practical capacities listed: Machine hours 25,000 Setups 200 Engineering hours 5,000 Inspection hours 2,500 The costs of facility-level activities are assigned using machine hours. What is (are) the facility-level activity(ies)?

Overhead assignments should reflect the amount of overhead demanded by each product.

If activity-based costing is used, insurance on the plant would be classified as a

The Gardenview Corporation has identified the following overhead costs and activity drivers for next year: Overhead Item Expected Cost Activity Driver Expected Ouantity Setup costs \ 200,000 Number of setups 250 Ordering costs 80,000 Number of orders 1,600 Maintenance 400,000 Machine hours 2,000 Power 40,000 Kilowatt hours 40,000 The following are two of the jobs completed during the year: Job 6A Job 8B Direct materials \ 3,000 \ 4,000 Direct labor \ 2,800 \ 4,800 Units completed 100 160 Direct labor hours 50 80 Number of setups 1 4 Number of orders 4 5 Machine hours 20 25 Kilowatt hours 30 50 The company's normal activity is 2,000 direct labor hours. If the four activity drivers are used to allocate overhead costs, total overhead allocated to Job 6A would be

Tandem Company manufactures two products (D and F). The overhead costs ($84,000) have been divided into three cost pools that use the following activity drivers: Product Number of Setups Machine Hours Packing Orders 10 500 75 F 10 2,000 175 Cost perpool \ 11,000 \ 60,000 \ 18,750 What is the allocation rate per setup using activity-based costing?

Marion Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: Model X Model Y Units produced 20,000 40,000 Machine hours 8,000 10,000 Direct labor hours 14,000 16,000 Engineering labor (hours) 1,000 1,400 Setups 40 60 The following costs are reported: Engineering \ 48,000 Setups 100,000 Machine-related overhead 144,000 Machine-related overhead would be classified as a

Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows: Model F Model G Units produced 24,000 30,000 Machine hours 7,500 8,500 Direct labor hours 8,000 12,000 Material handling (number of moves) 4,000 6,000 Setups 5,000 7,000 Purchase orders 30 40 Inspections 10,000 14,000 Product line variations 8 12 The following overhead costs are reported for the following activities of the production process: Material handling \ 40,000 Labor-related overhead 120,000 Setups 60,000 Product design 100,000 Batch inspections 120,000 Central purchasing 70,000 Jones manufacturing has used activity based costing to assign costs to Models $F$ and $G$ as given in the table below: Activity Cost Pool Driver Pool Rate Model F Activity Model F Cost Model G Activity Model G Cost Total Material handling \ 40,000 10,000 \ 4 4,000 \ 16,000 6,000 \ 24,000 \ 40,000 Labor related \ 120,000 20,000 \ 6 8,000 \ 48,000 12,000 \ 72,000 \ 120,000 overhead Setups \ 60,000 12,000 \ 5 5,000 \ 25,000 7,000 \ 35,000 \ 60,000 Product design \ 100,000 20 \ 5,000 8 \ 40,000 12 \ 60,000 \ 100,000 Batch Inspections \ 120,000 24,000 \ 5 10,000 \ 50,000 14,000 \ 70,000 \ 120,000 Central purchasing \ 70,000 70 \ 1,000 30 \ 30,000 40 \ 40,000 \ 70,000 total \2 09,000 \3 01,000 \5 10,000 Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. Under this new approach, which two activities would be selected as the cost pools?

Which of the following statements is TRUE?

The following information is provided for the year: Actual direct labor hours worked 42,760 Budgeted overhead \ 900,000 Budgeted direct labor hours 46,650 Actual overhead costs incurred \ 748,350 Assuming normal costing is used, calculate the amount of overhead applied for the year. (Round the answer to two decimal places.)

The Magnanimous Company uses a predetermined overhead rate of $12 per direct labor hour to apply overhead. During the year, 30,000 direct labor hours were worked. Actual overhead costs for the year were $320,000. The overhead variance is

Which of the following quantities is an example of an activity driver in activity-based costing?