Exam 4: Activity-Based Costing

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 If the number of machine hours is used to assign machine hour cost, determine the amount of machine hour cost to be assigned to Product D.

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 overhead \ 120,000 20,000 \ 6 8,000 \ 48,000 12,000 \ 72,000 \ 120,000 Getups \ 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 \5 0,000 14,000 \7 0,000 \1 20,000 Central purchasing \ 70,000 70 \ 1,000 30 \ 30,000 40 \ 40,000 \ 70,000 total \ 209,000 \ 301,000 \ 510,000 Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. Under this new approach, what is the new pool rate for batch inspection costs?

The Manoli Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Rug Cleaners Sweepers T otal Units Produced 50,000 250,000 300,000 Prime Costs \ 200,000 \ 750,000 \ 950,000 Direct Labor Hours 10,000 40,000 50,000 Machine Hours 20,000 10,000 30,000 Number of Setups 25 75 100 Inspection Hours 1200 2,800 4,000 Number of Moves 140 210 350 Departmental Data: (expected and actual) Molding Assembly Total Direct Labor Hours Rug Cleaners 5,000 5,000 10,000 Sweepers Total 10,000 40,000 50,000 Machine Hours Rug Cleaners 17,000 3,000 20,000 Sweepers 3,000 7,000 10,000 Total 20,000 10,000 30,000 Overhead Costs Machining \ 120,000 \ 30,000 \ 150,000 Moving Materials 40,000 30,000 70,000 Setting Up 70,000 10,000 80,000 Inspecting Products 20,000 30,000 50,000 Total \ 250,000 \ 100,000 \3 50,000 What is the unit product cost for rug cleaners using activity based costing?

Bear Claw Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year: Manufacturing overhead cost Molding Assembly Machine hours \ 700,000 \ 400,000 Direct labor hours 10,000 4,000 12,000 16,000 The following information was available for Job No. 7-29, which was started and completed during August: Job No. 7-29 Molding Assembly Direct materials \ 3,500 \ 7,500 Direct labor \ 9,000 \ 12,500 Direct labor hours 900 1,250 Machine hours 500 400 The predetermined overhead rate for the molding department is

The Manoli Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Rug Cleaners Sweepers T otal Units Produced 50,000 250,000 300,000 Prime Costs \ 200,000 \ 750,000 \ 950,000 Direct Labor Hours 10,000 40,000 50,000 Machine Hours 20,000 10,000 30,000 Number of Setups 25 75 100 Inspection Hours 1200 2,800 4,000 Number of Moves 140 210 350 Departmental Data: (expected and actual) Molding Assembly Total Direct Labor Hours Rug Cleaners 5,000 5,000 10,000 Sweepers Total 10,000 40,000 50,000 Machine Hours Rug Cleaners 17,000 3,000 20,000 Sweepers 3,000 7,000 10,000 Total 20,000 10,000 30,000 Overhead Costs Machining \ 120,000 \ 30,000 \ 150,000 Moving Materials 40,000 30,000 70,000 Setting Up 70,000 10,000 80,000 Inspecting Products 20,000 30,000 50,000 Total \ 250,000 \ 100,000 \3 50,000 What is the consumption ratio for the plantwide activity rate of direct labor hours?

Activity __________ helps management achieve objectives such as product or customer costing and continuous improvement.

The Manoli Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Rug Cleaners Sweepers T otal Units Produced 50,000 250,000 300,000 Prime Costs \ 200,000 \ 750,000 \ 950,000 Direct Labor Hours 10,000 40,000 50,000 Machine Hours 20,000 10,000 30,000 Number of Setups 25 75 100 Inspection Hours 1200 2,800 4,000 Number of Moves 140 210 350 Departmental Data: (expected and actual) Molding Assembly Total Direct Labor Hours Rug Cleaners 5,000 5,000 10,000 Sweepers Total 10,000 40,000 50,000 Machine Hours Rug Cleaners 17,000 3,000 20,000 Sweepers 3,000 7,000 10,000 Total 20,000 10,000 30,000 Overhead Costs Machining \ 120,000 \ 30,000 \ 150,000 Moving Materials 40,000 30,000 70,000 Setting Up 70,000 10,000 80,000 Inspecting Products 20,000 30,000 50,000 Total \ 250,000 \ 100,000 \3 50,000 What is the activity rate for moving materials?

Account balances from the Boilermakers Company are as follows: Manufacturing Overhead \ 240,000 underapplied Work in Frocess 100,000 Finished Goods 300,000 Cost of Goods Sold 800,000 If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of

Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers: Number of Labor Product Number of Orders Transactions Labor Hours I 15 50 500 II 10 150 2,000 Cost per pool \ 12,500 \ 8,000 \ 40,000 If the number of labor hours is used to assign labor costs from the cost pool, determine the amount of overhead cost to be assigned to Product I.

Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers: Number of Labor Product Number of Orders Transactions Labor Hours I 15 50 500 II 10 150 2,000 Cost per pool \ 12,500 \ 8,000 \ 40,000 Using functional-based costing, what is the amount of overhead cost to be assigned to Product II using labor hours as the allocation base?

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 Using functional-based costing, what is the amount of overhead cost to be assigned to Product D using machine hours as the allocation base?

An activity-based costing system uses which of the following procedures?

The simple list of activities identified in an ABC system is called:

Product classification attributes define and describe activities and are the basis for product classification.

Maroone, Inc., has identified the following overhead costs and activity drivers for next year: Overhead Item Expected Cost Activity Driver Expected Qty. Setup costs \ 150,000 Number of setups 1,200 Ordering costs 40,000 Number of orders 10,000 Maintenance 200,000 Machine hours 16,000 Power 20,000 Kilowatt hours 100,000 The following are the two product models completed during the year: Model SS Model TT Direct materials \ 2,250 \ 2,500 Direct labor 3,000 1,875 Units completed 375 300 Direct labor hours 90 110 Number of setups 6 8 Number of orders 8 15 Machine hours 180 150 Kilowatt hours 90 120 The company's normal activity is 20,000 direct labor hours. Required: a.Determine the unit cost for each job using direct labor hours to apply overhead. b.Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.) c.Which method produces the more accurate cost assignment? Why?

The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.

Nissex Manufacturing Company manufactures two products (I and II). The overhead costs ($79,000) have been divided into three cost pools that use the following activity drivers: Number of Labor Product Number of Orders Transactions Labor Hours I 20 60 650 II 12 180 2,500 Cost per pool \ 14,000 \ 10,000 \ 55,000 What is the allocation rate per order using activity-based costing (ABC) system? (Round the answer to two decimal places.)

The Custom Guitar Company uses a predetermined overhead rate of $5 per machine hour to apply overhead. During the year, 32,500 machine hours were worked. Actual manufacturing overhead cost for the year was $187,500. Company records showed the following account balances at the end of the year: Materials \ 22,500 Work in process 37,500 Finished goods 50,000 Cost of goods sold 112,500 Required: a.Determine the amount of underapplied or overapplied overhead. b.Assuming the amount of underapplied or overapplied overhead is material, determine underapplied or overapplied overhead that would be allocated to the following accounts if the allocation is made using ending account balances: Work in Process Finished Goods Cost of Goods Sold c.Assuming the amount of underapplied or overapplied overhead is material, calculate the new balance of the following accounts after underapplied or overapplied overhead has been allocated: Work in Process Finished Goods Cost of Goods Sold d.Determine the balance of Cost of Goods Sold if underapplied or overapplied overhead is immaterial.

In the __________ ABC systems, managers directly estimate the resource demands imposed by each product.

Quasi-Tech 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. Costs have been assigned to each activity using direct tracing and resource drivers: Activity Expected Cost Activity Driver Activity Capacity Engineering \ 1,000,000 engineering hours 5,000 hours Setups \ 900,000 setups 200 setups Machining \ 2,000,000 machine hours 25,000 machine hours Inspection \ 800,000 inspection hours 2,500 inspection hours Owens produces two models: Model X and Model Y. The following table shows how the two products consume activity. Model C Model D Units completed 300,000 200,000 Engineering hours 1,000 4,000 Setups 80 120 Machine hours 20,000 5,000 Inspection hours 1,500 1,000 How much overhead is assigned to Model D using the 4 activity drivers?