Exam 4: Activity-Based Costing

Samson Company recently installed an activity-based relational database. Using the information contained in the activity relational table, the following pool rates were computed: $400 per purchase order $24 per machine hour, Process 1 $30 per machine hour, Process 2 $80 per engineering hour Two products are produced by Special Products: L and M. The plant has two manufacturing processes, Process 1 and Process 2. Other processes include engineering, product handling, and procurement. Product L goes through Process 1 while Product M goes through Process 2. The product relational table for Special Products is as follows: Product L ActivityDriver \# Name Activity Usage 1 Units 200,000 2 Furchase Orders 250 3 Machine Hours 80,000 4 Engineering Hours 1,250 Product M Activity Driver \# Name Activity Usage 1 Units 25,000 2 Furchase Orders 125 3 Machine Hours 10,000 4 Engineering Hours 1,500 ActivityDriver \# Name Activity Usage 1 Units 200,000 2 Purchase Orders 250 3 Machine Hours 80,000 4 Engineering Hours 1,250 How much engineering overhead cost will be assigned to Product M using engineering hours?

Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.

Efforts to simplify activity-based costing systems (ABC) involve either before-the-fact simplification or after-the-fact simplification.

Inventive Manufacturing Company has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering: Salaries \ 500,000 Equipment 100,000 Supplies 30,000 Total \ 630,000 The equipment is used for two activities: improving processes and designing tooling. Forty percent of the equipment's time is used for improving processes and 60 percent is used for designing tools. The salaries are for five engineers, one who earns $160,000 and four who earn $85,000 each. The $160,000 engineer spends 30 percent of his time training employees in new processes and 70 percent of his time on improving processes. One engineer spends 100 percent of her time on designing tooling and another engineer spends 100 percent of his time on improving processes. The remaining two engineers spend equal time on all activities. Supplies are consumed in the following proportions: Creating BOMs 15\% Studying capabilities 5\% Improving processes 30\% Training employees 30\% Designing tooling 20\% Required: Using the resource drivers and direct tracing, calculate the cost of each manufacturing engineering activity. What are the resource drivers?

X-TREME Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering: Salaries \ 75,000 Equipment 40,000 Supplies 10,000 Total \ 125,000 The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid $\$ 50,000$ , while the other earns $\$ 25,000$ . The $\$ 50,000$ engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions: Creating BOMs 25\% Studying capabilities 10\% Improving processes 20\% Training employees 25\% Designing tooling 20\% What is the cost assigned to the improving processes activity?

Which of the following is NOT a limitation of a plantwide overhead rate?

If applied overhead is greater than actual overhead it is called overapplied overhead.

The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given: Actual Overhead \ 325,000 Estimated Overhead \ 350,000 Estimated Activity: 9 volt battery 100,000 direct labor hours AAA battery 400,000 direct labor hours Actual Activity: 9 volt battery 125,000 direct labor hours AAA battery 400,000 direct labor hours Units Produced: 9 volt battery 500,000 AsA battery 250,000 What is the predetermined overhead rate? (round to 2 decimal places)

The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data: Molding Finishing T otal Estimated Overhead \ 250,000 \ 100,000 \ 350,000 Actual Overhead \ 240,000 \ 120,000 \ 360,000 Expected Direct Labor Hours planes 5,000 5,000 10,000 race cars 5,000 35,000 40,000 Expected Machine Hours planes 17,000 3,000 20,000 race cars 3,000 7,000 10,000 Actual Direct Labor Hours planes 4,500 5,300 10,000 race cars 5,500 34,500 40,000 Actual Machine Hours planes 16,500 3,500 20,000 race cars 3,200 6,800 10,000 How much overhead is applied to the planes?

Which of the following costing methods is a before-the-fact simplification method that eliminates the first stage of assigning costs to activities of activity-based costing (ABC) system and dramatically simplifies the assignment of cost of resources to activities?

All of the following are unit-based activity drivers EXCEPT

Zercox Corporation uses a predetermined rate to apply overhead. At the beginning of the year, Zercox estimated its overhead costs at $380,000, direct labor hours at 55,000, and machine hours at 25,000. Actual overhead costs incurred were $350,150, actual direct labor hours were 56,000, and actual machine hours were 26,000. What is Zercox's predetermined overhead rate per machine hour? (Round the answer to two decimal places.)

A predetermined overhead rate is calculated using which of the following formulas?

In a time-driven ABC system, once the managers determine the cost of per time unit of supplying resources to activities, the next step would be

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 Setups would be classified as a

A list of the activities identified in the design of an activity-based system is called an activity inventory.

Lavender Company has decided to use a predetermined rate to assign factory overhead to production. The following predictions have been made for 2018: Total factory overhead costs \ 150,000 Direct labor hours 40,000 hours Direct labor costs \ 200,000 Machine hours 60,000 hours Required: a.Compute the predetermined factory overhead rate under three different bases: (1) direct labor hours, (2) direct labor costs, and (3) machine hours. b.Assume that actual factory overhead was $152,500 and that Lavender elected to apply factory overhead to Work in Process based on direct labor hours. If actual direct labor was 42,000 hours for 2018, was factory overhead overapplied or underapplied? By how much? c.Lavender Company follows the policy of writing off any under- or overapplied factory overhead balance to Cost of Goods Sold at the end of the year. Make the entry necessary at the end of 2018 to dispose of the factory overhead balance determined in Part (b).

Management information systems can be divided into a unit-based type and activity-based type.

A costing system that uses actual costs for direct materials and labor and predetermined overhead rates to apply overhead is called a(n)

X-TREME Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering: Salaries \ 75,000 Equipment 40,000 Supplies 10,000 Total \ 125,000 The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid $\$ 50,000$ , while the other earns $\$ 25,000$ . The $\$ 50,000$ engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions: Creating BOMs 25\% Studying capabilities 10\% Improving processes 20\% Training employees 25\% Designing tooling 20\% What is the cost assigned to the training employees activity?