Exam 4: Activity-Based Costing

Consumption ratio is defined as:

The following information is provided by Zinger Corporation for the year: Actual direct labor hours worked 75,000 Budgeted overhead \ 450,000 Budgeted direct labor hours 50,000 Actual overhead costs incurred \ 550,000 If normal costing is used, the amount of overhead applied for the year is:

The Molotov plant of Kaboom Industries has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: Maintenance \ 50,000 Inspection 75,000 The plant currently applies overhead using direct labor hours and expected cap acity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposedjob: Direct materials \ 500 Direct labor \ 2,000 Machine hours 500 Number of inspections 4 Direct labor hours 800 Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500. Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be

Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.

The Manoli Company has collected the following data for use in calculating product costs: $\text { Activity Data: (expected and actual) }$ Rug Cleaners Sweepers T otal Units Froduced 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 $\text { Departmental Data: (expected and actual) }$ Molding Assembly T otal 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 Mowing Materials 40,000 30,000 70,000 Setting Up 70,000 10,000 80,000 Inspecting Products 20,000 30,000 \ 0,000 Total \ 250,000 \ 100,000 \ 350,000 Manoli Company uses departmental overhead rates: Molding uses machine hours and Assembly uses labor hours. What is the unit product cost for sweepers if departmental overhead rates are used?

A(n) __________ costing system first traces costs to activities and then to products.

Time-Driven Activity-Based Costing (TDABC) is a before-the-fact simplification method that simplifies the first stage of assigning costs to activities of activity-based costing (ABC) system by:

Time driven activity-based costing (TDABC) requires the need to identify resource drivers to assign costs to activities.

More accurate product costing information is produced by assigning costs using

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 unit-level activity(ies)?

Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 2018: Materials Placed into Froduction \ 140,000 Indirect Labor 40,000 Direct Labor (10,000 hours) 160,000 Depreciation of Factory Building 60,000 Other Factory Overhead 100,000 Increase in Work-in-Process Inventory 30,000 Factory overhead rate is $18 per direct labor hour. What is the amount of under- or overapplied overhead for Lonestar Corporation in 2018?

If unit-based product costing is used, which of the following would be traced directly to the product?

Carriage Manufacturing uses an activity-based costing system. The company produces Model 21 and Model 22. Information relating to the two products is as follows: Model 21 Model 22 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 The following costs are reported: Material handling \ 40,000 Labor-related overhead 120,000 Setups 60,000 Setup costs assigned to Model 22 are

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 First, determine the overhead costs assigned to model D using the two most expensive activities for cost pools. The costs of the two relatively inexpensive activities are allocated to the two most expensive activities in proportion to their costs. (Round to two decimal places.)What is the error in the overhead cost assigned to model D using ABC (4 driver model) as the benchmark?

Unit-level cost drivers create distortions when

Which of the following formula is used by Duration-Based Costing (DBC) to assign the overhead costs to a particular product?

Activity attributes are nonfinancial and financial information items that describe individual activities.

The Roanoke plant of the Virginia Company has two production departments: Extrusion and Assembly. The plant produces two products: P and Q. Cost information for the production departments is given below: Extrusion \ 360,000 Assembly 750,000 The following table presents activity information about the departments and products: Extrusion Assembly Total Direct labor hours: P 10,000 20,000 30,000 Q 10,000 30,000 40,000 Total 20,000 50,000 70,000 Machine hours: Q 5,000 1,000 6,000 Total 15,000 2,000 17,000 Required: a.Compute the predetermined overhead rate for each department if Extrusion uses machine hours and Assembly uses labor hours. b.Calculate the per unit overhead rate for each product if 80,000 units of P were produced and 90,000 units of Q were produced.

There are many two-driver combinations that may be used to reduce the ABC system without sacrificing accuracy.

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 are the consumption ratios for rug cleaners for the departments on the basis of the departmental drivers (molding;assembly)?