Exam 4: Activity-Based Costing

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 C using the 4 activity drivers?

Non-unit-based drivers are factors that measure the demands that cost objects place on activities.

Heathex Manufacturing Company manufactures two products (I and II). The overhead costs ($36,200) have been divided into three cost pools that use the following activity drivers: Number of Labor Product Number of Orders Transactions Labor Hours I 12 35 290 II 8 125 1,250 Cost per pool \ 10,200 \ 6,000 \ 20,000 What is the allocation rate per labor transaction using activity-based costing (ABC) system? (Round the answer to two decimal places.)

Unit-level product costing assigns

Classifying activities into four general categories facilitates product costing by associating the response to different types of activity drivers.

If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.

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 number of setups is used to assign setup costs, the amount of setup costs assigned to Job 6A would be

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 designing tooling activity?

Assume the following: Actual overhead costs equaled estimated overhead. Actual direct labor hours exceeded estimated direct labor hours used to calculate the predetermined overhead rate. If overhead is applied using the predetermined overhead rate, then overhead is

Mannitou Company made the following predictions for 2016: Factory overhead costs \ 300,000 Direct labor hours 50,000 hours Machine hours 100,000 hours Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs. If factory overhead is applied based on direct labor hours, the cost of Job A2 for the Mannitou Company is

The following information is provided by the Sutton Corporation for the year: Actual overhead \ 450,000 Actual machine hours worked 25,000 Budgeted machine hours 27,500 Applied overhead \ 487,500 If normal costing is used, budgeted overhead used to calculate the predetermined rate would be

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 Purchase Orders 250 3 Machine Hours 80,000 4 Engineering Hours 1,250 Product M Activity Driver \# Name Activity Usage 1 Units 25,000 2 Purchase 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 machine overhead cost will be assigned to Product L using Process 1?

In the time-driven ABC systems, managers

Lamar Corporation uses departmental manufacturing overhead rates to apply overhead. Direct labor cost is used to apply manufacturing overhead in Department A and machine hours are used for Department B. Dept. A Dept. B Direct Labor Cost \ 66,000 \ 33,000 Factory Overhead \ 9,200 \ 60,000 Direct Labor Hours 8,000 9,000 Machine Hours 4,000 15,000 What predetermined overhead rate would be used for departments A and B respectively?

The Wellness Clinic is considering a time-driven activity based costing system. Given the following data: Resources Activities time/activity supervisi on \ 60,000 treating patients 1.40 supplies and uniforms \ 80,000 providing hygienic care 1.00 sal aries \ 350,000 responding to requests 0.60 computer \ 10,000 monitoring patients 1.00 monitor \ 25,000 Total \ 525,000 Total nursing hours (practical capacity) 15,000 What is the activity rate for treating patients?

The records of Family Manufacturing show the following information: Estimated manufacturing overhead \ 690,000 Estimated machine hours 46,000 Actual machine hours worked 50,000 Actual costs incurred: Indirect materials \ 170,000 Indirect labor 230,000 Utilities 120,000 Insurance 100,000 Rent 80,000 The company uses a predetermined overhead rate to apply overhead. Manufacturing overhead applied is

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 the equally accurate reduced ABC system, what are the global consumption ratios for Model F and Model G respectively? (round to 2 decimal places)

The following information is provided by the Salinger Corporation for the year: Actual direct labor hours worked 62,100 Budgeted overhead \ 405,000 Budgeted direct labor hours 50,500 Actual overhead costs incurred \ 621,000 Which of the following is the predetermined overhead rate, if calculated using direct labor hours? (Round the answer to two decimal places.)

Offering greater product accuracy than an activity-based costing system is not a characteristic of a __________ costing system.

In which of the following scenarios does Duration-Based Costing match Activity-Based Costing?