Exam 4: Activity-Based Costing

After identifying and describing activities, the next step is to determine the cost of the performance of each activity.

Activity-based costing assigns cost to cost objects by first tracing costs to

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 What are the global consumption ratios of Model C and D respectively? (round to two decimal places)

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, what cost would be assigned to materials handling?

Products might consume overhead in different proportions due to differences in

Tarot Company has a predetermined overhead rate of $6 per direct labor hour. Last year the company incurred $156,600 of actual manufacturing overhead cost and the account was $12,600 underapplied. How many direct labor hours were worked during the year?

The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances: Raw Materials $20,000 Work in Process $40,000 Finished Goods $10,000 Cost of Goods Sold $50,000 If Manufacturing overhead was $12,000 overapplied and considered immaterial, what is the journal entry? a. Cost of Goods Sold \ 12,000 Manufacturing Overhead \1 2,000 b. Cost of Goods Sold \ 12,000 Manufacturing Overhead \1 2,000 $\text { c. Manufacturing Overhead } \$ 12,000$ Raw Materials $\$ 2,000$ Work in Frocess $\$ 4,000$ Finished Goods $\$ 1,000$ Cost of Goods Sold $\$ 5,000$ d. Raw Materials $\$ 2,000$ Work in Frocess $\$ 4,000$ Finished Goods $\$ 1,000$ Cost of Goods Sold $\$ 5,000$ Manufacturing Overhead $\$ 12,000$ e. Manufacturing Overhead $\$ 12,000$ Work in Process $\$ 4,800$ Finished Goods $\$ 1,200$ Cost of Goods Sold $\$ 6,000$

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 Number of machine hours 80 In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labor 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 material moves are used to assign material handling costs, the amount of material handling costs allocated to the proposed job would be

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 was overhead over or underapplied?

The difference between actual overhead and applied overhead is an underapplied overhead.

Unit-based product costing uses which of the following procedures?

After-the-fact simplification includes two approaches: the approximately relevant reduced ABC system and the equally accurate enhanced ABC system.

The expected total time (hours) that a single product spends with primary activities is its cycle time multiplied by:

The proportion of an overhead activity consumed by a product is the __________ ratio.

For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?

The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances: Raw Materials $20,000 Work in Process $40,000 Finished Goods $10,000 Cost of Goods Sold $50,000 If overhead is underapplied by $12,000 and considered immaterial, the journal entry would be a. Cost of Goods Sold \ 12,000 Manufacturing Overhead \1 2,000 b. Cost of Goods Sold \ 12,000 Manufacturing Overhead \1 2,000 c. Raw Materials \ 2,000 Work in Frocess \ 4,000 Finished Goods \ 1,000 Cost of Goods Sold \ 5,000 Manufacturing Overhead \1 2,000 d. Manufacturing Overhead \1 2,000 Raw Materials \ 2,000 Work in Frocess \ 4,000 Finished Goods \ 1,000 Cost of Goods Sold \ 5,000 e. Manufacturing Overhead \1 2,000 Work in Process \ 4,800 Finished Goods \ 1,200 Cost of Goods Sold \ 6,000

If activity-based costing is used, materials handling would be classified as a

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 What is the overhead per unit for race cars? (round to 3 decimal places)

Maintenance of the production equipment would be classified as a

Tusker Corporation manufactures two products (S and T). The overhead costs have been divided into four cost pools that use the following activity drivers: Number of Number of Machine Packing Product Setups Orders Hours Orders 20 35 1,000 75 5 70 1,500 125 Cost per pool \ 15,000 \ 8,400 \ 120,000 \ 40,000 Required: a.Compute the allocation rates for each of the activity drivers listed. b.Allocate the overhead costs to Products S and T using activity-based costing. c.Compute the overhead rate using machine hours under the functional-based costing system. d.Allocate the overhead costs to Products S and T using the functional-based costing system overhead rate calculated in part (c).