Exam 4: Activity-Based Costing

Activity __________ are nonfinancial and financial data that describe individual activities.

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 using the new rates, what are the overhead costs assigned to Model G in this approximately relevant ABC system?

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 machine overhead cost will be assigned to Product M using Process 2?

Which of the following quantities is an example of an activity driver in activity-based costing?

The Manoli Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Rug Cleaners Sw eepers Total 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 What is the unit product cost for rug cleaners if a plantwide rate is used based on direct labor hours?

Unit-based product costing assigns manufacturing and selling costs to products.

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 equally accurate reduced ABC system, using consumption ratios for labor related and batch inspections, the overhead cost assigned to Model F would be? (round to 5 decimal places)

Activity-based costing uses only unit-level drivers for 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 What is the allocation rate per packing order using 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 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 What is the unit cost of Product L?

Summer Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows: Maintenance \ 255,000 Materials handling 125,000 Setups 30,000 Inspection 105,000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000 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 10 percent. Estimates for the proposed job are as follows: Direct materials \ 15,000 Direct labor (8,000 hours) \ 12,000 Number of material moves 100 Number of inspections 120 Number of setups 24 Number of machine hours 4,000 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 60,000 Material moves 20,000 Setups 3,000 Quality inspections 12,000 What is the amount of overhead allocated to the proposed job if Summer Manufacturing uses direct labor hours as its only activity driver?

If operations run on less than full capacity, what is the result on cost driver rates?

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 How much overhead is applied to each 9 volt batteries and AAA batteries respectively? (round to 2 decimal places)

An activity-based costing system traces costs to activities and then to products and other cost objects.

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 How much was overhead over/underapplied?

__________ drivers create distortions when different products utilize resources differently.

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 using the new rates, what labor cost is assigned to Model F in this approximately relevant ABC system?

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 Using the activity ratios for engineering and machining, what is the overhead cost assigned to the engineering pool? (round to two decimal places)

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 Determine the engineering costs assigned to model C 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.) The engineering cost assigned to model C would be

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 is the new pool rate for labor related costs?