Exam 4: Activity-Based Costing

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 direct labor hours to assign overhead, the total cost of the potential job would be

If activity-based costing is used, set-ups would be classified as a

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

Healthy Solutions, Inc., is considering a time-driven activity based costing system. The following data is given: Resources Activities Timeper activity Supervision \ 93,000 Treating patients 1.50 Supplies and uniforms 125,000 Providing hygienic care 2.00 Salaries 542,500 Responding to requests 1.10 Computer 15,000 Monitoring patients 1.35 Monitor 35,750 Total \ 811,250 Total nursing hours 25,250 (practical capacity) What is the capacity cost rate? (Round the answer to two decimal places.)

Which of the following items is required for cost assignment to product i under Duration-Based Costing (DBC)?

Forest Queen Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows: Maintenance \ 70,000 Materials handling 30,000 Setups 25,000 Inspection 50,000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 50,000 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 30 percent. Estimates for the proposed job are as follows: Direct materials \ 2,500 Direct labor (750 hours) \ 3,750 Number of machine hours 300 Number of material moves 8 Number of setups 3 Number of inspections 5 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 16,000 Material moves 4,000 Setups 2,000 Quality inspections 8,000 Required: a.Determine the amount of overhead that would be allocated to the proposed job if direct labor hours are used as the volume-based activity driver.Determine the total cost of the proposed job.Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent. b.Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used.Determine the total cost of the proposed job if activity-based costing is used.Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent. c.Which product costing method produces the more competitive bid?

For labor-intensive operations, the most appropriate activity driver would be the __________ hours.

All of the following are non-unit-based activity drivers EXCEPT

A possible solution to overcome distortions caused by unit level rates is

The use of unit-based activity drivers to assign costs can result in significant cost distortions only if:

If activity-based costing is used, modifications made by engineering to the product design of several products would be classified as a

In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?

Motorsports, Inc. had a predetermined overhead rate of $2 per direct labor hour. The direct labor hours were estimated to be 25,000. The actual manufacturing overhead incurred was $47,000 and 24,000 actual direct labor hours were worked. How much was overhead over/under applied last year?

Azure Company predicted factory overhead for 2018 and 2019 would be $150,000 for each year. Direct labor hours were predicted as 35,000 hours for 2018 and 25,000 hours for 2019. Additional data are as follows: 2018 2019 Sales in units 40,000 40,000 Selling price per unit \ 30 \ 30 Direct materials and direct labor per unit \ 15 \ 15 The company assumes that the long-run normal production level is 25,000 direct labor hours per year. The actual factory overhead cost for the end of 2018 and 2019 was $150,000. Assume that it takes one direct labor hour to make one finished unit. When the normal factory overhead rate is used, the gross profits for 2018 and 2019, respectively, are

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 product-level activity(ies)?

The first step in designing an activity-based costing system is to identify activities.

The activity __________ is a simple list of activities identified in an ABC system.

A department that is capital-intensive most likely would use a predetermined departmental overhead rate based on which of the following activity bases?

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 underapplied and considered material, what is the journal entry? a. Cost of Goods Sold \ 12,000 Manufacturing Overhead \1 2,000 b. Work in Frocess $\$ 4,800$ Finished Goods $\$ 1,200$ Cost of Goods Sold $\$ 6,000$ Manufacturing Overhead $\$ 12,000$ 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 $\$ 6,000$

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 creating BOMs activity?