Exam 11: Activity-Based Costing

Which of the following items would be classified as committed resources (long-term)?

Figure 11-4 The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: Maintenance £120,000 Inspection £200,000 The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: Direct materials £1,500 Direct labour £5,000 Machine hours 400 Number of inspections 6 Direct labour hours 750 Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500. -Refer to Figure 11-4. Using direct labour hours to assign overhead, the total cost of the potential job would be

Resources that are only purchased precisely at the time the resource is needed are called

An activity cost driver is

Figure 11-3 Moss Ltd. 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 -Refer to Figure 11-3. What is the cost assigned to the training employees activity?

Batch-related costs are added to which of the following costs in break-even analysis?

If activity-based costing is used, electricity usage would be an example of a

Figure 11-4 The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: Maintenance £120,000 Inspection £200,000 The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: Direct materials £1,500 Direct labour £5,000 Machine hours 400 Number of inspections 6 Direct labour hours 750 Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500. -Refer to Figure 11-4 above. Using activity-based costing and the appropriate cost drivers, the total cost of the potential job would be

Figure 11-5 Granite, SA., has identified the following overhead costs and cost drivers for next year: Overhead Item Expected Cost Cost Driver Expected Quantity Setup costs £100,000 Number of setups 500 Ordering costs 40,000 Number of orders 3,200 Maintenance 200,000 Machine hours 4,000 Power 20,000 Kilowatt hours 80,000 The following are two of the jobs completed during the year: Direct materials £1,500 £2,000 Direct labour £1,400 £2,400 Units completed 100 160 Direct labour hours 100 160 Number of setups 2 8 Number of orders 8 10 Machine hours 40 50 Kilowatt hours 60 100 The company's normal activity is 4,000 direct labour hours. -Refer to Figure 11-5. If Granite, SA., used activity-based cost drivers to allocate overhead costs, the unit cost for Job 500 would be

Riley, SA., has identified the following overhead costs and activity drivers for next year: Expected Expected Overhead Item Cost Activity Driver Quantity Setup costs £100,000 Number of setups 500 Ordering costs 40,000 Number of orders 3,200 Maintenance 200,000 Machine hours 4,000 Power 20,000 Kilowatt hours 80,000 The following are two of the jobs completed during the year: AA BB Direct materials £375 £1,000 Direct labour £350 £1,200 Units completed 100 160 Direct labour 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 4,000 direct labour hours. If the activity drivers are used to allocate overhead costs, the unit cost (rounded to two decimal places) for Job BB would be

Figure 11-3 Moss Ltd. 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 -Refer to Figure 11-3. What is the cost assigned to the improving processes activity?

Figure 11-2 Owens Ltd. 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. -Refer to Figure 11-2. What is the cost pool rate for the facility-level activities?

Figure 11-2 Owens Ltd. 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. -Refer to Figure 11-2. What is(are) the product-level activity(ies)?

Committed resources are

Books Company manufactures and sells two products: Soft Cover (S) and Hard Cover (H). The firm's activities have been analyzed and placed into a hierarchy of activity costs. Presented is information on activity cost drivers and costs per unit of cost driver at each activity level. Activity Level Activity Cost Unit level , S acquire direct materials ,£6 , H acquire direct materials ,£10 , S other manufacturing costs ,£2 , H other manufacturing costs ,£4 Batch level , S setup ,£200 , H setup ,£300 Product level , S advertising ,£20,000 , H advertising ,£30,000 Facility level , Rent ,£10,000 During January 2012, Books Company produced 10,000 units of Soft Covers and 5,000 units of Hard Covers. Each batch of products includes 1,000 units of Soft Covers or 1,000 units of Hard Covers.

Ernest, SA., has identified the following overhead costs and cost drivers for next year: Overhead Item Expected Cost Cost Driver Expected Quantity Setup costs £320,000 Number of setups 4,000 Ordering costs 120,000 Number of orders 20,000 Maintenance 480,000 Machine hours 24,000 Power 40,000 Kilowatt hours 160,000 The following are two of the jobs completed during the year: Job 320 Job 321 Direct materials £8,000 £19,000 Direct labour £6,400 £12,000 Units completed 800 1,600 Direct labour hours 240 500 Number of setups 12 20 Number of orders 20 40 Machine hours 400 600 Kilowatt hours 280 400 The company's normal activity is 32,000 direct labour hours. (Round amounts to two decimal places.) a.Determine the unit cost for each job using direct labour hours to apply overhead. b.Determine the unit cost for each job using the four cost drivers. c.Which method produces the more accurate cost assignment? Why?

Hill Manufacturing uses an activity-based costing system. The company produces Model A and Model B. Information concerning the two products is as follows: Model A Model B Units produced 30,000 50,000 Direct labour hours 24,000 26,000 Engineering labour (hours) 4,000 6,000 Setups 20 30 Kilowatt hours 5,000 7,000 The following costs are reported: Power £12,000 labour-related overhead 70,000 Setups 60,000 a.Classify the following overhead activities as unit-level activities, batch-level activities, or product-level activities:PowerEngineeringSetups b.Calculate the following:A cost pool rate for powerA cost pool rate for setupsA cost pool rate for engineering c.Calculate the following:Power costs assigned to Model BSetups costs assigned to Model AEngineering costs assigned to Model A

All of the following are unit-based activity drivers EXCEPT

Funk Manufacturing Company 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 £125,000 Setups 112,500 Machining 250,000 Inspection 100,000 Prowiding space 31,250 Providing utilities 22,500 Activity drivers for each activity have been identified and their practical capacities listed: Machine hours 50,000 Setups 400 Engineering hours 10,000 Inspection hours 5,000 The costs of facility-level activities are assigned using machine hours. a.Identify the activities within each process as unit-level, batch-level, product-level, or facility-level. b.Create homogeneous cost pools. Identify the activities that belong to each pool and the activity driver that will be used for computing pool rates. c.Build an activity relational (i.e. cost) table. d.Compute the cost pool rates.

An activity-based costing system uses which of the following procedures?