Exam 10: Activity-Based Costing

Which of the following statements concerning target costing is NOT true?

Which of the following is a FALSE statement about target costing?

A target cost is computed as

When cost-based pricing is employed and mark up is based on manufacturing costs, the mark up must be sufficiently large enough to:

Bay Company produces boats for 11 major buyers. Of the 11 customers, one accounts for 45 per cent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase boats in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Bay's customer activity follow: Large Customer Ten Smaller Customers Units purchased 4,500 5,500 Orders placed 5 545 Number of sales calls 15 245 Manufacturing cost £800,000 £980,000 Order-filling costs for Bay Company total £401,500, and sales-force costs are £260,000. a.Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are allocated based on sales volume. b. b.Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are assigned using activity-based costing. c.Comment on the differences in amounts attributed to the smaller customers in requirements a and

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

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

Figure 10-3 Farr Company had the following information: Revenues £400,000 Cost of goods sold: £100,000 Direct materials 50,000 Overhead 50,000 200,000 Gross profit £200,000 Selling and administrative expenses 75,000 Operating income £125,000 -Refer to Figure 10-3. What is the mark up based on cost of goods sold?

Figure 10-4 Jamie Ltd. had the following information: Revenues £250,000 Cost of goods sold: £50,000 Direct materials 37,500 Direct labour Overhead Gross profit Selling and administrative expenses £62,500 -Refer to Figure 10-4. What is the mark up based on materials?

Which of the following statements is FALSE?

Figure 10-6 Multiple Products Co. has predicted the following costs for this year for 100,000 units: Selling and Manufacturing Administrative Variable £400,000 £100,000 Fixed 600,000 300,000 Total £1,000,000 £400,000 -Refer to Figure 10-6. What is the mark up on variable costs needed to break even?

Baker Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: Maintenance £140,000 Materials handling 60,000 Setups 50,000 Inspection 100,000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 50,000 direct labour hours are budgeted. 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 per cent. Estimates for the proposed job are as follows: Direct materials £5,000 Direct labour (750 hours) £7,500 Number of materials moves 8 Number of inspections 5 Number of setups 3 Number of machine hours 300 In the past, full manufacturing cost has been calculated by allocating overhead using a traditional volume-based cost driver system--direct labour hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity-based cost drivers that would be used are as follows: Machine hours 16,000 Material moves 4,000 Setups 2,000 Quality inspections 8,000 a.Determine the amount of overhead that would be allocated to the proposed job if direct labour hours are used as the traditional volume-based cost 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 per cent. b.Determine the amount of overhead that would be applied to the proposed job 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 per cent. c.Which product costing method produces the more competitive bid?

Setting prices below cost for the purpose of injuring competitors and eliminating competition is

The activity-based resource usage model improves managerial control and decision making such as

Johnson Company produces office equipment for 16 major buyers. Of the 16 customers, one accounts for 50 per cent of the sales, with the remaining 15 accounting for the rest of the sales. The 15 smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Johnson's customer activity follow: Large Customer 15 Smaller Customers Units purchased 50,000 50,000 Orders placed 6 294 Number of sales calls 26 224 Manufacturing cost £750,000 £750,000 Order-filling costs for Johnson Company total £270,000, and sales-force costs are £300,000. a.Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the 15 smaller customers if these costs are allocated based on sales volume. b. b.Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the 15 smaller customers if these costs are assigned using activity-based costing. c.Comment on the differences in amounts attributed to the smaller customers in requirements a and

____ is where a higher price is charged at the beginning of a product's life cycle.

Figure 10-5 Ander Company produces precision equipment for major buyers. Of the six customers, one accounts for 40 per cent of the sales, with the remaining five accounting for the rest of the sales. The five smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Ander's customer activity follow: Large Customer Five Smaller Customers Units purchased 400,000 600,000 Orders placed 10 350 Number of sales calls 20 230 Manufacturing cost £1,200,000 £1,800,000 Order-filling costs for Ander Company total £360,000, and sales-force costs are £375,000. -Refer to Figure 10-5, what amount of order-filling costs would be allocated to the large customer if these costs are allocated based on sales volume?

Cost-based pricing has traditionally been important because:

Which of the following accurately describes the effect target costing has on the manufacturing design function?

Figure 10-5 Ander Company produces precision equipment for major buyers. Of the six customers, one accounts for 40 per cent of the sales, with the remaining five accounting for the rest of the sales. The five smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Ander's customer activity follow: Large Customer Five Smaller Customers Units purchased 400,000 600,000 Orders placed 10 350 Number of sales calls 20 230 Manufacturing cost £1,200,000 £1,800,000 Order-filling costs for Ander Company total £360,000, and sales-force costs are £375,000. -Refer to Figure 10-5 above, what amount of sales-force costs would be allocated to the five smaller customers if these costs are allocated based on sales volume?