Exam 6: Cost Allocation and Activity-Based Costing

Terrel Gifts produces logo platters and cups bearing the name of the city in which the items will be sold to tourists.Indirect logo printing costs are allocated to platters and cups based on the amount of time spent on the logo machine.The company has budgeted indirect logo costs of $4,224 per month and expects to spend 4,800 hours on printing logos each month.Each platter uses 24 minutes and each cup spends 6 minutes on the logo machine.How much of the logo printing costs will be allocated to each platter?

The law firm of Barnes & Cohen purchased a new $17,600 copier.Copying costs will be shared by the purchasing, accounting, and information technology departments since those are the only departments that will have access to the machine.The company has decided to allocate the copying cost based on the number of copies made by each department.The sales person who sold the copier to the attorneys expects it will generate 1,000,000 copies.The manager of each department has estimated the number of copies that his or her department will make over the life of the copier: Department Copies Purchasing 150,000 Accounting 450,000 Information Technology 200,000 How much overhead will be allocated each time a copy is made by the accounting department?

Which of the following is likely to occur when fewer overhead cost pools are used?

Unique Finds sells fine collectible statues and has implemented activity-based costing.Costs in the shipping department have been divided into three cost pools.The first cost pool contains costs that are related to packaging and shipping.Unique has determined that the number of boxes shipped is an appropriate cost driver for these costs.The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected.The final cost pool is used for general operations of the department and the cost driver is the number of orders.Information about the activities is summarized below: Cost Pool Estimated Total Costs Cost Driver Estimated Annual Activity Packaging and shipping \ 67,200 Number of boxes shipped 16,000 boxes Final inspection 200,000 Number of individual items inspected 100,000 items General operations 85,000 Number of orders 10,000 orders A new customer orders two items that can be shipped in a single box.What is the total shipping department cost that will be allocated to this order?

Teal Sports offers 2 different types of water sport activities-sailfish rental and banana boat rides.The company has two different activities-lifeguarding and maintenance-that provide input into its cost objectives.Data on estimated overhead for the year follows: Activity Driver Estimated Overhead Cost Sailfish Rental Estim ate Boat Rides Estimate Lifeguarding \# of Labor hours \ 63,940 3,280 hours 2,280 hours Maintenance Hours of riding time \ 88,000 1,500 hours 2,500 hours The company provides 2,400 banana boat rides and 1,200 sailfish rentals each year.How much overhead will be assigned to each banana boat ride?

ABC is more likely than traditional costing systems to undercost complex, low-volume products.

A contract that specifies that the supplier will be paid for the cost of production as well as some fixed amount or percentage of cost is called a(n)

One of the reasons that companies allocate costs is to allow for the frivolous use of common resources.

Recker Recreational uses activity-based costing.The company produces wooden playground equipment.It has two models manufactured in its Texas plant-swings and slides.The estimated costs and expected activity for each of the overhead activity pools follow: Activity Estimated Expected Activity Cost Pool Cost Swings Slides Total Activity 1 \ 15,675 800 300 1,100 Activity 2 \ 11,900 500 200 700 Activity 3 \ 36,000 800 400 1,200 Which of the following is the rate for Activity 3 that will used to allocate costs to swings?

Which of the following is the overriding concern in forming a cost pool?

Rather Bedding makes two types of pillow-down and foam.It is currently implementing an activity-based costing system.In the past, all overhead had been applied on the basis of machine hours.The company produces 6,000 down pillows and 18,000 foam pillows per year. Cost Pool Driver and Level Estim ated Costs Use of Driver by Down Pillows Use of Driver by Foam Pillows Equipment setup 360 setups \ 216,000 120 setups 240 setups Materials ordering 6,000 orders \ 60,000 2,400 orders 3,600 orders Quality control 2,000 inspections \ 36,000 800 inspections 1,200 inspections Machining 8,000 machine hours \ 86,800 4,200 machine hours 3,800 machine hours Using ABC, what is the cost per machine hour in the machining pool?

Rather Bedding makes two types of pillow-down and foam.It is currently implementing an activity-based costing system.In the past, all overhead had been applied on the basis of machine hours.The company produces 6,000 down pillows and 18,000 foam pillows per year. Cost Pool Driver and Level Estim ated Costs Use of Driver by Down Pillows Use of Driver by Foam Pillows Equipment setup 360 setups \ 216,000 120 setups 240 setups Materials ordering 6,000 orders \ 60,000 2,400 orders 3,600 orders Quality control 2,000 inspections \ 36,000 800 inspections 1,200 inspections Machining 8,000 machine hours \ 86,800 4,200 machine hours 3,800 machine hours What is the overhead cost for each down pillow when all overhead is applied based on machine hours?

Dragon Fire Hot Sauce makes two types of hot sauces-meek and mild.Budgeted information for the two flavors appears below: Meek Mild Sales \ 600,000 \ 400,000 Direct materials \ 100,000 \ 120,000 Direct labor cost \ 108,000 \ 180,000 Labor hourly cost \ 12,00 \ 12,00 The company estimates it will incur $345,600 in overhead costs for the period.Dragon Fire allocates overhead cost to products based on the labor hours worked on each product.What is the overhead application rate to be used when allocating to Meek?

In which of the following industries are cost-plus contracts common?

Which of the following statements about cost pools is true?

VelCraft allocates costs from its payroll department and the maintenance department to its production departments using the direct method of allocation.Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet that the production department occupies within the factory.Information about the departments is presented below: Number of Number of Square Department Costs Emplovees feet Occupied Payroll \ 150,000 2 2,000 Maintenance \ 220,000 8 64,000 Molding 75 100,000 Finishing 50 60,000 Packaging 25 40,000 When the payroll department costs are allocated, what is the amount per employee that will be charged to each of the departments?

Which of the following is not a reason that companies allocate costs?

VelCraft allocates costs from its payroll department and the maintenance department to its production departments using the direct method of allocation.Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet that the production department occupies within the factory.Information about the departments is presented below: Number of Number of Square Department Costs Emplovees Feet Occupied Payroll \ 150,000 2 2,000 Maintenance \ 220,000 8 64,000 Molding 75 100,000 Finishing 50 60,000 Packaging 25 40,000 When the maintenance department costs are allocated, what amount will be charged to the molding department? (Round your intermediate calculation to two decimal places)

Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats.The company makes 50,000 jackets and 20,000 hats each year.Information for overhead costs and for the two products appears below. Activity Driver Estimated Total Overhead Cost Jackets Hats Setups \# of setups \ 200,000 500 setups 1,500 setups Ordering parts \# of parts 300,000 60,000 parts 40,000 parts Machining \# of machine hours 600,000 12,000 machine hrs. 6,000 machine hrs. Inspections \# of inspections 400,000 10,000 inspections 40,000 inspections Shipping \# of shipments 300,000 10,000 shipments 10,000 shipments Total overhead Assume that activity-based costing is used.What is the rate per setup that should be used to assign setup cost to hats?

Dewey, Cheatham, and How, Attorneys-at-Law, specialize in three areas: criminal, civil, and family law.When specifications for a new IT system were established, the partners agreed to allocate fixed costs based on gigabytes needed by each department.The criminal law division needed 40% of the capacity, civil law needed 35%, and family law needed 25%.Variable costs for the IT department are allocated on the amount of bandwidth used by each division used.The IT department's budgeted monthly fixed costs are $640,000, and the budgeted monthly variable costs are $160,000.The firm estimates that 8,000,000 gigabytes of computer time will be used in June.During June, the family law division used 1,900,000 gigabytes of bandwidth.How much are total variable IT costs to be allocated to the family law division during June? Compute cost allocation rates to 3 significant digits.