Exam 6: Cost Allocation and Activity-Based Costing

Bayard Backup is a manufacturer of data storage devices.Bayard operates two service departments-maintenance and technology, and two production departments-assembly and testing.Maintenance costs are allocated on the basis of square footage occupied, and technology costs are allocated on the basis of the number of workstations.The following data relate to allocations of service department costs: Maintenance Iechnology Assembly Iesting Service department costs \ 400,000 \ 230,000 Square footage 2,000 3,000 20,000 30,000 Workstations 4 16 10 30 How much maintenance costs will be allocated to the assembly department using the direct method?

The manager of the molding department at the Category Products Company is evaluated based on the profit performance of his department.Personnel costs at Category Products are estimated to be $40,000.These costs are allocated based on the number of employees in each production department.The welding department has 40 employees, and the molding department has 60 employees.The personnel department actually incurred $52,000 in personnel costs.The profit of the molding department is down this year because the molding department's share of allocated personnel costs is much higher than last year.The allocation of personnel costs to the molding department is higher in the current year.This is most likely due to

Cost allocation is the process of assigning direct and indirect costs to products.

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 packaging department? (Round your intermediate calculation to two decimal places)

An example of a unit-level activity is the design of a particular product.

Which of the following is generally true when a company compares activity-based costing (ABC) and traditional volume-based costing?

How many distinct activities are used by most companies that design ABC systems?

Which of the following is not a problem caused by assigning actual service department costs to operating departments based on actual usage of service department activities by the operating departments?

Intermodal Moving uses the direct method and allocates its maintenance costs on the basis of repair hours and its payroll department costs on the basis of employees.Estimated costs and information on the services and production departments follows: Payroll \ 36,000 Maintenance \ 48,000 Packing 30 employees, 280 repair hours Driving 10 employees, 1,960 repair hours How much of the payroll and maintenance costs will be allocated to the packing department? Payroll Maintenance A. \ 900 \ 171.43 B. \ 27,000 \ 6,000 C. \ 27,000 \ 21.43 D. \ 1,200 \ 6,000

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 Fox Hunting Gear uses activity-based costing.What is the rate per inspection that should be used to assign inspection cost to hats?

ZanaTech has an on-site cafeteria in which it provides free meals for employees.The company allocates the cost of the cafeteria to production departments using the direct method based on the number of employees in each department.The four production departments in the company have the following number of employees: molding, 15; polishing, 20; engraving, 10; and packaging, 15.There are 20 employees in the cafeteria.The cafeteria's costs are budgeted at $144,000 for the year.What amount of the cafeteria's cost will be allocated to the molding department?

Service department costs are allocated to producing departments

Cost-plus contracts guarantee that the supplier will pay for production costs and the customer will pay a fixed amount or percentage of the cost.

ZanaTech has an on-site cafeteria in which it provides free meals for employees.The company allocates the cost of the cafeteria to production departments using the direct method based on the number of employees in each department.The four production departments in the company have the following number of employees: molding, 15; polishing, 20; engraving, 10; and packaging, 15.There are 20 employees in the cafeteria.The cafeteria's costs are budgeted at $144,000 for the year.When the cafeteria's costs are allocated, what is the amount per employee that will be allocated to the packaging department each year?

A cost objective is the

In the direct method of allocating costs, service department costs are allocated only to production departments, not to other service departments.

Sweet Cocoa produces chocolate syrup used by candy companies.Recently, the company has had excess capacity due to a foreign supplier entering its market.Sweet Cocoa is currently bidding on a potential order from Kilwin's Candy for 5,000 cases of syrup.The estimated cost of each case is $27.50, as follows: direct material, $10; direct labor, $5; and manufacturing overhead, $12.50.The overhead rate of $2.50 per direct labor dollar is based on estimated annual overhead of $1,500,000 and estimated direct labor cost of $600,000, composed 40% of variable costs and 60% of fixed costs.The largest fixed cost relates to depreciation of plant and equipment.How much is the variable cost of producing a case of chocolate syrup?

Ernst & Gray, CPAs has three divisions: audit, tax, and business consulting.When the specifications for the new computer system were established, the audit division needed 50% of the capacity, the tax division required 30%, and business consulting required 20%.The fixed computer department costs are allocated based on computer needs.The variable costs of the computer department are allocated based on the minutes of computer time that each department uses.The computer division budget for fixed costs is $450,000, and the budget for variable costs is $145,600.The company anticipates using 520,000 minutes of computer time.If the audit division uses 250,000 minutes of computer time, what amount of variable costs will be allocated to the audit division (round your intermediate calculation to two decimal places)?

Which of the following is not a step in the cost allocation process?

Kamber Designs produces floral bouquets for commercial businesses (i.e.hotels) and uses an activity-based costing system.The company estimated that it would design 15,000 bouquets, make 2,000 deliveries totaling 25,000 miles, and accept 300 online orders.Data concerning overhead costs and activity pools is as follows: Bouquet designs \ 60,000 Deliveries 21,000 Online ordering 6,000 Total \ 87,000 During June, the company made 1,500 bouquets using 1,100 designs, made 325 deliveries and accepted 45 online orders.Using activity-based costing, what is the approximate overhead cost per bouquet during June?