Exam 6: Cost Allocation and Activity-Based Costing

Large cost pools that contain many different kinds of costs are most useful to managers in making decisions.

Happy Foods uses ABC costing.Which of the following is most likely to be a cost driver for the cost of cashiering at a convenience store?

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 business consulting division uses 78,000 minutes of computer time, what is the total amount of computer department costs that will be allocated to the business consulting division (round your intermediate calculation to two decimal places)?

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 Which two cost pools could be combined without affecting the unit costs using ABC?

The more costs that are allocated to a cost-plus contract, the smaller the profit will be for the supplier of the contract.

A major problem with cost-plus contracts is that they

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.What amount of variable costs will be allocated when a division uses a minute of computer time?

Excellence Pastries produces baked goods.Utility costs are allocated to the products based on the baking time required for the product.Utility costs of $291,500 are budgeted in a period when 550,000 total minutes of baking time and 100,000 minutes of cooling time are anticipated.If a batch of rolls bakes for 45 minutes, and then cools for 15 minutes, what amount of utility cost will be allocated to each batch of rolls?

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 If the company uses a single cost pool and assigns overhead using machine hours, how much overhead will be assigned to each hat?

An allocation base

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 How much is the overhead cost of each hat if all overhead is assigned using ABC?

Managers should not be held responsible for noncontrollable costs.

Which of the following is not an advantage of activity-based costing over traditional volume-based costing systems?

Ransom Widgets allocates the estimated cost of its accounting department, $200,000, to its production and sales departments since the accounting department supports these departments with regard to payroll and accounts payable functions.The accounting department costs will be allocated based on the number of employees using the direct method.Information regarding employees follows: Departm ent Emplovees Accounting 4 Production 36 Sales 12 How much of the accounting department costs will be allocated to the production and sales departments, respectively? Production Sales A. \ 150,000 \ 50,000 B. \ 180,000 \ 60,000 C. \ 1,800,000 \ 600,000 D. \ 22,222 \ 66,667

A cost pool is

Allocating actual service department costs allows the service departments to pass on the costs of inefficiencies to the production departments.

From a decision-making standpoint, the allocated cost should measure the

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 What will be the overhead cost of each jacket if overhead is assigned using ABC?

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 During June, 4,000 items were sold reflecting 800 orders that were packed and shipped in 2,100 boxes.What amount is allocated to each order for general operations of the department?

Lump-sum allocations