Exam 4: Activity-Based Costing

Value-added activities

Activity-based management focuses on reducing costs and improving processes.

Which of the following is a batch-level activity?

Direct labor is sometimes the appropriate basis for assigning overhead cost to products. It is appropriate to use direct labor when which of the following is true? (1) Direct labor constitutes a significant part of total product cost. (2) A high correlation exists between direct labor and changes in the amount of overhead costs.

Hale Company manufactures two models of its couch, the Mini and the Maxi. The Mini model requires 10,000 direct labor hours and the Maxi model requires 40,000 direct labor hours. The company produces 4,000 units of the Mini model and 1,000 units of the Maxi model each year. The company produces the Mini model in batch sizes of 200, while it produces the Maxi model in batch sizes of 100. The company expects to incur $360,000 of total setup costs this year. How much of the setup costs are allocated to the Mini model using ABC costing?

A company incurs $4,050,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Department Estimated use of Driver Cost Ordering and Receiving 2,000 \ 1,200,000 Mixing 50,000 1,500,000 Testing 1,500 1,350,000 $\text { Production information for Slime is as follows: }$ Department Estimated use of Driver Ordering and Receiving 1,600 Mixing 30,000 Testing 1,000 Compute the amount of overhead assigned to Slime.

A non-value-added activity in a service enterprise is

To achieve accurate costing, a high degree of correlation must exist between the cost driver and the actual consumption of the activity cost pool.

Which of the following is a value-added activity?

Rework costs typically increase in just-in-time processing.

A company incurs $3,600,000 of overhead each year in three departments: Processing, Packaging, and Testing. The company performs 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year in producing 400,000 drums of Oil and 600,000 drums of Sludge. The following data are available: Department Expected Use of Driver Cost Processing 800 \ 1,500,000 Packaging 200,000 1,500,000 Testing 2,000 600,000 $\text { Production information for the two products is as follows: }$ Oil Sludge Department Expected Use of Driver Expected Use of Driver Processing 300 500 Packaging 120,000 80,000 Testing 1,600 400 The amount of overhead assigned to Sludge using ABC is

Not all activities labeled non-value-added are totally wasteful, nor can they be totally eliminated.

Estimated costs for activity cost pools and other item(s) are as follows: Machining \ 500,000 Assembling 200,000 Advertising 450,000 Inspecting and testing 175,000 Total estimated overhead is

Machining is a non-value-added activity.

Which of the following is not a unit-level activity?

All of the following are examples of a value-added activity in a service company except

A value-added activity in a service enterprise is

Assigning overhead using ABC will usually

Value-added activities

Activity-based costing is used by