Exam 4: Activity-Based 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 $\text { Production information for Goo is as follows: }$ Department Estimated use of Driver Ordering and Receiving 400 Mixing 20,000 Testing 500 Compute the amount of overhead assigned to Goo.

Which would be a cost driver for a facility-level activity?

Noland Company manufactures two models of its banjo, the Basic and the Luxury. The Basic model requires 10,000 direct labor hours and the Luxury requires 30,000 direct labor hours. The company produces 3,400 units of the Basic model and 600 units of the Luxury model each year. The company inspects one Basic for every 100 produced, and inspects one Luxury for every 10 produced. The company expects to incur $112,800 of total inspecting costs this year. How much of the inspecting costs should be allocated to the Basic model using ABC costing?

Plant management is a batch-level activity.

Current trends in manufacturing include less direct labor and more overhead.

Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Audit Tax Direct labor cost \ 50,000 \ 100,000 CPU minutes 40,000 10,000 Legal hours used 200 800 Gant Accounting performs tax services for Cathy Lane. Direct labor cost is $1,200; 600 CPU minutes were used; and 1 legal hour was used. What is the total cost of the Lane job using activity-based costing?

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

Boswell Company manufactures two products, Regular and Supreme. Boswell's overhead costs consist of machining, $3,000,000; and assembling, $1,500,000. Information on the two products is: Regular Supreme Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Supreme using traditional costing using direct labor hours is

The presence of any of the following factors would suggest a switch to ABC except when

The use of activity-based costing in service industries

Traditionally, overhead is allocated based on direct labor cost or direct labor hours.

Zimmerman Company manufactures two products, Board 12 and Case 165. Zimmerman's overhead costs consist of setting up machines, $2,400,000; machining, $5,400,000; and inspecting, $1,800,000. Information on the two products is: Board 12 Case 165 Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Board 12 using activity-based costing is

All of the following statements are correct except that

Nott Company manufactures two products, pillows and comforters. The company has estimated its overhead in the order-processing department to be $600,000. The company produces 50,000 pillows and 80,000 comforters each year. Pillow production requires 25,000 machine hours, comforter production requires 50,000 machine hours. The company places raw materials orders 10 times per month, 2 times for raw materials for pillows and the remainder for raw materials for comforters. How much of the order processing overhead should be allocated to comforters?

To assign overhead costs to each product, the company

Which of the following is not a benefit of activity-based costing?