Exam 18: Activity-Based Costing

Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plantwide factory overhead rate based on direct labor hours. Information for the month of May, Bugaboo's first month of operations, follows: Bugaboo has budgeted direct labor costs for May at $8.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.75/unit; Crinkles $0.40/unit; and Snaps $0.30/unit.Bugaboo's budgeted overhead costs for May are: a.Compute Bugaboo's plantwide factory overhead rate for May. b.Compute the product cost in May for each type of cookie. c.Does Bugaboo's use of a plantwide factory overhead rate in any way distort the product costs for May?

Common allocation bases are

Beauty Beyond Words Salon uses an activity-based costing system to determine the cost of services. The salon has determined the costs of services by activity and activity usage as follows: ​ -WeeBee Company has three assembly labor classifications: S-1, S-2, and S-3. The three classifications are paid $16, $19, and $22 per hour, respectively. The assembly activity for a product uses an S-2 employee who performs that task in 24 minutes. To reduce the activity cost per unit, a product engineer proposes using a higher-rated employee who can perform the assembly in 21 minutes. A manager proposes using a lower-rated employee who can perform the assembly in 30 minutes. Which of the following provides the most cost-effective solution?

The selection of the factory overhead allocation method is important because the method selected determines the accuracy of the product cost.

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours are 80,000, and the actual direct labor hours are 6,700 for the month, the amount of factory overhead to be allocated is $38,525 (if the allocation is based on direct labor hours).

Skagit Company manufactures Hooks and Nooks. The following shows the activities per product and total activity information: ​ -The total factory overhead to be allocated to Nooks is

Multiple production department factory overhead rates are most useful when production departments significantly differ in their manufacturing processes.

Dawson Company manufactures small table lamps and desk lamps. The following shows the activities per product and the total overhead information: ​ -Activity-based costing can be beneficial in allocating selling and administrative expenses to various products for managerial decision making. Which of the following would be the best allocation base for help desk costs?

Kaumajet Factory produces two products: table lamps and desk lamps. It has two separate departments: Fabrication and Assembly. The factory overhead budget for the Fabrication Department is $550,000, using 500,000 direct labor hours. The factory overhead budget for the Assembly Department is $400,000, using 80,000 direct labor hours. -If a desk lamp requires 1 hour of fabrication and 2 hours of assembly, the amount of factory overhead that Kaumajet Factory will allocate to each unit of desk lamp using the multiple production department factory overhead rate method with an allocation base of direct labor hours is

Pinnacle Corp. budgeted $700,000 of overhead cost for the current year. Actual overhead costs for the year were $650,000. Pinnacle's plantwide allocation base, machine hours, was budgeted at 100,000 hours. Actual machine hours were 80,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually produced. Pinnacle's plantwide factory overhead rate for the current year is

Condoleezza Co. manufactures two products, A and B, in two production departments, Assembly and Finishing. Condoleezza Co. expects to produce 10,000 units of Product A and 20,000 units of Product B in the coming year. Budgeted factory overhead costs for the coming year are: The machine hours expected to be used in the coming year are as follows: a.Compute the plantwide factory overhead rate, assuming the single plantwide factory overhead rate method is used. b.Compute the production department factory overhead rates, assuming the multiple production department factory overhead rate method is used. c.Compute the factory overhead allocated per unit for each product using (1) the single plantwide rate and (2) production department factory overhead rates. d.Which method is better (single or multiple)? Why?

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are provided below. ​ -The activity rate for the scheduling activity cost pool is

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.​ ​ -The overhead from both production departments allocated to each unit of Product A if Blue Ridge Marketing Inc. uses the multiple production department factory overhead rate method is

Adirondack Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead.​ ​ -Using a single plantwide rate, the factory overhead allocated per unit of Product A in the Painting Department is

When activity-based costing is used, the estimated total factory overhead cost for a product is the sum of the product's individual activity allocations.

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are provided below. ​ -Shubelik Company is changing to an activity-based costing method. It has determined that it will use three cost pools: setups, inspections, and assembly. Which of the following would not be used as the activity base for any of these three activities?

When a plantwide factory overhead rate is used, the amount of overhead costs allocated to each product is the same.

Kaumajet Factory produces two products: table lamps and desk lamps. It has two separate departments: Fabrication and Assembly. The factory overhead budget for the Fabrication Department is $550,000, using 500,000 direct labor hours. The factory overhead budget for the Assembly Department is $400,000, using 80,000 direct labor hours. -If a table lamp requires 2 hours of fabrication and 1 hour of assembly, the amount of factory overhead that Kaumajet Factory will allocate to each unit of table lamp using the multiple production department factory overhead rate method with an allocation base of direct labor hours is

Troglodyte University uses activity-based costing to assign indirect costs to academic departments, using three activities. The activity base, budgeted activity cost, and estimated activity-base usage for each activity are identified as follows: The activity-base usage associated with the Archaeology and Geology departments is as follows: Determine the: a. Activity rate for each activity. b. The total activity cost for the Archaeology Department.

When activity-based costing is used, the number of activities will generally be the same as the number of production departments.