Exam 18: Activity-Based Costing

Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $72,000.​ -Ramapo Company uses a single plantwide overhead rate to apply all factory overhead costs based on direct labor hours. The factory overhead allocated per unit of Dinks is

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 total amount of factory overhead that Kaumajet Factory will allocate to table lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours if 75,000 units are produced is

Activity cost pools are factory overhead costs initially budgeted for activities, such as machine usage, inspections, moving, production setups, and engineering activities.

Dawson Company manufactures small table lamps and desk lamps. The following shows the activities per product and the total overhead information: ​ -The total factory overhead to be allocated to desk lamps is

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-based cost for each tape drive unit is

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

A single plantwide factory overhead rate is computed by dividing total budgeted factory overhead by the total budgeted plantwide allocation base.

Which of the following does not rely on managerial decisions involving accurate product costing?

Dawson Company manufactures small table lamps and desk lamps. The following shows the activities per product and the total overhead information: ​ -If selling and administrative expenses are allocated to different products, they should be reported as a

In a service organization, the multiple department overhead rate method is the most effective in providing accurate information about the cost of services.

Shanghai Company sells glasses, fine china, and everyday dinnerware. It uses activity-based costing to determine the cost of the shipping and handling activity. The shipping and handling activity has an activity rate of $14 per pound. A box of glasses weighs 2 pounds, a box of fine china weighs 4 pounds, and a box of everyday dinnerware weighs 6 pounds. a. Determine the shipping and handling activity cost to be allocated to each unit of product. b. Determine the total shipping and receiving costs to be allocated to the fine china if 3,500 boxes are shipped.

Managers depend on the accuracy of product costing to make decisions regarding continuing operations and product mix.

Camper's Edge Factory produces two products: canopies and tents. The total factory overhead is budgeted at $750,000 for the year, divided between two departments: Cutting, $350,000, and Sewing, $400,000. Each canopy requires 2 direct labor hours in Cutting and 1 direct labor hour in Sewing. Each tent requires 1 direct labor hour in Cutting and 6 direct labor hours in Sewing. Production for the year is budgeted for 20,000 canopies and 10,000 tents. Determine the: a. Total number of budgeted direct labor hours for the year in each department. b. Departmental factory overhead rate for each department. c. Factory overhead allocated per unit of each product, using the departmental factory overhead rates determined in (b).

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. ​ -Which of the following is a cost pool used with the activity-based costing method?

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.​ ​ -Using a single plantwide rate, the factory overhead allocated per unit of Product B is

The use of a plantwide factory overhead rate assumes that the activities causing overhead costs are different across different departments and products.

Sawtooth Leather Company manufactures leather handbags and moccasins. Total factory overhead is budgeted for $360,000. For simplicity, the company has decided to use a single plantwide factory overhead rate to allocate factory overhead based on direct labor hours. Handbags are budgeted for 60,000 units. Each handbag requires 2 hours of direct labor. Moccasins are budgeted for 40,000 pairs. Each pair of moccasins requires 3 hours of direct labor. Determine the amount of factory overhead to be allocated per unit(pair) for each product.

Blackwelder Factory produces two similar products: small table lamps and desk lamps. The total factory overhead budget is $640,000 with 400,000 estimated direct labor hours. It is further estimated that small table lamp production will require 275,000 direct labor hours, and desk lamp production will need 125,000 direct labor hours.​ -Using a single plantwide factory overhead rate with an allocation base of direct labor hours, the factory overhead that Blackwelder Factory will allocate to small table lamp production if actual direct labor hours for the period for small table lamp production is 285,000 would be

Transformations Hair Salon uses an activity-based costing system to determine the cost of services. The salon has determined the costs of services by activity as follows: a.Using the information provided, determine the cost of services for each of the following services provided by the salon: b..If the company budgets 10,000 haircuts, 4,000 complete styles, 3,500 perms, and 5,500 highlights, determine the budget for cost of services.

Activity rates are computed by dividing the cost budgeted for each activity pool by the estimated activity base for that pool.