Exam 7: Activity-Based Costing and Management

MATCHING Match each item with the correct statement below. a. activity drivers b. activity-based costing system c. consumption ratio d. unit-level activities e. activity attributes f. resource drivers -Factors that measure the consumption of resources by activities.

Figure 7-8. Sallisaw Savings & Loan has requested an analysis of checking account profitability by customer type. Customers are categorized according to size of their account: low balances, medium balances, and high balances. The activities associated with the three different customer categories and their associated annual costs are as follows: Additional data concerning the usage of the activities by the various customers are also provided: -Refer to Figure 7-8.

A factory produces 124,000 televisions per quarter. A total of 8,000 production hours are used within the factory per quarter. Calculate the cycle time in minutes.

Develop a set of at least five interview questions that could be used in the construction of an activity dictionary. Also explain why you would ask each question, i.e., what information you hope to acquire and how it would apply to the activity dictionary.

Figure 7-7. Armstrong Company produces a variety of bicycles. One of its plants produces two bicycles: a mountain model and a racing model. At the beginning of the year, the following data were prepared for this plant: In addition, the following information was provided so that overhead costs could be assigned to each product: -Refer to Figure 7-7. Armstrong Company uses activity-based costing to calculate product costs.

Heedy Company makes a product using two departments - Department 1 and Department 2. Information on these departments is as follows:

Inspection time for a plant is 10,000 hours per year. The cost of inspection consists of salaries of four inspectors, totaling $60,000. Inspection also used supplies costing $3 per inspection hour. The company has a close to zero defect state and has eliminated the need for any inspection activity. Calculate the nonvalue-added cost of inspection per year.

Figure 7-3. Hamilton Company manufactures engines. Hamilton produces all the parts necessary for its engines except for one electronic component, which is purchased from two local suppliers: Traynor Inc. and Bello Company. Both suppliers are reliable and rarely deliver late; however, Traynor sells the component for $10.00 per unit and Bello sells the same component for $8.95. Hamilton purchases 70% of its components from Bello, because of the lower price. The total annual demand is 75,000 units. -Refer to Figure 7-3. Calculate the activity rate for reworking products based on rework hours. Round to the nearest whole dollar.

____ is concerned with identifying the root causes of activity costs.

____ are assigned using direct tracing and resource drivers.

Figure 7-1. The receiving department of Owen has three activities: unloading, counting goods, and inspecting. Unloading requires a forklift that is leased for $15,000 per year. The forklift is used only for unloading. The fuel for the forklift is $2,000 per year. Inspection requires special testing equipment that has a depreciation of $500 per year and an operating cost of $1,000 per year. Receiving has four employees who each have an average salary of $35,000 per year. The work distribution matrix for the receiving personnel is as follows: -Refer to Figure 7-1. Calculate the cost of counting.

Match each item with the correct statement below. a. activity analysis b. value-added costs c. velocity d. activity inputs e. activity output measure f. activity output -Process that answers the question "How many people perform the activities?"

An activity-based costing system first assigns costs to activities and then to cost objects.

A manual process takes 18 minutes of direct labor time and 6 pounds of material to produce a product. Automating the process requires 12 minutes of machine time and 5 pounds of material. The cost per labor hour is $9, the cost per machine hour is $7, and the cost per pound of materials is $11. Find the nonvalue-added cost for the above situation.

Match each item with the correct statement below. a. cycle time b. direct tracing c. activity sharing d. driver tracing e. value-added activities f. activity selection -Cost assignment method used for a cost of a resource that is exclusively used by an activity.

Companies will incur costs to perform such tasks as recycling products, controlling pollution, reducing contaminates. All of these tasks are examples of _____________________ costs.

______________ is concerned with doing the activity right the first time it is performed.

Costs incurred to determine whether products and services are conforming to their requirements or customer needs are

A company was evaluating the activity-based environmental cost of two different products -Product X and Product Y. Information on two environmental activities is as follows: Data on Product X and Product Y follows:

Figure 7-2. Steller Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors purchase the same product. The customer activities and costs for the previous quarter are found below: -Refer to Figure 7-2. Calculate the activity rate for servicing goods.