Chat with AIExam 9: Activity- Based Costing
Beacon Hill, Corp. manufactures balloons that it then packages and sells throughout the country. Beacon Hill would like to have a better understanding of their overall budgets, and they have decided to implement the use of Activity-Based Costing (ABC). They have decided upon four unique key activities that they would like to assign activity-based rates to the following Manufacturing Overhead (MOH) costs: quality Inspection, $32,400 (2,400 inspection hours); maintenance, $16,858 (2,000 maintenance hours); moving and sorting, $12,444 (662 pounds of materials); and factory supervisor wages, $58,784 (4,788 supervisor hours). Beacon Hill will be allocating MOH to two different products: red balloons and blue balloons. Each balloon used the following resources:
Red balloons: 1,400 inspection hours, 1,450 maintenance hours, 412 pounds of materials, and 2,448 supervisor hours
Blue balloons: 1,000 inspection hours, 550 maintenance hours, 250 pounds of materials, and 2,340 supervisor hours
How much of the Quality Inspection MOH will be allocated to the red balloons?
(35) 
VerifiedD
Fescue, Inc. is a company that produces grass seed that they sell to regional businesses. They are in the process of examining their facility-level costs. Which of the following lists is made up of costs that would be classified as facility-level?
(33) VerifiedD
Lately Twisty Noodles, a regional factory that manufactures various kinds of pasta, has been delighted to experience growth in what has been a challenging economic time for others. They have recently added penne pasta to their current offering of angel hair pasta. As part of their continued efforts to improve their internal processes, management has asked Tom, their accountant, to assist with some analysis. Currently Twisty Noodles utilizes a traditional costing system, but they would like to explore the use of Activity-Based Costing (ABC) since they have expanded their offerings. Tom has identified that they have the following key activities:
Pertinent cost information related to their pasta offerings are as follows:
Under their traditional costing system, Manufacturing Overhead (MOH) is currently assigned to products based on 87% of direct labor costs. Management is very interested to learn whether a switch to ABC will produce more accurate results, and they would like to have some solid numbers to back up their decision. Tom would like to be able to present management with a solid recommendation in the very near future. With this in mind, please complete the following questions.
(If required, round calculations to two decimal places.)
a. What is the cost per unit for each of the identified key activities that would be used under the proposed ABC? How do these values compare to the current calculation using traditional costing?
b. Calculate the total cost per unit for angel hair using both a traditional costing system and ABC.
c. Calculate the total cost per unit for penne using both a traditional costing system and ABC.
d. Why do the two costing systems produce such different results? If you were Tom, which costing system would you encourage Twisty to utilize, and why?
e. The management of Twisty Noodles believes that they may see a 10% increase in production of their products next year. They would also like to consider bringing a new spaghetti pasta to market. How would these events impact the decision which Tom made in part (d)?
Pertinent cost information related to their pasta offerings are as follows:
Under their traditional costing system, Manufacturing Overhead (MOH) is currently assigned to products based on 87% of direct labor costs. Management is very interested to learn whether a switch to ABC will produce more accurate results, and they would like to have some solid numbers to back up their decision. Tom would like to be able to present management with a solid recommendation in the very near future. With this in mind, please complete the following questions.
(If required, round calculations to two decimal places.)
a. What is the cost per unit for each of the identified key activities that would be used under the proposed ABC? How do these values compare to the current calculation using traditional costing?
b. Calculate the total cost per unit for angel hair using both a traditional costing system and ABC.
c. Calculate the total cost per unit for penne using both a traditional costing system and ABC.
d. Why do the two costing systems produce such different results? If you were Tom, which costing system would you encourage Twisty to utilize, and why?
e. The management of Twisty Noodles believes that they may see a 10% increase in production of their products next year. They would also like to consider bringing a new spaghetti pasta to market. How would these events impact the decision which Tom made in part (d)? (37) Verifieda. ABC requires that MOH be allocated based upon a per-unit cost and quantity of each activity. To calculate the per unit cost, take the cost of each key activity/cost driver, and divide it by the amount of that activity/driver. These costs will be calculated as follows:
Machining: $40,710/22,444 hours = $1.81 per hour
Moving and Sorting: $44,928/18,428 hours = $2.44 per hour
Cleaning wages: $18,228/7,084 hours = $2.57 per hour
Factory utilities: $62,829/14,479 square feet = $4.34 per square foot
Under traditional costing, the manufacturing overhead costs are divided by a single cost driver, such as direct labor hours or a percentage of direct labor costs. Both methods incur the same direct materials and direct labor costs, so it is the MOH allocation that varies. ABC costing is often considered when management believes that it will do a more efficient and transparent job of allocating costs based upon activity rather than assuming that overhead is incurred proportionally with volume.
b. $3.98 per box of angel hair pasta under traditional, $4.86 per box of angel hair pasta under ABC
Under both ABC and traditional costing, calculate the overall Direct Materials costs:
Wheat Pasta
48,990 boxes × ($0.33 per pound × 0.50 pounds per box) = $8,083.35
Cardboard
48,990 boxes × $0.10 per box = $4,899.00
Total Direct Materials =
$8,083.35 + $4,899.00 = $12,982.35
Next, calculate the Direct Labor cost:
Assembly Line Wages
48,990 boxes × ($8.25 per hour × 0.10 hours per box) = $40,416.75
Machine Operators Wages
48,990 boxes × ($7.75 per hour × 0.15 hours per box) = $56,950.88
Total Direct Labor =
$40,416.75 + $56,950.88 = $97,367.63
Next, calculate the MOH under traditional:
$97,367.63 × 87% = $84,709.84
Now, combine the Direct Materials, Direct Labor, and the MOH to arrive at the total product costs for traditional costing.
$12,982.35 + $97,367.63 + $84,709.84 = $195,059.82
Lastly, divide the total product costs by the total number of boxes produced to arrive at a total cost per unit:
$195,059.82/48,990 boxes = $3.98 per box of angel hair pasta under traditional
Next, calculate the MOH under ABC:
($1.81 × 13,742 machining hours) + ($2.44 × 14,650 moving and sorting hours) + ($2.57 × 8,778 cleaning hours) + ($4.34 × 10,266 square feet) = $24,873.02 + $35,746.00 + $22,559.46 + $44,554.44 = $127,732.92
Now, combine the Direct Materials, Direct Labor, and MOH to arrive at the total product costs using ABC.
$12,982.35 + $97,367.63 + $127,732.92 = $238,082.90
Lastly, divide the total product costs by the total number of boxes produced to arrive at a total cost per unit:
$238,082.90/48,990 boxes = $4.86 per box of angel hair pasta under ABC
c. $5.52 per box of penne pasta under traditional, $6.07 per box of penne pasta under ABC
Under both ABC and traditional costing, calculate the overall Direct Materials costs:
Wheat Pasta
33,806 boxes × $0.16 per pound × 1 pounds per box = $5,408.96
Cardboard
33,806 boxes × $0.15 per box = $5,070.90
Total Direct Materials =
$5,408.96 + $5,070.90 = $10,479.86
Next, calculate the Direct Labor costs:
Assembly Line Wages
33,806 boxes × ($8.25 per hour × 0.15 hours per box) = $41,834.93
Machine Operators Wages
33,806 boxes × ($7.75 per hour × 0.20 hours per box) = $52,399.30
Total Direct Labor =
$41,834.93 + $52,399.30 = $94,234.23
Next, calculate the MOH using traditional costing:
$94,234.23 × 87% = $81,983.78
Now, combine the Direct Materials, Direct Labor, and the MOH to arrive at the total product costs for traditional costing.
$10,479.86 + $94,234.23 + $81,983.78 = $186,697.87
Lastly, divide the total product costs by the total number of boxes produced to arrive at a total cost per unit:
$186,697.87/33,806 boxes = $5.52 per box of penne pasta under traditional
Next, calculate the MOH using ABC:
($1.81 × 11,702 machining hours) + ($2.44 × 11,778 moving and sorting hours) + ($2.57 × 5,804 cleaning hours) + ($4.34 × 8,213 square feet) = $21,180.62 + $28,738.32 + $14,916.28 + $35,644.42 = $100,479.64
Now, combine the Direct Materials, Direct Labor, and MOH to arrive at the total product costs using ABC.
$10,479.86 + $94,234.23 + $100,479.64 = $205,193.73
Lastly, divide the total product costs by the total number of boxes produced to arrive at a total cost per unit:
$205,193.73/33,806 boxes = $6.07 per box of penne pasta under ABC
d. Traditional costing uses a single cost driver to allocate the manufacturing overhead costs of an organization. ABC uses multiple cost drivers as determined by the key activities identified by those in charge of making budgeting and financial decisions. Traditional costing assumes that all overhead costs are primarily driven by one cost driver, even if this does not accurately depict the way that the business operates. Tom will likely suggest the use of ABC as it does a more accurate job of assessing how costs are being used amongst the various activities employed by Twisty Noodles.
e. If production were to increase by 10% in the following years, this would directly impact direct materials costs, direct labor costs, and MOH whether they use traditional costing or ABC. As the production of products increases, the overall costs will also increase. Tom could begin to conduct a more thorough analysis if he was able to determine the overall cost and quantity of each cost driver for the following year. In regards to the new product offering, Tom would need to gather information pertaining to costing involved in the direct materials and direct labor and then to determine this new product's impact on MOH costs. Once this is completed, Tom could begin to allocate the MOH costs under ABC and compare them to what a traditional costing system would yield. It is likely that these changes would not provoke a different response than was arrived at in part (d). As more product lines are offered, ABC becomes a more appealing costing method.
Both traditional and activity-based costing have certain features that may make them unique in comparison. Which of the following traits is most closely aligned with activity-based costing?
(32) Shawn is a general contractor who has decided to expand his offerings to include living room remodels. In his other projects, Shawn would estimate jobs using a flat rate of $12.50 per square foot of flooring to be replaced. He now believes that the flat rate of billing creates an opportunity to underbid. At the suggestion of his accountant, Shawn would like to explore the use of Activity-Based Costing (ABC). An upcoming bid for a client would include the following:
Shawn would like to add a 25% markup to the initial cost to arrive at a final bid price. Using ABC, what is the difference in profit compared to keeping the flat billing rate?
Shawn would like to add a 25% markup to the initial cost to arrive at a final bid price. Using ABC, what is the difference in profit compared to keeping the flat billing rate? (37) Rosie Riveters is a home inspection company that specializes in pre-closing home inspections for single-family homes. Alexis, the owner, has tasked the accountant with addressing her budget concerns by finding an alternate way to cost aside from their current use of traditional costing. The accountant has determined that the advertising department may be first in line for analysis. The department handled the following volume during the year: responding to social media messages, 7,402 responses (1.5 minutes per response); responding to phone inquiries, 5,633 responses (3 minutes per response); and responding to mailed flyers, 1,340 responses (2 minutes per response). Rosie Riveters spent $167,900 to operate the advertising department, and these resources created a capacity of 35,000 minutes for Rosie Riveters. Using Time-Driven Activity-Based Costing (TDABC), how much total cost will be allocated to key activities? (If required, round calculations to two decimal places.)
(28) Please list some advantages of Activity-Based Costing (ABC). Does ABC have any disadvantages, and if so, what are they?
(31) Some companies choose to have more detailed Manufacturing Overhead (MOH) allocations and then calculate a MOH rate for each of their departments. What is the correct formula to calculate a departmental rate?
(37) Rose, Inc., a factory that produces two different fragrances, rose and lilac, is considering switching their suppliers, and you are attempting to calculate total Manufacturing Overhead (MOH) to get an accurate picture of their budget. Under their traditional costing system, they had the following costs: Rose Fragrance: Glass Bottles, $78,000; Fragrance, $28,540; Bottler Wages, $76,000; and Assembly Line Wages, $26,578; and Lilac Fragrance: Glass Bottles, $118,648; Fragrance, $33,620; Bottler Wages, $84,350; and Assembly Line Wages, $33,668. The manufacturing overhead for each fragrance will be 86% of their Direct Labor (DL) costs. They produced 28,400 glass bottles of rose fragrance and 43,200 glass bottles of lilac fragrance during the period. What is their total allocated MOH for the lilac fragrance?
(37) Pawnee Inc. is an outdoor sporting goods company that produces tents and sleeping bags that it sells online. Pawnee has implemented Activity-Based Costing (ABC) and is in the process of compiling a budget for the coming year. Their Manufacturing Overhead (MOH) is comprised of the following costs:
Setups $120,000 (28,000 setups)
Quality inspections 98,000 (20,000 inspections)
Assembly supervisor wages 160,000 (40,000 hours)
Pawnee anticipates the production of 10,000 tents and 14,000 sleeping bags. Each product is projected to use company resources in the following manner:
What is the ABC-based total MOH cost allocated per unit for the sleeping bags? (If required, round calculations to two decimal places.)
What is the ABC-based total MOH cost allocated per unit for the sleeping bags? (If required, round calculations to two decimal places.) (34) Yogi Inc. is a small company that produces yoga mats and assorted accessories. They have recently transitioned to Activity-Based Costing (ABC) and are in the process of creating a budget. They have compiled the following budgeted Manufacturing Overhead (MOH) costs which are divided into three key activities:
During the year, Yogi used 4,000 setup hours; 12,600 machine hours; and 2,300 inspection hours. If Yogi wants to use an activity rate that is tailored to each activity, then what rate would they use for each?
During the year, Yogi used 4,000 setup hours; 12,600 machine hours; and 2,300 inspection hours. If Yogi wants to use an activity rate that is tailored to each activity, then what rate would they use for each? (24) Samantha is the controller for Tasty Jerky., company that manufactures vegan jerky and currently has two flavors: Cajun and BBQ. Samantha believes that Tasty Jerky is in a great position to transition to Activity-Based Costing (ABC) from a traditional costing system. Tasty Jerky is planning to produce 77,670 bags of Cajun jerky and 81,400 bags of BBQ jerky. Management has asked Samantha to compile costing data using ABC. She has identified the following key activity information:
Moving and Sorting Ingredients $98,444 (146,800 pounds)
Quality Control $264,306 (14,500 inspections)
Each product will require the following amount of each key activity:
In addition, Cajun will need $99,430.00 of Direct Materials and $128,900.00 of Direct Labor while BBQ will need $103,220.00 of Direct Materials and $139,800.00 of Direct Labor. Determine the total production costs for BBQ jerky under the ABC system? (If required, round calculations to two decimal places.)
In addition, Cajun will need $99,430.00 of Direct Materials and $128,900.00 of Direct Labor while BBQ will need $103,220.00 of Direct Materials and $139,800.00 of Direct Labor. Determine the total production costs for BBQ jerky under the ABC system? (If required, round calculations to two decimal places.) (33) Trivium Inc. is a retail business that produces energy drinks and assorted flavored waters. They are in the process of evaluating their costing systems and are working towards an Activity-Based Costing (ABC) implementation. One of the roadblocks up to this point has been a lack of consensus on what key activities make the most sense to track. Their accountant has compiled the following data about their Manufacturing Overhead (MOH) costs:
The production department used the following amounts in a recent production run: 2,300 square feet, 2,909 maintenance hours, and 1,230 machine setups.
(If required, round calculations to two decimal places.)
a. What is the total amount of MOH cost allocated to facility-level activities?
b. What is the total amount of MOH cost allocated to product/process-level activities?
c. What is the total amount of MOH cost allocated to batch-level activities?
The production department used the following amounts in a recent production run: 2,300 square feet, 2,909 maintenance hours, and 1,230 machine setups.
(If required, round calculations to two decimal places.)
a. What is the total amount of MOH cost allocated to facility-level activities?
b. What is the total amount of MOH cost allocated to product/process-level activities?
c. What is the total amount of MOH cost allocated to batch-level activities? (37) Beacon Hill, Corp. manufactures balloons that it then packages and sells throughout the country. Beacon Hill would like to have a better understanding of their overall budgets, and they have decided to implement the use of Activity-Based Costing (ABC). They have decided upon four unique key activities which they would like to assign activity-based rates to the following Manufacturing Overhead (MOH) costs: quality inspection, $32,400 (2,400 inspection hours); maintenance, $16,858 (2,000 maintenance hours); moving and sorting, $12,444 (662 pounds of materials); and factory supervisor wages, $58,784 (4,788 supervisor hours). Beacon Hill will be allocating MOH to two different products: red balloons and blue balloons. Each balloon used the following resources:
Red balloons: 1,400 inspection hours, 1,450 maintenance hours, 412 pounds of materials, and 2,448 supervisor hours
Blue balloons: 1,000 inspection hours, 550 maintenance hours, 250 pounds of materials, 2,340 supervisor hours
How much of the Moving and Sorting MOH will be allocated to the blue balloons? (Do not round intermediate calculation.)
(44) Susan is the controller for Simply Devine Inc., a company that produces ice cream and specializes in dairy-free versions of the Cookie Dough and Rocky Road flavors. Susan has recommended that Simply implement Activity-Based Costing (ABC) as they gear up to produce the following number of pints in the coming year: Cookie Dough, 98,700 pints; and Rocky Road, 88,430 pints. Susan believes that a traditional costing system has not been the most effective manner to allocate their Manufacturing Overhead (MOH) costs. She has compiled the following data about the usage of their company resources:
Their MOH is comprised of the following costs:
What is the ABC-based total MOH cost allocated per unit for Rocky Road ice cream? (If required, round calculations to two decimal places.)
Their MOH is comprised of the following costs:
What is the ABC-based total MOH cost allocated per unit for Rocky Road ice cream? (If required, round calculations to two decimal places.) (38) Artie, Inc. manufactures soy candles in the Southeast region of the United States. They have reported the following costs for their rose-scented line of candles: Glass Containers, $28,600; Cotton Wicks, $20,000; Candle Assembly Wages, $46,250; Shipping, $26,000; Package Assembly Wages, $6,000; and Candle Lids, $5,962. Their Manufacturing Overhead (MOH) will be 90% of their Direct Labor (DL) costs. You are reviewing the work of a fellow accountant and confirming calculations for their traditional costing numbers. What are the total product costs for the rose-scented line of candles?
(33) Stevie has been allocating Manufacturing Overhead (MOH) costs to her products using a single plant-wide rate of $14.00 per Direct Labor (DL) hour. A recent job required 347 DL hours, 42 production runs, 25 quality inspections, and 20 factory supervisor hours. Based on the increased activity, the accountants are suggesting a transition to Activity-Based Costing (ABC) and have suggested the following rates:
Materials Handling: $9.75 per direct labor hour
Production Setup: $18.50 per production run
Quality Inspections: $6 per inspection
Factory Supervisor Wages: $12.30 per supervisor hour
Assuming that Stevie makes the switch to ABC, what is the difference in MOH costs that would be reported under the previous plant-wide rate compared to the ABC rates?
(34) In comparing a traditional costing systems with an activity-based costing system, which of the following would be considered a feature of a traditional cost system?
(49) During the current year, Mary is compiling figures for a cookie factory's cost accounting, which is currently utilizing traditional costing. The factory produces two kinds of cookies: chocolate chip and oatmeal raisin. Mary would like to calculate the total cost per unit and notes the following costs for chocolate chip: Direct Materials (DM), $68,300; and Direct Labor (DL), $82,450; and the following costs for oatmeal raisin: Direct Materials, $57,890; and Direct Labor, $71,708. The Manufacturing Overhead (MOH) for each cookie will be 85% of their direct labor cost. They created 126,756 units of chocolate chip and 104,222 units of oatmeal raisin during the period. What is the factory's total cost per unit for chocolate chip?
(43) Pawnee Inc. is an outdoor sporting goods company that produces tents and sleeping bags that it sells online. Pawnee has implemented Activity-Based Costing (ABC) and is in the process of compiling a budget for the coming year. Their Manufacturing Overhead (MOH) is comprised of the following costs:
Setups $120,000 (28,000 setups)
Quality inspections $98,000 (20,000 inspections)
Assembly supervisor wages $160,000 (40,000 hours)
Pawnee anticipates the production of 10,000 tents and 14,000 sleeping bags. Each product is projected to use company resources in the following manner:
What is the ABC-based total MOH cost allocated per unit for the tents? (If required, round calculations to two decimal places.)
What is the ABC-based total MOH cost allocated per unit for the tents? (If required, round calculations to two decimal places.) (35) 
Filters
- Essay(0)
- Multiple Choice(0)
- Short Answer(0)
- True False(0)
- Matching(0)