Exam 9: Activity- Based Costing

John is evaluating costs incurred at the factory where he works and is thinking about which hierarchies would apply to certain costs. He has just started to think about unit-level costs. Which of the following is false as it pertains to unit-level costs?

Fluffy Corp. is a factory that produces cloud-shaped home décor, and their most successful product to date has been a small cloud pillow. Fluffy is considering a switch to Activity-Based Costing (ABC) and has finally identified the key activities they would like to use to allocate their manufacturing overhead costs. Management would like some additional information about how this method would allocate a recent production run of cloud pillows. The production department had a recent run of cloud pillows that used the following: 1,300 square feet; 2,420 machine setups; and 1,997 pounds of material. How much unit-level cost should be allocated to the production department of Fluffy? (If required, round calculations to two decimal places.)

Denominator volume refers to the total occurrences of the cost driver within an activity. The availability of each activity's capacity can be expressed in several ways. Which of the following ways would be considered inappropriate?

Your client, a factory that produces chips and salsa, uses traditional costing, and you are attempting to calculate total cost per unit. They have the following costs (same for each item): Direct Materials (DM), $56,280; Direct Labor (DL), $63,460; and their Manufacturing Overhead (MOH) will be 82% of their DL cost. They produced 33,470 units of glass salsa jars and 42,000 packets of chips during the period. What is their total cost per unit for salsa?

Trojan Corp. creates miniature wooden figurines that it sells to local stores around the state. Trojan is switching to Activity-Based Costing (ABC) and has arrived at the following activity-based rates for their Manufacturing Overhead (MOH) allocation: $22.00 per direct labor hour, $17.50 per packaging hour, and $8.60 per inspection hour. A recent job required the following: 600 direct labor hours 127 packaging hours 78 inspection hours What is the amount of MOH that would be allocated to this most recent job based upon the pre-determined activity-based rates?

Activity-based costing (ABC) will utilize cost drivers to allocate various costs. Which of the following would be an appropriate cost driver for an employee cafeteria?

If a business wants to use Time-Driven Activity-Based Costing (TDABC), then they will need to calculate the cost per transaction after determining their rate for supplying an activity. Which of the following represents the correct formula for calculating the cost per transaction?

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: $6.00 per inspection Factory Supervisor: $12.30 per supervisor hour Assuming that Stevie makes the switch to ABC, what are the total MOH costs allocated to the most recent production run?

The management team at Diamondz, Inc., a manufacturer of fine jewelry, is gearing up for their new fiscal year. Part of their yearly process includes analyzing the past year's performance and seeking ways to improve upon existing processes. Diamondz specializes in two products: diamond rings and diamond necklaces. Management has decided that they would like to begin using Activity-Based Costing (ABC) for budgeting their Manufacturing Overhead (MOH) costs. They have narrowed their key activities to the following: Diamondz has determined that the 18,900 rings they produce will use the following: $130,000 of direct materials, $52,600 of direct labor, 6,200 setups, 12,400 inspections, 26,350 machine hours, and 12,444 square feet. The 15,680 necklaces they produce will use the following: $227,400 of direct materials, $86,700 of direct labor, 3,800 setups, 9,060 inspections, 16,350 machine hours, and 7,556 square feet. What is the total manufacturing cost for diamond rings? (If required, round calculations to two decimal places.)

When considering implementing activity-based costing, management should consider all advantages and disadvantages. Which of the following would be considered a disadvantage?

Susan has gathered the following data about the tire factory she manages: the department's total costs are budgeted as follows: Quality Control- $122,000, Property Tax- $18,000, Direct Wages and Salaries, $506,300; Rubber, $87,482; Fabrics, $62,500; Factory Supervisor Salaries, $166,200; and Factory Depreciation, $102,000 all of which have been derived from the production department. Rather than using a plant-wide rate, she will be calculating the Manufacturing Overhead (MOH) allocation with a departmental rate. What is the budgeted MOH rate using a departmental rate based on DL cost?

John is a carpenter who specializes in bathroom renovations for single-owner homes. He believes that he has been underbidding his projects and losing out on potential profit that could make all of the difference for his business's continued viability. He is putting together an estimate for a potential client and has determined the following activities: Previously, John was billing at a flat rate of $6 per square foot with no additional markups. John would like to add a 25% markup to the cost to arrive at the final bid price that will be given to the customer. Using Activity-Based Costing (ABC), how much additional profit will John make from this prospective client?

Swanson Corp. manufactures and sells decorative bird feeders and birdhouses to local vendors. As a new business, they are trying to determine how to appropriately cost their items and have narrowed the choices to a traditional costing system and Activity-Based Costing (ABC). Their Direct Materials (DM) include (same for both products): Concrete, $12,500; and wood, $23,620. Their Direct Labor (DL) includes (same for both products): Wages (assembly line worker), $58,900; and Wages (painter), $42,850. Under a traditional costing system, their Manufacturing Overhead (MOH) would be 88% of their direct labor costs. If they decide to go with ABC, then they have identified the following key activities and costs: Property tax, $18,400 ($1.50 per square foot); Wages, supervisor, $56,800 ($7.10 per hour); and Cleaning, $24,700 ($3.81 per hour). Swanson intends to stick to the following production schedule: Bird feeders: 18,640 units; 8,100 square feet; 5,230 supervisor hours; and 3,900 cleaning hours. Birdhouses: 12,307 units; 4,150 square feet; 2,770 supervisor hours; and 2,580 cleaning hours. If Swanson chooses to use a traditional costing system instead of ABC, then what is the difference in total product costs for bird feeders?

Time-Driven Activity-Based Costing (TDABC) requires its users to calculate the rate for supplying an activity. The correct formula for doing so would be

Roland's company makes and sells scarves, and he has just completed his annual financial analysis for the most recent year-end. The company produces two varieties of scarves: Silk and Cotton. Roland used a single plant-wide rate based on Direct Labor (DL) hours this year just as he had for many years prior, but he is not positive that this is the best approach moving forward. Roland has become interested in Activity-Based Costing (ABC). Roland has determined that Manufacturing Overhead (MOH) key activities include: Folding, $19,420.00 (driven by DL hours); Cleaning/Maintenance, $10,330.00 (driven by cleaning/maintenance hours); and Quality inspections, $4,600.00 (driven by number of inspections). He has compiled the following financial data to assist with his evaluation of the costing systems: What is the total amount of MOH allocated to the silk scarves using ABC? (Do not round the calculations.)

Leslie is the new controller for Toasties, a coffee bean roaster, and she has decided to introduce some changes that she believes will assist management in making more informed cost decisions. At her previous job, Leslie implemented activity-based costing, and the management was thrilled to be able to better allocate their Manufacturing Overhead (MOH) costs to their products. Leslie is optimistic that Toasties will benefit in the same manner and has identified the following key activities: Machining $48,400 (8,000 machine hours) Cleaning/Maintenance $36,700 (6,850 cleaning/maintenance hours) Roaster supervisor wages $84,330 (16,800 supervisor hours) Leslie anticipates that Toasties will roast 12,400 pounds of light beans and 18,990 pounds of dark beans. The light beans will use the following: Machining, 3,200 machine hours; Cleaning/Maintenance, 2,980 cleaning/maintenance hours; and 7,100 Roaster Supervisor Hours. The dark beans will use the following: Machining, 4,800 machine hours; Cleaning/Maintenance, 3,870 cleaning/maintenance hours; and 9,700 Roaster Supervisor Hours. What is the total amount of MOH costs that will be allocated to the dark beans based upon ABC? (If required, round calculations to two decimal places.)

Sunflower, Inc. is a service-based business that provides landscaping architecture services to their clients. Management has been investigating whether a change to Activity-Based Costing (ABC) would benefit the company and help them achieve their goal of having the costs in their bids more closely mirror the actual costs while maximizing their profit. Currently, Sunflower bills at a flat rate of $9 per square foot of yard prep and had been adding a 15% markup to their bids. After analyzing their key tasks, they are going to use ABC for an upcoming customer bid: Sunflower would like to increase their markup to 18% for all jobs using ABC. What would Sunflower's bid price be if they chose to utilize ABC?

Garden Variety is an organization that manufactures lawn gnomes and other decorative yard items. David, the senior accountant, is creating a budget for the New Year while simultaneously implementing a transition into Activity-Based Costing (ABC). The lawn gnomes had Direct Labor (DL) costs of $147,890.00 and Direct Materials (DM) costs of $90,707.00. David has gathered the following budgeted Manufacturing Overhead (MOH) costs information and divided it into four key activities: During the current year, Garden Variety produced 19,480 lawn gnomes and used 6,230 setups, 3,440 inspections, 4,160 supervisor hours, and 1,880 cleaning/maintenance hours. a. What are the activity rates of each of the four key activities? (If required, round calculations to two decimal places.) b. What is the total amount of MOH allocated to the lawn gnomes? c. What is the total cost per lawn gnome?

Curtis owns Mayflower Construction, a company that specializes in the design and construction of what they have promoted as a backyard oasis. Curtis is putting together an informational packet to distribute to potential clients that will include examples of projects and suggested pricing. The first project in the packet will be backyard oasis consisting of a large pergola and seating. Curtis would like to upgrade Mayflower's costing to be in line with Activity-Based Costing (ABC) and has put together the following information about the first example project: Curtis would like to add a 21% markup to the total cost of the project. This would be a big transition from his current method of billing at a flat rate of $198 per linear square foot. How much is final price that Curtis will include in the packet?

Fancy Bags, Inc. is a company that manufactures decorative gift bags, and they currently use a traditional costing system. Fancy has been focusing on its two main products: Metallic gift bags and Polka Dot gift bags. Fancy allocates Manufacturing Overhead (MOH) costs based on 90% of the Direct Labor (DL) costs for each product. The Metallic gift bags use the following resources: Assembly Line Wages, $133,600; Packaging Wages, $92,400; Metallic Paper, $246,700; and Plastic Handles, $97,450. The Polka Dot gift bags use the following resources: Assembly Line Wages, $125,400; Packaging Wages, $86,450; Special Paper, $222,800; and Plastic Handles, $83,706. Fancy anticipates production of 468,000 Metallic bags and 333,400 Polka Dot bags. What is the total cost per unit for each type of bag? (Round your answers to two decimal places.)