Exam 5: Activity-Based Costing and Management

Match the cost driver in the right column below to the appropriate function in the left column. -Personnel

Match the cost driver in the right column below to the appropriate function in the left column. -Billing

Babcock Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $20 per machine hour, while the Sanding Department uses a departmental overhead rate of $15 per direct labour hour. Job 396 used the following direct labour hours and machine hours in the two departments: The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 396 is $1,200. What was the total cost of Job 396 if Babcock Industries used the departmental overhead rates to allocate manufacturing overhead?

Cecelia Schell is taking four clients (who are not related) on a tour of her retirement development. The clients incurred the following expenses while on the tour. All tour expenses are paid by Cecelia because she has business discounts for most of her business dealings. These expenses will be billed to the clients by Cecelia. ? Required: Compute the total average cost per client showing average indirect (overhead) and average direct (other) charges separately.

A division of a company manufactures two products, which are in high demand in the defence industry. Product A is stamped out in a machine press, at the rate of 10,000 per hour. Product B is identical to product A, with the exception that it is made from thicker steel, and requires the machine press to be recalibrated. Product A is produced on the day shift and product B is produced on the afternoon shift, allowing set up changes to be done between shifts. In this case, set up hours are related to which of the following?

The Celestial Group (CG) provides financial advice to individuals and corporations. CG charges clients for (a) direct professional time, and (b) support services. The three professionals in CG and their rates per professional hour are as follows: The owner of the two corporations has questioned the June bill. She is wondering why support services is the same amount when XB Corp required no support service for the month. Required: Prepare more appropriate bills for June using the activity-based costing approach.

When selling prices are based on costs assigned using the single cost driver, number of pages printed, then Hapless Systems

Bottle Company operates many bottling plants around the globe. At its Toronto plant, where nine different brands are bottled, the following costs were incurred in the current year to produce 15,000,000 cans of soft drink: 1. Development costs of adding the new product "Soda Plus" amounted to $614,000. 2. Material handling costs of inspecting and handling concentrate, bottles, packages, and so forth amounted to $433,500.These costs are allocated to each production run. 3. Incoming materials purchase costs that can be directly traced to individual products being canned and packaged. These costs are purely variable with output level and amounted to $2,213,000. 4. Executive salaries and other central administration overhead amounted to $423,000. 5. Plant overhead including costs related to: supervision, safety, energy and plant insurance amounted to $623,000. 6. The cost of cleaning and calibrating equipment for each production run amounted to $171,500. Required: a. Classify each of the preceding costs as output unit-level, batch-level, product-sustaining, or facility-sustaining. b. Compute the cost per unit for the total manufacturing cost.

When selling prices are based on costs assigned using the single cost driver, direct labour hours, then the Mossman job

Use the information below to answer the following question(s). A transportation company provides bussing, limo and taxi service. The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service. Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement. Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion. Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses. The company's costing system has tracked the following activities for the month: -What indirect costs were accumulated for each major client for the month?

Which of the following statements does not represent the logic of an ABC system?

The plant manager has come to you, as the new management accountant, for assistance. The plant manufactures sailboards, operating two shifts per day. During March through July, a third shift is added. The company has to train new machine operators each summer as the demands for its products is very seasonal. Training always occurs on the day shift, and the plant allocates the costs of training (e.g., extra supervision required), based on machine hours. This year, the three shift managers cannot agree on who should be charged for the training. The day shift manager is angry because she has discovered that machine hours are highest on the day shift. The other two managers argue that the hours are higher due to the training, so the day shift should be charged for those costs. Required: Provide a recommendation to the plant manager? Include in your recommendation two options as an allocation base for training costs.

Analyze the two costing systems below and determine which one is an ABC system, stating the reasons for your choice. System A System B

Whitman Printing Ltd. has contracts to complete weekly supplements required by its' customers. For the current year, manufacturing overhead cost estimates total $336,000 for an annual production capacity of 12 million pages. Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Pages are a direct cost at $0.03 per page. Design costs per job average $1,000 and $1,200 for Money Managers and Hospital Systems, respectively. Whitman Printing sets prices at $0.10 per page plus 120% of design costs. Assume that all costs are variable. Required: Prepare income statements in contribution margin format for both customers using: a. Traditional (simple) costing with overhead applied on a page capacity basis b. Activity-based costing c. How much a page should Money Managers be charged if Whitman Printing wants to breakeven on this customer? Assume that manufacturing overhead costs are fixed and that they are allocated to customers based on pages sold as a percentage of production capacity; and, that design costs are also fixed.

Cocoa Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled: Required: Assume a traditional (simple) costing system applies the $80,000 of overhead costs based on direct labour hours. a. What is the total amount of overhead costs assigned to the standard model? b. What is the total amount of overhead costs assigned to the deluxe model? Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead. c. What is the total amount of indirect costs assigned to the standard model? d. What is the total amount of indirect costs assigned to the deluxe model? e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?

The Marionettes Company is noted for an exceptionally impressive line of Mardi Gras masks. Marionettes has established the following selling and distribution support activity-cost pools and their corresponding activity drivers for the year 2012: Required: a. Determine the activity cost driver rate for each of the four selling and distribution activities. b. Under what circumstances is it appropriate to use each of the activity cost drivers? c. Describe at least one possible negative behavioral consequence for each of the four activity cost drivers.

Hans Sorensen, controller of Franklin Production, has the choice of allocating indirect manufacturing cost using either direct manufacturing labour hours or manufacturing machine hours. If he uses labour hours for the month of January, Product A receives $312,000 in manufacturing overhead charges and Product B receives $448,000. When machine hours are used Product A receives $352,000 in manufacturing overhead charges while Product B receives only $408,000. Required:You are the department manager in charge of Product A and are strongly in favour of using labour hours. Of course, your co-manager, who is in charge of Product B, is strongly in favour of machine hours. What are some arguments you may be able to give for the allocation base that favours your department's product?

Summer Daze Corporation manufactures two products, Bocce Ball Sets and Croquet Sets. Croquet Sets were added as a product line two years ago. Croquet Sets are the more complex of the two products, requiring one hour of direct labour time per unit to manufacture, compared to one-half hours of direct labour time for Bocce Ball Set. Croquet Sets are produced on an automated production line. Indirect costs are currently allocated to the products on the basis of direct labour hours. The company estimated it would incur $332,500 in manufacturing overhead costs and produce 6,000 units of Croquet Sets and 20,000 units of Bocce Ball Sets during the current year. Required: a. Determine the unit cost of a Bocce Ball Set using traditional (simple) costing with units as the allocation base. b. Determine the unit cost of a Bocce Ball Set using activity-based costing.

Match the cost driver in the right column below to the appropriate function in the left column. -Computer Support

The benefits of adopting ABC/ABM are higher for companies in competitive markets because