Exam 27: Activity-Based Costing C

Cosgrove Company manufactures two products,Product K-7 and Product L-15.Product L-15 is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product K-7.Product L-15 is the more complex of the two products,requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product K-7.Product L-15 is produced on an automated production line. Overhead currently is applied to the products on the basis of direct labor-hours.The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product L-15 and 40,000 units of Product K- 7 during the current year. Unit costs for materials and labor are: Required: a.Compute the predetermined overhead rate under the current method,and determine the unit product cost of each product for the current year. b.The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead.Data relating to the company's activity cost pools for the current year are given below: Using the data above,determine the unit product cost of each product for the current year. c.What items of overhead cost make Product L-15 so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product L-15?

A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

In activity-based costing,there are a number of activity cost pools,each of which is allocated to products and other costing objects using its own unique measure of activity.

Reach Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland,Dallas,and Miami.Two of the company's activity cost pools are General Service and Research Service.These costs are allocated to the three branch offices using an activity-based costing system.Information for next year follows: Estimated branch data for next year is as follows: How much of the headquarters cost allocation should Dallas expect to receive next year?

The following is taken from Ames Company's internal records of its factory with two operating departments.The cost driver for indirect labor is direct labor costs,and the cost driver for the remaining items is number of hours of machine use.Compute the total amount of overhead allocated to Dept.1 using activity-based costing.

A _________________ is a factor that causes the cost of an activity to go up and down.

An activity __________________ is a temporary account accumulating the costs a company incurs to support an identified set of activities.

In activity-based costing,some manufacturing costs may be excluded from product costs.

Activity-based costing can be especially effective in situations where many different products are manufactured in the same department or departments.

Briefly describe the process of activity-based costing.

Which of the following is not a limitation of activity-based costing?

Activity based costing can be applied to:

Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports.

Activity cost pools are an important part of the allocation of overhead costs using activity-based costing.

An activity-based costing system usually involves a fewer number of allocations compared with a traditional cost allocation system.

Activity rates from Quattrone Corporation's activity-based costing system are listed below.The company uses the activity rates to assign overhead costs to products: Last year,Product F76D involved 2 customer orders,434 assembly hours,and 20 batches.How much overhead cost would be assigned to Product F76D using the activity-based costing system?

An activity-based cost allocation system: