Exam 5: Activity-Based Costing: A Tool to Aid Decision Making

Dierich Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. -How much cost,in total,would be allocated in the first-stage allocation to the Customer Support activity cost pool?

Escoto Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: -What would be the total overhead cost per order according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Filling Orders activity cost pool?

Mike Kyekyeku is a sole proprietorship that provides consulting and tax preparation services to its clients.Mike charges a fee of $100 per hour for each service and can devote a maximum of 4,000 hours annually to his clients.He reported the following revenues and expenses for 2008: Being an accountant, Mike kept good records of the following data for 2008: (i). (ii). Required: a. Should Mike emphasize one service more than the other if Mike were to allocate all the overhead costs using direct-labours as the only overhead cost driver (1,300 for Tax and 2,700 for Consulting)? Support your decision with the relevant calculations and/or analysis. b. Identify each of the three cost drivers as either unit-level, batch-level, product-level, customer-level, or organization-sustaining. c. How might Mike's product/service emphasis decision in Part a above be altered if he were to allocate all the overhead costs using activity-based costing and the three cost drivers, that is, number of clients, number of transactions with clients, and computer hours? Show all your supporting calculations and/or analysis, including any necessary explanation.

When there are batch-level or product-level costs,in comparison to a traditional cost system,an activity-based costing system ordinarily will shift costs from high-volume to low-volume products.

Dierich Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. -How much cost,in total,would be allocated in the first-stage allocation to the Order Size activity cost pool?

Flyer Corporation manufactures two products,Product A and Product A.Product B is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour hours.The company estimated it would incur $396,000 in manufacturing overhead costs and produce 5,500 units of Product B and 22,000 units of Product A during the current year.Unit costs for materials and direct labour are: Required: a) Compute the predetermined overhead rate under the current method of allocation, and determine the unit product cost of each product for the current year. b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

(Appendix 5A)Which of the following best describes a cost object,such as a product or customer,that has a negative red margin?

Diehl Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. -How much cost,in total,would be allocated in the first-stage allocation to the Customer Support activity cost pool?

Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 units. The company has traditionally used direct labour hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labour hours per unit, and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $98,785. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three factory overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.) -(Appendix 5B)The predetermined overhead rate (i.e.,activity rate)for Activity 2 under the activity-based costing system is closest to which of the following?

Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labour-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labour hours per unit and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $71,286. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three factory overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.) -(Appendix 5B)The overhead cost per unit of Product B under the traditional costing system is closest to:

Escau Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The activity measures for the activity cost pools for the year are as follows: -What would be the total overhead cost per order according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Filling Orders activity cost pool?

Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 units. The company has traditionally used direct labour hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labour hours per unit, and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $98,785. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three factory overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.) -(Appendix 5B)The predetermined overhead rate under the traditional costing system is closest to which of the following?

Unit-level activities arise as a result of the total volume of production and are performed each time a unit is produced.

Dideda Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. -How much cost,in total,should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision making?

Arthur Company has two products: S and D. The company uses activity-based costing and has prepared the following analysis, showing the estimated total cost and expected activity for each of its three activity cost pools: The annual production and sales of Product S is 4,547 units. The annual production and sales of Product D is 7,913. -The cost per unit of Product S under activity-based costing is closest to which of the following?

(Appendix 5A)Which of the following statements concerning ease of adjustment codes is NOT correct?

Accola Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 1,100 units and of Product B is 700 units. There are three activity cost pools, with estimated costs and expected activity as follows: -The cost per unit of Product A is closest to which of the following?

Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

Foss Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: -What would be the total overhead cost per bouquet according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Making Bouquets activity cost pool?

Phoenix Company makes custom covers for air conditioning units for homes and businesses.The company uses an activity-based costing system for its overhead costs.The company has provided the following data concerning its annual overhead costs and its activity cost pools: Distribution of Resource Consumption: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: Required: a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: b) Compute the activity rates (i.e., cost per unit of activity) for the Making Covers and Job Support activity cost pools by filling in the table below: c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making 50 yards of covers and has direct materials and direct labour cost of $1,500. The sales revenue from this job is $2,500. For purposes of this action analysis report, direct materials and direct labour should be classified as a Green cost, production overhead as a Red cost, and office expense as a Yellow cost.