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

Which of the following is the fundamental and primary driver of costs in the ABC model?

Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows: -The cost per unit of Product B is closest to which of the following?

Grodt Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 60 meals were served. The company catered the function for a fixed price of $19.00 per meal. The cost of the raw ingredients for the meals was $8.60 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost, supplies and raw ingredients as a Green cost, and other expenses as a Red cost. -According to the activity-based costing system,what was the total cost (including the costs of raw ingredients)of the function mentioned above,rounded to the nearest whole dollar?

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 Order Size activity cost pool?

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers.

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 overhead cost per unit of Product B under the traditional costing system is closest to which of the following?

Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). The company has two products, U86Y and M91F, about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $2,541,760 and the company's estimated total direct labour-hours for the year is 47,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: -(Appendix 5B)The unit product cost of product M91F under the activity-based costing system is closest to:

Groce Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 150 meals were served. The company catered the function for a fixed price of $14.00 per meal. The cost of the raw ingredients for the meals was $8.75 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost, supplies and raw ingredients as a Green cost, and other expenses as a Red cost. -(Appendix 5A)In an action analysis report prepared for the function mentioned above,what would be the "red margin" in the report,rounded to the nearest whole dollar?

Escalona 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 customer according to the activity-based costing system,rounded to the nearest whole dollar? In other words,what would be the overall activity rate for the Customer Support activity cost pool?

In activity-based costing,as in traditional costing systems,non-manufacturing costs are not assigned to products.

In traditional costing systems,all manufacturing costs are assigned to products-even manufacturing costs that are not caused by the products.

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 activity rate for Activity 3 is closest to which of the following?

Groce Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 150 meals were served. The company catered the function for a fixed price of $14.00 per meal. The cost of the raw ingredients for the meals was $8.75 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost, supplies and raw ingredients as a Green cost, and other expenses as a Red cost. -(Appendix 5A)In an action analysis report prepared for the function mentioned above,what would be the "yellow margin" in the report,rounded to the nearest whole dollar?

EMD Corporation manufactures two products,Product S and Product W.Product W is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product S.Product W is the more complex of the two products,requiring one hour of direct labour time per unit to manufacture,compared to a half-hour of direct labour time for Product S.Product W 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 $500,000 in manufacturing overhead costs and produce 10,000 units of Product W and 60,000 units of Product S during the current year.Unit cost 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.

Kya,Inc.manufactures two models of high-pressure steam valves,the XR7 model and the ZD5 model.Budgeted manufacturing overhead cost and operating data regarding production and sales of 2,000 units of the XR7 model and 8,000 units of the ZD5 model for 2005 follow: Required: a) Identify and briefly explain each of the three cost drivers as either unit-level or batch-level or product-level or organization-sustaining level. b) Calculate the budgeted manufacturing overhead cost for each unit of the two models, using only one unit-level cost driver. c) Calculate the budgeted manufacturing overhead cost for each unit of the two models, using the activity-based-costing (ABC) method. d) Assume Kya, Inc. will use only the unit-level driver. Compared to the ABC method, by how much (in terms of total allocated/applied manufacturing overhead cost), if any, will the total output of each model be either under-costed or over-costed? e) Is the result obtained in part (d) above consistent with your expectations? Explain.

An activity-based costing system is generally easier to set up and run than a traditional cost system.

Hasty Hardwood Floors installs oak and other hardwood floors in 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-based costing system: 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: A "square" is a measure of area that is roughly equivalent to 1,000 square metres. 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 Installing Floors and Job Support activity cost pools by filling in the table below: c) Compute the overhead cost, according to the activity-based costing system, of a job that involves installing 3.4 squares.

In activity-based costing,a plant-wide overhead rate is used to apply overhead to products.

Which of the following would be classified as a product-level activity?

Costs incurred at which of the following activity levels should NOT be allocated to products for decision-making purposes?