Exam 4: Activity Based Costing and Analysis

Bond Company uses a plantwide overhead rate with direct labor hours as the allocation base. Use the following information to solve for the amount of direct labor hours estimated per unit of product G2.

When using the plantwide overhead rate method, total budgeted overhead costs are combined into one overhead cost pool.

Allocated overhead costs vary depending upon the allocation methods used.

Consider the following activities that take place in a veterinary clinic. (a.) Cleaning cages. (b)) Heating and air conditioning the clinic. (c)) Sending blood work to a lab. (d)) Dispensing medicine. Which of the following statements is true?

Base Runner, Inc. manufactures baseball bats that go through two operations, cutting and sanding, before they are complete. Expected costs and activities for the two departments are shown in the following table: a. Compute a departmental overhead rate for the cutting department based on machine hours. b. Compute a departmental overhead rate for the sanding department based on machine hours.

Which of the following is not true?

Distorted product cost information can result in poor decisions.

The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.

A company has two products: A and B. It uses a plantwide overhead allocation method based on activity 2 and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's plantwide overhead rate and (b) the amount of overhead allocated to Product A.

A method of assigning overhead costs to a product using a single overhead rate is:

________ focuses on activities and the cost of carrying out activities.

What is the basic principle underlying activity-based costing?

Use the data for Wall Nuts, Inc. to compute departmental overhead rates based on machine hours in Department A and machine hours in Department B.

Western Company allocates $10.00 overhead to products based on the number of machine hours used. The company uses a plantwide overhead rate with machine hours as the allocation base. Given the amounts below, how many machine hours does the company expect in department 2?

A company has two products: X and Y. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Annual production and sales level of Product X is 161,100 units, and the annual production and sales level of Product Y is 275,200 units. a. Compute the approximate overhead cost per unit of Product X under activity-based costing. b. Compute the approximate overhead cost per unit of Product Y under activity-based costing.

Compared to the plantwide overhead rate method, the departmental overhead rate method usually results in more accurate overhead allocations.

The use of a plantwide overhead rate is not acceptable for external reporting under GAAP.

Rising Sun, Inc. produces granola that requires two processes, mixing and baking, to complete. The best-selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown in the following table: Rising Sun's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department. Determine the total product cost of this product line and each unit of cherry almond delight.

ABC is significantly less costly to implement and maintain than more traditional overhead costing systems.

The plantwide overhead rate is determined using volume-related measures.