Exam 8: Activity-Based Costing

Which of the following types of costs would service-oriented companies be more likely to have proportionately more of than manufacturing companies?

Classify each of the following costs as unit-level (U),batch-level (B),product-level (P),or facility-level (F). Factory supples Product development costs Depreciation of set-up equipment Salaries of product engineers Repairs of factory machinery Factory insurance Depreciation of factory equipment Utilities costs for factory machinery Salary of plant manager Factory rent

Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes.Last year,the company incurred $600 000 in overhead costs when a total of 10 000 direct labour hours were incurred.After implementing activity-based costing (ABC),the company's accountant identified the following related information: Proportion of Activity Allocation Base Overhead Cost Material delivery and handling Number of deliveries 30\% Inspections Number of inspections 25\% Supervision Hours of supervisor time 20\% Purchasing Number of purchase orders 25\% The number of activities for standard and custom-made cabinets is as follows: Number of deliveries 500 700 Number of inspections 600 400 Hours of supervisor time 1000 2000 Number of purchase orders 800 400 During the past year,Thurman accepted a customer order for a set of custom-made cabinets that would require the following: Direct labour hours 45 Number of deliveries 4 Number of inspections 5 Hours of supervisor time 2 Number of purchase orders 4 Required: A. How much cverhead would be appled to the job if trachional costing using direct labour hours as the cost driver were used? B. Using activity-based costing (ABC), what wauld be the averhead rate far each of the four activities? C. Using activity-based costing (ABC), what wauld be the tatal averhead applied to the abuve jab? D. Compare the averhead applied using traditional costing to ABC costing and remark an the difference. Which ane do you think is more accurate?

Herndon Brothers Inc.produces a variety of 'all natural' household cleaning supplies that it manufactures and distributes to various grocery stores along the west coast.Which of the following types of costs would most likely be a unit-level cost?

For each of the following activities,identify one potential cost driver. a. Repair and maintenance of factory equipment b. Supplies for factory c. Purchasing d. Quality control inspections e. Machine setups

The following overhead cost information is available for Lowman Inc.for 2006: Activity Allocation Base Overhead Cost Purchasing Number of purchase orders \ 200000 Machine setups Number of setups 80000 Ouality control Number of inspections 60000 During the year,2000 purchase orders were issued;500 machine setups were performed;and 1500 inspections were conducted. Required: A. Calculate the cverhead rates far each of the three activites. B. If a particular job requires 8 purchase arders, 3 setups, and 4 inspections to fill, how much [verhead should be applied to the job?

Jones Construction currently uses traditional costing where overhead is applied based on direct labour hours.Using traditional costing,the applied overhead rate is $20 per direct labour hour. They are considering a switch to activity-based costing (ABC).The company controller has come up with preliminary overhead rates for each of the following activities: Activity Allocation Base Overhead rate Material delivery and handling Number of deliveries \ 100 per delivery Inspections Number of inspections \ 75 per inspection Supervision Hours of supervisor time \ 30 per supervisor hour Purchasing Number of purchase orders \ 60 per purchase order One of the company's current jobs has the following information available: Direct labour hours 50 hours Number of deliveries 2 Number of inspections 3 Hours of supervisor time 2 Number of purchase orders 5 Which of the following statements is true when comparing the total overhead allocated to the job using traditional versus ABC costing?

Which of the following statements is true regarding the identification of activities in an ABC system?

Identify and define each of the four general types of cost classifications used with activity-based costing (ABC).

Which of the following statements is true regarding a cost driver?

Which of the following statements is false regarding cost drivers?

Define 'cross subsidies' and say what kind of product costing system is likely to have them.What happens to cross subsidies in activity-based costing (ABC)?

Compton Corporation The following overhead cost information is available for Compton Corporation for 2006: Activity Allocation Base Overhead Cost Purchasing Number of purchase orders \ 100000 Receiving Number of shipments received 60000 Machine setups Number of setups 150000 Quality control Number of inspections 50000 During the year, 5000 purchase orders were issued; 20 000 shipments were received; 3000 machine setups were performed; and 4000 inspections were conducted. -What is the overhead rate for the purchasing activity?

Which of the following is false regarding activity-based costing (ABC)?

Which of the following statements comparing traditional and activity-based costing (ABC)is false?

Wake Construction Wake Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $200 000 in overhead costs. After implementing activity-based costing (ABC), the company’s accountant identified the following related information: Proportion Activity Allocation Base of Overhead Cost Material delivery and handling Number of deliveries 30\% Inspections Number of inspections 25\% Supervision Hours of supervisor time 20\% Purchasing Number of purchase orders 25\% The number of activities for standard and custom-made cabinets is as follows: Number of deliveries 200 100 Number of inspections 600 400 Hours of supervisor time 1800 2200 Number of purchase orders 1000 1000 During the past year, Wake accepted a customer order for a set of custom-made cabinets that would require the following: Direct labour cost ( 25 hours at \ 15 per hour) \ 75 Direct materials (wood) ( 900 at \ 3.00 per foot) \ 2700 Number of deliveries 3 Number of inspections 5 Hours of supervisor time 3 -How much overhead should be applied to the above customer order?

In Stage 2 of ABC allocation:

Which of the following statements is true regarding activities?

The following overhead cost information is available for Millennium Inc.for 2009: Activity Allocation Base Overhead Cost Purchasing Number of purchase orders \ 300000 Machine setups Number of setups 150000 Ouality control Number of inspections 50000 During the year,4000 purchase orders were issued;8000 machine setups were performed;and 2000 inspections were conducted. Required: A. Calculate the dverhead rates for each of the three actrytaes. B. If a particular job requures 10 purchase orders, 6 setups, and 5 inspections to fill, how much cverhead should be agplied to the job?

Troxler Inc.produces various types of floor rugs with many different designs.They typically produce at least 200 rugs with a single machine setup.A cost incurred each time a machine is set up is called a(n):