Exam 6: Activity-Based Costing

The Ogunquit Company uses a predetermined overhead rate. The following accounts have these unadjusted balances: Raw Materials \ 20,000 Work in Process \ 40,000 Finished Goods \ 10,000 Cost of Goods Sold \ 50,000 -Refer to the figure.If Manufacturing Overhead was $12,000 overapplied and considered material,what is the journal entry?

The Emmanuele Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Mops Brooms Total Units produced 50,000 250,000 300,000 Prime costs \ 200,000 \ 750,000 \ 950,000 Direct labour hours 10,000 40,000 50,000 Machine hours 20,000 10,000 30,000 Number of setups 25 75 100 Inspection hours 1,200 2,800 4,000 Number of moves 140 210 350 Departmental Data: (expected and actual) Moulding Assembly Total Direct labour hours Mops 5,000 5,000 10,000 Brooms 5,000 35,000 40,000 Total 10,000 40,000 50,000 Machine hours Mops 17,000 3,000 20,000 Brooms 3,000 7,000 10,000 Total 20,000 10,000 30,000 Overhead costs Machining \ 120,000 \ 30,000 \ 150,000 Moving materials 40,000 30,000 70,000 Setting up 70,000 10,000 80,000 Inspecting products 20,000 30,000 50,000 Total 250,000 \ 100,000 \ 350,000 -Refer to the figure.What is the unit product cost for mops?

The Hampshire Company produces 9 volt batteries and AAA batteries. The Hampshire Company uses a plant-wide rate to apply overhead based on direct labour hours. The following data is given: Actual overhead \ 325,000 Estimated overhead \ 350,000 Estimated activity: 9 volt battery 100,000 direct labour hours AAA battery 400,000 direct labour hours Actual activity: 9 volt battery 125,000 direct labour hours AAA battery 400,000 direct labour hours Units produced: 9 volt battery 500,000 AAA battery 250,000 -Refer to the figure.What is the predetermined overhead rate (rounded to two decimal places)?

Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below: ModelX ModelY Units produced 24,000 30,000 Machine hours 7,500 8,500 Direct labour hours 8,000 12,000 Material handling (number of moves) 4,000 6,000 Setups 5,000 7,000 Purchase orders 30 40 nspections 10,000 14,000 Product line variatinns. 8 12 The following overhead costs are reported for the following activities of the production process: Material handling \ 40,000 Labour-related overhead 120,000 Setups 60,000 Product design 100,000 Batch inspections 120,000 Central purchasing 70,000 Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below: Activity Cost Pool Model Model X Model Model Y Pool Driver Rate X Cost Y Cost Total Activity Activity Material handling \ 40,000 10,000 \ 4 4,000 \ 16,000 6,000 \ 24,000 \ 40,000 Labour- related overhead \ 120,000 20,000 \ 6 8,000 \ 48,000 12,000 \ 72,000 \ 120,000 Setups \ 60,000 12,000 \ 5 5,000 \ 25,000 7,000 \ 35,000 \ 60,000 Product design \ 100,000 20 \ 5,000 8 \ 40,000 12 \ 60,000 \ 100,000 Batch inspections \ 120,000 24,000 \ 5 10,000 \ 50,000 14,000 \ 70,000 \ 120,000 Central purchasing \ 70,000 70 \ 1,000 30 \ 30,000 40 \ 40,000 \ 70,000 Total \ 209,000 \ 301,000 \ 510,000 Jones Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. -Refer to the figure.Under this new approach,what are the global consumption ratios for Model X and Model Y,respectively (rounded to two decimal places)?

How do managers assign resources in time-driven ABC systems?

What will be the effect when a firm implements activity-based procedures for home office expenses?

The Emmanuele Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Mops Brooms Total Units produced 50,000 250,000 300,000 Prime costs \ 200,000 \ 750,000 \ 950,000 Direct labour hours 10,000 40,000 50,000 Machine hours 20,000 10,000 30,000 Number of setups 25 75 100 Inspection hours 1,200 2,800 4,000 Number of moves 140 210 350 Departmental Data: (expected and actual) Moulding Assembly Total Direct labour hours Mops 5,000 5,000 10,000 Brooms 5,000 35,000 40,000 Total 10,000 40,000 50,000 Machine hours Mops 17,000 3,000 20,000 Brooms 3,000 7,000 10,000 Total 20,000 10,000 30,000 Overhead costs Machining \ 120,000 \ 30,000 \ 150,000 Moving materials 40,000 30,000 70,000 Setting up 70,000 10,000 80,000 Inspecting products 20,000 30,000 50,000 Total 250,000 \ 100,000 \ 350,000 -Refer to the figure.What are the consumption ratios for mops for the departments on the basis of the departmental drivers (moulding; assembly)?

What would contribute to distortions caused by unit level rates?

Moss Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering: Salaries \ 5,000 Equpment 40,000 Supplies 10,000 Total \ 125000 The equipment is used for two activities: improving processes and designing tooling.Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools.The salaries are for two engineers.One is paid $50,000,while the other earns $25,000.The $50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes.The remaining engineer spends equal time on all activities.Supplies are consumed in the following proportions: Creating BOMs 25\% Studying capabilities 10\% Improving processes 20\% Training employees 25\% Designing tooling 20\% -Refer to the figure.What is the cost assigned to the improving processes activity?

Yang Manufacturing Company manufactures two products (A and B). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers: Number of Labour A 15 50 500 B 10 150 2,000 Cost per pool \ 10,000 \ 8,000 \ 40,000 -Refer to the figure.What is the allocation rate per labour transaction using ABC?

Owens Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plant-wide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Enginering \1 ,000,000 Setups 900,000 Machiring 2,000,000 Inspection 800,000 Providing space 250,000 Providing utlities 180,000 Activity drivers for each activity have been identified and their practical capacities listed: Machine hours 25,000 Setups 200 Engineering hows 5,000 Inspection hours 2,500 The costs of facility-level activities are assigned using machine hours. -Refer to the figure.What is the batch-level activity?

The Hampshire Company produces 9 volt batteries and AAA batteries. The Hampshire Company uses a plant-wide rate to apply overhead based on direct labour hours. The following data is given: Actual overhead \ 325,000 Estimated overhead \ 350,000 Estimated activity: 9 volt battery 100,000 direct labour hours AAA battery 400,000 direct labour hours Actual activity: 9 volt battery 125,000 direct labour hours AAA battery 400,000 direct labour hours Units produced: 9 volt battery 500,000 AAA battery 250,000 -Refer to the figure.How much overhead is applied to 9 volt batteries and AAA batteries (rounded to two decimal places),respectively?

Owens Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. Costs have been assigned to each activity using direct tracing and resource drivers: Activity Expected Cost Activity Driver Activity Capacity Engineering \ 1,000,000 engineerng hours 5,000 hours Setups \ 900,000 setups 200 setups Machining \ 2,000,000 machine hours 25,000 machine hours Inspection \ 800,000 inspection hours 2,500 inspection hour Owens produces two models: Model X and Model Y.The following table shows how the two products consume activity. Model X Model Y Units completed 300,000 200,000 Engineering hours 1,000 4,000 Setups 80 120 Machine hours 20,000 5,000 Inspection hours 1,500 1,000 -Refer to the figure.Using machining and engineering for cost pools and the costs of set-ups and inspection are allocated machining and engineering in proportion to their costs.(Round to two decimal places.),what would be the engineering cost assigned to model Y?

Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below: ModelX ModelY Units produced 24,000 30,000 Machine hours 7,500 8,500 Direct labour hours 8,000 12,000 Material handling (number of moves) 4,000 6,000 Setups 5,000 7,000 Purchase orders 30 40 nspections 10,000 14,000 Product line variatinns. 8 12 The following overhead costs are reported for the following activities of the production process: Material handling \ 40,000 Labour-related overhead 120,000 Setups 60,000 Product design 100,000 Batch inspections 120,000 Central purchasing 70,000 Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below: Activity Cost Pool Model Model X Model Model Y Pool Driver Rate X Cost Y Cost Total Activity Activity Material handling \ 40,000 10,000 \ 4 4,000 \ 16,000 6,000 \ 24,000 \ 40,000 Labour- related overhead \ 120,000 20,000 \ 6 8,000 \ 48,000 12,000 \ 72,000 \ 120,000 Setups \ 60,000 12,000 \ 5 5,000 \ 25,000 7,000 \ 35,000 \ 60,000 Product design \ 100,000 20 \ 5,000 8 \ 40,000 12 \ 60,000 \ 100,000 Batch inspections \ 120,000 24,000 \ 5 10,000 \ 50,000 14,000 \ 70,000 \ 120,000 Central purchasing \ 70,000 70 \ 1,000 30 \ 30,000 40 \ 40,000 \ 70,000 Total \ 209,000 \ 301,000 \ 510,000 Jones Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. -Refer to the figure.Under this new approach,what cost would be assigned to materials handling?

If activity-based costing is used,what type of activity would maintaining the grounds be classified as?

What are common measures of production activity?

How does activity-based costing assign cost to cost objects?

King Manufacturing has four categories of overhead.The four categories and expected overhead costs for each category for next year are as follows: Maintenance \ 70,000 Materials handling 30,000 Setups 25,000 Inspection 50,000 Currently,overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours; 50,000 direct labour hours are budgeted for next year. The company has been asked to submit a bid for a proposed job.The plant manager feels that obtaining this job would result in new business in future years.Usually,bids are based upon full manufacturing cost plus 30 percent. Estimates for the proposed job are as follows: Direct materials \2 ,500 Direct labour (750 hours) \3 ,750 Number of machine hours 300 Number of material moves 8 Number of setups 3 Number of inspections 5 In the past,full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver,direct labour hours.The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are: Machine hours 16,000 Material moves 4,000 Setups 2,000 Ouality inspections 8,000 a.i.Determine the amount of overhead that would be allocated to the proposed job if direct labour hours are used as the volume-based activity driver. ii.Determine the total cost of the proposed job. iii.Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent. b.i.Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used. ii.Determine the total cost of the proposed job if activity-based costing is used. iii.Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent. c.Which product costing method produces the more competitive bid?

The Holland Company uses a predetermined overhead rate of $12 per direct labour hour to apply overhead.During the year,30,000 direct labour hours were worked.Actual overhead costs for the year were $320,000.What is the overhead variance?

How are batch-level costs assigned?