Exam 6: Activity-Based Costing

More accurate product costing information is produced by assigning costs using what rate?

Adams Company predicted factory overhead for Year 2 and Year 3 would be $120,000 for each year. The predicted activity for Year 2 and Year 3 would be 30,000 and 20,000 direct labour hours, respectively. Additional data are as follows: Sales in units 25,000 25,000 Selling price per unit \ 20 \ 20 Direct materials and direct labour per unit \ 10 \ 10 The company assumes that the long-run normal production level is 20,000 direct labour hours per year.The actual factory overhead cost for the end of Year 1 and Year 2 was $120,000.Assume that it takes one direct labour hour to make one finished unit. -Refer to the figure.When the annual estimated factory overhead rate is used,what are the gross profits for Year 2 and Year 3,respectively?

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 training employees' 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.Using functional-based costing,what is the amount of overhead cost to be assigned to Product B using labour hours as the allocation base?

A department that is capital intensive most likely would use a predetermined departmental overhead rate based on which of the following activity bases?

Vaughn, Inc., has identified the following overhead costs and activity drivers for next year: Expected Expected Overhead Item Cost Activity Driver Quantity Setup costs \ 200,000 Number of setups 250 Ordering costs 80,000 Number of orders 1,600 Maintenance 400,000 Machine hours 2,000 Power 40,000 Kilowatt hours 40,000 The following are two of the jobs completed during the year: Job 10A Jab20 E Direct materials \ 3,000 \ 4,000 Direct labour \ 2,800 \ 4,800 Units completed 100 160 Direct labour hours 50 80 Number of setups 1 4 Number of orders 4 5 Machine hours 20 25 Kilnwratt houre 30 \ 5 The company's normal activity is 2,000 direct labour hours. -Refer to the figure.If the number of setups is used to assign setup costs,what would be the amount of setup costs assigned to Job 10A?

Isidora’s Clinic is considering a time-driven activity-based costing system. Given the following data: Resources Activities Time/Activity Supervision \ 60,000 Treating patients 1.40. Supplies and uniforms \ 80,000 Providing hygienic care 1.00 Salaries \ 350,000 Respond to requests 0.60 Computer \ 10,000 Monitor patients 1.00 Monitor \ 25,000 Total \ 525,000 Total nursing hours (practical capacity) 15,000 -Refer to the figure.What is the activity rate for responding to requests?

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 using consumption ratios for labour-related and machine hours,what would the overhead assigned to labour-related activities be (rounded to two decimal places)?

The following information is provided: Estimated manufacturing overhead \ 690,000 Estimated machine hours 46,000 Actual machine hours worked 50,000 Actual costs incurred: Indirect materials \ 170,000 Indirect labour 230,000 Utilities 120,000 Insurance 100,000 Rent 80,000 -Refer to the figure.The company uses a predetermined overhead rate to apply overhead.What is the manufacturing overhead applied?

The Xiang plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: Maintenance \ 50,000 Inspection 75,000 The plant currently applies overhead using direct labour hours and expected capacity of 50,000 direct labour hours.The following data have been assembled for use in developing a bid for a proposed job: Direct materials \ 500 Direct labour \ 2,000 Machine hours 500 Number of inspections 4 Direct labour hours 800 Total expected machine hours for all jobs during the year is 25,000,and the total expected number of inspections is 1,500. -Refer to the figure.Using activity-based costing and the appropriate activity drivers,what would be the total cost of the potential job?

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 if a plant-wide rate is used?

What is one characteristic of a unit-based costing system?

Isidora’s Clinic is considering a time-driven activity-based costing system. Given the following data: Resources Activities Time/Activity Supervision \ 60,000 Treating patients 1.40. Supplies and uniforms \ 80,000 Providing hygienic care 1.00 Salaries \ 350,000 Respond to requests 0.60 Computer \ 10,000 Monitor patients 1.00 Monitor \ 25,000 Total \ 525,000 Total nursing hours (practical capacity) 15,000 -Refer to the figure.What is the capacity cost rate?

Which of the following is NOT a limitation of a plant-wide overhead rate?

Ubben Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: Units produced 20,000 40,000 Machine hours 8,000 10,000 Direct labour hours 14,000 16,000 Material handling (number of moves) 1,000 1,400 Setups 40 60 The following costs are reported: Enpreering \4 8,000 Setups 100,000 Machine-related werhead 144,000 -Refer to the figure.What type of activity would machine-related overhead be classified as?

Ivory Corporation manufactures two products (A and B).The overhead costs have been divided into four cost pools that use the following activity drivers: Number of Number of Machine Packing Product Setups Orders Hours Orders A 20 35 1,000 75 B 5 70 1,500 125 Cost per pool \ 15,000 \ 8,400 \ 120,000 \ 40,000 a.Compute the allocation rates for each of the activity drivers listed. b.Allocate the overhead costs to Products A and B using activity-based costing. c.Compute the overhead rate using machine hours under the functional-based costing system. d.Allocate the overhead costs to Products A and B using the functional-based costing system overhead rate calculated in part (c).

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.Using ABC as the benchmark,what is the percentage error in the cost assigned to Model Y using the approximately relevant ABC approach?

Winter Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows: Maintenance \ 255,000 Materials handling 125,000 Setups 30,000 Inspection 105,000 Currently,overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours; 100,000 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 10 percent. Estimates for the proposed job are as follows: Direct materials \ 15,000 Direct labour (8,000 hours) \ 12,000 Number of material moves 100 Number of inspections 120 Number of setups 24 Number of machine hours 4,000 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 60,000 Material moves 20,000 Setups 3,000 Quality inspections 12,000 -Refer to the figure.What is the total cost of the proposed job if Winter Manufacturing uses direct labour hours as its only activity driver?

Which of the following is a non-unit-based activity driver?

If activity-based costing is used,what type of activity would product inspections be classified as?