Exam 6: Activity-Based Costing

Spear Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows: Maintenance \ 180,000 Materials handling 27,000 Setups 24,000 Inspection 90,000 Currently,overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours; 20,000 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 15 percent.Estimates for the proposed job are as follows: Direct materials \ 3,000 Direct labour ( 600 hours) \ 9,000 Number of material moves 4 Number of inspections 6 Number of setups 80 Number of machine hours 8 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 5,000 Material moves 600 Setups 200 Quality inspections 1,000 -Refer to the figure.If the number of inspections is used to assign inspection costs,what would be the amount of inspection costs allocated to the proposed job?

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 kilowatt hours are used to assign power costs,what would be the amount of power costs assigned to Job 10A?

The following information is provided for the year: Actual direct labour hours worked 36,000 Budgeted overhead \ 300,000 Budgeted direct labour hours 30,000 Actual overhead costs incurred \ 360,000 -Refer to the figure.What is the actual overhead rate for applying manufacturing overhead?

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 set of equations (rounded to two decimal places)would be used to create equally accurate reduced ABC allocation rates (where a = labour hours and b = machine hours)?

If activity-based costing is used,what type of activity is security an example of?

Bangor Company applies manufacturing overhead.At the end of the year the following data were available: Actual manufacturing overhead \ 115,000 Estimated manufacturing overhead \ 120,000 Applied manufacturing overhead \ 118,000 What is the journal entry if the amount is considered small?

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.How much overhead is assigned to Model X using the four activity drivers?

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.If the accounts had the following balances,by how much would cost of goods sold be adjusted? Raw materials inventory \ 200,000 Work in process inventory \ 100,000 Finished goods inventory \ 200,000 Cost of goods sold \ 500,000

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 activity rate for moving materials?

Godwin 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: Engineering \ 250,000 Setups 225,000 Machining 500,000 Inspection 200,000 Providing space 62,500 Providing utilities 45,000 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 batch-level activities are assigned using number of setups. The costs of facility-level activities are assigned using machine hours. a.Identify the activities within each process as unit-level,batch-level,product-level,or facility-level. b.Build an activity relational table. c.Compute the rates for each activity.

Doyle Manufacturing Company 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 \ 500,000 Equipment 100,000 Supplies 30,000 Total \ 630,000 The equipment is used for two activities: improving processes and designing tooling.Forty percent of the equipment's time is used for improving processes and 60 percent is used for designing tools.The salaries are for five engineers,one who earns $160,000 and four who earn $85,000 each.The $160,000 engineer spends 30 percent of his time training employees in new processes and 70 percent of his time on improving processes.One engineer spends 100 percent of her time on designing tooling and another engineer spends 100 percent of his time on improving processes.The remaining two engineers spend equal time on all activities.Supplies are consumed in the following proportions: Creating BOMs 15\% Studying capabilities 5\% Improving processes 30\% Training employees 30\% Designing tooling 20\% Using the resource drivers and direct tracing,calculate the cost of each manufacturing engineering activity.What are the resource drivers?

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,which activities would be selected as the cost pools?

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 and brooms,respectively,for the inspection of products activity?

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 immaterial,what is the journal entry?

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 amount of overhead allocated to the proposed job if Winter Manufacturing uses direct labour hours as its only activity driver?

Walter Company uses a job-order costing system to account for product costs.The following information pertains to the current year: Materials placed into production \ 140,000 Indirect labour 40,000 Direct labour (10,000 hours) 160,000 Depreciation of factory building 60,000 Other factory overhead 100,000 Increase in work-in-process inventory 30,000 Factory overhead rate is $18 per direct labour hour. What is the amount of underapplied or overapplied overhead for Walter Company in the current year?

In a department that is drilling holes in materials,which activity base is likely to be most appropriate for assigning overhead costs?

Cabrini Company produces two products: toy trucks and toy cars. The company uses departmental overhead rates for the two production departments: Moulding and Finishing. Moulding uses machine hours to assign overhead and Finishing uses direct labour hours; 50,000 trucks and 250,000 cars are produced. Please find the following data: Moulding Finishing Total Estimated overhead \ 250,000 \ 100,000 \ 350,000 Actual overhead \ 240,000 \ 120,000 \ 360,000 Expected direct labour hours Trucks 5,000 5,000 10,000 Cars 5,000 35,000 40,000 Expected machine hours Trucks 17,000 3,000 20,000 Cars 3,000 7,000 10,000 Actual direct labour hours Trucks 4,500 5,300 10,000 Cars 5,500 34,500 40,000 Actual machine hours Trucks 16,500 3,500 20,000 Cars 3,200 6,800 10,000 -Refer to the figure.How much overhead is applied to the trucks?

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 allocation rate (rounded to two decimal places)would be used to assign labour-related costs?

Newman Company recently installed an activity-based relational database. Using the information contained in the activity relational table, the following pool rates were computed: $400 per purchase order $24 per machine hour, Process 1 $30 per machine hour, Process 2 $80 per engineering hour Two products are produced by Special Products: X and Y. The plant has two manufacturing processes, Process 1 and Process 2. Other processes include engineering, product handling, and procurement. Product X goes through Process 1 while Product Y goes through Process 2. The product relational table for Special Products is as follows: Product X: Activity Driver \# and Name Activity Usage 1 Units 200,000 2 Purchase orders 250 3 Machine hours 80,000 4 Engineering hours 1,250 Product X: Activity Driver \# and Name Activity Usage 1 Units 25,000 2 Purchase orders 125 3 Machine hours 10,000 4 Engineering hours 1,500 -Refer to the figure.What is the unit cost of Product X?