Exam 18: Activity-Based Costing and Other Cost Management Tools

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \6 0,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Account verification (accounts) \1 5,000 20,000 accounts Correspondence (letters) \1 0,000 1,000 letters The above activities are carried out at two of their regional offices. Northeast Office Midwest Office Account inquiry (hours) 100 hours 200 hours Account billing (lines) 10,000 lines 7,000 lines Account verification (accounts) 1,000 accounts 600 accounts Correspondence (letters) 50 letters 100 letters - What is the cost per unit for the account billing activity?

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. Additional information follows: Activity Allocation Base Cost Allocation Rate Materials handling Number of parts \ .08 Machining Machine hours \ 7.20 Assembling Number of parts \ .35 Packaging Number of finished units \ 2.70 - What is the cost of assembling per ceiling fan?

Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below: Current market price \ 180 per pair Current manufacturing cost \ 110 per pair Current non-manufacturing cost \ 25 per pair Desired profit 30\% of price -Which of the following represents the target price?

Torreya Company produces gaskets for the automotive industry. Current production cost is $4.50 per carton of 100. There is a highly competitive market for the product, and Torreya currently uses a target pricing approach. Currently, equivalent products are selling for $5.90 per carton. Torreya wishes to earn a minimum of a 30% markup over cost. What would be their most appropriate response?

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May: Estimated Indirect Estimated Quantity of Activity Activity Costs Allocation Base Allocation Base Materials handling \ 3,500 Number of parts 5,000 parts Assembling \ 12,000 Number of parts 5,000 parts Packaging \ 5,750 Number of bread boxes 1,250 bread boxes Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00. -What is the cost of materials handling and assembling per breadbox?

Arnold Company produces handheld calculators, and their manufacturing cost is currently $5.80 per unit. The company also has non-manufacturing costs of $1.20 per unit. Arnold employs target pricing strategy, and the current market price is $8.00 per unit. If Arnold wishes to price their product at a 25% markup over full-product cost, what must they do?

The cost of product liability claims comes under which category of costs?

Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

Just-in-time production systems have a great deal of flexibility, and can easily tolerate small interruptions of supplies, and occasional defective materials.

Quality Stereo Company has provided the following information regarding its activity-based costing system: • Purchasing department costs are allocated based on purchase orders and the cost allocation rate is $75 per purchase order. • Assembly department costs are allocated based on the number of parts used and the cost allocation rate is $1.00 per part. • Packaging department costs are allocated based on the number of units produced and the allocation rate is $2.00 per unit produced. Each stereo produced has 50 parts, and the direct materials cost per unit is $70. There are no direct labor costs. Quality Stereo has an order for 1,000 stereos which will require 50 purchase orders in all. What is the total cost of the 1,000 stereos?

Which of the following would NOT be considered an activity for the purposes of an activity-based costing system?

JC Manufacturing produces products that use a variety of components. Which of the following cost drivers would be the MOST applicable for assigning material handling costs to the finished products?

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Artivitias Allocated Costs Allocation Base Accaunt inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Afcaunt verification (accounts) \ 15,000 20,000 accounts Correspandence (letters) \ 10,000 1,000 letters The above activities are carried out at two of their regional offices. Northeast Office Midwest Office Account inquiry (hours) 100 hours 200 hours Account billing (lines) 10,000 lines 7,000 lines Account verification (accounts) 1,000 accounts 600 accounts Correspondence (letters) 50 letters 100 letters - How much of the account inquiry cost will be assigned to the Midwest Office?

Which of the following pertains to a just-in-time production system?

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June: Estimated Indirect Estimated Quantity of Activity Activity Costs Allocation Base Allocatinn Base Materials landling \ 3,150 Number of parts 4,200 parts Assembling \ 13,860 Number of parts 4,200 parts Packaging \ 2,730 Number of pillows 1,050 paillows Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50. There is no direct labor. If Sleep Tight sells pillows for $21.00, they will earn a gross profit of $1.30 per pillow.

Which of the following pertains to a just-in-time production system?

A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. - What amount is the target price? (Please round all amounts to the nearest whole dollar.)

Target pricing is based on the cost to produce a product, plus a profit mark-up.

Activity-based costing creates more precise matching of indirect costs with products.

Business managers can use activity-based costing data to assist them in pricing and product mix decisions, and in cost management.