Exam 7: Activity-Based Costing: A Tool to Aid Decision Making

-What would be the total overhead cost per customer according to the activity-based costing system,rounded to the nearest whole dollar? In other words,what would be the overall activity rate for the Customer Support activity cost pool?

Sarah Company has two products: T and V. The company uses activity-based costing and has prepared the following analysis, showing the estimated total overhead cost and expected activity for each of its three activity cost pools: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$ Activity Cost Pool Estimated Cost Product T Product V Total Activity 1 \ 30,000 200 400 600 Activity 2 39,000 400 900 1,300 Activity 3 80,000 400 3,600 4,000 The annual production and sales of Product T is 10,640 units. The annual production and sales of Product V is 26,600. -The overhead cost per unit of Product V under activity-based costing is closest to which of the following?

Dierich Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: Costs: Manufacturing overhead \ 600,000 Selling and administrative expenses Total \ 820,000 $\text { Distribution of Resource Consumption: }$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Activity Cost Pools }$ Order Size Customer Support Other Total Manufacturing overhead 15\% 75\% 10\% 100\% Selling and administrative expenses 60\% 20\% 20\% 100\% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. -How much cost,in total,would be allocated in the first-stage allocation to the Order Size activity cost pool?

Arthur Company has two products: $\mathrm{S}$ and $\mathrm{D}$ . The company uses activity-based costing and has prepared the following analysis, showing the estimated total overhead cost and expected activity for each of its three activity cost pools: Activity Cost Pool Estimated Cost Product S Product D Total Activity 1 \ 20,000 100 400 500 Activity 2 14,600 500 250 750 Activity 3 90,000 300 2,700 3,000 The annual production and sales of Product $\mathrm{S}$ is 4,547 units. The annual production and sales of Product $D$ is 7,913. Direct costs/unit for each product are as follows: Product S Product D Direct Material \ 1.50 \ 1.20 Direct Labour \ 2.00 \ 2.50 -The overhead cost per unit of Product S under activity-based costing is closest to which of the following? Do not round intermediate calculations.

Testing a prototype of a new product is an example of an activity at which of the following levels?

-To the nearest whole dollar,how much wages and salaries cost would be allocated to a customer who placed four orders in a year? Do not round intermediate calculations.

Groce Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Activity Cost Pools }$ Preparing Meals Arranging Functions Wages \ 0.70 \ 145.00 Supplies \ 0.45 \ 230.00 Other expenses \ 0.40 \ 100.00 The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 150 meals were served. The company catered the function for a fixed price of $14.00 per meal. The cost of the raw ingredients for the meals was $8.75 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. -According to the activity-based costing system,what is the total profit margin for this function?

-To the nearest whole dollar,how much wages and salaries cost would be allocated to a customer who placed eight orders in a year?

Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$ Activity Cost Pool Estimated Cost Product A Product B Total Activity 1 \ 16,660 600 100 700 Activity 2 18,450 1,100 700 1,800 Activity 3 9,731 60 160 220 -The predetermined overhead rate (i.e.,activity rate)for Activity 2 under the activity-based costing system is closest to which of the following?

Which of the following is a distinctive feature of an ABC system in comparison to a departmental overhead application system?

Bridget Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 2,000 units and of Product B is 3,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$ Activity Cost Pool Estimated Cost Product A Product B Total Activity 1 \ 9,000 400 350 750 Activity 2 12,000 100 400 500 Activity 3 48,000 400 1,200 1,600 -The cost per unit of Product A under activity-based costing is closest to which of the following?

Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs).The company has two products,H16Z and P25P,about which it has provided the following data: H16Z P25P Direct materials per unit \ 10.20 \ 50.50 Direct labour per unit \ 8.40 \ 25.20 Direct labour hours per unit 0.40 1.20 Annual production 30,000 10,000 The company's estimated total manufacturing overhead for the year is $1,464,480 and the company's estimated total direct labour-hours for the year is 24,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports.Data for this proposed activity-based costing system appear below: Activities and Activity Measures Estimated Overhead Cost Supporting direct labour (DIHS) \ 552,000 Setting up machines (setups) 132,480 Parts adrministration (part types) 780,000 Total \ 1,464,480 Activities H16Z P25P Total Supporting direct labour 12,000 12,000 24,000 Setting up machines 864 240 1,104 Part administration 600 960 1,560 Required: a.Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system. b.Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

Huish Awnings makes custom awnings for homes and businesses.The company uses an activity-based costing system for its overhead costs.The company has provided the following data concerning its annual overhead costs and its activity cost pools: Overhead Costs: Production overhead \ 150,000 Office expense 100,000 Total \ 250,000 Distribution of resource consumption: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Activity Cost Pools }$ Making Awnings Job Support Other Total Production overhead 45\% 40\% 15\%/\% 100\% Office expenses 8\% 65\% 27\% 100\% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.The amount of activity for the year is as follows: Activity Cost Pool Annual Activity Making awnirgs 5,000 metres Job support 200 jobs Other Not applicable Required: a)Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: Making Awnings Job Support Other Total Production overhead Office expense Total b)Compute the activity rates (i.e.,cost per unit of activity)for the Making Awnings and Job Support activity cost pools by filling in the table below: Making Awnings Job Support Production overhead Office expense Total c)Prepare a report in good form of a job that involves making 80 yards of awnings and has direct materials and direct labour cost of $3,000.The sales revenue from this job is $4,000.

Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labour-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labour hours per unit and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $71,286. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for externalreports. The new activity-based costing system would have three factory overhead activity cost pools-Activity 1, Activity 2, and General Factory-with estimated overhead costs and expected activity as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$ Activity Cost Pool Estimated Overhead Cost Product A Product B Total Activity 1 \ 20,272 300 500 800 Activity 2 29,380 800 500 1,300 General Factory 160 420 580 Total \ 71,286 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.) - The overhead cost per unit of Product B under the traditional costing system is closest to:

Monson Company has two products: G and P. The company uses activity-based costing and has prepared the following analysis, showing the estimated total overhead cost and expected activity for each of its three activity cost pools: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$ Activity Cost Pool Estimated Cost Product G Product P Total Activity 1 \ 30,000 200 400 600 Activity 2 24,000 600 900 1,500 Activity 3 80,000 400 3,600 4,000 The annual production and sales of Product G is 10,640 units. The annual production and sales of Product P is 26,600. -The activity rate under the activity-based costing system for Activity 2 is closest to which of the following?

-What would be the total overhead cost per order according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Filling Orders activity cost pool?

EMD Corporation manufactures two products,Product S and Product W.Product W is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product S.Product W is the more complex of the two products,requiring one hour of direct labour time per unit to manufacture,compared to a half-hour of direct labour time for Product S.Product W is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour hours.The company estimated it would incur $500,000 in manufacturing overhead costs and produce 10,000 units of Product W and 60,000 units of Product S during the current year.Unit cost for materials and direct labour are: Product Product W Direct materials \ 10 \ 24 Direct labour \ 8 \ 12 Required: a)Compute the predetermined overhead rate under the current method of allocation,and determine the unit product cost of each product for the current year. b)The company's overhead costs can be attributed to four major activities.These activities and the amount of overhead cost attributable to each for the current year are given below: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$ Answer: Activity Cost Pool Estimated Overhead Cost Product S Product W Total Machine setups required \ 200,00 800 1,200 2,000 Purchase orders issued 43,500 500 100 600 Machine hours required 104,000 3,000 10,00 13,000 Maintenance requests issued 152,500 860 1,140 2,000 Total \ 500,000 Using the data above and an activity-based costing approach,determine the unit product cost of each product for the current year.

Grodt Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Activity Cost Pools }$ Preparing Meals Arranging Functions Wages \ 0.85 \ 110.00 Supplies \ 0.50 \ 310.00 Other expenses \ 0.30 \ 120.00 The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 60 meals were served. The company catered the function for a fixed price of $19.00 per meal. The cost of the raw ingredients for the meals was $8.60 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. -According to the activity-based costing system,what is the total profit margin for this function?

Dideda Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: Costs: Manufacturing overhead \ 360,000 Selling and administrative expenses Total \ 600,000 $\text { Distribution of Resource Consumption: }$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Activity Cost Pools }$ Order Size Customer Support Other Total Manufacturing overhead 25\% 65\% 10\% 100\% Selling and administrative expenses 60\% 20\% 20\% 100\% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. -How much cost,in total,would be allocated in the first-stage allocation to the Order Size activity cost pool?

Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labour-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labour hours per unit and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $71,286. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for externalreports. The new activity-based costing system would have three factory overhead activity cost pools-Activity 1, Activity 2, and General Factory-with estimated overhead costs and expected activity as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$ Activity Cost Pool Estimated Overhead Cost Product A Product B Total Activity 1 \ 20,272 300 500 800 Activity 2 29,380 800 500 1,300 General Factory 160 420 580 Total \ 71,286 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.) - The predetermined overhead rate (i.e.,activity rate)for Activity 2 under the activity-based costing system is closest to: