Exam 4: Activity-Based Costing, Lean Operations, and the Costs of Quality

A departmental overhead rate is calculated by dividing the total estimated departmental overhead cost pool by the estimated total amount of the department's cost allocation base.

Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 900 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,597,000 of annual manufacturing overhead. Of this amount, $2,270,000 is associated with the Large Bag line, $3,420,000 is associated with the Medium Bag line, and $2,907,000 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 35,000 machine hours: 12,100 in the Large Bag line, 14,500 in the Medium Bag line, and 8400 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. The departmental manufacturing overhead rate for the Small Bag line would be closest to

Gwynnie Pie Company makes dessert pies for national fast food chains. Gwynnie Pie Company is considering using ABC costing and has the following activity cost pools and information available: Gwynnie Pie Company currently uses a plantwide overhead rate based on total estimated machine hours of 100,000 hours. Based on their estimates for ABC costing, what would the allocated cost for all overhead costs for Job 607 be based on the following information about the job: # of units in the job = 5,000 # of units in each batch = 1,000 # of setups required to complete the job = 1 # of machine hours = 220

OPG Company manufactures display cases to be sold to retail stores. The cases come in three sizes: Large, Medium, and Small. Currently, OPG Company uses a single plant-wide overhead rate to allocate its $3,357,800 of annual manufacturing overhead. Of this amount, $820,000 is associated with the Large Case line, $1,276,800 is associated with the Medium Case line, and $1,261,000 is associated with the Small Case line. OPG Company is currently running a total of 33,000 machine hours: 10,000 in the Large Case line, 13,300 in the Medium Case line, and 9,700 in the Small Case line. OPG Company uses machine hours as the cost driver for manufacturing overhead costs. Required: a. Calculate the plant-wide manufacturing overhead rate. b. Calculate the departmental overhead rate for each of the three departments listed. c. Which product line(s)have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s)have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour?

Which of the following is most likely to be the cost driver for the packaging and shipping activity?

There will be little benefit to using an activity-based costing system when products are vastly different from each other and consume different amounts of resources.

The manager at East Coast Manufacturing organizes costs to prepare the Costs of Quality report. The manger compiled the following data: What of the following cost is the total cost of quality the manager should use to report the costs in the internal failure cost category?

Using factory utilities would most likely be classified as a ________ cost.

Machine set-up would most likely be classified as a ________ cost.

Big Trail Running Company has started to produce running apparel in addition to the trail running shoes that they have manufactured for years. They feel that a departmental overhead rate would best reflect their overall manufacturing overhead usage. Based on research the following information was gathered for the upcoming year: Manufacturing overhead is driven by machine hours for the machining department and direct labor hours for the finishing department. At the end of the year, the following information was gathered related to the production of the trail running shoes and running apparel: How much manufacturing overhead will be allocated to running apparel? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

Wadsworth Industries manufactures small appliances and uses an activity-based costing system. Information from its system for the year for all products follows: Wadsworth makes 975 of its stand mixers a year, which requires a total of 22 machine hours, 10 inspection hours, and 13 orders. The stand mixer requires $10.00 in direct materials per unit and $13.50 in direct labor per unit. The stand mixer sells for $150 per unit. What is the profit margin in total for the stand mixer?

When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate.

Trailers R Us Company, which uses an activity-based costing system, produces travel trailers and boat trailers. The company allocates batch setup costs to the two products using the following basic data: Total budgeted setup costs for the year are $155,400. If the setup costs are allocated using number of setups, how much of the total setup costs would be allocated to boat trailers?

Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 1000 units, while 1720 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 4.5 direct labor hours per unit, while skateboards require 2.25 direct labor hours per unit. The total estimated overhead for the period is $113,800. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: The cost pool activity rate for Engineering Costs would be closest to (Round all answers to two decimal places.)

Crane Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Crane's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $51 per machine hour, while the finishing department uses a departmental overhead rate of $25 per direct labor hour. Job A216 used the following direct labor hours and machine hours in the two departments: The cost for direct labor is $42 per direct labor hour and the cost of the direct materials used by Job A216 is $2000. What was the total cost of Job A216 if Crane Fabrication used the departmental overhead rates to allocate manufacturing overhead?

Using traditional costing instead of ABC costing might lead to all of the following except

Non-value added activities are

It is easier to allocate indirect costs to the products that actually caused those costs if an ABC system is used rather than a traditional costing system.

Which of the following is a result of cost distortion?

Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June: Each lawn chair consists of 9 parts; the total direct materials cost per lawn chair is $18. What is the total cost of materials handling and assembling for each lawn chair?