Exam 5: Activity-Based Costing and Management

Improved direct cost tracing is a benefit of activity-based costing.

Which of the following statements about activity-based costing is TRUE?

ABC systems seek a cost-allocation base that has a cause-and-effect relationship with costs in the cost pool.

Answer the following questions using the information below: Marpole Enterprises has identified three cost pools to allocate overhead costs.The following estimates are provided for the coming year: The accounting records show the Bossman Job consumed the following resources: -If Marpole Enterprises uses a simple cost system based on direct labour hours then what amount of indirect costs will be allocated to the Bossman job?

Which of the following is NOT a decision within the framework of Activity-based management (ABM)?

Use the information below to answer the following question(s).Fran Ferry Company had the following activities, pooled costs, and physical flow of driver units.The company uses activity-based costing. The above activities are used by departments A and B as follows: -How much of the account billing cost will be assigned to Department B?

Homogeneous cost pools and the choice of cost-allocation bases are not tied to the cost hierarchy.

Answer the following question(s)using the information below.Ernsting Printers has contracts to complete weekly supplements required by forty-six customers.For the year 2018, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.For 2018 Ernsting Printers has decided to evaluate the use of additional cost pools.After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis: During 2018, two customers, Wealth Managers and Health Systems, are expected to use the following printing services: -When selling price is cost plus 25% and costs are assigned using the single cost driver, number of pages printed, then

Bottle Company operates many bottling plants around the globe.At its Toronto plant, where nine different brands are bottled, the following costs were incurred in the current year to produce 15,000,000 cans of soft drink: 1.Development costs of adding the new product "Soda Plus" amounted to $614,000.2.Material handling costs of inspecting and handling concentrate, bottles, packages, and so forth amounted to $433,500.These costs are allocated to each production run.3.Incoming materials purchase costs that can be directly traced to individual products being canned and packaged.These costs are purely variable with output level and amounted to $2,213,000.4.Executive salaries and other central administration overhead amounted to $423,000.5.Plant overhead including costs related to: supervision, safety, energy and plant insurance amounted to $623,000.6.The cost of cleaning and calibrating equipment for each production run amounted to $171,500.Required: a.Classify each of the preceding costs as output unit-level, batch-level, product-sustaining, or facility-sustaining. b.Compute the cost per unit for the total manufacturing cost.

Direct cost tracing will accomplish which of the following?

The plant manager has come to you, as the new management accountant, for assistance.The plant manufactures sailboards, operating two shifts per day.During March through July, a third shift is added.The company has to train new machine operators each summer as the demands for its products is very seasonal.Training always occurs on the day shift, and the plant allocates the costs of training (e. g., extra supervision required), based on machine hours.This year, the three shift managers cannot agree on who should be charged for the training.The day shift manager is angry because she has discovered that machine hours are highest on the day shift.The other two managers argue that the hours are higher due to the training, so the day shift should be charged for those costs.Required: Provide a recommendation to the plant manager? Include in your recommendation two options as an allocation base for training costs.

One of the benefits of an ABC system is that by highlighting different activities, you can ignore the different levels of activities, such as individual units of output versus batches of output.

Brewery Company operates many bottling plants around the globe.At its Montreal plant, where six different brands are bottled, the following costs were incurred in 2012 to produce 10,000,000 bottles of beer: 1.Development costs of adding the new product "Light Beer Plus" amounted to $307,000.2.Material handling costs of inspecting and handling concentrate, bottles, packages, and so forth amounted to $216,750.These costs are allocated to each production run.3.Incoming materials purchase costs that can be directly traced to individual products being bottled and packaged.These costs are purely variable with output level and amounted to $1,106,500.4.Executive salaries and other central administration overhead amounted to $396,000.5.Plant overhead including costs related to: supervision, safety, energy and plant insurance amounted to $311,500.6.The cost of cleaning and calibrating equipment for each production run amounted to $85,750.Required: a.Classify each of the preceding costs as output unit-level, batch-level, product-sustaining, or facility-sustaining. b.Compute the cost per unit for the total manufacturing cost.

Select the Implementing Activity-Based Costing sub-element from the right column that most closely relates to the main implementation step in the left column. A)Create a steering committee B)Organize elements of costs as material costs or activity costs C)Provide training D)Develop conversion strategy E)Consider people issues like performance measures F)Create cross-functional teams -Convince the organization to change

Understanding the hierarchy of costs is critical when allocating costs to products.

Significant amounts of direct costs allocated using only one or two cost pools is evidence that a company may benefit from implementing ABC.

The term used to describe a situation when at least one miscosted product causes other products to be miscosted in the organization is known as

In a homogeneous cost pool, all costs have a similar cause-and-effect relationship with the cost-allocation base.

Hans Sorensen, controller of Franklin Production, has the choice of allocating indirect manufacturing cost using either direct manufacturing labour hours or manufacturing machine hours.If he uses labour hours for the month of January, Product A receives $312,000 in manufacturing overhead charges and Product B receives $448,000.When machine hours are used Product A receives $352,000 in manufacturing overhead charges while Product B receives only $408,000.Required:You are the department manager in charge of Product A and are strongly in favour of using labour hours.Of course, your co-manager, who is in charge of Product B, is strongly in favour of machine hours.What are some arguments you may be able to give for the allocation base that favours your department's product?

Resources sacrificed on activities undertaken to support product lines are which of the following?