Exam 24: Cost Allocation and Responsibility Accounting

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May: Activity Estimated Indirect Activity Costs Allocation Base Estimated Quantity of 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. There is no direct labor. What is the total manufacturing cost per breadbox?

The manager of a profit center is responsible for generating revenues and managing the center's invested capital.

The flexible budget uses budgeted costs at the actual level of activity.

Long-term investments are made by the manager of an investment division for the purpose of:

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Account verification (accounts) \ 15,000 20,000 accounts Correspondence (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 What is the cost per hour for the account inquiry activity?

In a balanced scorecard, which of the following is a key performance indicator of the financial perspective?

The goal of the balanced scorecard is to:

Which of the following internal business perspective key performance indicators (KPIs) is commonly used to assess the innovation process?

The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Activity-based costing refines the cost allocation process even more than the traditional allocation costing.

Which of the following statements most accurately describes residual income?

Archid, a manufacturer of spare parts, has two production departments: Assembling and Packaging. The Assembling department is machine oriented, while the Packaging department is labor oriented. Estimated manufacturing overhead costs for the year 2015 were $15,000,000 for Assembling and $10,000,000 for Packaging. Calculate departmental wide allocation rates if total estimated machine hours were 30,000 and labor hours were 20,000 for the year.

Which of the following is the correct formula for asset turnover ratio?

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Account verification (accounts) \ 15,000 20,000 accounts Correspondence (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 correspondence cost will be assigned to the Northeast Office?

If a company allows division managers to negotiate a cost-based transfer price, it is better to use actual costs rather than standard costs. Otherwise, the selling division has no motivation to control costs.

Recreation Equipment Company has several divisions that are investment centers. Data for the Boat Division and the Trailer Division are shown here: Boat Division Trailer Division Operating income \ 90,000 \ 36,000 Total assets at Jan 1 \ 670,000 \ 230,000 Total assets at Dec 31 \ 710,000 \ 220,000 With regard to the efficient use of assets, the Boat Division has a higher ROI (Return on Investment) because it has the highest operating income.

The manager of a cost center is responsible for controlling costs and generating revenues of the company.

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plant-wide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit was as follows: Per unit Standard Heavy Direct material cost \ 200.00 \ 245.00 Manufacturing overhead cost 124.00 93.00 Total manufacturing cost \ 324.00 \ 338.00 Price per unit Gross profit per unit Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach. Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown below: Activities: Estimated Cost Metal fabrication \ 420,000 Machine processing \ 152,000 Packaging Total overhead costs \ 589,000 Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis was as given below: Standard Heavy Kilos per unit 2.00 4.00 Machine hours per unit 80.00 60.00 Using the data above, calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for one unit of standard bearings. (Round your intermediate calculations to two decimal places).

Which of the following is the correct formula for profit margin ratio?

Activity-based management focuses on making decisions that improve customers' satisfaction while also increasing profits.