Exam 4: Activity-Based Costing and Analysis

The cost to heat a manufacturing facility can be directly linked to the number of units produced.

Explain some of the disadvantages of the departmental overhead rate method.

Heritage Industries produces miniature models of farm equipment. These collectibles are in great demand. It takes two operations, molding and finishing, to complete the miniatures. Next year’s expected activities are shown in the following table: Molding Finishing Direct labor hours 65,000 162,500 Machine hours 97,500 81,250 -Heritage Industries uses departmental overhead rates and is planning on a $2 per machine hour overhead rate for the molding department.Compute the estimated manufacturing overhead cost for the molding department given the information shown in the table.

Activities are the cost objects of the second stage of ABC.

Some companies allocate their overhead cost using a plantwide overhead rate largely because of its simplicity.

Rising Sun, Inc.produces granola that requires two processes, mixing and baking, to complete.The best-selling type of granola is cherry almond delight.Information related to the 100,000 units of cherry almond delight produced annually is shown in the following table: Direct materials \ 230,000 Direct labor Mixing Department (600 DLH x \2 4 per DLH) \ 14,400 Baking Department (400 DLH x \2 2 per DLH) \ 8,800 Machine hours Mixing Department 200 Baking Department 300 Rising Sun's total expected overhead costs and related overhead data are shown below.The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department. Mixing Departrnent Baking Departnent Direct labor hours 11,000 5,000 Machine hours 4,000 Marufacturing overhead costs \ 80,000 \ 12,500 Determine the total product cost of this product line and each unit of cherry almond delight.

What is the basic principle underlying activity-based costing?

K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities.The company uses direct labor hours as its overhead allocation base.If 80,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

Rain Maker Company uses a plantwide overhead rate with direct labor hours as the allocation base.Next year, 350,000 units are expected to be produced taking .80 direct-labor hours each.How much overhead will be assigned to each unit produced given the following estimated amounts? Estimated: Department 1 Departnent 2 Marufacturing overhead costs \ 2,730,000 \ 910,000 Direct labor hours 168,000DLH 112,000 Machine hours 30,000 7,000

The departmental overhead rate method traces costs to each department and then determines an allocation base for each department.

Assume that a pet food manufacturer is considering adding two types of pet food to its existing product line. Research had determined that good demand exists for dog food in 40-pound bags and cat food in 1/2pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year: Activity Expected Costs Cost Driver Handling materials \ 105,000 Number of batches made Storage costs \ 820,000 Weight of finished product Dog Food Cat Food Production volume 100,000 units 200,000 units Batches made 200 batches 150 batches -Refer to the data above.How much overhead cost will be assigned to each unit of product using activity-based costing (ABC)?

A company uses activity-based costing to determine the costs of its three products: A, B and C.The activity rates and activity levels for each of the company's three activity cost pools are shown in the following table: Budgeted Activity Activity Cost Pool Activity Rate Product A Product B Product C Activity 1 \ 48 3,500 1,000 500 Activity 2 \ 51 300 2,100 600 Activity 3 \ 73 400 200 1,400 Compute the company's budgeted overhead cost for each of the three products under activity-based costing.

The premise of ABC is that it takes activities to make products and provide services and these activities drive costs.

Allocated overhead ____________________________ vary depending upon the allocation method used.

The first step in using the departmental overhead rate method requires that overhead be traced to each of the company's departments.

Activity-based costing eliminates the need for overhead allocation rates.

A major disadvantage of using a plantwide overhead rate is the extreme difficulty in gathering the needed information.

The following data relates to All-Out Company's estimated amounts for next year. Estimated: Department 1 Departrnent 2 Marufacturing overhead costs \ 200,000 \ 400,000 Direct labor hours 60,000 Machine hours 1,000 What is the company's plantwide overhead rate if machine hours are the allocation base? (Round to two decimal places.)

A company produces paint that goes through two operations, operation A and operation B, before it is complete.Expected costs and activities for the two departments are shown below.Given this information, the departmental overhead rate for Department B based on machine hours is $4 per machine hour. Department Department A B Machine hours 50,000 60,000 Direct labor hours 78,500 100,800 Overhead costs \ 392,500 \ 403,200

Aurora Corporation produces outdoor security lighting products.All products go through three processes before completion.Use the expected overhead costs and related data shown below to compute departmental overhead rates based on machine hours in Department A1A; based on direct labor hours in Department B2B; and machine hours in Department C3C. Department A1A Department B2B Departrnent C3C Direct labor hours 90,000 80,000 72,000 Machine hours 54,000 32,000 54,000 Maruffacturing overhead costs \ 540,000 \ 160,000 \ 216,000