Exam 4: Activity-Based Costing and Analysis

The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1)the overhead cost is correlated with the allocation base; and (2)all products use overhead cost in dissimilar proportions.

A company identified the following partial list of activities, costs, and activity drivers expected for the next year: Activity Expected Costs Cost Driver Extrusion costs \ 83600 Number batches made Handling costs \ 8,800 Number of arders Filled Packaging costs \ 40,500 Number of wits made Product A Product B Production volume 750,000 units 600,000 units Batches made 200 batches 750 batches Orders Filled 75 200 How much overhead in total will be assigned to the Product A line using activity based costing?

Activity-based costing involves four steps: (1)identify activities and the costs they cause, (2)group similar activities into cost pools, (3)determine an activity rate for each activity cost pool, and (4)allocate overhead costs to products using those activity rates.

All of the following are examples of facility sustaining costs except:

Multiple cost pools are used when allocating overhead using the plantwide overhead rate method.

Orange Company uses a plantwide overhead rate with machine hours as the allocation base.Use the following information to solve for the amount of machine hours estimated per unit of product Q. Direct material cost per unit of Q \ 10 Total estimated manufacturing overhead \ 100,000 Total cost per unit of Q \ 65 Total estimated machine hours 200,000 Direct labor cost per unit of Q \ 20

The ______________________ overhead rate method uses a different overhead rate for each production department.

Fischer Company identified the following activities, costs, and activity drivers: Activity Expected Costs Expected Activity Handling parts \ 425,000 25,000 parts in stock Inspecting product \ 390,000 940 batches Processing purchase orders \ 220,000 440 orders Designing packaging \ 230,000 5 models a.Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals). b.Compute separate rates for each of the four activities using the activity based costing.

Compute Aztec's departmental overhead rate for the baking department based on direct labor hours.

The premise of ABC is that it takes ____________________ to make products and provide services.

The final step of activity-based costing assigns overhead costs to pools rather than to products.

A company has two products: X and Y.It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Budgeted Activity Activity Cost Pool Budgeted Cost Product Product Y Activity 1 \ 3,600 25,200 46,800 Activity 2 \ 4,800 36,000 44,000 Activity 3 \ 6,300 43,200 46,800 Annual production and sales level of Product X is 161,100 units, and the annual production and sales level of Product Y is 275,200 units. a.Compute the approximate overhead cost per unit of Product X under activity-based costing. b.Compute the approximate overhead cost per unit of Product Y under activity-based costing.

Outer Limits, Inc.produces fencing units which require two processes, A and B, to complete.The best-selling type of fence is made of pvc.Information related to the 8,000 units of pvc fencing produced annually is shown below. Direct materials \ 450,000 Direct labor Department A (5,000 DLH x \ 23 per DLH ) \ 115,000 Department B (4,000DLH x \ 25 per DLH ) \ 100,000 Machine hours Department A 2,000 Department B 3,000 Outer Limits' total expected overhead costs and related overhead data are shown below.The company uses departmental overhead rates based on machine hours in department A and direct labor hours in department B. Department A Department B Direct labor hours 9,000 7,000 Machine hours 6,500 13,000 Manufacturing overhead costs \ 54,600 \ 67,060 Determine the total amount of overhead assigned to each unit of pvc fencing.

Compute Aztec's departmental overhead rate for the baking department based on machine hours.

A company identified the following partial list of activities, costs, and activity drivers expected for the next year: Activity Expected Costs Cost Driver Extrusion costs \ 83600 Nuriber batches made Hardling costs \ 8,800 Nuriber of arders Filled Packapinp costs \ 40,500 Nurber of wits made Product A Product B Production volume 750,000 urits 600,000 urits Batches made 200 batches 750 batches Orders Filled 75 200 Calculate activity rates for each of the three activities using activity-based costing (ABC).

A company produces heating elements that go through two operations, casting and assembling, before they are complete.Expected costs and activities for the two departments are shown below.Given this information, the departmental overhead rate for the assembling department based on direct labor hours is $5 per direct labor hour. Casting Assembling Direct labor hours 1,875 7,500 Machine hours 12,500 3,750 Overhead costs \ 75,000 \ 37,500

Product level costs do not vary with the number of units or batches produced.

Turtle Company produces t-shirts that go through two operations, cutting and sewing, before they are complete.Expected costs and activities for the two departments are shown below.Given this information, the departmental overhead rate for the cutting department based on direct labor hours is $2.69 per direct labor hour (rounded to two decimals). Cutting Sewirg Direct labor hours 250,000 75,000 \ DLH Machine hours 125,000 150,000 Overhead costs \ 500,000 \ 375,000

A company uses activity-based costing to determine the costs of its three products: A, B, and C.The budgeted cost and activity for each of the company's three activity cost pools are shown below. Budgeted Activity Activity Cost Pool Budgeted Cost Product A Product B Product C Activity 1 \ 140,000 7,500 4,000 6,000 Activity 2 \ 54,000 2,500 2,000 1,500 Activity 3 \ 28,000 15,000 25,000 30,000 Compute the company's activity rates under activity-based costing for each of the three activities.

A company has two products: A and B. It uses a plantwide overhead allocation method based on activity 2 and has prepared the following analysis showing budgeted costs and activities.Use this information to compute (a)the company's plantwide overhead rate and (b)the amount of overhead allocated to Product A. Budgeted Activity Activity Cost Pool Budgeted Overhead Cost Product A Product B Total Activity 1 \ 160,000 400 1,600 2,000 Activity 2 \ 110,000 2,000 1,000 3,000 Activity 3 \ 180,000 1,200 10,800 12,000 Total budgeted overhead \ 450,000