Exam 4: Activity-Based Costing and Analysis

What are three advantages of activity-based costing over traditional volume-based allocation methods?

A company estimates that overhead costs for the next year will be $3,600,000 for indirect labor, $200,000 for factory utilities, and $21,500 for depreciation on factory machinery.The company uses machine hours as its overhead allocation base.If 764,300 machine hours are planned for this next year, what is the company's plantwide overhead rate?

Name and briefly describe three overhead rate methods.

The cost object(s)of the departmental overhead rate method is:

A company estimates that overhead costs for the next year will be $7,200,000 for indirect labor, $400,000 for factory utilities, and $43,000 for depreciation on factory machinery.The company uses direct labor hours as its overhead allocation base.If 955,375 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

Because departmental overhead costs are allocated based on measures closely related to production volume, they accurately assign overhead, such as utility costs.

Lemon Yellow Company produces children's clothing that requires two processes, cutting and sewing, to complete.The company is concerned about one product, a hooded jacket, which hasn't been selling as well as it had in past years.Information related to the 20,000 jackets produced annually is shown in the following table: Direct materials \ 26,000 Direct labor Cutting Department (200 DLH \times\ 20 per DL.H) \ 4,000 Sewing Department (2,000DLH \ \ 22 per DLH) \ 44,000 Machine hours Cutting Department 160 Sewing Department 1,500 Lemon Yellow's total expected overhead costs and related overhead data are shown below.The company uses departmental overhead rates based on direct labor hours in the Cutting Department and machine hours in the Sewing Department. Cuttirg Department Sewing Department Direct labor hours 16,000 175,000 Machine hours 3,200 30,000 Manufacturing overhead costs \ 480,000 \ 240,000 Assume this jacket currently sells for $10.How much profit does the company make per jacket?

A company produces surgical equipment that goes through threes processes, 1A1, 2B2, and 3C3, before they are complete.Expected costs and activities for the three departments are shown below.All departments have departmental overhead rates based on direct labor hours.Therefore, the overhead rate for each department is $5 per direct labor hour. Department Department Department 1 2 3 Machine hours 15,000 25,000 20,000 Direct labor hours 22,830 10,650 29,200 Overhead costs \ 114,150 \ 213,000 \ 73,000

Overhead costs cannot be ________________________ in the same way that direct materials and direct labor can.

Blast Rocket Company manufactures candy-coated popcorn treats that go through two operations, popping and baking, before they are complete.Expected costs and activities for the two departments are shown in the following table: Popping Baking Direct labor hours 238,000 50,000 Machine hours 25,000 141,500 Overhead costs \ 357,000 \ 452,800 a.Compute a departmental overhead rate for the popping department based on direct labor hours. b.Compute a departmental overhead rate for the baking department based on machine hours.

Consider the following activities that take place in a veterinary clinic. (a)Cleaning cages. (b)Heating and air conditioning the clinic. (c)Sending blood work to a lab. (d)Dispensing medicine. Which of the following statements is true?

What is the reason for pooling costs?

Explain cost flows for the plantwide overhead rate method.

The use of a plantwide overhead rate is not acceptable for external reporting under GAAP .

Kamper Company sells two products Big Z and Little Z.Current direct material and direct labor costs are detailed below.Next year, the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base.Next year's overhead is estimated to be $475,000.The direct labor and direct materials costs are estimated to be consistent with the current year.Direct labor costs $20 per hour and the company expects to manufacture 32,000 units of Big Z and 9,000 units of Little Z next year. Direct Material per Unit Direct Labor Dollars per Urit Big Z \ 6 \ 17 Little Z \ 12 \ 8 What are total estimated direct labor hours for this next year?

Facility level costs vary with the number of units or batches produced.

ABC allocates overhead costs to products based on input measures rather than output measures .

When products differ in batch size and complexity, they usually consume different amounts of ____________________________.

Inside Out, Company designs custom showroom spaces in interior design marts across the country.The following data pertain to a recent reporting period. Required a.Use ABC to compute overhead rates for each activity. b.Assign costs to a 3,000 square-foot job that requires 70 contact hours, 20 design hours, and 14 days to complete.

Freeze Frame, Inc.produces cameras that require three processes, A, B, and C, to complete.Digital camera model #789 is the best-selling of all the many types of cameras produced.Information related to the 550,000 units of digital camera model #789 produced annually is shown below: Direct materials \ 450,000 Direct Labor Department A (7,000 DLL \times\ 21 per DLH ) \ 147,000 Department B (25,000 DLH \times\ 19 per DLH) \ 475,000 Department C (10,000 DLHH \times\ 26 per DLH) \ 260,000 Machine Hours Department A 42,000 Department B 23,000 Department C 38,000 Freeze Frame's total expected overhead costs and related overhead data are shown in the following table: Departrment A Department B Departrnent C Direct labor hours 90,000 75,000 42,000 Machine hours 67,500 135,000 53,200 Manufacturing overhead costs \ 540,000 \ 675,000 \ 399,000 a.Compute a departmental overhead rate for department A based on machine hours. b.How much overhead is associated with model 789 from department A? c.Compute a departmental overhead rate for department B based on direct labor hours. d.How much overhead is associated with model 789 from department B? e.Compute a departmental overhead rate for department C based on machine hours. f.How much overhead is associated with model 789 from department C? g What is the per unit cost of the 550,000 units of model 789?