Exam 4: Activity-Based Costing and Analysis

Base Runner, Inc.manufactures baseball bats that go through two operations, cutting and sanding, before they are complete.Expected costs and activities for the two departments are shown in the following table: Cutting Sanding Direct labor hours 50,000 5,000 Machine hours 25,000 50,000 Overhead costs \ 50,000 \ 37,500 a.Compute a departmental overhead rate for the cutting department based on machine hours. b.Compute a departmental overhead rate for the sanding department based on machine hours.

Slosh, Inc.produces washing machines that require two processes, assembling and finishing, to complete.The company's bestselling machine is the commercial washer.Information related to the 500 commercial washers produced annually is shown below. Direct materials \ 161,000 Direct labor Assembling Department (1,000\times\ 25 \ 25,000 DLH) Finishing Departrment (250 DL.H DLH) \ 5,500 Machinehours Assembling Department 1,500 Finishing Department 400 Slosh'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 Assembling Department and machine hours in the Finishing Department. Assembling Department Finishing Departrnent Direct labor hours 50,000 275,000 DLH Machine hours 37,500 8,000 Manufacturing overhead costs \ 60,000 \ 4,000,000 Determine the total product cost of this product line and each individual commercial washer.

A company estimates total overhead costs for the next year to be $1,500,000 and wishes to use direct labor hours as its overhead allocation base.This company makes two products: (1)Fancy X , which requires three direct labor hours per unit, and (2)Plain X, which requires one direct labor hour per unit.If the company plans to make 20,000 units of Fancy X and 20,000 units of Plain X, then each unit produced will be allocated the same amount of overhead.

The following data relates to Tier One Company's estimated amounts for next year. Estimated: Department 1 Departnent 2 Marufacturing overhead costs \ 50,000 \ 40,000 Direct labor hours 150,000DLH 200,000 Machine hours 300,000 400,000 What is the company's plantwide overhead rate if direct labor hours are the allocation base? (Round to two decimal places.)

A company expects next year's overhead costs to be $400,000.During this time, the company also expects to produce 1,000,000 units, have 200,000 direct labor hours, and 800,000 machine hours. Make the following independent calculations. a.Compute a plantwide overhead rate using units of production as the allocation base. b.Compute a plantwide overhead rate using direct labor hours as the allocation base. c.Compute a plantwide overhead rate using machine hours as the allocation base.

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 $3 per direct labor hour overhead rate for the molding department.Compute the estimated manufacturing overhead cost for the molding department given the information shown in the table.

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 $1.60 per direct labor hour overhead rate for the finishing department.Compute the estimated manufacturing overhead cost for the finishing department given the information shown in the table.

Why is overhead allocation under ABC usually more accurate than either the plantwide overhead allocation method or the departmental overhead allocation method?

Sparks Company produces and distributes two types of garden sculptures, Plain and Fancy.Budgeted cost and activity for each of its three activity cost pools are shown below.The company plans to produce and sell 64,000 plain units and 49,150 fancy units. a.Compute the approximate overhead cost per unit of Plain under activity-based costing. b.Compute the approximate overhead cost per unit of Fancy under activity-based costing.

Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor.

Crinkle Cut Clothes Company manufactures two products CC1 and CC2.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 $338,250.The direct labor and direct materials costs are estimated to be consistent with the current year.Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year. Direct Material per Urit Direct Labor Dollars per Urit CC1 \ 37.10 \ 22.40 CC2 \ 25.20 \ 15.40 Compute the plantwide overhead rate for next year.

Products are the first stage cost objects when using a departmental overhead rate method.

By definition, costs classified as overhead are consumed in basically the same manner regardless of the process involved.

Compared to the departmental overhead rate method, the plantwide overhead rate method usually results in more accurate overhead allocations.

The cost object(s)of the activity-based costing method is(are):

Overhead costs:

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 in the preceding tables.How much overhead cost will be assigned to the ice cream sandwich product line using activity-based costing (ABC)?

The more activities tracked by activity-based costing, the more accurately overhead costs are assigned.

Management's pricing and cost decisions for a product are influenced by that product's cost assignments.

Which of the following is a disadvantage of the departmental overhead rate method?