Exam 4: Activity Based Costing

The plant-wide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base.

Batch-level activities and costs are incurred again each time a unit is produced.

Sparrow Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: Total assembly costs for part B is

Refined costing systems can be used to allocate ANY indirect costs to ANY cost objects.

The cost allocation rate for each activity is equal to the estimated total manufacturing overhead costs of the activity multiplied by the estimated total quantity of the cost allocation base.

Four basic steps are used in an ABC system.List the proper order of these steps,which are currently scrambled below: A.Identify the primary activities and estimate a total cost pool for each. B.Allocate the costs to the cost object using the activity cost allocation rates. C.Select an allocation base for each activity. D.Calculate an activity cost allocation rate for each activity.

Value-added activities are activities that could be reduced or removed from the process with no ill effect on the end product or service.

One condition that favours using a plant-wide overhead rate,rather than departmental overhead rates,is that different departments incur different amounts and types of manufacturing overhead.

Vittoria Corporation manufactures two products-Carts and Wheelbarrows.The annual production and sales of Carts is 2,000 units,while 1,800 units of Wheelbarrows are produced and sold.The company has traditionally used direct labour hours to allocate its overhead to products.Carts require 1.0 direct labour hours per unit,while Wheelbarrows require 0.5 direct labour hours per unit.The total estimated overhead for the period is $117,500.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools: The predetermined overhead allocation rate using the traditional costing system would be closest to

Hinckley & Granger Company had the following activities,estimated indirect activity costs,and allocation bases: Hinckley & Granger uses activity-based costing. The above activities are used by Departments P and Q as follows: What is the cost per driver unit for the account inquiry activity?

Vittoria Corporation manufactures two products-Carts and Wheelbarrows.The annual production and sales of Carts is 2,000 units,while 1,800 units of Wheelbarrows are produced and sold.The company has traditionally used direct labour hours to allocate its overhead to products.Carts require 1.0 direct labour hours per unit,while Wheelbarrows require 0.5 direct labour hours per unit.The total estimated overhead for the period is $117,500.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools: The overhead cost per Wheelbarrow using the traditional costing system would be closest to

Machine set-up would most likely be classified as a

Traditions Home Accessories Company manufactures pillows using an activity-based costing system to allocate all manufacturing conversion costs.The following information is provided for the month of June: Each pillow consists of 3 parts;the total direct materials cost per pillow is $8.00. What is the total manufacturing cost per pillow?

Electronics Unlimited uses activity-based costing to allocate all manufacturing conversion costs.Electronics Unlimited produces computer keyboards;each computer keyboard has $8.00 of direct materials,includes 12 parts and requires 1/2 hour of machine time.Additional information follows: What is the cost of machining per computer keyboard?

What is the last step in developing an ABC system?

Speedy Machine Products manufactures its products in two separate departments,Machining and Painting.Total manufacturing overhead costs for the year are budgeted at $2,500,000.Of this amount the Machining Department incurs $1,500,000 (primarily for machine operation and depreciation)while the Painting Department incurs $1,000,000.Speedy Machine Products estimates that it will incur 12,000 machines hours (all in the Milling Department)and 40,000 direct labour hours (15,000 in the Milling Department and 25,000 in the Assembly Department)during the year. Speedy Machine Products currently uses a plant-wide overhead rate based on direct labour hours to allocate overhead.However,the company is considering refining its overhead allocation system by using departmental overhead rates.The Machining Department would allocate its overhead using machine hours (MH),but the Painting Department would allocate its overhead using direct labour (DL)hours. The following chart shows the machine hours (MH)and direct labour (DL)hours incurred by Jobs 810 and 811 in each production department: Both Jobs 810 and 811 used $7,500 of direct materials.Wages and benefits total $30 per direct labour hour.Speedy Machine Products prices its products at 120% of total manufacturing costs. Required: 1.Compute Speedy Machine Products' current plant-wide overhead rate. 2.Compute refined departmental overhead rates. 3.Compute the total amount of overhead allocated to each job if Speedy Machine Products uses its current plant-wide overhead rate. 4.Compute the total amount of overhead allocated to each job if Speedy Machine Products uses departmental overhead rates. 5.Do both allocation systems accurately reflect the resources that each job used? Explain. 6.Compute the total manufacturing cost and sales price of each job using Speedy Machine Products' current plant-wide overhead rate. 7.Compute the total manufacturing cost and sales price of each job using Speedy Machine Products' refined departmental overhead rates 8.Based on the current (plant-wide)allocation system,how much profit did Speedy Machine Products think it earned on each job? 9.Based on the departmental overhead rates and the sales price determined in Requirement 7,how much profit did it really earn on each job?

Electronics Unlimited uses activity-based costing to allocate all manufacturing conversion costs.Electronics Unlimited produces computer keyboards;each computer keyboard has $8.00 of direct materials,includes 12 parts and requires 1/2 hour of machine time.Additional information follows: What is the cost of assembling per computer keyboard?

Louis Corporation,which uses an activity-based costing system,produces travel trailers and boat trailers.The company allocates batch setup costs to the two products using the following basic data: Total budgeted setup costs for the year are $140,000. If the setup costs are allocated using direct labour hours,how much of the total setup costs would be allocated to boat trailers?

Research and development would most likely be classified as a

Value-added activities are