Exam 27: Activity-Based Costing

Kozlov Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly \ 942,480 66,000 machine hours Processing orders \ 85,050 1,800 orders Inspection \ 126,854 1,820 inspection hours The company makes 430 units of product A21W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit. - According to the activity-based costing system, the total overhead cost of producing 430 units of A21W is:

Briefly describe the process of activity-based costing.

Stormer Corporation has provided the following data from its activity-based costing accounting system: Indirect factory wages $27,000 Factory equipment depreciation $243,000 Distribution of resource consumption across Activity Cost Pools: Customer Product Orders Processing Other Total Indirect factor wages 27\% 68\% 5\% 100\% Factory equipment depreciation 20\% 67\% 13\% 100\% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. Required: a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work! b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!

Dover Company manufactures two products, Product J-9 and Product M-6. Product M-6 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product J-9. Product M-6 is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product J-9. Product M-6 is produced on an automated production line. Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product M-6 and 40,000 units of Product J-9 during the current year. Unit costs for materials and labor are: Product J-9 Product M-6 Direct material \ 11 \ 24 Direct labor \ 6 \ 12 Required: a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. b. The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below: Activity cost pool Total cost Product J-9 Product M-6 Total Machine setups required \ 204,000 800 1,600 2,400 Purchase orders issued 43,500 500 100 600 Machine-hours required 105,000 7,000 10,500 17,500 Maintenance requests issued 650 850 1,500 Total Using the data above, determine the unit product cost of each product for the current year. c. What items of overhead cost make Product M-6 so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product M-6?

Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: Activity Cost Pool Activity Measure Estimated Cost Adminstrative service \% of time devoted to branch \ 700,000 Development service Computer time \ 140,000 Estimated branch data for next year is as follows: Time to branch Computer time Nashville 60\% 150,000 minutes Atlanta 30\% 200,000 minutes Louisville 10\% 50,000 minutes Total 100\% 400,000 minutes - How much of the headquarters cost allocation should Atlanta expect to receive next year?

Activity rates from Hilliard Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products: Activity Cost Pools Activity Rate Processing customer orders \ 92.86 per customer order Assembling products \ 1.78 per assembly hour Setting up batches \ 52.09 per batch Last year, Product XL91 involved 2 customer orders, 434 assembly hours, and 20 batches. How much overhead cost would be assigned to Product XL91 using the activity-based costing system?

Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data. Flat Round Total Direct materials \ 12,000 \ 24,000 \ 36,000 Direct labor 6,000 18,000 24,000 Overhead (250\% of direct labor cost) Total cost Units produced 10,000 15,000 Average cost per unit \ 3.30 \ 5.80 Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information. Overhead Cost Category (Activity Cost Pool) Cost Supervision \ 12,600 Depreciation of machinery 30,600 Assembly line preparation 16,800 Total overhead \ 60,000 She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. Assign these three overhead cost pools to flat using ABC and determine average cost per unit for the product. (Round your answer to 2 decimal places.

If a firm uses activity-based costing to allocate costs, it does all but which of the following?

Which of the following is not a limitation of activity-based costing?

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of indirect labor allocated to Dept. 2 using activity-based costing. Direct Labor Hours Machine Hours Operating Dept. 1 980 9,200 Operating Dept. 2 2,100 6,000 Totals 3,080 15,200 Factory overhead costs Rent and utilities \ 21,700 Indirect labor 17,300 Depreciation - Equipment 14,000 Total factory overhead \ 53,000

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of rent, utilities, and depreciation allocated to Dept. 1 using activity-based costing. Direct Labor Hours Machine Hours Operating Dept. 1 980 9,200 Operating Dept. 2 2,100 6,000 Totals 3,080 15,200 Factory overhead costs Rent and utilities \ 21,700 Indirect labor 17,300 Depreciation - Equipment 14,000 Total factory overhead $ 53,000

Portofino Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Activity Cost Pools Activity Rate Setting up batches \ 79.50 per batch Processing customer orders \ 71.31 per customer order Assembling products \ 7.06 per assembly hour $\text { Data concerning two products appear below: }$ Product KJ22 Product KL 37 Number of batches 69 12 Number of customer orders 20 9 Number of assembly orders 492 697 -How much overhead cost would be assigned to Product KJ22 using the activity-based costing System?

Borden Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Overhead Costs: Indirect labor \ 260,000 Depreciation 220,000 Utilities Total Distribution of resource consumption: Activity Cost Pools Assembly Setting up Other Total Indirect labor 50\% 25\% 25\% 100\% Depreciation 20\% 30\% 50\% 100\% Utilities 25\% 45\% 30\% 100\% How much overhead cost, in total, would be allocated to the Setting Up activity cost pool?

Zephyr Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Overhead Cost Total Activity Assembly \ 383,180 23,000 machine hours Processing orders \ 50,798 1,100 orders Inspection \ 106,110 1,620 inspection hours Data concerning one of the company's products, Product LM41, appear below. Selling price per unit \1 24.60 Direct materials cost per unit \2 2.08 Direct labor cost per unit \4 5.77 Annual unit production and sales 210 Orders processed 80 Annual machine hours 320 Annual inspection hours 10 According to the activity-based costing system, the product margin for product LM41 is:

An activity-based cost allocation system:

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of indirect labor allocated to Dept. 1 using activity-based costing. Direct Labor Hours Machine Hours Operating Dept. 1 980 9,200 Operating Dept. 2 2,100 6,000 Totals 3,080 15,200 Factory overhead costs Rent and utilities \ 21,700 Indirect labor 17,300 Depreciation - Equipment 14,000 Total factory overhead \ 53,000

When using a plantwide overhead rate method to assign overhead costs, the cost object is always the unit of product.

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead cost allocated to Dept. 1 using activity-based costing. Direct Labor Hours Machine Hours Operating Dept. 1 980 9,200 Operating Dept. 2 2,100 6,000 Totals 3,080 15,200 Factory overhead costs Rent and utilities \ 21,700 Indirect labor 17,300 Depreciation - Equipment 14,000 Total factory overhead \ 53,000

In traditional costing, all overhead is lumped together and a predetermined overhead rate per unit of an allocation base is computed and used to assign overhead to jobs and processes.

In activity-based costing, all overhead is lumped together and a predetermined overhead rate per unit of an allocation base, is computed and used to assign overhead to jobs and processes.