Exam 5: Activity-Based Costing and Activity-Based Management

Answer the following questions using the information below: Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: The accounting records show the Mossman Job consumed the following resources: -If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for Gregory Enterprises?

Answer the following questions using the information below: Nichols, Inc., manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager believes it is time to refine the method of cost allocation and has the accounting department identify the primary production activities and their cost drivers: The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $200 per labor hour. -What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 50 remote controls are produced? The batch requires 100 parts, 6 direct manufacturing labor hours, and 2.5 minutes of inspection time.

Answer the following questions using the information below: Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2010, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2010 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: -What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?

Answer the following questions using the information below: Fey Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: -Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead costs assigned to the standard model?

Indirect labor and distribution costs would most likely be in the same activity-cost pool.

Answer the following questions using the information below: Whitman Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2010 Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: -Companies use ABC system information to:

Activity-based costing (ABC)can eliminate cost distortions because ABC:

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1,000-unit batches of brass, chrome, and white faucets, respectively. The following additional data apply: PER UNIT data: Overhead cost based on direct labor hours Hours per 1000-unit batch: Total overhead costs and activity levels for the year are estimated as follows: Required: a. Using the traditional system, determine the operating profit per unit for the brass style of faucet. b. Determine the activity-cost-driver rate for setup costs and inspection costs. c. Using the ABC system, for the brass style of faucet: d. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Answer the following questions using the information below: Racer X Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: -Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the deluxe model?

Answer the following questions using the information below: Mertens Company provides the following ABC costing information: The above activities are used by Departments A and B as follows: -How much of account verification costs will be assigned to Department A?

Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems.

Logical cost allocation bases include:

A company produces three products; if one product is overcosted then:

A key reason for using an ABC system rather than a department-costing system is because ABC assigns indirect costs:

Answer the following questions using the information below: Nichols, Inc., manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager believes it is time to refine the method of cost allocation and has the accounting department identify the primary production activities and their cost drivers: The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $200 per labor hour. -What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 500 parts, 10 direct manufacturing labor hours, and 5 minutes of inspection time.

Answer the following questions using the information below: Mayan Potters manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Mayan Potters uses an ABC system and assigns overhead costs based on the overhead activity information provided above. -The materials handling activity-cost driver rate is:

Answer the following questions using the information below: Whitman Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2010 Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: -Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?

Answer the following questions using the information below: Whitman Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2010 Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: -A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis:

Design of an ABC system requires:

Answer the following questions using the information below: Nichols, Inc., manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager believes it is time to refine the method of cost allocation and has the accounting department identify the primary production activities and their cost drivers: The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $200 per labor hour. -What are the indirect manufacturing costs per remote control assuming the traditional method is used and a batch of 500 remote controls are produced? The batch requires 1,000 parts, 10 direct manufacturing labor hours, and 15 minutes of inspection time.