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

Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available: PER UNIT data: Hours per 1000-unit batch: Total overhead costs and activity levels for the year are estimated as follows: Required: a. Determine the activity-cost-driver rate for packaging costs. b. Using the ABC system, for the sugar cookie: c. Using a traditional system (with direct labor hours as the overhead allocation base), for the sugar cookie:. 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: 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: -ABC systems:

ABC systems:

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 the account billing cost will be assigned to Department B?

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 activity-cost driver for the materials handling activity is:

A top-selling product might actually result in losses for the company.

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: -Assume a traditional costing system applies the $40,000 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the standard model?

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. -During October, Mayan produced 700,000 regular ceramic paperweights and Mayan's production manager counted 2,000 orders; 1,000 maintenance-hours; 2,000 setups; and 2,000 inspections for the regular product line. For October, Mayan's controller assigned ________ indirect costs to the regular product line.

Explain how traditional cost systems, using a single unit-level cost rate, may distort product costs.

Answer the following questions using the information below: Monster Vehicle Rental Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. -If advertising expense of $75,000 is allocated on the basis of sales, the amount allocated to the Car Rental Department would be:

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: -For service organizations that bill customers at a predetermined average rate, activity-based cost systems can help to:

Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost-driver assignments are proportionately dissimilar to each other.

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: -When costs are assigned using the single cost driver, number of pages printed, then Hospital Systems:

One department indirect-cost rate is sufficient when:

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 1000-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 each style of faucet. b. Determine the activity-cost-driver rate for setup costs and inspection costs. c. Using the ABC system, for each style of faucet d. Explain the differences between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

When designing a costing system, it is easiest to calculate per-unit costs first, and then total costs.

Answer the following questions using the information below: Monster Vehicle Rental Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. -If the facility lease expense of $350,000 is allocated on the basis of vehicles in the fleet, the amount allocated to the Car Rental Department would be:

The primary costs of an ABC system are the measurements necessary to implement the system.

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 the total costs will be assigned to Department A?

Answer the following questions using the information below: Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8. -According to an ABC system, CP8 is ________ under the traditional system.