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

Answer the following questions using the information below: Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of Sweatshirts increase to $8.20 per unit. -Under the revised ABC system, the activity-cost driver rate for the supervision activity is:

Regarding department wide systems, the benefits of an ABC system must be balanced against its costs and limitations.

Answer the following questions using the information below: King Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. -If total advertising expense of $300,000 is allocated on the basis of sales, the amount allocated to the Large Department would be:

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 Gregory Enterprises uses the three activity cost pools to allocate overhead costs, what are the activity-cost driver rates for supervision of direct labor, machine maintenance, and facility rent, respectively?

Answer the following questions using the information below: Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. -The goal of a properly constructed ABC system is to:

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: -Assume a traditional costing system applies the $120,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model?

ABC costing systems are primarily for use in manufacturing and marketing and NOT for design engineering.

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: -It only makes sense to implement an ABC system when:

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: -Using the three cost pools to allocate overhead costs, what is the total amount of overhead costs to be allocated to the Mossman Job?

If companies increase market share in a given product line because their reported costs are less than their actual costs, they will become more profitable in the long run.

Traditional systems are likely to overcost complex products with lower production volume.

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 deluxe model?

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 $112,500 is allocated on the basis of sales, the amount allocated to the Truck Rental Department would be:

Answer the following questions using the information below: King Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. -If total rent expense of $120,000 is allocated on the basis of square footage, the amount allocated to the Small Department would be:

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 deluxe model?

The most likely example of an output unit-level cost is:

What are the four parts of the cost hierarchy. Briefly explain each part, and contrast this cost hierarchy to the fixed-variable dichotomy?

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 correspondence costs will be assigned to Department B?

Direct costs plus indirect costs equal total costs.

At Deutschland Electronics, product lines are charged for call center support costs based on sales revenue. Last year's summary of call center operations revealed the following: Deutschland Electronics currently allocates call center support costs using a rate of 0.5% of sales revenue. Required: a. Compute the amount of call center support costs allocated to each product line under the current system. b. Assume Deutschland decides to use the average call length for information to assign last year's support costs. Does this allocation method seem more appropriate than percentage of sales? Why or why not? c. Assume Deutschland decides to use the numbers of calls for information and for warranties to assign last year's support costs of $65,000. Compute the amount of call center support costs assigned to each product line under this revised ABC system. d. Deutschland Electronics assigns bonuses based on departmental profits. How might the Specialty Products manager try to obtain higher profits for next year if support costs are assigned based on the average call length for information? e. Discuss the barriers for implementing ABC for this call center.