Exam 5: Activity-Based Costing and Management

Hans Sorensen, controller of Franklin Production, has the choice of allocating indirect manufacturing cost using either direct manufacturing labour hours or manufacturing machine hours. If he uses labour hours for the month of January, Product A receives $312,000 in manufacturing overhead charges and Product B receives $448,000. When machine hours are used Product A receives $352,000 in manufacturing overhead charges while Product B receives only $408,000. Required: You are the department manager in charge of Product A and are strongly in favour of using labour hours. Of course, your co-manager, who is in charge of Product B, is strongly in favour of machine hours. What are some arguments you may be able to give for the allocation base that favours your department's product?

In an activity-cost pool,

The use of a single indirect cost rate is more likely to

The term used to describe a situation when at least one miscosted product causes other products to be miscosted in the organization is known as

Leonard Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Building and Inspection. The Building Department uses a departmental overhead rate of $18 per machine hour, while the Inspection Department uses a departmental overhead rate of $15 per direct labour hour. Job 611 used the following direct labour hours and machine hours in the two departments: The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 611 is $1,500. What was the total cost of Job 611 if Leonard Industries used the departmental overhead rates to allocate manufacturing overhead?

Which of the following statements is true regarding activity-based costing systems?

Traditional cost systems can be used to

Resources sacrificed on activities that cannot be traced to individual products or services, but which support the organization as a whole are which of the following?

Activity-based costing is a technique to improve the reliability of cost assignment

Answer the following question(s) using the information below. Ernsting Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2012, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages. For 2012 Ernsting 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 2012, two customers, Wealth Managers and Health 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?

A costing system which focuses on individual event or tasks as the cost pool to be allocated is called

Traditional cost systems distort product costs because

Use the information below to answer the following question(s). Fran Ferry Company had the following activities, pooled costs, and physical flow of driver units. The company uses activity-based costing. The above activities are used by departments A and B as follows: -How much of the account inquiry cost will be assigned to Department A?

A product that consumes a relatively low level of resources but is reported to have a relatively high cost, may result in

If the cost of an activity increases with the number of purchase orders placed, rather than to the quantity of items purchased, it is which of the following?

It may be appropriate to use a departmental costing system when costs are incurred on different activities within a department but each activity has the same cost allocation base.

Activity-based management describes management decisions that use activity-based costing information to

Activity-based cost systems

Describe each of the four cost hierarchies used to define levels for activities in activity-based costing.

A refined costing system results in a better measure of the nonuniformity of a company's resources by jobs, products, or services than by using broad averages to assign costs.