Exam 5: Activity-Based Costing and Management

What is activity-based management and how can it be used to improve the profitability of a company?

Companies use activity-based management to

Which of the following statements does not represent the logic of an ABC system?

Which of the following statements is true concerning product costing systems?

Which of the following is true concerning selecting a cost-allocation base in an ABC system?

According to an ABC system, S5 uses a disproportionately

Answer the following question(s) using the information below. Wallace Printing 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 10 million pages. For 2012 Wallace 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 2012, two customers, Wayward Insurance and Hapless Systems, are expected to use the following printing services: -Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Hapless Systems during 2012?

Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?

When selling prices are based on costs assigned using the single cost driver, number of pages printed, then Hapless Systems

Activity-based costing is not adaptable to merchandising organizations.

Babcock Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $20 per machine hour, while the Sanding Department uses a departmental overhead rate of $15 per direct labour hour. Job 396 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 396 is $1,200. What was the total cost of Job 396 if Babcock Industries used the departmental overhead rates to allocate manufacturing overhead?

Using a department indirect cost rate to allocate costs to products will result in the same product costs as an ABC system if which of the following is true?

Outsourcing the accounting function is an example of what facet of 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: 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 sugar cookie. b. Determine the activity cost driver rate for oven costs and packaging costs. c. Using the ABC system, 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?

If a company undercosts one of its products from indirect cost smoothing, then it will overcost at least one of its other products.

Cecelia Schell is taking four clients (who are not related) on a tour of her retirement development. The clients incurred the following expenses while on the tour. All tour expenses are paid by Cecelia because she has business discounts for most of her business dealings. These expenses will be billed to the clients by Cecelia. Required: Compute the total average cost per client showing average indirect (overhead) and average direct (other) charges separately.

Management can identify and evaluate new designs to improve performance by evaluating how product and process designs affect activities and costs.

Use the information below to answer the following question(s). Bill Cobb Corporation 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 X and Y as follows: -How much of the account verification cost will be assigned to Department Y?

Use the information below to answer the following question(s). A transportation company provides bussing, limo and taxi service. The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service. Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement. Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion. Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses. The company's costing system has tracked the following activities for the month: -The previous controller at the transportation company had always estimated the indirect costs at 25% of billings. What indirect costs were accumulated for each major client for the month under this assumption?

The plant manager has come to you, as the new management accountant, for assistance. The plant manufactures sailboards, operating two shifts per day. During March through July, a third shift is added. The company has to train new machine operators each summer as the demands for its products is very seasonal. Training always occurs on the day shift, and the plant allocates the costs of training (e.g., extra supervision required), based on machine hours. This year, the three shift managers cannot agree on who should be charged for the training. The day shift manager is angry because she has discovered that machine hours are highest on the day shift. The other two managers argue that the hours are higher due to the training, so the day shift should be charged for those costs. Required: Provide a recommendation to the plant manager? Include in your recommendation two options as an allocation base for training costs.