Exam 5: Activity-Based Costing and Management

Summer Daze Corporation manufactures two products, Bocce Ball Sets and Croquet Sets. Croquet Sets were added as a product line two years ago. Croquet Sets are the more complex of the two products, requiring one hour of direct labour time per unit to manufacture, compared to one-half hours of direct labour time for Bocce Ball Set. Croquet Sets are produced on an automated production line. Indirect costs are currently allocated to the products on the basis of direct labour hours. The company estimated it would incur $332,500 in manufacturing overhead costs and produce 6,000 units of Croquet Sets and 20,000 units of Bocce Ball Sets during the current year. Unit costs for materials and direct laabour are: Required a. Determine the unit cost of a Bocce Ball Set using traditional costing with units as the allocation base. b. Determine the unit cost of a Bocce Ball Set using activity-based costing.

Which of the following does not characterize an ABC system, as compared to a traditional costing system?

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: -Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?

Product-sustaining (service-sustaining) costs are the costs of resources sacrificed on activities undertaken to support specific services.

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a non-uniform way is called

Which of the following is not an activity under an ABC system?

Determining what activities add customer value is an example of what facet of activity-based management?

Asian Tools, a manufacturer of precision hand tools, is concerned with the apparent lack of controls over cost incurrence in its Hand Tool Division. The division has always used a plant-wide rate for allocating manufacturing overhead to its products. However, some products cost substantially more than competitors' retail prices while others are substantially less. The division manager believes that a better cost allocation method can be developed. With the assistance of a plant supervisor, the accounting department has been able to establish the following relationships between production activities and the indirect costs of the activities: The traditional allocation method is based upon direct manufacturing labour hours, and if that method is used the rate is $28 per hour. Required: Compute the unit indirect manufacturing costs of a batch of 200 tools if the batch required 220 parts, 8 machine hours, 52 minutes of finishing time, and 46 direct labour hours:

Which of the following is not a decision within the framework of Activity-based management (ABM)?

Activity-based costing information

When calculating the total amount of manufacturing overhead to allocate to a particular job, the company would multiply each departmental overhead rate by ________ and then ________ together the allocated amounts from each department.

Cocoa Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled: Required: Assume a traditional costing system applies the $80,000 of overhead costs based on direct labour hours. a. What is the total amount of overhead costs assigned to the standard model? b. What is the total amount of overhead costs assigned to the deluxe model? Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead. c. What is the total amount of indirect costs assigned to the standard model? d. What is the total amount of indirect costs assigned to the deluxe model? e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?

Compared to an activity-based cost system, CP8 is ________ under the traditional system.