Exam 19: Cost Management Systems: Activity-Based Just-In-Time

Bar None Legal Services, Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect costs using a single predetermined overhead allocation rate with direct labor hours as the allocation base. The estimated indirect costs for this year amount to $170,000. The company is expected to work 17,000 direct labor hours during the year. The direct labor rate is $200 per hour. Clients are billed at 130% of direct labor cost. Last month, Bar None's consultants spent 180 hours on Henderson, Inc. Calculate the total costs assigned and allocated to Henderson.

Match each of the following activities to its most appropriate allocation base. -Setting up machines for production

________ is the maximum cost to develop, produce, and deliver a product or service and earn the desired net profit.

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?

For each of the following activities, indicate an appropriate allocation base: Activity Allocation Base Materials purchases Machine set-ups Quality inspections Employee training

Which of the following practices is incompatible with a just-in-time management system?

Activity-based management (ABM) can be used to make pricing and product mix decisions.

Which of the following is a disadvantage of a just-in-time management system?

Allen Manufacturing has three departments that differ significantly in their manufacturing processes. A single plantwide rate will give the company the best estimate of overhead costs.

You are concerned that your current single plantwide allocation rate is giving inaccurate results and would like to switch to an activity-based costing method. Why is activity-based costing considered more accurate than traditional costing methods?

Companies using just-in-time management systems are far more vulnerable to production shutdowns if they receive poor-quality or defective raw materials.

Activity-based management is not suitable for service companies as it deals with the proper allocation of manufacturing overhead costs.

Which of the following is an attribute of traditional costing systems?

The ________ system pulls materials, labor, and overhead costs into production under a just-in-time management system.

Nguyen, Inc. has received a bid for 15,000 units. The costing estimates show that the average cost per unit for this bid will be $500. The company uses cost-based pricing and adds 20% markup to total costs. What total price will Nguyen ask for the entire order?

Kaminski, Inc. has adopted a JIT management system and has the following transactions in December: Dec 3 Purchased raw materials on account, \$BQ,000 Dec B Incured labor and overhead costs, $\$ 105,000$ . Wages were not paid. Dec 15 Completed 750 units with standard costs of $\$ 106$ for direct materials and $\$ 165$ for conversion costs Dec 23 Sold 650 units for $\$ 395$ each on account. The company uses the perpetual inventory system. Record the journal entries for Kaminski, Inc. for December. Omit explanations.

Room Chill Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct materials cost is $85, and each ceiling fan requires 2.50 hours of machine time to manufacture. Additional information is as follows: Activity Allocation Base Predetermined Overhead Allocation Rate Materials handling Number of parts \ 0.04 Machining Machine hours 6.80 Assembling Number of parts 0.40 Packaging Number of finished units 2.50 What is the cost of assembling per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)

Nourishmix, Inc. manufactures food processors. The target sales price is $420 per unit. The company desires a 30% net profit margin on its products. What is the company's target full-product cost per unit using target pricing?

Edgar Thompson, a CPA, has a firm in the state of Florida. Edgar uses ABC to allocate overhead costs and has computed the following predetermined overhead allocation rates: Activity Allocation Ease Allocation Rate Photocopy expenses Number of pages \ 0.75 per page Cost of maintenance Number of labor hours \ 10.00 per hour Edgar has important contacts in the northeastern parts of Florida. During the past month, Edgar completed a job for Tropica, Inc. The job required 135 labor hours and 4,000 photocopies. Determine the amount of indirect costs to be allocated to the job.

Made Well Tool, Inc., a manufacturer of cutting tools, divided its manufacturing process into two Departments - Machining and Finishing. The estimated overhead costs for the Machining and Finishing departments amounted to $400,000 and $1,000,000, respectively. The company produces two types of tools - Standard and Deluxe. The total estimated labor hours for the year were 4,000, and total estimated machine hours were 2,000. The Machining department is mechanized, whereas the Finishing department is labor oriented. Calculate departmental predetermined overhead allocation rates. Machining Finishing Machine hours Labor hours Standard 500 1,800 Deluxe