Exam 8: Activity-Based Management and Activity-Based Costing

What does the design of an ABC system require?

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 labour 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 types of wood used.The new cost of a set of chess pieces was determined to be $298.00 per set. -Given this change in the cost structure:

Answer the following questions using the information below: Gold Coast Printing has contracts to provide fortnightly advertising supplements to 94 customers.For the year 2018,manufacturing overhead cost estimates total $600 000 for an annual production capacity of 24 million pages. For 2018,Gold Coast Printing decided to evaluate the use of additional cost pools.After analysing manufacturing overhead costs,it was determined that number of design changes,set-ups and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis: Cost Pool Manufacturing Overhead Costs Activity Level Design changes \ 80000 200 design changes Set-ups 400000 4000 set-1ps Inspections 120000 16000 inspections Total manufacturing overhead costs \ 600000 During 2018, two customers, Wealth Managers and Health Systems, are expected to use the following printing services: Activity Wealth Managers Health Systems Pages 60000 76000 Design changes 10 2 Set-ups 20 10 Inspections 30 38 -If manufacturing overhead costs are considered one large cost pool and are assigned based on 24 million pages of production capacity,what is the cost driver rate?

Answer the following questions using the information below: Cannady produces six products.Under their traditional cost system using one cost driver,SR6 costs $168.00 per unit.An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system.The new cost of SR6 was determined to be $178.00 per unit. -The total amount of indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC.

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 labour 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 types of wood used.The new cost of a set of chess pieces was determined to be $298.00 per set. -A key reason for using an ABC system rather than a department-costing system is because ABC assigns indirect costs:

Answer the following questions using the information below: Kosciuszko Land and Snow Company provides the following ABC costing information: Activities Total Costs Activity-cost Drivers Labour hours \ 240000 12000 hours Fuel \ 27000 9000 litres Invoices \ 30000 3750 invoices Total costs \ 1912000 The above activities used by their three departments are: Lawn Department Bush Department Ploughing Department Labour hours 2500 hours 1200 hours 4300 hours Fuel 1500 litres 800 litres 3700 litres Invoices 1600 invoices 400 invoices 500 invoices -How much of the total cost will be assigned to the Ploughing Department?

What does the effort and cost of collecting data depend on?

Answer the following questions using the information below: Katoomba Company provides the following ABC costing information: Activities Total Costs Activity-cost Drivers Account inquiry hours \ 800000 20000 hours Account billing lines \ 560000 8000 000 lines Account verification accounts \ 300000 80000 accounts Correspondence letters \ 100000 8000 letters Total costs \ 1760000 The above activities are uæed by Departments and as follows: Department A Department B Account inquiry hours 2000 hours 8000 hours Account billing lines 400 o00 lines 200000 lines Account verification accounts 20000 accounts 8000 accounts Correspondence letters 1000 letters 1600 letters -How much of the correspondence costs will be assigned to Department B?

Answer the following questions using the information below: Products S5 and CP8 each are assigned $50.00 in indirect costs by a traditional costing system.An activity analysis revealed that although production requirements are identical,S5 requires 45 minutes less set-up time than CP8. -According to an ABC system,CP8 is ________ under the traditional system.

Traditional systems are capable of producing reasonably accurate costs where significant costs are incurred on different activities within a department but the same cost driver applies to all the activities in the department.

Once the ________ system highlights the cost of unused capacity as a separate line item,managers are able to pursue a number of options to reduce unused capacity and improve performance.

If a company makes several types of a single product (e.g.televisions)a simple costing system will provide the information needed for decision-making purposes.

Managers use ABC systems for information when they focus on long-run decisions and are able to manage activities that affect a broader range of costs.

Answer the following questions using the information below: Flinders Potters manufactures two sizes of ceramic paperweights,regular and jumbo.The following information applies to their expectations for the planning period: Cost Pool Overhead Costs Activity-cost Driver Materials handling \ 50000 100000 orders Machine maintenance \ 300000 15000 maintenance hours Set-ups \ 270000 45000 set-ups Inspections \ 110000 22000 inspections Total support costs \ 730000 Production Es timates Production urits: Regular =8000000 units Jumbo =16000000 units Machine-hours =200000 Labour-hours =400000 Flinders Potters uses an ABC system and assigns overhead costs based on the overhead activity information provided above. -The activity-cost driver for the materials handling activity is:

Answer the following questions using the information below: Mt Panorama Racing Corporation manufactures two models of motorised go-carts,a standard and a deluxe model.The following activity and cost information has been compiled: Product Number of Set-ups Number of Components Number of Direct Labour Hours Standard 15 10 750 Deluxe 35 15 500 Overhead costs \ 30000 \ 50000 -Assume a traditional costing system applies the $80 000 of overhead costs based on direct labour hours.What is the total amount of overhead cost assigned to the standard model?

When there is a lesser degree of homogeneity,fewer cost pools are required to accurately explain the use of company resources.

ABC systems include all resources consumed by cost objects,irrespective of whether the costs are variable or fixed in the short run.

Answer the following questions using the information below: Products S5 and CP8 each are assigned $50.00 in indirect costs by a traditional costing system.An activity analysis revealed that although production requirements are identical,S5 requires 45 minutes less set-up time than CP8. -Once an ABC system has been set up,these calculations are routine and the management accountant,as a member of the management team,can computerise them with relatively little effort.

The benefits of implementing a more complex cost-allocation system are relatively easy to quantify for application of the cost-benefit approach.

Activity-based costing systems provide more accurate product costs than traditional systems because they employ more activity-cost drivers.