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

What is the last step in the seven-step guideline for ABC systems?

Answer the following questions using the information below: Fremantle Corporation has two departments,Sails and Masts.Central costs could be allocated to the two departments in various ways. Sails Department Masts Department Square metreage 6000 18000 Number of employees 1120 480 Sales \ 400000 \ 2000000 -If total payroll processing costs of $96 000 are allocated on the basis of number of employees,the amount allocated to the Sails Department would be:

Managers need to track activity costs across the value chain to estimate the cost of producing each output.

Answer the following questions using the information below: Fremantle Corporation has two departments,Sails and Masts.Central costs could be allocated to the two departments in various ways. Sails Department Masts Department Square metreage 6000 18000 Number of employees 1120 480 Sales \ 400000 \ 2000000 -If a total rent expense of $288 000 is allocated on the basis of square metreage,the amount allocated to the Masts Department would be:

________ costs support the organisation as a whole.

ABC systems:

Answer the following questions using the information below: Ghan Collectibles produces T-shirts and sweatshirts.Product profitability is analysed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 60000 units 35000 urits Selling price \ 16.00 \ 29.00 Direct material \ 2.00 \ 5.00 Direct labour \ 4.50 \ 7.20 Manufacturing overhead \ 2.00 \ 3.00 Gross profit \ 7.50 \ 13.80 Selling and administrative \ 4.00 \ 7.00 Operating profit \ 3.50 \ 6.80 Ghan Collectibles's managers have decided to revise their current assignment of overhead costs to reflect the following $\mathrm { ABC }$ cost information: Activities demanded T-SHIRTS SWEATSHIRTS 0.75/ unit 1.2/ 45000 42000 60000 inspections 17500 inspections -Under the revised ABC system,supervision costs allocated to sweatshirts will be:

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 account billing cost will be assigned to Department B?

Answer the following questions using the information below: Barnes Corporation manufactures two models of office chairs,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 22 8 500 Deluxe 28 12 300 Overhead costs \ 30000 \ 60000 -Number of set-ups and number of components are identified as activity-cost drivers for overheads.Assuming an activity-based costing system is used,what is the total amount of overhead costs assigned to the standard model?

When individual activities within a cost pool have a similar relationship with the cost driver,those costs:

________ systems are capable of producing reasonably accurate costs where a single activity accounts for a sizeable proportion of a department's indirect costs.

Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT:

An electronics manufacturer is trying to encourage its engineers to design simpler products so that overall costs are reduced. Required: Which of the value-chain function costs (R&D,design,production,marketing,distribution and customer service)should be included in product-cost estimates to achieve the above purpose? Why? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Activity-based management (ABM)includes decisions about all of the following EXCEPT:

Factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products because:

Managers also need to update cost drivers and cost-driver rates:

One department indirect-cost rate is sufficient when:

In the early days of costing systems,financial reporting imperatives set the priorities for the design of costing systems.

Production department employee wages are a corporate cost.

For each of the following activities,identify an appropriate activity-cost driver: a.machine maintenance b.machine set-up c.quality control d.material ordering e.production scheduling f.warehouse expense g.engineering design. _____________________________________________________________________________________________ _____________________________________________________________________________________________