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

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 -Assume a traditional costing system applies the $90 000 of overhead costs based on direct labour hours.What is the total amount of overhead costs assigned to the standard model?

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 inspections activity-cost driver rate is:

How can the need for a more refined costing system be identified? _____________________________________________________________________________________________ _____________________________________________________________________________________________

What can under-costing a particular product result in?

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 -Using the cost driver rate determined in the previous question,what is the manufacturing overhead cost estimate for Health Systems during 2018?

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

When designing a costing system,it is easiest to:

Corporate costs do not belong to a particular production centre.

Which of the following is a sign that an ABC system may be useful?

A PRIMARY reason for assigning selling and distribution costs to products for analytical purposes is:

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 -Using an ABC system,next year's estimates show manufacturing overhead costs will total $228 300 for 52 000 T-shirts.If all other T-shirt costs and sales prices remain the same,the profitability that can be expected is:

To set realistic selling prices:

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,overhead costs per unit for the sweatshirts will be:

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

Answer the following questions using the information below: Trustme Vehicle Rental Corporation has two departments,Car Rental and Truck Rental.Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of vehicles in fleet 700 300 Number of employees 150 50 Sales \ 1500000 \ 750000 -If an advertising expense of $150 000 is allocated on the basis of sales,the amount allocated to the Car Rental Department would be:

To be useful for planning,control and making decisions,managers specify budgeted costs for activities and use ________ cost-driver rates to estimate the cost of outputs.

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 advertising expense of $300 000 is allocated on the basis of sales,the amount allocated to the Masts Department would be:

Different indirect costs may be allocated if the purpose of the allocation is long run pricing than if the purpose is considering whether to make or buy a product.

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. -Given this change in the cost:

The MOST likely example of a batch-level cost is: