Exam 3: How Does an Organization Use Activity-Based Costing to Allocate Overhead Costs

Total companywide estimated overhead costs will change depending on if plant wide allocation or departmental allocation is used.

Organizations can allocate overhead in a variety of ways,resulting in a number of different product costs for the same product.

Exhibit 3-1 Hydrate Inc.makes two types of sports drinks and is implementing an activity-based costing system.Previously,all overhead had been applied on the basis of machine hours.The company produces 22,500 units of Sports Light and 42,284 units of Thirst Quench.Additional data is as follows: -Refer to Exhibit 3-1.What is the overhead cost per unit for Sports Light when all overhead is applied based on machine hours?

Which of the following would be the best allocation base for a product designed for a specific customer?

Exhibit 3-3 Metro Inc.has two production departments (Lamination and Molding)and three service departments (Human Resources,Technology Support,and Purchasing).Service department costs are allocated to production departments using the direct method.The $200,000 costs of Human Resources are allocated based on the number of employees in each production department.The $400,000 costs of Technology Support are allocated based on hours of technology support used by each production department.The $120,000 of Purchasing is allocated on the pounds of raw materials purchased for each production department.Information for each production department is as follows: -Refer to Exhibit 3-3.Using the direct method of allocating service department costs to production departments,how much of the Purchasing service department costs should be allocated to the Lamination Department?

Which of the following items is not a batch-level activity?

Eaton Company uses activity-based costing to allocate overhead costs to products.When figuring the cost of ordering raw materials,which of the following is likely the best cost driver for this activity?

Whitney Company has two production departments (P1 and P2)and three service departments (S1,S2,and S3).Service department costs are allocated to production departments using the direct method.The $300,000 costs of department S1 are allocated based on the number of employees in each production department.The $400,000 costs of department S2 are allocated based on the square footage of space occupied by each production department.The $225,000 costs of department S3 are allocated based on hours of technology support used by each production department.Information for each production department is as follows: :

Exhibit 3-1 Hydrate Inc.makes two types of sports drinks and is implementing an activity-based costing system.Previously,all overhead had been applied on the basis of machine hours.The company produces 22,500 units of Sports Light and 42,284 units of Thirst Quench.Additional data is as follows: -Refer to Exhibit 3-1.What is the total overhead cost applied to Thirst Quench when all overhead is applied based on machine hours?

Which of the following would be the best allocation base for a new product design?

Exhibit 3-1 Hydrate Inc.makes two types of sports drinks and is implementing an activity-based costing system.Previously,all overhead had been applied on the basis of machine hours.The company produces 22,500 units of Sports Light and 42,284 units of Thirst Quench.Additional data is as follows: -Refer to Exhibit 3-1.What is the total overhead cost applied to Thirst Quench using activity-based costing?

Value-added activities are typically ignored when using activity-based management.

An advantage of using activity-based costing is that it provides detailed information related to production activities.

Theron Industries has the following financial data related to its quality control program. Identify which costs and amounts are prevention,appraisal,internal failure or external failure.

The choice of an allocation method for overhead depends on how managers decide to group costs into cost pools.

The plantwide approach to allocating overhead is typically the simplest and least expensive approach.

Which of the following would be the best allocation base for the direct materials used by workers to assemble products?

Flannery Inc.produces identical tables in large batches.Which of the following would most likely be a product-level cost for Flannery?

Which of the following items is a unit-level activity?

Exhibit 3-1 Hydrate Inc.makes two types of sports drinks and is implementing an activity-based costing system.Previously,all overhead had been applied on the basis of machine hours.The company produces 22,500 units of Sports Light and 42,284 units of Thirst Quench.Additional data is as follows: -Refer to Exhibit 3-1.Using ABC,what is the cost per order for the Materials Ordering activity?