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

Exhibit 3-2 Dublin Pie Company sells cherry pies and apple pies in bulk online.Estimated overhead costs for 2012 total $600,000.The accountant for Dublin identified the following information for its activity-based costing system. The estimated activity level for each type of pie and in total is as follows: -Refer to Exhibit 3-2.How much total overhead should be assigned to Sales Order 115 for Cherry Pies,if it requires 2 purchase orders for a total of 300 pies (or units)?

Exhibit 3-2 Dublin Pie Company sells cherry pies and apple pies in bulk online.Estimated overhead costs for 2012 total $600,000.The accountant for Dublin identified the following information for its activity-based costing system. The estimated activity level for each type of pie and in total is as follows: -Refer to Exhibit 3-2.What is the total overhead allocated to the purchasing activity associated with Apple Pies?

The predetermined overhead rate is calculated as:

It is acceptable to allocate selling costs to products when following U.S.Generally Accepted Accounting Principles.

All of the following are disadvantages of activity-based costing (ABC)except:

Exhibit 3-2 Dublin Pie Company sells cherry pies and apple pies in bulk online.Estimated overhead costs for 2012 total $600,000.The accountant for Dublin identified the following information for its activity-based costing system. The estimated activity level for each type of pie and in total is as follows: -Refer to Exhibit 3-2.What is the overhead rate for the purchasing 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.What is the total overhead cost for Sports Light using ABC?

Facility-level activities are activities required to develop,produce and sell specific types of products.

A collection of overhead costs,typically organized by department or activity,is called a:

Companies who want to identify and eliminate non-value-added activities may implement:

Companies that use the least number of cost pools possible tend to have the most accurate overhead allocation process.

For a company using activity-based management, identify each of the following activities as (V) value-added or (N) nonvalue-added. 1. Designing car seats to maximize comfort. 2. Storing additional materials for future production. 3. Special packaging of products for safety reasons. 4. Scrapping defective production materials. 5. Assembling lawn mowers at the local hardware store. 6. Moving parts from storage to the factory for manufacturing.

Prevention costs are costs for activities that prevent product defects.

Activity-based costing and activity-based management are two terms used to describe the same concept.

Which of the following would most likely be a non-value-added activity?

All of the following are methods of allocating overhead costs except:

Roseville Engineering provides watershed and design services for its customers.Total overhead costs this coming year are expected to be $8,000,000 ($2,000,000 in the Watershed Department,and $6,000,000 in the Design Department).If the company chooses to use the plantwide approach,overhead will be allocated using direct labor costs.Direct labor costs are expected to total $4,000,000.The Watershed Department expects to incur direct labor costs of $500,000,and the Design Department expects to work 120,000 direct labor hours.

Which of the following would most likely be a value-added activity?

Exhibit 3-2 Dublin Pie Company sells cherry pies and apple pies in bulk online.Estimated overhead costs for 2012 total $600,000.The accountant for Dublin identified the following information for its activity-based costing system. The estimated activity level for each type of pie and in total is as follows: -Refer to Exhibit 3-2.What is the overhead rate for the processing activity?

One important reason that managers allocate overhead costs to products is to promote the efficient use of resources.