Exam 5: Activity-Based Costing and Management

Babcock Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs.The company has two departments: Assembly and Sanding.The Assembly Department uses a departmental overhead rate of $20 per machine hour,while the Sanding Department uses a departmental overhead rate of $15 per direct labour hour.Job 396 used the following direct labour hours and machine hours in the two departments: The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 396 is $1,200. What was the total cost of Job 396 if Babcock Industries used the departmental overhead rates to allocate manufacturing overhead?

Using pages printed as the only overhead cost driver,what is the manufacturing overhead cost estimate for Wealth Managers during 2015?

Installing a new control panel on a factory production machine would be classified in the ABC cost hierarchy as a (an)

Outsourcing the accounting function is an example of what facet of activity-based management?

Use the information below to answer the following question(s). Fran Ferry Company had the following activities,pooled costs,and physical flow of driver units.The company uses activity-based costing. The above activities are used by departments A and B as follows: -How much of the account billing cost will be assigned to Department B?

Peanut butter costing involves assigning costs in a non uniform manner to reflect the different utilization of resources by different products or services.

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

Which of the following is NOT a characterization of activity-based costing?

Simple cost systems distort product costs because

All costs in a homogeneous cost pool have

Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

Rogers Printing Ltd.has contracts to complete weekly supplements required by its' customers.For the current year,manufacturing overhead cost estimates total $580,000 for an annual production capacity of 14,500,000 pages. Rogers Printing decided to evaluate the use of additional cost pools.After analyzing manufacturing overhead costs,it was determined that number of design changes,setups,and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis: Two customers,Jackson Sports and Beaufort Travel,are expected to use the following printing services: Pages are a direct cost at $0.02 per page.Design costs per job average $1,500 and $1,700 for Jackson Sports and Beaufort Travel,respectively.Rogers Printing sets prices at $0.11 per page plus 120% of design costs. Assume that all costs are variable. Required: Prepare income statements in contribution margin format for both customers using: a.Traditional (simple)costing with overhead applied on a page capacity basis b.Activity-based costing c.How much a page should Jackson Sports be charged if Rogers Printing wants to breakeven on this customer? Assume that manufacturing overhead costs are fixed and that they are allocated to customers based on pages sold as a percentage of production capacity;and,that design costs are also fixed.

Asian Tools,a manufacturer of precision hand tools,is concerned with the apparent lack of controls over cost incurrence in its Hand Tool Division.The division has always used a plant-wide rate for allocating manufacturing overhead to its products.However,some products cost substantially more than competitors' retail prices while others are substantially less.The division manager believes that a better cost allocation method can be developed. With the assistance of a plant supervisor,the accounting department has been able to establish the following relationships between production activities and the indirect costs of the activities: The traditional allocation method is based upon direct manufacturing labour hours,and if that method is used the rate is $28 per hour. Required: Compute the unit indirect manufacturing costs of a batch of 200 tools if the batch required 220 parts,8 machine hours,52 minutes of finishing time,and 46 direct labour hours:

An ABC system is one building block of activity-based management (ABM).The second building block is

Which of the following statements about activity-based costing is TRUE?

At Deutschland Electronics,product lines are charged for call centre support costs based on sales revenue.Last year's summary of call centre operations revealed the following: Deutschland Electronics currently allocates call centre support costs using a rate of 0.5% of sales revenue. Required: a.Compute the amount of call centre support costs allocated to each product line under the current system. b.Assume Deutschland decides to use the average call length for information to assign last year's support costs.Does this allocation method seem more appropriate than percentage of sales? Why or why not? c.Assume Deutschland decides to use the numbers of calls for information and for warranties to assign last year's support costs of $65,000.Compute the amount of call centre support costs assigned to each product line under this revised ABC system. d.Deutschland Electronics assigns bonuses based on departmental profits.How might the Specialty Products manager try to obtain higher profits for next year if support costs are assigned based on the average call length for information? e.Discuss the barriers for implementing ABC for this call centre.

Indications that a product cost system needs revision include

If the cost of an activity increases with each hour of machine time,it is which of the following?

Answer the following question(s)using the information below. Wallace Printing has contracts to complete weekly supplements required by forty-six customers.For the year 2016,manufacturing overhead cost estimates total $420,000 for an annual production capacity of 10 million pages. For 2016 Wallace Printing decided to evaluate the use of additional cost pools.After analyzing manufacturing overhead costs,it was determined that number of design changes,setups,and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis: During 2016,two customers,Wayward Insurance and Hapless Systems,are expected to use the following printing services: -Using pages printed as the only overhead cost driver,what is the manufacturing overhead cost estimate for Hapless Systems during 2016?

ABC provides a cost-benefit analysis of the unequally shared benefits of a support activity.The technique also discloses the scope of business functions where cost control will have a positive effect. Required: Provide three benefits that the identification of the scope of cost control focused on different activity levels should lead to.