Exam 5: Activity-Based Costing and Management

Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?

Activity-based cost systems create

Use the information below to answer the following question(s). A transportation company provides bussing,limo and taxi service.The company charges: $350 per day for bussing service;$2.00 per kilometre for taxi service;and,$3.50 per kilometre for limo service.Two individual clients,the school board and the city government offices use the majority of the limo service on a contract agreement.Bussing services are used exclusively by the school board,and the taxi service is used almost exclusively by the general public,although the school board uses the taxi services when individual students have to be transported on occasion.Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use,and $195 per day for each of the twenty buses. The company's costing system has tracked the following activities for the month: -What indirect costs were accumulated for each major client for the month?

Understanding the hierarchy of costs is critical when allocating costs to products.

Activity-based costing relies heavily on broad averages to assign costs to jobs,products,and services.

Whitman Printing Ltd.has contracts to complete weekly supplements required by its' customers.For the current year,manufacturing overhead cost estimates total $336,000 for an annual production capacity of 12 million pages. Whitman 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,Money Managers and Hospital Systems,are expected to use the following printing services: Pages are a direct cost at $0.03 per page.Design costs per job average $1,000 and $1,200 for Money Managers and Hospital Systems,respectively.Whitman Printing sets prices at $0.10 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 Money Managers be charged if Whitman 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.

When selling prices are based on costs assigned using the single cost driver,direct labour hours,then the Mossman job

Come-On-In Manufacturing produces two types of entry doors: Deluxe and Standard.The assignment basis for support costs has been direct labour dollars.For 2012,Come-On-In compiled the following data for the two products: Last year,Come-On-In Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line.The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign.She obtained the following ABC information: Required:

List four ways that activity-based management can be effective.

Describe each of the four cost hierarchies used to define levels for activities in activity-based costing.

Which of the following is relevant concerning cost hierarchies?

Leonard Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs.The company has two departments: Building and Inspection.The Building Department uses a departmental overhead rate of $18 per machine hour,while the Inspection Department uses a departmental overhead rate of $15 per direct labour hour.Job 611 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 611 is $1,500. What was the total cost of Job 611 if Leonard Industries used the departmental overhead rates to allocate manufacturing overhead?

Answer the following question(s)using the information below. Ernsting Printers has contracts to complete weekly supplements required by forty-six customers.For the year 2015,manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages. For 2015 Ernsting Printers has 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 2015,two customers,Wealth Managers and Health Systems,are expected to use the following printing services: -What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?

Which of the following statements does not represent the logic of an ABC system?

When using activity-based costing in a manufacturing setting,its distinctive feature is the focus on

Direct cost tracing will accomplish which of the following?

If the cost of an activity increases with the quantity of items used,it is which of the following?

Product-sustaining (service-sustaining),and facility-sustaining costs are equivalent terms in ABC systems.

Use the information below to answer the following question(s). Bill Cobb Corporation 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 X and Y as follows: -How much of the correspondence cost will be assigned to Department X?

Bottle Company operates many bottling plants around the globe.At its Toronto plant,where nine different brands are bottled,the following costs were incurred in the current year to produce 15,000,000 cans of soft drink: 1.Development costs of adding the new product "Soda Plus" amounted to $614,000. 2.Material handling costs of inspecting and handling concentrate,bottles,packages,and so forth amounted to $433,500.These costs are allocated to each production run. 3.Incoming materials purchase costs that can be directly traced to individual products being canned and packaged.These costs are purely variable with output level and amounted to $2,213,000. 4.Executive salaries and other central administration overhead amounted to $423,000. 5.Plant overhead including costs related to: supervision,safety,energy and plant insurance amounted to $623,000. 6.The cost of cleaning and calibrating equipment for each production run amounted to $171,500. Required: a.Classify each of the preceding costs as output unit-level,batch-level,product-sustaining,or facility-sustaining. b.Compute the cost per unit for the total manufacturing cost.