Exam 5: Activity-Based Costing and Activity-Based Management

Implementing activity-based costing system involves use of different cost rates for different activities to compute indirect costs of a product.

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts.Of the following,the most appropriate cost driver for assigning materials handling costs to the various products is ________.

Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry \ 200,000 10,000 hours Account billing \ 140,000 4,000,000 lines Account verificationaccounts \ 75,000 40,000 accounts Correspondence letters \ 25,000 4,000 letters Total costs \ 440,000 The above activities are used by Departments A and B as follows: Department Department Account inquiry hours 2,500 hours 4,000 hours Account billing lines 400,000 lines 250,000 lines Account verification accounts 10,000 accounts 8,000 accounts Correspondence letters 1,200 letters 1,600 letters -How much of the total costs will be assigned to Department B?

Product lines that produce different variations (models,styles,or colors)often require specialized manufacturing activities that translate into ________.

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass,Chrome,and White.Production takes 25,25,and 10 machine hours to manufacture 1000-unit batches of brass,chrome and white faucets,respectively.The following additional data apply: BRASS CHROME WHITE Projected sales in units 30,000 50,000 40,000 PER UNIT data: Selling price \ 40 \ 20 \ 30 Direct materials \ 8 \ 4 \ 8 Direct labor \ 15 \ 3 \ 9 Overhead cost based on direct labor hours (traditional system) \ 12 \ 3 \ 9 Hours per 1000-unit batch: Direct labor hours 40 10 30 Machine hours 25 25 10 Setup hours 1.0 0.5 1.0 Inspection hours 30 20 20 $\text { Total overhead costs and activity levels for the year are estimated as follows: }$ Activity Overhead costs Activity levels Direct labor hours 2,900 hours Machine hours 2,400 hours Setups \ 465,500 95 setup hours Inspections \ 405,000 2,700 inspection hours \8 70,500 Required: a.Using the traditional system,determine the operating profit per unit for each style of faucet. b.Determine the activity-cost-driver rate for setup costs and inspection costs. c.Using the ABC system,for each style of faucet 1.compute the estimated overhead costs per unit. 2.compute the estimated operating profit per unit. d.Explain the differences between the profits obtained from the traditional system and the ABC system.Which system provides a better estimate of profitability? Why?

Whitman Printing has contracts to complete weekly supplements required by forty-six customers.For the year 20X5,manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2010,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: Cost pool Manufacturing overhead costs Design changes \ 120,000 200 design changes Setups 640,000 4,000 setups Inspections 16,000 inspections Total manufacturing overhead costs \ 840,000 During 2010,two customers,Money Managers and Hospital Systems,are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 60,000 76,000 Design changes 10 2 Setups 20 10 Inspections 30 38 When costs are assigned using the single cost driver,number of pages printed,then Hospital Systems ________.

Companies that overcost products will most likely lose market share.

Trintal Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 15 10 750 Del uxe 35 15 500 Overhead costs \ 16,500 \ 23,500 -Assume a traditional costing system applies the $40,000 of overhead costs based on direct labor hours.What is the total amount of overhead cost assigned to the standard model?

Implementing ABC system never demotivates employees.

ABC systems ________.

Aqua Company produces two products-Alpha and Beta.Alpha has a high market share and is produced in bulk.Production of Beta is based on customer orders and is custom designed.Also,55% of Beta's cost is shared between design and setup costs,while Alpha's major portions of costs are direct costs.Alpha is using a single cost pool to allocate indirect costs.Which of the following statements is true of Aqua?

Answer the following questions using the information below: Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. -The goal of a properly constructed ABC system is to ________.

Using activity-cost rates rather than department indirect-cost rates to allocate costs results in different product costs when ________.

Overcosting a particular product may result in ________.

Management accountants use the cost hierarchy to first calculate the ________.

Answer the following questions using the information below: Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor \ 380,000 Direct labor-hours 760,000 Machine maintenance \ 120,000 Machine-hours 960,000 Facility rent \ 200,000 Square feet of area 125,000 Total overhead costs \ 640,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 200 Machine-hours 1,600 Square feet of area 50 -If Nile Corp.uses the three activity cost pools to allocate overhead costs,what are the activity-cost driver rates for supervision of direct labor,machine maintenance,and facility rent,respectively?

A refined costing system provides better measurement of the costs of indirect resources used by different cost objects,no matter how differently various cost objects use indirect resources.

With traditional costing systems,products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.

As ABC systems get very detailed and more cost pools are created,more allocations are necessary to calculate activity costs for each cost pool,which increases the chances of misidentifying the costs of different activity cost pools.

ABC and traditional systems are quite similar in ________.