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

________ costs support the organization as a whole.

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 account billing cost will be assigned to Department B?

Smaller cost distortions occur when the traditional systems' single indirect-cost rate and the activity-cost-driver rates ________.

Answer the following questions using the information below: Luzent Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,750 17,250 Number of employees 1,120 480 Sales \ 350,000 \ 1,750,000 -If total payroll processing costs of $64,000 are allocated on the basis of number of employees,the amount allocated to the Large Department would be ________.

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. -Given this change in the cost structure ________.

Answer the following questions using the information below: Eagle Eye Company produces two types of lenses-L7 and L9. Single Indirect-Cost Pool System ABC System Total direct costs \ 77,500 \ 58,000 Total indirect costs \ 37,500 (a) Total costs assigned to L7 \ 62,000 \ 49,500 Total costs assigned to L9 (b) \ 65,500 -What is the total indirect costs (a)under ABC system?

Answer the following questions using the information below: Cannady produces six products. Under their traditional cost system using one cost driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of SR6 was determined to be $178.00 per unit. -The total amount of indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC.

Answer the following questions using the information below: Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 850 430 Number of employees 125 75 Sales \ 750,000 \ 375,000 -If the facility lease expense of $384,000 is allocated on the basis of vehicles in the fleet,the amount allocated to the Car Rental Department would be ________.

Recognizing ABC information is not always perfect because ________.

Answer the following questions using the information below: Luzent Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,750 17,250 Number of employees 1,120 480 Sales \ 350,000 \ 1,750,000 -If total rent expense of $180,000 is allocated on the basis of square footage,the amount allocated to the Large Department would be ________.

Activity-based costing (ABC)can eliminate cost distortions because ABC systems ________.

Answer the following questions using the information below: Luzent Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,750 17,250 Number of employees 1,120 480 Sales \ 350,000 \ 1,750,000 -If total payroll processing costs of $64,000 are allocated on the basis of number of employees,the amount allocated to the Small Department would be ________.

For a company with diverse products,undercosting overhead of a product will lead to ________.

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 account inquiry cost will be assigned to Department A?

The inspections activity-cost driver rate is ________.

A well-designed,activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________.

Answer the following questions using the information below: Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 850 430 Number of employees 125 75 Sales \ 750,000 \ 375,000 -If advertising expense of $112,500 is allocated on the basis of sales,the cost per cost driver rate would be ________.

Answer the following questions using the information below: Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 60,000 units 35,000 units Selling price \ 16.00 \ 29.00 Direct material \ 2.00 \ 5.00 Direct labor \ 4.50 \ 7.20 Manufacturing overhead \ 2.00 \ 3.00 Gross profit \ 7.50 \ 13.80 Selling and administrative \ 4.00 \ 7.00 Operating profit \ 3.50 \ 6.80 What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of Sweatshirts increase to $8.20 per unit? -Under the revised ABC system,overhead costs per unit for the Sweatshirts will be ________.

Answer the following questions using the information below: Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 60,000 units 35,000 units Selling price \ 16.00 \ 29.00 Direct material \ 2.00 \ 5.00 Direct labor \ 4.50 \ 7.20 Manufacturing overhead \ 2.00 \ 3.00 Gross profit \ 7.50 \ 13.80 Selling and administrative \ 4.00 \ 7.00 Operating profit \ 3.50 \ 6.80 What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of Sweatshirts increase to $8.20 per unit? -Under the revised ABC system,supervision costs allocated to Sweatshirts will be ________.

Answer the following questions using the information below: Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 10 million pages. For 2015, Xylon 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 Activity level Design changes \ 160,000 200 design changes Setups 670,000 4,000 setups Inspections 16,000 inspections Total manufacturing overhead costs \ 910,000 During 2015, 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 -Under ABC costing,what is the inspection cost allocated to Xylon Corp.?