Exam 7: Activity-Based Costing and Management

CompInc.CompInc. produces two products: a high-end laptop computer and an inexpensive laptop. The two products use two manufacturing overhead activities, which have the following costs: Setting up equipment $8,000 Machining 48,000 The controller has collected the expected annual prime costs for each product, the machine hours, the setup hours, and the expected production. High-end Inexpensive Direct Labour \ 24,000 \ 8,000 Direct Materials 15,000 4,000 Units 2,000 2,000 Machine Hours 1,000 3,000 Sebup Hours 150 50 -Refer to CompInc. What is the inexpensive laptop's consumption ratio for setup hours?

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Factors that measure the consumption of resources by activities

An activity-based costing system first traces costs to activities and then to products.

Gleen Company has a JIT system in place. Each manufacturing cell is dedicated to the production of a single product or major subassembly. One cell, dedicated to the production of guitar pickups, has four operations: machining, finishing, assembly, and qualifying (testing). For the coming year, the pickup cell has the following budgeted costs and cell time (both at theoretical capacity): Cell time: 8,000 hours Theoretical output: 60,000 pickups During the year, the following actual results were obtained: Actual cell time: 8,000 hours Actual output: 50,000 pickups A. Compute the theoretical velocity for the pickup cell per hour. B. Compute the theoretical cycle time in minutes. C. Compute the actual velocity for the pickup cell per hour. D. Compute the actual cycle time in minutes.

Receiving provides 4,000 receiving hours and costs $80,000 per year. What is the activity rate for receiving?

Which costing system first assigns costs to activities and then to products?

Activity drivers should be classified as either internal or external.

A company spends $50,000 a year for inspecting, $40,000 for purchasing, and $60,000 for reworking products. What would be the best estimate of non-value-added costs?

Which term reflects activities that are considered unnecessary to staying in business?

The activity driver for the shipping activity is the number of orders shipped. Product X uses 40 orders, and Product Y uses 120 orders. What is the consumption ratio for product X?

Costs that are caused by the inefficient performance of value-added activities are non-value-added costs.

Using the original design, a machine requires 24 hours of setup time. By redesigning the machine, the setup time is reduced by 35%. The cost per setup hour is $250. What is the new reduced non-value-added cost per setup?

Lauren's Volleyball Company produces two types of volleyballs: Volleylite and Official Game. Both products pass through two producing departments. The Official Game production is much more labour-intensive than the Volleylite. The Volleylite is also more popular. The following data have been gathered for the two products: Product Data Official Game Volleylite Units produced per year 20,000 200,000 Machine hours 10,000 40,000 Packing orders 30,000 30,000 Lauren's Volleyball has decided to use activity-based costing and has developed two types of activities, machine related (based on machine hours), and other manufacturing overhead (based on packing orders). Machine-related costs equal $160,000. Other manufacturing overhead costs equal $240,000. A. Calculate the activity rate for machine-related costs based on machine hours. B. Calculate the activity rate for other manufacturing overhead costs based on packing orders. C. Using the two activity rates, calculate the manufacturing overhead cost per unit for Official Game. D. Using the two activity rates, calculate the manufacturing overhead cost per unit for Volleylite.

Which term reflects products having different consumption ratios for different manufacturing overhead activities?

Sallisaw Savings & Loan Sallisaw Savings & Loan has requested an analysis of checking account profitability by customer type. Customers are categorized according to size of their account: low balances, medium balances, and high balances. The activities associated with the three different customer categories and their associated annual costs are as follows: Opening and closing accounts \ 100,000 Issuing monthly statements \ 150,000 Frocessing transactions \ 1,025,000 Customer inquiries \ 200,000 Froviding ATM services \ 560,000 Total Costs \2 ,035,000 Additional data concerning the usage of the activities by the various customers are also provided: Number of accounts 7,500 1,500 1,000 opened/olosed Number of 225,000 50,000 25,000 Sutements issued Processing transactions 9,000,000 1,000,000 250,000 Number of telephone minutes 500,000 300,000 200,000 Number of ATM transactions 675,000 100,000 25,000 Number of checking accolnts 19,000 4,000 2,000 The company uses an activity-based costing system. The activity rate for opening and closing statements is based on the number of accounts opened and closed. The activity rate for issuing monthly statements is based on the number os statements issued. The activity rate for processing transactins is based on the number of transactions processed. The activity rate for customer inquiries is based on the number of telephone minutes. The rate for ATM services is based on the number of ATM transactions. -Refer to Sallisaw Savings & Loan. Using activity-based costing, what is the total cost of each medium balance account?

Which term reflects the identification and removal of activities that fail to add value?

Assume that the accounts payable department of a company has five clerks; each one is paid $25,000 per year ($125,000 total clerical salaries). On average, the clerks spend: 20% of time on processing payments 30% of time matching invoices, receiving documents, and billing statement 50% of time correcting errors in the various documents In addition, long distance telephone costs of $1,700 are directly traced to the activity "correcting errors." A. Assign the clerical salary cost to each of the three activities. B. Calculate the total cost of the "correcting errors" activity.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Financial and nonfinancial information items that describe individual activities

Activity attributes are financial and nonfinancial information items that describe individual activities.

Powen The receiving department of Powen has three activities: unloading, counting goods, and inspecting. Unloading requires a forklift that is leased for $15,000 per year. The forklift is used only for unloading. The fuel for the forklift is $2,000 per year. Inspection requires special testing equipment that has a depreciation of $500 per year and an operating cost of $1,000 per year. Receiving has four employees who each have an average salary of $35,000 per year. The work distribution matrix for the receiving personnel is as follows: Percentage of ime Activity on Each Activity Unloading 25\% Counting 40\% Inspecting 35\% -Refer to Powen. What is the cost for inspection?