Exam 7: Activity-Based Costing and Management

Resource drivers are factors that measure the consumption of resources by activities.

Unit-level activities are performed each time a batch is produced.

Which of the following must be determined to calculate an activity rate?

Efficiency is the reciprocal of cycle time.

Activity Cost Inspecting comp onents (sampling only) \ 190,000 Reworking products (due to failed component) \ 2,254,000 Warranty work (due to failed component) \ 1,723,000 II. Supplier Data Supplier 1 Supplier 2 Units Purchase Price \ 10.00 \ 8.95 Units Purchased 22,500 52,500 Sampling Hours 50 2,450 Rework Hours 135 3,625 Warranty Hours 475 6,000 -Refer to Tigra Company. Suppose that the company loses $2,500,000 in sales per year because of its reputation for defective units attributable to failed components. Using warranty hours, assign the proportional cost of lost sales to Supplier 1. What would be the additional cost per unit as a result of the lost sales?

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 manufacturing overhead cost per unit for high-end laptops when using a plantwide rate that is based on direct labour costs?

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 manufacturing overhead cost per unit for each inexpensive laptop, when using manufacturing overhead rates that are based on machine hours and setup hours?

Which term reflects the time required to produce one unit of a product?

Indeed Company makes a product using two departments: Department 1 and Department 2. Information on these departments is as follows: Department 1 Department 2 Direct labour hours 10,000 90,000 Machine hours 40,000 10,000 Manufacturing overhead cost \ 240,000 \ 180,000 A. Calculate the department manufacturing overhead rate for each department. Use machine hours as the base in Department 1 and direct labour hours as the base in Department 2. B. A job has prime cost of $270. It uses 10 machine hours in Department 1 and 15 direct labour hours in Department 2. Calculate the total product cost for the job. C. Recalculate the department manufacturing overhead rate for each department. Use direct labour hours as the base in Department 1 and machine hours as the base in Department 2. D. A job has prime cost of $270. It uses 10 direct labour hours in Department 1 and 15 machine hours in Department 2. Using the rates calculated in part C, calculate the total product cost for the job.

A plant produces 92 different electronic products. Each product requires an average of seven components that are purchased externally. By redesigning the products, it is possible to produce the 92 products that have five components in common. This redesign will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $1,500,000 per year. What is the non-value-added cost of purchasing, receiving, and paying bills?

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. What is the yearly overall cost per checking account?

A volume-based costing system tends to be allocation-intensive.

In activity-based costing, what are interviews and surveys used to identify?

Quality is concerned with doing the activity right the first time it is performed.

What costs are incurred to determine whether products and services are conforming to their requirements or customer needs?

Which of the following is NOT defined as a category of quality-related costs?

What is an example of a value-added activity?

Which activity performance measure is concerned with doing the activity right the first time it is performed?

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. -Activities that are performed each time a unit is produced

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, and assuming interest revenues average $100 per account, which statement best reflects the profitability of the three customer categories?