Exam 7: Activity Based Costing

Use the information below to answer the following question(s): Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,200 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours; 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. -The departmental manufacturing overhead rate for the Small Bag line would be closest to

Use the information below to answer the following question(s): Sparrow Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: -Total manufacturing costs for part C is

Use the information below to answer the following question(s): Pittinger Company manufactures cuckoo clocks and uses an activity-based costing system. Each cuckoo clock consists of 10 separate parts totaling $120 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: -What is the total manufacturing cost per cuckoo clock?

Use the information below to answer the following question(s): Sparrow Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: -Total packaging costs for all three parts is

The cost to design and market new models would be considered a facility-level cost.

Use the information below to answer the following question(s): Vittoria Corporation manufactures two products-Carts and Wheelbarrows. The annual production and sales of Carts is 2,000 units, while 1,800 units of Wheelbarrows are produced and sold. The company has traditionally used direct labour hours to allocate its overhead to products. Carts require 1.0 direct labour hours per unit, while Wheelbarrows require 0.5 direct labour hours per unit. The total estimated overhead for the period is $117,500. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: Expected Activity -The predetermined overhead allocation rate using the traditional costing system would be closest to

Refined costing systems can only be used by manufacturers to allocate manufacturing overhead.

Using departmental overhead rates is generally more accurate than using a single plantwide overhead rate.

High Rise Display Company manufactures display cases to be sold to retail stores. The cases come in three sizes: Large, Medium, and Small. Currently, High Rise Display Company uses a single plantwide overhead rate to allocate its $3,357,800 of annual manufacturing overhead. Of this amount, $820,000 is associated with the Large Case line, $1,276,800 is associated with the Medium Case line, and $1,261,000 is associated with the Small Case line. Clearview Display Company is currently running a total of 33,000 machine hours: 10,000 in the Large Case line, 13,300 in the Medium Case line, and 9,700 in the Small Case line. High Rise Display Company uses machine hours as the cost driver for manufacturing overhead costs. Required: a. Calculate the plantwide manufacturing overhead rate. b. Calculate the departmental overhead rate for each of the three departments listed. c. Which product line(s) have been overcosted by using the plantwide manufacturing overhead rate? By how much per machine hour? Which product line(s) have been undercosted by using the plantwide manufacturing overhead rate? By how much per machine hour?

ABC costing might lead to

Franklin Corporation manufactures a wide variety of products and uses an activity-based costing system. Data from its activity-based costing system for all products follows: What is the engineering cost pool rate per engineering hour?

With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products.

Use the information below to answer the following question(s): Traditions Home Accessories Company manufactures pillows using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June: Each pillow consists of 3 parts; the total direct materials cost per pillow is $8.00. -If the cost to purchase the same pillow from a supplier is $17.00, what should Traditions Home Accessories do to maximize profits?

What is the last step in developing an ABC system?

Use the information below to answer the following question(s): Pittinger Company manufactures cuckoo clocks and uses an activity-based costing system. Each cuckoo clock consists of 10 separate parts totaling $120 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: -What is the number of finished cuckoo clocks?

Non-value-added activities are activities that neither enhance the customer's image of the product or service nor provide a competitive advantage.

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

Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Hapless Systems during 2016?

Speedy Machine Products manufactures its products in two separate departments, Machining and Painting. Total manufacturing overhead costs for the year are budgeted at $2,500,000. Of this amount the Machining Department incurs $1,500,000 (primarily for machine operation and depreciation) while the Painting Department incurs $1,000,000. Speedy Machine Products estimates that it will incur 12,000 machines hours (all in the Milling Department) and 40,000 direct labour hours (15,000 in the Milling Department and 25,000 in the Assembly Department) during the year. Speedy Machine Products currently uses a plantwide overhead rate based on direct labour hours to allocate overhead. However, the company is considering refining its overhead allocation system by using departmental overhead rates. The Machining Department would allocate its overhead using machine hours (MH), but the Painting Department would allocate its overhead using direct labour (DL) hours. The following chart shows the machine hours (MH) and direct labour (DL) hours incurred by Jobs 810 and 811 in each production department: Both Jobs 810 and 811 used $7,500 of direct materials. Wages and benefits total $30 per direct labour hour. Speedy Machine Products prices its products at 120% of total manufacturing costs. Required: 1. Compute Speedy Machine Products' current plantwide overhead rate. 2. Compute refined departmental overhead rates. 3. Compute the total amount of overhead allocated to each job if Speedy Machine Products uses its current plantwide overhead rate. 4. Compute the total amount of overhead allocated to each job if Speedy Machine Products uses departmental overhead rates. 5. Do both allocation systems accurately reflect the resources that each job used? Explain. 6. Compute the total manufacturing cost and sales price of each job using Speedy Machine Products' current plantwide overhead rate. 7. Compute the total manufacturing cost and sales price of each job using Speedy Machine Products' refined departmental overhead rates 8. Based on the current (plantwide) allocation system, how much profit did Speedy Machine Products think it earned on each job? 9.Based on the departmental overhead rates and the sales price determined in Requirement 7, how much profit did it really earn on each job?

Using a departmental overhead rate reduces the cost distortion from allocating direct costs.