Exam 7: Activity Based Costing

Use the information below to answer the following question(s): Hinckley & Granger Company had the following activities, estimated indirect activity costs, and allocation bases: Hinckley & Granger uses activity-based costing. The above activities are used by Departments P and Q as follows: -How much of the correspondence cost will be assigned to Department P?

Use the information below to answer the following question(s): General Products Company manufactures toaster ovens and uses an activity-based costing system. The following information is provided for the month of May: Each toaster oven consists of 3 parts. The direct materials cost per toaster oven is $25.00. -What is the total manufacturing cost per toaster oven?

Signs that a product cost system is not working properly include

Activity-based costing considers ________ to be the fundamental cost object.

The goal of value-engineering is to eliminate all waste in the system by making the company's processes as effective and efficient as possible.

The process of reevaluating activities to reduce costs while satisfying customers' needs is referred to as

Conquest Machining Ltd. is a manufacturer of precision hand tools, is concerned with the apparent lack of controls over cost incurrence in its Pliers Division. The division has always used a plantwide rate for allocating manufacturing overhead to its products. However, some products cost substantially more than competitors retail prices while others are substantially less. The division manager believes that a better cost allocation method can be developed. With the assistance of a plant supervisor, the accounting department has been able to establish the following relationships between production activities and the indirect costs of the activities: The traditional allocation method is based upon direct manufacturing labour hours, and if that method is used the rate is $28 per hour. Required: Compute the unit indirect manufacturing costs of a batch of 200 tools if the batch required 220 parts, 8 machine hours, 52 minutes of finishing time, and 46 direct labour hours:

Use the information below to answer the following question(s): Martin Corporation manufactures two products-Plows and Harrows. The annual production and sales of Plows is 1,000 units, while 2,000 units of Harrows are produced and sold. The company has traditionally used direct labour hours to allocate its overhead to products. Plows require 5.0 direct labour hours per unit, while Harrows require 2.0 direct labour hours per unit. The total estimated overhead for the period is $603,500. 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 overhead cost per harrow using an activity-based costing system would be closest to

It is easier to allocate indirect costs to the products that caused those costs if you use the ABC system rather than traditional costing systems.

Inspection is considered a value-added activity.

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 cost of machining per cuckoo clock?

Use the information below to answer the following question(s): Durable Engines Company uses ABC to account for it manufacturing process. Durable Engines Company expects to produce 2,000 engines. Durable Engines Company also expects to use 12,000 parts and have 16 setups. -The allocation rate for materials handling will be

Lean practices tend to centre on external waste that may occur as a result of the product.

Salcido, LLC provides a wide variety of legal services and uses an activity-based costing system. Data from its activity-based costing system for all services follows: The cost pool activity rate for client meetings is

A four-part ABC cost hierarchy includes

PD Company has re-engineered its production process and should now review and potentially revise its activity-based costing system.

When calculating a departmental overhead rate, the numerator should be the

At Deutschland Electronics, product lines are charged for call centre support costs based on sales revenue. Last year's summary of call centre operations revealed the following: Deutschland Electronics currently allocates call centre support costs using a rate of 0.5% of sales revenue. Required: a. Compute the amount of call centre support costs allocated to each product line under the current system. b. Assume Deutschland decides to use the average call length for information to assign last year's support costs. Does this allocation method seem more appropriate than percentage of sales? Why or why not? c. Assume Deutschland decides to use the numbers of calls for information and for warranties to assign last year's support costs of $65,000. Compute the amount of call centre support costs assigned to each product line under this revised ABC system. d. Deutschland Electronics assigns bonuses based on departmental profits. How might the Specialty Products manager try to obtain higher profits for next year if support costs are assigned based on the average call length for information? e. Discuss the barriers for implementing ABC for this call centre.

Value-engineering is accomplished by eliminating, reducing, or simplifying all non-value added activities, and examining whether value-added activities could be improved.

Batch-level activities and costs are incurred again each time a unit is produced.