Exam 7: Activity Based Costing

Answer the following question(s) using the information below. Wallace Printing has contracts to complete weekly supplements required by forty-six customers. For the year 2016, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 10 million pages. For 2016 Wallace Printing 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: During 2016, two customers, Wayward Insurance and Hapless Systems, are expected to use the following printing services: -If manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity, what is the cost driver rate?

ABC can be used in routine planning and control decisions as well as pricing, product mix and cost-cutting decisions.

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 predetermined overhead allocation rate using the traditional costing system would be closest to

Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?

Clearview Display Company manufactures display cases to be sold to retail stores. The cases come in three sizes-Large, Medium, and Small. Currently, Clearview Display Company uses a single plantwide overhead rate to allocate its $7,141,100 of annual manufacturing overhead. Of this amount, $1,875,000 is associated with the Large Case line, $2,992,500 is associated with the Medium Case line, and $2,273,600 is associated with the Small Case line. Clearview Display Company is currently running a total of 37,000 machine hours: 12,500 in the Large Case line, 13,300 in the Medium Case line, and 11,200 in the Small Case line. Clearview 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?

Use the information below to answer the following question(s): Menno Corporation manufactures two products-Tables and Chairs. The annual production and sales of Tables is 2,000 units, while 8,000 units of Chairs are produced and sold. The company has traditionally used direct labour hours to allocate its overhead to products. Tables require 1.0 direct labour hours per unit, while Chairs require 0.5 direct labour hours per unit. The total estimated overhead for the period is $235,000. 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 Chair using the traditional costing system would be closest to

Rhapsody Corporation manufactures several different products and uses an activity-based costing system. Information from its system for the year for all products follows: The annual production and sales of one of its products, the Sizzler, are 1,000 units. The following data relate to the production and sales of Sizzlers in the most recent year: Required: A. Calculate the activity cost pool rates for each of the three activity cost pools listed. B. Calculate the average cost of one Sizzler.

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 plow using an activity-based costing system 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 B is

A departmental overhead rate is calculated by multiplying the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.

Match the following: A) About the same B) More likely C) Less likely 1) Would a company be more likely or less likely to benefit from refining its costing system if it produces a variety of products using different types and amounts of resources? 2) Would a company be more likely or less likely to benefit from refining its costing system if it produces a high volume of some products and a low volume of other products? 3) Would a company be more likely or less likely to benefit from refining its costing system if it operates in a highly competitive market? 4) Would a company be more likely or less likely to benefit from refining its costing system if it produces a variety of products, and the products use resources in a different manner?

Use the information below to answer the following question(s): Jason Corporation uses activity-based costing. The company produces two products: Snaps and Pops. The expected annual production of Snaps is 1,000 units, while the expected annual production of Pops is 3,000 units. There are three activity cost pools: Assembly, Testing, and Packing. The estimated costs and activities for each of these three activity pools follows: -The cost pool activity rate for Testing would be

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 assembling per cuckoo clock?

Which of the following is NOT likely to be a cost driver of activities associated with determining product cost?

The cost of inspecting and packaging each unit the company produces would be considered a unit-level activity cost.

Value-added activities are activities that could be reduced or removed from the process with no ill effect on the end product or service.

Which of the following is MOST likely to be the cost driver for the packaging and shipping activity?

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 unit cost for part B is

In using an ABC system, which of the following steps is NOT performed before the company's year begins?

Cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system.