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 account verification costs will be assigned to Department P?

One condition that favours using a plantwide overhead rate, rather than departmental overhead rates, is that different departments incur different amounts and types of manufacturing overhead.

The Highland Corporation uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments-cutting and painting. The Cutting Department uses a departmental overhead rate of $15 per machine hour, while the Painting Department uses a departmental overhead rate of $9 per direct labour hour. Job 586 used the following direct labour hours and machine hours in the two departments: The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 586 is $900. Required: What was the total cost of Job 586 if the Highland Corporation used the departmental overhead rates to allocate manufacturing overhead?

Refined costing systems can be used to allocate any indirect costs to any cost objects.

Product-level activities and costs are incurred for a particular product, regardless of the number of units or batches of the product produced.

Companies with higher direct costs in relation to indirect costs are more suitable for activity-based costing.

The cost of depreciation, insurance, and property tax on the entire production plant would be considered a unit-level cost.

Cost distortion results in the

The ________ system focuses on activities as the fundamental cost objects. It uses the costs of those activities as building blocks for compiling the indirect costs of products and other cost objects.

Merchandising and service companies, as well as governmental agencies, can use refined cost allocation systems to provide their managers with better cost information.

Heese Corporation manufactures two products-Tricycles and Wagons. The annual production and sales of Tricycles is 2,000 units, while 1,500 units of Wagons are produced and sold. The company has traditionally used direct labour hours to allocate its overhead to products. Tricycles require 1.5 direct labour hours per unit, while Wagons require 1.0 direct labour hours per unit. The total estimated overhead for the period is $215,000. 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: Required: A. Calculate the overhead per unit for a Wagon using the traditional system based on a single-wide overhead rate (use direct labour hours as the cost driver). B. Calculate the overhead per unit for a Wagon using the activity-based costing system.

Cost versus benefit should be a criterion when evaluating the implementation of an activity-based cost system.

When calculating the total amount of manufacturing overhead to allocate to a particular job, the company would multiply each departmental overhead rate by ________ and then ________ together the allocated amounts from each department.

The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool.

The cost allocation rate for each activity is equal to the estimated total manufacturing overhead costs of the activity multiplied by the estimated total quantity of the cost allocation base.

Red Stone Manufacturing, a manufacturer of a variety of products, uses an activity-based costing system. Information from its system for the year for all products follows: Red Stone Manufacturing makes 400 of its product B34 a year, which requires a total of 52 machine hours, 15 inspection hours, and 20 orders. Product B34 requires $75.50 in direct materials per unit and $68.80 in direct labour per unit. Product B34 sells for $180 per unit. Required: A. Calculate the cost pool activity rate for each of the three activities. B. How much manufacturing overhead would be allocated to Product B34 in total? C. What is the product margin in total for Product B34?

To determine the amount of overhead allocated, the overhead rate is divided by the cost driver.

Using factory utilities would most likely be classified as a

Use the information below to answer the following question(s): Bond Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments, Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $20 per machine hour, while the Sanding Department uses a departmental overhead rate of $15 per direct labour hour. Job 542 used the following direct labour hours and machine hours in the two departments: The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 542 is $1,200. -How much manufacturing overhead would be allocated to Job 542 using the departmental overhead rates?

Activity-based management refers to using activity-based cost information to make decisions that may increase profits while satisfying customers' needs.