Exam 7: Activity Based Costing

Facility-level activities and costs are incurred no matter how many units, batches, or products are produced in the plant.

Plantwide overhead rates typically do a better job of matching each department's overhead costs to the products that use the department's resources than do departmental overhead rates.

Use the information below to answer the following question(s): Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labour hour. Job A216 used the following direct labour hours and machine hours in the two departments: The cost for direct labour is $32 per direct labour hour and the cost of the direct materials used by Job A216 is $1,800. -How much manufacturing overhead would be allocated to Job A216 using the departmental overhead rates?

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: -What is the cost per driver unit for the account verification activity?

Use the information below to answer the following question(s): Electronics Unlimited uses activity-based costing to allocate all manufacturing conversion costs. Electronics Unlimited produces computer keyboards; each computer keyboard has $8.00 of direct materials, includes 12 parts and requires 1/2 hour of machine time. Additional information follows: -What is the cost of assembling per computer keyboard?

Use the information below to answer the following question(s): Louis Corporation, which uses an activity-based costing system, produces travel trailers and boat trailers. The company allocates batch setup costs to the two products using the following basic data: Total budgeted setup costs for the year are $140,000. -If the setup costs are allocated using number of setups, how much of the total setup costs would be allocated to boat trailers?

Four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below: a. Identify the primary activities and estimate a total cost pool for each. B. Allocate the costs to the cost object using the activity cost allocation rates. C. Select an allocation base for each activity. D. Calculate an activity cost allocation rate for each activity.

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

Unit-level activities and costs are incurred once for every batch.

Use the information below to answer the following question(s): Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labour hour. Job A216 used the following direct labour hours and machine hours in the two departments: The cost for direct labour is $32 per direct labour hour and the cost of the direct materials used by Job A216 is $1,800. -What was the total cost of Job A216 if Ryan Fabrication used the departmental overhead rates to allocate manufacturing overhead?

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 overhead cost per Wheelbarrow using an activity-based costing system would be closest to

Millennium Ideas Ltd. manufactures odd size sporting equipment sold over the internet. Two items, Dive Masks and Fins are manufactured on a common assembly line. Although different direct materials are used, the direct labour cost is the same for each product line. The plantwide rate for allocating manufacturing overhead to its products is no longer acceptable. The production manager has heard about activity-based costing and has assembled some information for use in changing the cost system to a cost driver concept. With the help of the accounting department, the manager has been able to establish the following relationships between production costs and some of the indirect manufacturing activities for August, along with the production data for the two product lines: Required: Using activity-based costing determine the total production cost of each of the two product lines for August and the cost per unit assuming all units started were completed.

The use of departmental overhead rates will generally result in the use of a

Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems.

Use the information below to answer the following question(s): Electronics Unlimited uses activity-based costing to allocate all manufacturing conversion costs. Electronics Unlimited produces computer keyboards; each computer keyboard has $8.00 of direct materials, includes 12 parts and requires 1/2 hour of machine time. Additional information follows: -What is the cost of machining per computer keyboard?

Research and development would most likely be classified as a

The Guy Fawkes Company is noted for an exceptionally impressive line of Mardi Gras masks. Guy Fawkes has established the following selling and distribution support activity-cost pools and their corresponding activity drivers for the current year: Required: a. Determine the activity-cost-driver rate for each of the four selling and distribution activities. b. Describe at least one possible negative behavioural consequence for each of the four activity-cost drivers.

Murphy's Machine Works manufactures custom equipment. Sector's Machine Works currently uses a plantwide overhead rate, based on direct labour hours, to allocate its $2,500,000 of manufacturing overhead to individual jobs. Murphy's plant completed Jobs 600 and 601 on July 15. Both jobs incurred a total of 9 DL hours throughout the entire production process. Job 600 incurred 5 MH in the Machining Department and 6 DL hours in the Assembly Department (the other 3 DL hour occurred in the Machining Department). Job 601 incurred 8 MH in the Machining Department and 7 DL hours in the Assembly Department (the other two DL hours occurred in the Machining Department). Requirements 1. Compute the plantwide overhead rate, assuming Murphy expects to incur 50,000 total DL hours during the year. 2. How much manufacturing overhead would be allocated to each job if Murphy uses the plant wide rate?

Haas Corporation, a manufacturer of a variety of products, uses an activity-based costing system. Information from its system for the year for all products follows: Haas Corporation makes 300 of its product A92 a year, which requires a total of 48 machine hours, 10 inspection hours, and 14 orders. Product A92 requires $51.40 in direct materials per unit and $62.80 in direct labour per unit. Product A92 sells for $140 per unit. What is the product margin in total for Product A92?

Murphy's Machine Works manufactures custom equipment. Murphy's Machine Works currently uses a plantwide overhead rate, based on direct labour hours, to allocate its $2,500,000 of manufacturing overhead to individual jobs. However, Sean Murphy, owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $1,500,000 of MOH while the Assembly Department incurs $1,000,000 of MOH. Sean has identified machine hours (MH) as the primary MOH cost driver in the Machining Department and direct labour (DL) hours as the primary cost driver in the Assembly Department. Murphy's completed job numbers 600 and 601 on July 15. Both jobs incurred a total of 9 DL hours throughout the entire production process. Job 600 incurred 5 MH in the Machining Department and 6 DL hours in the Assembly Department (the other 3 DL hour occurred in the Machining Department). Job 601 incurred 8 MH in the Machining Department and 7 DL hours in the Assembly Department (the other two DL hours occurred in the Machining Department). Requirements 1. Compute departmental overhead rates, assuming Sector expects to incur 30,000 MH in the Machining Department and 40,000 DL hours in the Finishing Department during the year. 2. Using the departmental rates how much manufacturing overhead would be allocated to Job 600 and to Job 601.