Exam 7: Activity Based Costing

Sustainability and lean thinking are both important but have little in common.

Use the information below to answer the following question(s): Kepple Manufacturing currently uses a traditional costing system. The company allocates overhead to its two products, Zips and Dees, using a predetermined manufacturing overhead rate based on direct labour hours. Here is data related to the company's two products: Information about the company's estimated manufacturing overhead for the year follows: Additional information about production needed for the activity-based costing system follows: Expected Activity -The amount of manufacturing overhead that would be allocated to one unit of Zips using the traditional costing system would be closest to

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 the traditional costing system would be closest to

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 inquiry activity?

Use the information below to answer the following question(s): Green Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Green Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Green Bags 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 Bag line, $2,992,500 is associated with the Medium Bag line, and $2,273,600 is associated with the Small Bag line. Green Bags Company is currently running a total of 37,000 machine hours; 12,500 in the Large Bag line, 13,300 in the Medium Bag line, and 11,200 in the Small Bag line. Green Bags Company uses machine hours as the cost driver for manufacturing overhead costs. -Which product line(s) at Green Bags Company have been overcosted or undercosted by using the plantwide manufacturing overhead rate?

The cost of maintenance on the entire production plant would be considered a batch-level cost.

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 assembly costs for part B is

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 an activity-based costing system would be closest to

The benefits of ABC/ABM are higher when the risks of cost distortion is high.

As a result of cost distortion, either all products will be overcosted, or all products will be undercosted.

Use the information below to answer the following question(s): Green Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Green Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Green Bags 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 Bag line, $2,992,500 is associated with the Medium Bag line, and $2,273,600 is associated with the Small Bag line. Green Bags Company is currently running a total of 37,000 machine hours; 12,500 in the Large Bag line, 13,300 in the Medium Bag line, and 11,200 in the Small Bag line. Green Bags Company uses machine hours as the cost driver for manufacturing overhead costs. -At Green Bags Company the plantwide manufacturing overhead rate would be closest to

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 table using an activity-based costing system would be closest to

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 packaging is

Waste activities is another name for value-added activities.

Molding and sanding each unit of product would most likely be classified as a

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 billing activity?

Sector's Machine Works manufactures custom equipment. Sector's Machine Works currently uses a plantwide overhead rate, based on direct labour hours, to allocate its $2,000,000 of manufacturing overhead to individual jobs. Sector's plant completed Jobs 550 and 555 on May 15. Both jobs incurred a total of 7 DL hours throughout the entire production process. Job 550 incurred 3 MH in the Machining Department and 6 DL hours in the Assembly Department (the other DL hour occurred in the Machining Department). Job 555 incurred 4 MH in the Machining Department and 5 DL hours in the Assembly Department (the other two DL hours occurred in the Machining Department). Requirements 1. Compute the plantwide overhead rate, assuming Garvey expects to incur 40,000 total DL hours during the year. 2. How much manufacturing overhead would be allocated to each job if Sector uses the plant wide rate?

Traditional single-allocation-base cost systems tend to over-cost high-volume products and under-cost low-volume products.

A system that focuses on activities as the fundamental cost object and uses the costs for these activities to compile indirect costs of goods and services is

The four categories of activity costs in cost hierarchy are determined by the underlying factor that drives its costs.