Exam 5: Activity-Based Costing and Activity-Based Management

Stark Corporation has two departments,Car Rental and Truck Rental.Central costs may be allocated to the two departments in various ways. If the facility lease expense of $380,000 is allocated on the basis of vehicles in the fleet,the amount allocated to the Truck Rental Department would be ________.(Do not round interim calculations.Round the final answer to the nearest whole dollar. )

Canton's Corp.manufactures two sizes of ceramic paperweights,regular and jumbo.The following information applies to their expectations for the planning period: Expected direct costs amounts to $928,000 for the period.Support cost requirements of both products are substantially different from one another.Canton's uses an ABC costing system. The inspections activity-cost driver rate is ________.

Nile Corp.has identified three cost pools to allocate overhead costs.The following estimates are provided for the coming year: The accounting records show the Mossman Job consumed the following resources: Using the three cost pools to allocate overhead costs,what is the total amount of overhead costs to be allocated to the Mossman Job?

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of the gas cost will be assigned to the Lawn Department?

Managers consider the accuracy gained by converting from a traditional cost accounting system to the cost of implementation and measurement required by ABC.

Which of the following statements is true of activity-based costing?

At New England Goods Inc. ,product lines are charged for call center support costs based on sales revenue.Last year's summary of call center operations revealed the following: New England Goods Inc.currently allocates call center support costs using a rate of 0.6% of sales revenue. Required: a.Compute the amount of call center support costs allocated to each product line under the current system. b.Assume New England 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 New England 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 center support costs assigned to each product line under this revised ABC system. d.New England Goods 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 center.

Which of the following statements about ABC is not true?

Dartmouth Corporation manufactures two models of office chairs,a standard and a deluxe model.The following activity and cost information has been compiled: Number of setups and number of components are identified as activity-cost drivers for overhead.Assuming an activity-based costing system is used,what is the total amount of overhead costs assigned to the standard model?

ABC system are likely to provide the most benefits to a company with significant amounts of indirect costs that are allocated using just one or two costs pools and products that make diverse demands on resources.

Stark Corporation has two departments,Car Rental and Truck Rental.Central costs may be allocated to the two departments in various ways. If administrative expense of $62,800.00 is allocated on the basis of number of employees,the cost per cost driver rate would be ________.

Luzent Company produces two types of entry doors: Deluxe and Standard.The assignment basis for support costs has been direct labor dollars.For 2018,Luzent compiled the following data for the two products: Last year,Luzent Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line.The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign.She obtained the following ABC information for 2018: Required: a.Using the current system,what is the estimated b.Using the current system,estimated manufacturing overhead costs per unit are less for the deluxe door ($80 per unit)than the standard door ($120 per unit).What is a likely explanation for this? c."ABC systems may result in misallocation of indirect costs." Do you agree? Give reasons for your answer. d.What considerations need to be examined when determining a sales mix strategy? e.While implementing an ABC system for the first time,achieving a significant change overnight is difficult and this may de motivate employees.How can managers overcome this problem?

Given this change in the cost structure ________.

If companies increase market share in a given product line because their reported costs are less than their actual costs,they will become more profitable in the long run.

Nile Corp.has identified three cost pools to allocate overhead costs.The following estimates are provided for the coming year: The accounting records show the Mossman Job consumed the following resources: If Nile Corp.uses the three activity cost pools to allocate overhead costs,what are the activity-cost driver rates for supervision of direct labor,machine maintenance,and facility rent,respectively?

Velshi Printers has contracts to complete weekly supplements required by forty-six customers.For the year 2018,manufacturing overhead cost estimates total $600,000 for an annual production capacity of 12 million pages. For 2018 Velshi Printers has 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 2018,two customers,Money Managers and Hospital Systems,are expected to use the following printing services: Using pages printed as the only overhead cost driver,what is the manufacturing overhead cost estimate for Money Managers during 2018?