Exam 4: Activity-Based Costing

Funland Manufacturing Company produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The cost of unit-level activities are assigned using machine hours The costs of batch-level activities are assigned using number of setups. The costs of facility-level activities are assigned using machine hours. Required:

Figure 4-11 Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers: Refer to Figure 4-11. What is the allocation rate per labor transaction using ABC?

Figure 4-21 Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows: The following overhead costs are reported for the following activities of the production process: Jones manufacturing has used activity based costing to assign costs to Models F and G as given in the table below: Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. Refer to Figure 4-21. Under this new approach, which two activities would be selected as the cost pools?

Figure 4-10 The Manoli Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Departmental Data: (expected and actual) Refer to Figure 4-10. What are the consumption ratios for rug cleaners and sweepers respectively for the inspection of products activity?

Figure 4-16 Samson Company recently installed an activity-based relational database. Using the information contained in the activity relational table, the following pool rates were computed: $400 per purchase order $24 per machine hour, Process 1 $30 per machine hour, Process 2 $80 per engineering hour Two products are produced by Special Products: L and M. The plant has two manufacturing processes, Process 1 and Process 2. Other processes include engineering, product handling, and procurement. Product L goes through Process 1 while Product M goes through Process 2. The product relational table for Special Products is as follows: Refer to Figure 4-16. How much engineering overhead cost will be assigned to Product M using engineering hours?

Figure 4-20 Quasi-Tech Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. Costs have been assigned to each activity using direct tracing and resource drivers: Owens produces two models: Model X and Model Y. The following table shows how the two products consume activity. Refer to Figure 4-20. Using the activity ratios for engineering and machining, what is the overhead cost assigned to the engineering pool? (round to two decimal places)

Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.

Figure 4-10 The Manoli Company has collected the following data for use in calculating product costs: Activity Data: (expected and actual) Departmental Data: (expected and actual) Refer to Figure 4-10. What is the unit product cost for rug cleaners if a plantwide rate is used based on direct labor hours?

Figure 4-16 Samson Company recently installed an activity-based relational database. Using the information contained in the activity relational table, the following pool rates were computed: $400 per purchase order $24 per machine hour, Process 1 $30 per machine hour, Process 2 $80 per engineering hour Two products are produced by Special Products: L and M. The plant has two manufacturing processes, Process 1 and Process 2. Other processes include engineering, product handling, and procurement. Product L goes through Process 1 while Product M goes through Process 2. The product relational table for Special Products is as follows: Refer to Figure 4-16. What is the unit cost of Product L?

Green Mountain Manufacturing has recently installed an activity-based relational data base. Using the information contained in the activity relational table, the following pool rates were computed: Two products are produced by Green Mountain: Normal and Excellent. Each product has an area in the plant that is dedicated to its production. The plant has two manufacturing processes, the Normal process (Process R) and the Excellent process (Process S). Other processes include engineering, product handling, and procurement. The product relational table for Green Mountain is as follows: Required:

Unit-based product costing assigns manufacturing and selling costs to products.

Harrison Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The cost of unit-level activities are assigned using machine hours The costs of batch-level activities are assigned using number of setups. The costs of facility-level activities are assigned using machine hours. Required:

Figure 4-13 The Molotov plant of Kaboom Industries has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposed job: Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500. Refer to Figure 4-13. Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be

Figure 4-8 Tandem Company manufactures two products (D and F). The overhead costs ($84,000) have been divided into three cost pools that use the following activity drivers: Refer to Figure 4-8. If the number of machine hours is used to assign machine hour cost, determine the amount of machine hour cost to be assigned to Product D.

Figure 4-4 Mannitou Company made the following predictions for 2014: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs. Refer to Figure 4-4. If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is

Activity attributes are nonfinancial and financial information items that describe individual activities.

Figure 4-16 Samson Company recently installed an activity-based relational database. Using the information contained in the activity relational table, the following pool rates were computed: $400 per purchase order $24 per machine hour, Process 1 $30 per machine hour, Process 2 $80 per engineering hour Two products are produced by Special Products: L and M. The plant has two manufacturing processes, Process 1 and Process 2. Other processes include engineering, product handling, and procurement. Product L goes through Process 1 while Product M goes through Process 2. The product relational table for Special Products is as follows: Refer to Figure 4-16. How much machine overhead cost will be assigned to Product M using Process 2?

Figure 4-9 Summer Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows: Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000 direct labor hours are budgeted for next year. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent. Estimates for the proposed job are as follows: The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are: Refer to Figure 4-9. What is the amount of overhead allocated to the proposed job if Winter Manufacturing uses direct labor hours as its only activity driver?

Activity __________ are nonfinancial and financial data that describe individual activities.

For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?