Exam 4: Activity-Based Costing

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 total cost of the proposed job if Winter Manufacturing uses direct labor hours as its only activity driver?

Overhead assignments should reflect the amount of overhead demanded by each product.

There are many two-driver combinations that may be used to reduce the ABC system without sacrificing accuracy.

The use of unit-based activity drivers to assign costs tends to

If activity-based costing is used, security is an example of a

Products might consume overhead in different proportions due to differences in

The collected data sets that are organized and interrelated for use by an organization's ABC information system is(are):

In an approximately relevant ABC system

Unit-level cost drivers create distortions when

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 rate for machining? (round to two decimal places)

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 using the new rates, what are the overhead costs assigned to Model G in this approximately relevant ABC system?

In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?

After identifying and describing activities, the next step is to determine the cost of the performance of each activity.

Thaisom Company applies manufacturing overhead. At the end of the year the following data were available: What is the journal entry if the amount of under- or over-applied overhead is considered small?

If activity-based costing is used, set-ups would be classified as a

Unit-level drivers are factors that measure the demands placed on unit-level activities by products.

Elantra Manufacturing uses an activity-based costing system. The company produces Model V and Model Z. Information concerning the two products is as follows: Required:

Unit-based product costing uses which of the following procedures?

Figure 4-17 X-TREME Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering: The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid $50,000, while the other earns $25,000. The $50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions: Refer to 4-17. What is the cost assigned to the designing tooling activity?

If activity-based costing is used, insurance on the plant would be classified as a