Exam 26: Cost Allocation and Activity-Based Costing

Use of a plantwide factory overhead rate does not distort product costs only when products require different ratios of allocation-base usage in each production department.

In an effort to simplify the multiple production department factory overhead rate method, the same rate can be used for all departments.

A single plantwide overhead rate method is very expensive to apply.

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. Determine the activity rate for procurement per purchase order.

Service organizations can use activity-based costing to allocate selling and administrative costs to services provided.

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. Determine the overhead rate in the Finishing Department for each unit of Product A if the company uses a multiple department rate system.

Activity-based costing can be used to allocate period costs to various products that the company sells.

The Skagit Company manufactures Hooks and Nooks. The following shows the activities per product and total activity information: Calculate the total factory overhead to be charged to Nooks.

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. Determine the activity rate per production order for scheduling.

Blackwelder Factory produces two similar products - small lamps and desk lamps. The total plant overhead budget is $640,000 with 400,000 estimated direct labor hours. It is further estimated that small lamp production will require 275,000 direct labor hours and desk lamp production will need 125,000 direct labor hours. Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will be allocated to the desk lamp production if the actual direct hours for the period is 118,000?

In a service organization, the multiple department overhead rate method is the most effective in providing information about the cost of services.

Multiple production department factory overhead rates are more accurate and more costly than are plantwide factory overhead rates.

The Baffin Factory has determined that its budgeted factory overhead budget for the year is $7,750,000. They plan to produce 1,000,000 units. Budgeted direct labor hours are 525,000 and budgeted machine hours are 375,000. Using the single plantwide factory overhead rate based on direct labor hours, calculate the factory overhead rate for the year.

Which of the following is a cost pool used with the activity-based costing method?

Multiple production department factory overhead rates are less accurate and less costly than are plantwide factory overhead rates.

Adirondak Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. Calculate the overhead rate per unit for Product A in painting department:

The Klamath Corp. produces two products, saws and drills. Three activities are used in their manufacture. These activities and their associated costs and bases are as follows: Requirements: a) Determine the activity rate for each activity. b) Determine the overhead cost per unit for each product.

Condelezza Co. manufactures two products, A and B, in two production departments, Assembly and Finishing. Condelezza Co. expects to produce 10,000 units of Product A and 20,000 units of Product B in the coming year. Budgeted factory overhead costs for the coming year are: The machine hours expected to be used in the coming year are as follows: (c) Which method is better (plantwide or department)? Why?

Multiple production department factory overhead rates are most useful when production departments differ in their manufacturing processes.

The Kaumajet Factory produces two products - table lamps and desk lamps. It has two separate departments - finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, what is the total amount of factory overhead to be allocated to desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 26,000 units are produced?