Exam 11: Cost Allocation and Activity-Based Costing

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-based cost for each wire drive unit.

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-fabrication and assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $105,000. The Aleutian Company uses a departmental overhead rates. The fabrication department uses machine hours for an allocation base, and the assembly department uses labor hours. What is the overhead cost per unit for Rings?

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 production per machine hour.

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 table lamp will require 2 hours of finishing and 1 hours of production, what is the total amount of factory overhead to be allocated to table lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 75,000 units are produced?

Shubelik Company is changing to an activity-based costing method. They have determined that they will use three cost pools. They are setups, inspections, and assembly. Which of the following would be used as the activity base for assembly?

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 product development per change.

Which of the following is not a reason for banks to use activity-based costing?

Given the following information, determine the activity rate for setups.

Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plantwide factory rate based on direct labor hours. Information for the month of May, Bugaboo's first month of operations, follows:

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.

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.

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

Activity-based costing for selling and administrative expenses can also be beneficial in allocating expenses to various products. Which of the following is the best allocation base for help desk costs?

The Dawson Company manufactures small lamps and desk lamps. The following shows the activities per product and the total overhead information: Calculate the total factory overhead to be charged to desk lamps.

If the activities causing overhead costs are different across different departments and products, use of a plantwide factory overhead rate will cause distorted product costs.

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 from both production departments allocated to each unit of Product A if the company uses a multiple department rate system.

A plantwide factory overhead rate assumes that all overhead is directly related to one activity representing the entire plant.

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000. The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the overhead cost per unit for Blinks?

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 most useful when production departments are very similar in their manufacturing processes.