Exam 11: Cost Allocation and Activity-Based Costing

Multiple production department factory overhead rates are more accurate and more 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:

If selling and administrative expenses are allocated to different products, they should be reported as a

Kettle Factory produces two similar products - gloves and mittens. The total plant budget is $1,050,000 with 600,000 estimated direct labor hours. It is further estimated that glove production will require 375,000 direct labor hours and mitten production will require 225,000 direct labor hours.

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

When a plantwide factory overhead rate is used, the total overhead costs allocated to all products is the same.

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 Dings?

Service companies can effectively use single facility-wide overhead costing to compute product (service) costs.

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. What would the single plantwide rate be if it was based on machine hours instead of labor hours?

Service companies can effectively use activity-based costing to compute product (service) 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 rate in the Painting Department for each unit of Product B if the company uses a multiple department rate system.

Service companies can effectively use multiple department overhead rate costing to compute product (service) costs.

Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are the same across all departments and products.

Which of the following does not support managerial decisions involving accurate product costing?

The Beauty Beyond Words Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: Calculate the cost of services for a perm.

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the amount of factory overhead to be allocated is $38,525 (if the allocation is based on direct labor hours).

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:

Managers depend on product costing to make decisions regarding continuing operations, advertising, and product mix.

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 fabrication department overhead rate per machine hour?

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