Exam 3: Activity-Based Management

Assume that Kent Manufacturing has two categories of overhead: material handling and quality inspection.The costs expected for these categories for the coming year are as follows: The plant currently applies overhead using direct labor hours and expected actual capacity.This figure is 50,000 direct labor hours. Carla Wells,the plant manager,has been asked to submit a bid and has assembled the following data on the proposed job: Carla has been told that many companies use an activity-based approach to assign overhead to jobs.Before submitting her bid,she wants to assess the effects of this alternative approach. REQUIRED:

What are the difficulties in implementing advanced cost-management system?

Activity-based reporting.The Carter Corporation manufactures oxygen tanks for hospitals.Information regarding resources for the month of March follows. In addition,$22,000 was spent on 700 quality inspections with a cost driver rate of $30,and $8,000 was spent on 200 customer-service cost driver units with a cost driver rate of $35.Sales for March were $350,000.Management has requested the following statements be prepared. Required: a.Prepare a traditional income statement. b.Prepare an activity-based income statement. c.Write a short report explaining why the activity-based income statement provides better information to managers.

In which way does activity-based costing (ABC)improve cost assignment?

Resources used versus resources supplied.Here is information about resources for Health Unlimited,which produces publications for various health food companies: Required: a.Compute unused capacity for these items. b.Management wants no more than 20 percent of total costs to be incurred for unused capacity.How well is Health Unlimited doing? (Health Unlimited;Resources used versus resources supplied. )

Which of the following reflects the simplest allocation method for a factory?

Operational uses of Activity Based Management allow for which of the following?

The value chain begins with which of the following?

What are the strategic and operational uses of activity-based management?

Differentiate between traditional cost allocation methods and activity-based costing.

Which of the following are examples of product activities in the product cost hierarchy?

The cost hierarchy can be used to organize cost information for decision-making.Which cost isnot part of the product cost hierarchy of expenses?

Which of the following are not capacity-sustaining activities in the product cost hierarchy?

The law firm of Duwe,Cheatem & Howe provides legal services for clients.During the year,corporate clients required 5,000 hours of legal services,while individuals required 3,000 hours.The firm has traditionally used direct labor hours to assign overhead. However,Ms.Duwe believes services to businesses cost more than services to individuals and wishes to adopt activity-based costing.The firm's revenues and costs for the year are shown below: Mr.Cheatem has kept records of the following data for use in the new activity-based costing system: REQUIRED:

Activity-based costing in a nonmanufacturing environment.Green Thumb,Inc. ,is a lawn care service.The company originally specialized in serving residential clients but has recently started contracting for work with larger commercial clients.Mr.Green,the owner,is considering reducing residential services and increasing commercial lawn care.Five field employees worked a total of 10,000 hours last year-6,500 on residential jobs and 3,500 on commercial jobs.Wages were $9 per hour for all work done.Direct materials used were minimal and are included in overhead.All overhead is allocated on the basis of labor hours worked,which is also the basis for customer charges.Because of greater competition for commercial accounts,Mr.Green can charge $22 per hour for residential work,but only $19 per hour for commercial work. Required: a.If overhead for the year was $62,000,what were the profits of commercial and residential service using labor hours as the allocation base? b.Overhead consists of office supplies,garden supplies,and depreciation and maintenance on equipment.These costs can be traced to the following activities: Recalculate profits for commercial and residential services based on these activity bases. c.What recommendations do you have for management?

Marshall Manufacturing Co. Marshall Manufacturing Co.uses an activity-based costing system.The company has gathered the following information concerning various cost pools and activity drivers; The following data was collected and is specific to Item No.824. Refer to Marshall Manufacturing Co.What would be the unit cost for the materials handling activity at Marshall Manufacturing Co.?

Activity-based management can reduce customer response time by all of the following,except for

Discuss what is meant by the expression,"products consume activities;activities consume resources."

Thefirst step in activity-based costing (ABC)is to

Marshall Manufacturing Co. Marshall Manufacturing Co.uses an activity-based costing system.The company has gathered the following information concerning various cost pools and activity drivers; The following data was collected and is specific to Item No.824. Refer to Marshall Manufacturing Co.What would be the amount of quality inspection cost allocated to Item No.824?