Exam 17: Activity-Based Costing and Analysis

The following data relates to Tier One Company's estimated amounts for next year. Estimated: Department 1 Department 2 Manufacturing overhead costs \ 50,000 \ 40,000 Direct labor hours 150,000 200,000 Machine hours 300,000 400,000 What is the company's plantwide overhead rate if direct-labor hours are the allocation base? (Round to two decimal places.)

Explain cost flows for activity-based costing.

In competitive markets, price is established through the forces of _______________ and _______________.

A company estimates total overhead costs for the next year to be $1,500,000 and wishes to use direct labor hours as it overhead allocation base. This company makes two products: (1) Fancy X, which requires 3 direct labor hours per unit; and (2) Plain X, which requires 1 direct labor hour per unit. If the company plans to make 20,000 units of Fancy X and 20,000 units of Plain X then each unit produced will be allocated the same amount of overhead.

A company identified the following partial list of activities, costs, and activity drivers expected for the next year. Activity Expected Costs Cost Driver Extrusion Costs \ 83,600 Number batches made Handling Costs \ 8,800 Number of orders filled Packaging Costs \ 40,500 Number of units made Product A Product B Production volume 750,000 units 600,000 units Batches made 200 batches 750 batches Orders filled 75 200 Calculate activity rates for each of the three activities using activity-based costing (ABC).

Turtle Company produces t-shirts which go through two operations, cutting and sewing, before they are complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for the cutting department based on direct labor hours is $2.69 per direct labor hour (rounded to two decimals). Cutting Sewing Direct labor hours 250,000 75,000 DLH Machine hours 125,000 150,000 Overhead costs \ 500,000 \ 375,000

Activity-based costing often shifts overhead costs from large volume, standardized products to low-volume, specialty products that consume disproportionate resources.

A company estimates that costs for the next year will be $600,000 for indirect labor, $40,000 for factory utilities and $1,000,000 for the CEO's salary. The company uses machine hours as its overhead allocation base. If 80,000 machine hours are planned for this next year, then the plantwide overhead rate is $8 per machine hour.

Which of the following statements is true with regard to the plantwide overhead rate method?

The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.

Activities causing overhead cost in an organization are typically separated into four levels: (1) direct activities, (2) indirect activities, (3) batch level activities, and (4) facility level activities.

The departmental overhead rate method traces costs to each department and then determines an allocation base for each department.

A company estimates that overhead costs for the next year will be $9,234,000 for indirect labor and $156,800 for factory utilities. The company uses machine hours as its overhead allocation base. If 500,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round to two decimal places)