Exam 9: Activity-Based Costing

Cooke Company manufactures two products,Product F and Product G.The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year.The company uses activity-based costing to compute unit product costs for external reports.Below are current year data for the company's three activity cost pools. Required: Using the activity-based costing approach,determine the overhead cost per unit for each product.

Flawless Cosmetic Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Loren is the department manager of the Makeup Department which produces Products - Concealer (C)and Glow Cream (GC).Jennifer is the department manager of the Hair Care Department which manufactures Product - Shampoo (S).The product costs (per case of 24 bottles)and other information are as follows: Based on this information,if Flawless changes its allocation basis to machine hours,what is the overhead rate per machine hour?

Markham Company makes two products: Basic Product and Deluxe Product.Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product.The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products.Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit.The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports.The new activity-based costing system would have three overhead activity cost pools-Activity 1,Activity 2,and General Factory-with estimated overhead costs and expected activity as follows: (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours. ) The predetermined overhead rate under the traditional costing system is closest to:

Which of the following statements is true regarding time-driven activity based costs?

The basic difference between the department cost allocation method and activity-based costing (ABC)is the number of stages involved in allocating costs to products.

Safety Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Data concerning two products appear below: Product C Product E Number of batches 66 53 Number of customer orders 46 31 Number of assembly hours 419 162 Required: How much overhead cost would be assigned to each of the two products using the company's activity-based costing system?

Predetermined overhead rates are not used in first-stage cost allocations but are used in second-stage cost allocations.

Activity-based costing is based on the concept that products produce activities and activities produce resources.

The Sparkle Cleaning Company provides housecleaning services to its clients.The company uses an activity-based costing system for its overhead costs.The company has provided the following data from its activity-based costing system. The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.One particular client,the Smith family,requested 32 jobs during the year that required a total of 192 hours of housecleaning.For this service,the client was charged $2,200.Required: a.Using the activity-based costing system,compute the client margin for the Smith family.Round off all calculations to the nearest whole cent.b.Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to clients on the basis of cleaning hours.Compute the margin for the Smith family.Round off all calculations to the nearest whole cent.

Yang Corporation has an activity-based costing system with three activity cost pools-Machining,Batch Setup,and Other.The company's overhead costs,which consist of equipment depreciation and indirect labor,have been allocated to the cost pools already and are provided in the table below. Costs in the Machining cost pool are assigned to products based on machine-hours (MHs)and costs in the Batch Setup cost pool are assigned to products based on the number of batches.Costs in the Other cost pool are not assigned to products.Data concerning the two products and the company's costs appear below: Batches Product Z 4,400 400 Product Total 10,000 2,000 Product Z Product Q Sales (total) \ 137,900 \ 173,300 Direct materials (total) \ 59,700 \ 43,400 Direct labor (total) \ 57,500 \ 96,000 Required: a.Calculate activity rates for each activity cost pool using activity-based costing.b.Determine the amount of overhead cost that would be assigned to each product using activity-based costing.c.Determine the product margins for each product using activity-based costing.

Time-driven activity based costing (TDABC)is more costly to implement than an unmodified activity-based costing system.

Mission Company is preparing its annual profit plan.As part of its analysis of the profitability of individual products,the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. Wall Miirors Specialty Windows Units Produced 40 20 Material moves per product line 5 15 Direct labor hours per product line 200 300 Budgeted material handling costs: \ 50,000 (CMA based) Under an activity-based costing (ABC)system,the materials handling costs allocated to one unit of specialty windows would be:

"Activity-based costing is just a more precise form of product costing and is only usable in a production setting." Do you agree or disagree.Explain why.

The plantwide cost allocation method should be used by companies that manufacture products that are similar and use the same resources.

In general,low-volume products (and services)have a lower degree of complexity associated with them.

Banc Corp.Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs.The bankwide rate could be based on either direct labor hours (DLH)or the number of loans processed.The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans.The following information was gathered for the upcoming period: Department DLH Loans Processed Direct Costs Consumer 14,000 700 \ 280,000 Commercial 8,000 300 \ 180,000 If Banc Corp.Trust uses a bankwide rate based on the number of loans processed,what would be the total costs for the Commercial Department?

Blalock Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $10 per direct labor hour.Department A produces Products #101X and #102Y.Department A has $262,000 in traceable overhead.Department B manufactures Product #103Z.Department B has $128,000 in traceable overhead.The product costs (per unit)and other information are as follows: Required: a.If Blalock changes its allocation basis to machine hours,what is the total product cost per unit for Product 101X,102Y,and 103Z? b.If Blalock changes its overhead allocation to departmental rates,what are the product costs per unit for Product 101X,102Y,and 103Z,assuming Departments A and B use direct labor hours and machine hours as their respective allocation bases?

A cost hierarchy classifies cost drivers by general dimensions or levels of activity.

The plantwide allocation concept cannot be used in nonmanufacturing organizations.

Activity-based costing (ABC)is a costing technique that uses a two stage allocation process.Which of the following statements best describes these two stages?