Exam 9: Activity-Based Costing

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 Consumer Department?

Brenda's Big Burgers,a small hamburger restaurant and take-out drive-through,has identified the following resources that it uses in its business: Required: Fill in the chart above indicating the activity level of each of these costs:

Traditional product costing systems (e.g. ,job and process costing)are designed primarily:

Barnard Corporation has provided the following data from its activity-based costing accounting system: Required: Compute the activity rates for each of the three cost pools.Show your work!

Donnati Corporation has provided the following data from its activity-based costing system: Data concerning one of the company's products,Product A43V,appear below: Selling price per unit \ 124.60 Direct materials cost per unit \ 22.08 Direct labor cost per unit \ 45.77 Annual unit production and sales 210 Annual machine-hours 320 Annual orders 80 Annual inspection-hours 10 According to the activity-based costing system,the product margin for product A43V is:

Product costs are computed by:

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 Banc Corp.Trust estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $396,000 of indirect costs.How much of the $396,000 indirect costs should be allocated to the Commercial Department?

The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.

Personnel administration is an example of a:

Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC)system?

Harrison Industries has an activity-based costing system with three activity cost pools-Processing,Batch Setup,and Other.The company's overhead costs,which consist of factory utilities and indirect labor,are allocated to the cost pools in proportion to the activity cost pools' consumption of resources.Costs in the Processing 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 and activity-based costing system appear below: Factory utilities (total) \ 29,000 Indirect labor (total) \ 7,000 $\quad$$\text {Distribution of Resource Consumption Across Activity}$ $\quad$$\text {Cost Poos}$ Factory utilities Indirect labor Processing 0.40 .50 Batch Setup 0.10 0.20 Other 0.50 0.30 MHs Batches Product \#1 2,900 700 Product \#2 Total 10,000 1,000 Product \#1 Product \#2 Sales (total) \ 54,000 \ 85,100 Direct materials \ 19,100 \ 33,500 (total) Direct labor (total) \ 26,300 \ 35,000 Required: a.Assign overhead costs to activity cost pools using activity-based costing.b.Calculate activity rates for each activity cost pool using activity-based costing.c.Determine the amount of overhead cost that would be assigned to each product using activity-based costing.d.Determine the product margins for each product using activity-based costing.

Lamar Company manufactures two products,Product K9 and Product L43.Product L43 is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product K9.Product L43 is the more complex of the two products,requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product K9.Product L43 is produced on an automated production line.Overhead currently is applied to the products on the basis of direct labor-hours.The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product L43 and 40,000 units of Product K9 during the current year.Unit costs for materials and labor are: Product K9 Product L43 Direct material \ 11 \ 24 Direct labor \ 6 \ 12 Required: a.Compute the predetermined overhead rate under the current method,and determine the unit product cost of each product for the current year.b.The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead.Data relating to the company's activity cost pools for the current year are given below: Using the data above,determine the unit product cost of each product for the current year.c.What items of overhead cost make Product L43 so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product L43?

In recent years,why has labor become such a small part of product costs and how can its use in overhead allocation perpetrate errors in decision-making?

Miracle Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland,Dallas,and Miami.Two of the company's activity cost pools are General Service and Research Service.These costs are allocated to the three branch offices using an activity-based costing system.Information for next year follows: Estimated branch data for next year is as follows: \% of time Computer time Portland 30\% 200,000 minutes Dallas 60\% 150,000 minutes Miami 10\% 50,000 minutes How much of the headquarters cost allocation should the Dallas office expect to receive next year?

Cameron Company has two major segments with the following information: East West Total Annual Revenue \ 400,000 \ 1,200,000 \ 1,600,000 Annual salesperson 300,000 450,000 760,000 salaries Number of customers 60 90 150 Miles driven 180,000 120,000 300,000 The business also has overhead costs as follows: Cost Pool Cost in Pool Cost driver Travel \ 72,000 Number of miles driven Entertainment 288,000 Number of customers Administrative Salaries Total \ 649,000 NOTE: overhead does not include salesperson salaries.Required: a.Determine the income of each segment if overhead costs are allocated based on sales revenue.b.Determine the income of each segment if overhead costs are allocated using activity-based cost drivers.

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 Banc Corp.Trust estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $396,000 of indirect costs.How much of the $396,000 indirect costs should be allocated to the Consumer Department?

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 Banc Corp.Trust estimates that it costs $400 to analyze and close a commercial loan.What is the overhead rate if Banc Corp.Trust allocates the remaining indirect costs using direct labor hours?

Explain how activity-based costing provides a more detailed measure of costs than do plantwide or department allocation methods.

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: If Flawless changes its allocation basis to machine hours,what is the total product cost per case for Product GC?

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: \[\begin{array} { | l | l | l | l | } \hline \text { Department } & \text { DLH } & \text { Loans Processed } & \text { Drect Costs } \\ \hline \text { Consumer } & 14,000 & 700 & \$ 280,000 \\ \hline \text { Commercial } & 8,000 & 300 & \$ 180,000 \\ \hline \end{array}\ If Banc Corp.Trust uses a bankwide rate based on direct labor hours,what would be the indirect costs allocated to the Commercial Department? ]