Exam 5: Activity-Based Costing and Management

The following tasks are associated with an activity-based costing system: 1- Assignment of cost to products 2- Calculation of pool rates 3- Identification of cost drivers 4- Identification of cost pools Which of the following choices correctly expresses the proper order of the preceding tasks?

Under an activity-based costing system, what is the per-unit overhead cost of Economy?

In an activity-based costing system, direct materials used would typically be classified as a:

Which of the following activity cost pools and activity measures likely has the lowest degree of correlation?

HiTech Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below. Activity Cost Cost Driver Material handling \ 225,000 Number of parts Material insertion 2,475,000 Number of parts Automated machinery 840,000 Machine hours Finishing 170,000 Direct labor hour Packaging 170,000 Orders shipped Total \3 ,880,000 The following information pertains to the three product lines for next year: Economy Standard Deluxe Units to be produced 10,000 5,000 2,000 Orders to be shipped 1,000 500 200 Number of parts per unit 10 15 25 Machine hours per unit 1 3 5 Labor hours per unit 2 2 2 What is HiTech's pool rate for the material-handling activity?

Generally speaking, companies prefer doing business with customers who:

At a recent professional meeting, two controllers discussed product-costing problems in their respective companies. Both controllers are familiar with ABC systems, but neither of their firms utilizes such a system. Controller D reported that part of the problem in his firm results from major differences among product lines with respect to unit volume, utilization of activities, quality assurance requirements established by customers, and product size. Controller M noted that in her company, which manufactures consumer goods, all items undergo the same basic production processes in the same sequence. Lately, however, there has been a significant increase in the number of item colors. Both controllers are worried about the potential distortion of product costs under their traditional product-costing systems. Required: Which controller should be more concerned about the potential distortion? Explain.

HiTech Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below. Activity Cost Cost Driver Material handling \ 225,000 Number of parts Material insertion 2,475,000 Number of parts Automated machinery 840,000 Machine hours Finishing 170,000 Direct labor hour Packaging 170,000 Orders shipped Total \3 ,880,000 The following information pertains to the three product lines for next year: Economy Standard Deluxe Units to be produced 10,000 5,000 2,000 Orders to be shipped 1,000 500 200 Number of parts per unit 10 15 25 Machine hours per unit 1 3 5 Labor hours per unit 2 2 2 What is HiTech's pool rate for the automated machinery activity?

Kelly and Logan, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff support \ 180,000 In-house computing charges 50,000 Miscellaneous office costs 20,000 Total \ 250,000 A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; tax planning, 60). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions. If Kelly and Logan switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would:

Alaina's customer service department follows up on customer complaints by telephone inquiry. During a recent period, the department initiated 10,000 calls and incurred costs of $312,000. Of these calls, 3,800 were for the company's wholesale operation; the remainder was for the retail division. Costs allocated to the wholesale operation are:

Johnson manufactures products X and Y, applying overhead on the basis of labor hours. X is a high-volume product and relatively simplistic in nature. Y is both a low-volume product and requires a variety of complex manufacturing procedures. What would an activity-based costing system likely disclose about products X and Y as a result of Johnson's current accounting procedures? X Y A. Undercosted Undercosted B. Undercosted Overcosted C. Overcosted Undercosted D. Overcosted Overcosted E. Costed correctly Costed correctly

Alamo's customer service department follows up on customer complaints by telephone inquiry. During a recent period, the department initiated 7,000 calls and incurred costs of $203,000. If 2,940 of these calls were for the company's wholesale operation (the remainder were for the retail division), costs allocated to the retail division should amount to:

Which of the following is the proper sequence of events in an activity-based costing system?

Activity-based costing systems have a tendency to distort product costs.

Koski manufactures products J and K, applying overhead on the basis of labor hours. J, a low-volume product, requires a variety of complex manufacturing procedures. K, on the other hand, is both a high-volume product and relatively simplistic in nature. What would an activity-based costing system likely disclose about products J and K as a result of Koski's current accounting procedures?

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. Pool No. 1 Pool No. 2 Pool No. 3 Product (Driver: DLH) (Driver: SU) (Driver: PC) Beta 1,200 45 2,250 Zeta 2,800 55 750 Pool Cost \ 160,000 \ 280,000 \ 360,000 The overhead cost allocated to Zeta by using traditional costing procedures would be:

Feinstein, Inc., an appliance manufacturer, is developing a new line of ovens that uses controlled-laser technology. The research and testing costs associated with the new ovens is said to arise from a:

Vanguilder combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours. Activity-based costing would likely show that with Vanguard's current procedures that:

Activity-based costing systems:

Riverside Florists uses an activity-based costing system to compute the cost of making floral bouquets and delivering the bouquets to its commercial customers. Company personnel who earn $180,000 typically perform both tasks; other firm-wide overhead is expected to total $70,000. These costs are allocated as follows: Bouquet Production Delivery Other Wages and salaries 60\% 30\% 10\% Other overhead 50\% 35\% 15\% Riverside anticipates making 20,000 bouquets and 4,000 deliveries in the upcoming year. The cost of wages and salaries and other overhead that would be charged to each delivery is closest to: