Exam 8: Process Costing Systems

Costs classified as batch-level costs should depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume

Jennifer Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows. Estimated Expected Activity Activity CostPool Cost ProductA Product B Total Activity 1 £23,500 400 100 500 Activity 2. £18,000 500 200 700 Activity 3 £34,600 600 300 900 The activity rate under the activity-based costing system for Activity 3 is closest to

An activity-based costing system should include all of the activities carried out in an organisation because any simplification will inevitably result in inaccuracy

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system. Selected data from the management accounts for the year ending 31st December 2000 Cost data Total manufacturing overhead for year £1,000,000 Total hours for year 60,000 hours Direct labour cost per hour £10 Data for 3 products only Product A F roduct B Product C Annual production 1,000 units 2,000 units 5,000 units Material cost per unit £5.00 £6.00 £7.00 Direct labour hours per unit 1.00 1.50 0.50 ABC data for all products Cost pool / driver Annual costs (£s) Annual volume Number of set-ups 200,000 1,000 Inspection time (hours) 500,000 3,000 Machine maintenance (hours) 100,000 5,000 Number of purchases 100,000 500 Number of shipments 100,000 500 1,000,000 ABC data 3 products Froduct A Froduct B Froduct C Number of set-ups 20 180 30 Inspection time (hours) 20 50 300 Machine maintenance (hours) 30 40 20 Number of purchases 3 4 5 Number of shipments 3 4 6 -Determine the total overhead cost for product A using the number of hours to apply overhead

In activity-based costing, some manufacturing costs may be excluded from product costs.

Explain why ABC is particularly useful for service companies.

Leeds Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: Activity Cost Pools Preparing Arranging Meals Functions Wages £0.80 £180.00 Supplies £0.40 £290.00 Other expenses. £0.20 £140.00 The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 90 meals were served. The company catered the function for a fixed price of £25.00 per meal. The cost of the raw ingredients for the meals was £13.90 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. Suppose an action analysis report is prepared for the function mentioned above. -. What would be the 'red margin' in the action analysis report? (Round to the nearest whole pound.)

Write an explanation in your own words to John Tower of Classic Brass Ltd (p278/9 of Ch 8) at to why they are losing tehri high volume business.

Vex Corporation manufactures a variety of products. In the past, Vex had been using a traditional overhead allocation system based on machine-hours. For the current year, Vex decided to switch to an activity-based costing system using machine-hours and the number of inspections as measures of activity. Information on these measures of activity and related overhead rates for the current year are as follows: Estimated Activity Prederemined Overhed Rate Machine-hours. £8 per machine-hour Number of inspections £40 per inspection Job #812 for the current year required 15 machine-hours and 2 inspections. Would this job have been overcosted or undercosted under the traditional system and by how much?

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system. Selected data from the management accounts for the year ending 31st December 2000 Cost data Total manufacturing overhead for year £1,000,000 Total hours for year 60,000 hours Direct labour cost per hour £10 Data for 3 products only Product A F roduct B Product C Annual production 1,000 units 2,000 units 5,000 units Material cost per unit £5.00 £6.00 £7.00 Direct labour hours per unit 1.00 1.50 0.50 ABC data for all products Cost pool / driver Annual costs (£s) Annual volume Number of set-ups 200,000 1,000 Inspection time (hours) 500,000 3,000 Machine maintenance (hours) 100,000 5,000 Number of purchases 100,000 500 Number of shipments 100,000 500 1,000,000 ABC data 3 products Froduct A Froduct B Froduct C Number of set-ups 20 180 30 Inspection time (hours) 20 50 300 Machine maintenance (hours) 30 40 20 Number of purchases 3 4 5 Number of shipments 3 4 6 - Determine the total unit cost for product A using the activity based data

An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labour

Annika Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: Estimated Expected Activity Activity Cost Pool cost ProductA Product B Total Activity 1. £18,000 700 300 1,100 Activity 2. £24,000 500 100 600 Activity 3. £60,000 800 400 1,200 The cost per unit of Product A under activity-based costing is closest to

Personnel administration is an example of a

ABC always gives you a very accurate product cost. Discuss.

The costs of a particular department should not be split up among activity cost pools in an activity-based costing system.

Leeds Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: Activity Cost Pools Preparing Arranging Meals Functions Wages £0.80 £180.00 Supplies £0.40 £290.00 Other expenses. £0.20 £140.00 The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 90 meals were served. The company catered the function for a fixed price of £25.00 per meal. The cost of the raw ingredients for the meals was £13.90 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. Suppose an action analysis report is prepared for the function mentioned above. -According to the activity-based costing system, what was the total cost (including the costs of raw ingredients) of the function mentioned above? (Round to the nearest whole pound.)

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system. Selected data from the management accounts for the year ending 31st December 2000 Cost data Total manufacturing overhead for year £1,000,000 Total hours for year 60,000 hours Direct labour cost per hour £10 Data for 3 products only Product A F roduct B Product C Annual production 1,000 units 2,000 units 5,000 units Material cost per unit £5.00 £6.00 £7.00 Direct labour hours per unit 1.00 1.50 0.50 ABC data for all products Cost pool / driver Annual costs (£s) Annual volume Number of set-ups 200,000 1,000 Inspection time (hours) 500,000 3,000 Machine maintenance (hours) 100,000 5,000 Number of purchases 100,000 500 Number of shipments 100,000 500 1,000,000 ABC data 3 products Froduct A Froduct B Froduct C Number of set-ups 20 180 30 Inspection time (hours) 20 50 300 Machine maintenance (hours) 30 40 20 Number of purchases 3 4 5 Number of shipments 3 4 6 -Determine the total unit cost for product B using the activity based data

Which of the following is not a limitation of activity-based costing

Forrest Florist specialises in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries £70,000 Other expenses. £40,000 Total. £110,000 Distribution of resource consumption: The 'Other' activity cost pool consists of the costs of idle capacity and organisation-sustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Activity Making bouquets 20,000 bouquets Delivery. 1,000 deliveries - What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round your answer to the nearest whole pence).

Organisation-sustaining activities are activities of the general organisation that support specific products