Exam 4: Activity-Based Costing

Figure 4-21 Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows: The following overhead costs are reported for the following activities of the production process: Jones manufacturing has used activity based costing to assign costs to Models F and G as given in the table below: Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. -Refer to Figure 4-21. Under this new approach using consumption ratios for labor related and batch inspections, what set of equations would be used to create equally accurate reduced ABC allocation rates (where a = labor hours and b = batch inspections)? (round to 5 decimal places)

Maintenance of the production equipment would be classified as a

Activity are nonfinancial and financial data that describe individual activities.

Figure 4-18 Marion Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: The following costs are reported: -Refer to Figure 4-18. Setups would be classified as a

Harrison Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The cost of unit-level activities are assigned using machine hours The costs of batch-level activities are assigned using number of setups. The costs of facility-level activities are assigned using machine hours. Required: a. Identify the activities within each process as unit-level, batch-level, product-level, or facility- level. b. Build an activity relational table. c. Compute the rates for each activity (round to 2 decimal places).

Green Mountain Manufacturing has recently installed an activity-based relational data base. Using the information contained in the activity relational table, the following pool rates were computed: Two products are produced by Green Mountain: Normal and Excellent. Each product has an area in the plant that is dedicated to its production. The plant has two manufacturing processes, the Normal process (Process R) and the Excellent process (Process S). Other processes include engineering, product handling, and procurement. The product relational table for Green Mountain is as follows: Normal Product: Excellent Product: Required: a. Identify two different concatenated keys. What is the purpose of concatenated keys? b. Using the pool rates and the information from the product relational table, calculate the unit overhead cost for each product. c. Does the product relational table indicate how many activities are in each pool? Is this necessary for product costing? Explain.

Which of the following statements is TRUE?

Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.

If activity-based costing is used, electricity usage would be an example of a

The simple list of activities identified in an ABC system is called:

Figure 4-7 The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances: Raw Materials $20,000 Work in Process $40,000 Finished Goods $10,000 Cost of Goods Sold $50,000 -Products might consume overhead in different proportions due to differences in

If activity-based costing is used, set-ups would be classified as a

Figure 4-6 The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data: -Lamar Corporation uses departmental manufacturing overhead rates to apply overhead. Direct labor cost is used to apply manufacturing overhead in Department A and machine hours are used for Department B. What predetermined overhead rate would be used for departments A and B respectively?

Figure 4-21 Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows: The following overhead costs are reported for the following activities of the production process: Jones manufacturing has used activity based costing to assign costs to Models F and G as given in the table below: Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. -Refer to Figure 4-21. Under this new approach, which two activities would be selected as the cost pools?

After-the-fact simplification includes two approaches: the approximately relevant reduced ABC system and the equally accurate enhanced ABC system.

Figure 4-17 X-TREME Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering: The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid $50,000, while the other earns $25,000. The $50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions: -Refer to Figure 4-17. What is the cost assigned to the creating BOMs activity?

Figure 4-11 Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers: -Refer to Figure 4-11. Using functional-based costing, what is the amount of overhead cost to be assigned to Product II using labor hours as the allocation base?

Figure 4-7 The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances: Raw Materials $20,000 Work in Process $40,000 Finished Goods $10,000 Cost of Goods Sold $50,000 -More accurate product costing information is produced by assigning costs using

Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.

Figure 4-21 Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows: The following overhead costs are reported for the following activities of the production process: Jones manufacturing has used activity based costing to assign costs to Models F and G as given in the table below: Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment. -Refer to Figure 4-21. Under the equally accurate reduced ABC system, using consumption ratios for labor related and batch inspections, what allocation rate would be used to assign labor related costs? (round to 5 decimal places)