Exam 4: Activity-Based Costing

Figure 4-14 Lawson Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows: Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 20,000 direct labor hours are budgeted for next year. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent. Estimates for the proposed job are as follows: In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are: -Refer to Figure 4-14. If material moves are used to assign material handling costs, the amount of material handling costs allocated to the proposed job would be

In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?

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: -Refer to Figure 4-6. What are the departmental overhead rates for the molding and finishing department respectively?

The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.

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, what cost would be assigned to materials handling?

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: -Refer to Figure 4-6. How much overhead is applied to the planes?

Funland Manufacturing Company 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 pool rates (round to two decimal places).

Figure 4-16 Samson Company recently installed an activity-based relational database. Using the information contained in the activity relational table, the following pool rates were computed: $400 per purchase order $24 per machine hour, Process 1 $30 per machine hour, Process 2 $80 per engineering hour Two products are produced by Special Products: L and M. The plant has two manufacturing processes, Process 1 and Process 2. Other processes include engineering, product handling, and procurement. Product L goes through Process 1 while Product M goes through Process 2. The product relational table for Special Products is as follows: Product L Product M -Refer to Figure 4-16. How much purchasing overhead cost will be assigned to Product L using the number of purchase orders?

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 -The proportion of an overhead activity consumed by a product is the

Figure 4-9 Summer Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows: Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000 direct labor hours are budgeted for next year. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent. Estimates for the proposed job are as follows: The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are: -A possible solution to overcome distortions caused by unit level rates is

Figure 4-19 Attraction 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 (plant wide) 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 costs of facility-level activities are assigned using machine hours. -Refer to Figure 4-19. What is (are) the unit-level activity(ies)?

Avatar Corporation uses a predetermined rate to apply overhead. At the beginning of the year, Avatar estimated its overhead costs at $240,000, direct labor hours at 40,000, and machine hours at 10,000. Actual overhead costs incurred were $249,280, actual direct labor hours were 41,000, and actual machine hours were 11,000. What is the predetermined overhead rate per machine hour for Avatar?

Figure 4-19 Attraction 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 (plant wide) 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 costs of facility-level activities are assigned using machine hours. -Refer to Figure 4-19. What is (are) the product-level activity(ies)?

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 4-17. What is the cost assigned to the designing tooling activity?

Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 20160: What is the amount of under- or overapplied overhead for Lonestar Corporation in 2016?

Figure 4-15 Carriage Manufacturing uses an activity-based costing system. The company produces Model 21 and Model 22. Information relating to the two products is as follows: The following costs are reported: -Refer to Figure 4-15. Setup costs assigned to Model 22 are

Figure 4-20 Quasi-Tech 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. Costs have been assigned to each activity using direct tracing and resource drivers: Owens produces two models: Model X and Model Y. The following table shows how the two products consume activity. -Refer to Figure 4-20. First determine the overhead costs assigned to model D using the two most expensive activities for cost pools. The costs of the two relatively inexpensive activities are allocated to the two most expensive activities in proportion to their costs. (Round to two decimal places.)The engineering cost assigned to model D would be

Figure 4-5 The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given: -Refer to Figure 4-5. If the accounts had the following balances, how much will cost of goods sold be adjusted?

Figure 4-16 Samson Company recently installed an activity-based relational database. Using the information contained in the activity relational table, the following pool rates were computed: $400 per purchase order $24 per machine hour, Process 1 $30 per machine hour, Process 2 $80 per engineering hour Two products are produced by Special Products: L and M. The plant has two manufacturing processes, Process 1 and Process 2. Other processes include engineering, product handling, and procurement. Product L goes through Process 1 while Product M goes through Process 2. The product relational table for Special Products is as follows: Product L Product M -Refer to Figure 4-16. How much machine overhead cost will be assigned to Product M using Process 2?

Efforts to simplify activity-based costing systems (ABC) involve either before-the-fact simplification or after-the- fact simplification.