Deck 3: Cost Assignment

Question 1

An activity-based costing system uses which of the following procedures?

A)Overhead costs are traced to departments, then costs are traced to products.
B)Overhead costs are traced to activities, then costs are traced to products.
C)Overhead costs are traced directly to products.
D)All overhead costs are expensed as incurred.

Answer 1

B

Question 2

Figure 3-1
The Xiang plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{lr}\text { Maintenance } & £ 50,000 \\\text { Inspection } & 75,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 50,000 direct labour hours. The following data have been assembled for use in developing a bid for a proposed job: $\begin{array}{lr}\text { Direct materials } & £ 500 \\\text { Direct labour } & £ 2,000 \\\text { Machine hours } & 500 \\\text { Number of inspections } & 4 \\\text { Direct labour hours } & 800\end{array}$ Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.

-Refer to Figure 3-1. Using direct labour hours to assign overhead, the total cost of the potential job would be

A)£2,500.
B)£5,500.
C)£4,000.
D)£4,500.

Answer 2

£4,500.

Question 3

Refer to Figure 3-3. What is the amount of overhead cost to be assigned to Product X using machine hours as the activity driver in an activity-based costing system?

A)£12,000
B)£60,000
C)£48,000
D)£16,800

Answer 3

£12,000

Question 4

Figure 3-4
Quint Manufacturing uses an activity-based costing system. The company produces Model 1 and Model 2. Information relating to the two products is as follows: $$\begin{array} { l r r } \text { Units produced } & \text { Model 1 } & \text { Model } 2 \\\text { Machine hours } & 24,000 & 30,000 \\\text { Direct labour hours } & 7,500 & 8,500 \\\text { Material handling (number of moves) } & 8,000 & 12,000 \\\text { Setups } & 4,000 & 6,000 \\& 5,000 & 7,000\end{array}$$ The following costs are reported: $\begin{array}{lr}\text { Material handling } & £ 40,000 \\\text { Labour-related overhead } & 120,000 \\\text { Setups } & 60,000\end{array}$

-Refer to Figure 3-4. Setup costs assigned to Model 2 are

A)£36,000.
B)£35,000.
C)£28,000.
D)£25,000.

Question 5

Zang Manufacturing Company manufactures two products (A and B). The overhead costs (£58,000) have been divided into three cost pools that use the following activity cost drivers: $\begin{array}{cccc}&&\text { Number of Labour }\\ \underline{\text { Product }}&\underline{\text { Number of Orders }} & \underline{\text { Transactions }} & \underline{ \text { Labour Hours }}\\\text { A } & 15 & 50 & 500 \\\text {B }& 10 & 150 & 2,000 \\& & & \\\text { Cost per pool } & £ 10,000 & £ 8,000 & £ 40,000\end{array}$
What is the allocation rate per order using ABC?

A)£10,000
B)£2,320
C)£400
D)£58,000

Question 6

Figure 3-4
Quint Manufacturing uses an activity-based costing system. The company produces Model 1 and Model 2. Information relating to the two products is as follows: $$\begin{array} { l r r } \text { Units produced } & \text { Model 1 } & \text { Model } 2 \\\text { Machine hours } & 24,000 & 30,000 \\\text { Direct labour hours } & 7,500 & 8,500 \\\text { Material handling (number of moves) } & 8,000 & 12,000 \\\text { Setups } & 4,000 & 6,000 \\& 5,000 & 7,000\end{array}$$ The following costs are reported: $\begin{array}{lr}\text { Material handling } & £ 40,000 \\\text { Labour-related overhead } & 120,000 \\\text { Setups } & 60,000\end{array}$

-Refer to Figure 3-4. Labour-related overhead costs assigned to Model 1 are

A)£60,000.
B)£58,000.
C)£54,400.
D)£48,000.

Question 7

Figure 3-6
Ray Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: $$\begin{array} { l l } \text { Maintenance } & £ 510,000 \\\text { Materials handling } & 250,000 \\\text { Setups } & 60,000 \\\text { Inspection } & 210,000\end{array}$$ Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 100,000 direct labour hours are budgeted.
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: $$\begin{array} { l l } \text { Direct materials } & £ 30,000 \\\text { Direct labour (8,000 hours) } & £ 24,000 \\\text { Number of materials moves } & 100 \\\text { Number of inspections } & 120 \\\text { Number of setups } & 24 \\\text { Number of machine hours } & 4,000\end{array}$$ The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity-based cost drivers that would be used are as follows: $\begin{array}{ll}\text { Machine hours } & 60,000 \\\text { Material moves } & 20,000 \\\text { Setups } & 3,000 \\\text { Quality inspections } & 12,000\end{array}$

-Refer to Figure 3-6. If Ray Manufacturing used activity-based cost drivers to assign overhead, the total amount of overhead allocated to the proposed job would be

A)£37,830.
B)£39,850.
C)£41,830.
D)£44,913.

Question 8

Traditional-based product costing uses which of the following procedures?

A)Overhead costs are traced to departments, then costs are traced to products.
B)Overhead costs are traced to activities, then costs are traced to products.
C)Overhead costs are traced directly to products.
D)All overhead costs are expensed as incurred.

Question 9

Refer to Figure 3-3. What is the allocation rate per packing order using activity-based costing?

A)£15,000
B)£60
C)£7,500
D)£200

Question 10

When applied overhead exceeds actual overhead cost,

A)over-applied(absorbed) overhead is added to cost of goods sold.
B)overapplied overhead is deducted from cost of goods sold.
C)underapplied overhead is added to cost of goods sold.
D)underapplied overhead is deducted from cost of goods sold.

Question 11

When actual overhead cost exceeds overhead applied to production,

A)over-absorbed overhead is added to cost of goods sold.
B)over-absorbed overhead is deducted from cost of goods sold.
C)under-absorbed overhead is added to cost of goods sold.
D)under-absorbed overhead is deducted from cost of goods sold.

Question 12

Figure 3-7
Granite, Inc., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l r l r } \text { Overhead Item } & \text { Expected Cost } & { \text { Cost Driver } } & \text { Expected Quantity } \\\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lrr}&\text { Job } 500&\text { Job } 501\\\text { Direct materials } & £ 1,500 & £ 2,000 \\\text { Direct labour } & £ 1,400 & £ 2,400 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 100 & 160 \\\text { Number of setups } & 2 & 8 \\\text { Number of orders } & 8 & 10 \\\text { Machine hours } & 40 & 50 \\\text { Kilowatt hours } & 60 & 100\end{array}$ The company's normal activity is 4,000 direct labour hours.

-Refer to Figure 3-7. If Granite, Inc., used activity-based cost drivers to allocate overhead costs, the unit cost for Job 500 would be

A)£53.15.
B)£54.15.
C)£56.67.
D)£57.15.

Question 13

Figure 3-6
Ray Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: $$\begin{array} { l l } \text { Maintenance } & £ 510,000 \\\text { Materials handling } & 250,000 \\\text { Setups } & 60,000 \\\text { Inspection } & 210,000\end{array}$$ Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 100,000 direct labour hours are budgeted.
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: $$\begin{array} { l l } \text { Direct materials } & £ 30,000 \\\text { Direct labour (8,000 hours) } & £ 24,000 \\\text { Number of materials moves } & 100 \\\text { Number of inspections } & 120 \\\text { Number of setups } & 24 \\\text { Number of machine hours } & 4,000\end{array}$$ The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity-based cost drivers that would be used are as follows: $\begin{array}{ll}\text { Machine hours } & 60,000 \\\text { Material moves } & 20,000 \\\text { Setups } & 3,000 \\\text { Quality inspections } & 12,000\end{array}$

-Refer to Figure 3-6. If Ray Manufacturing used activity-based cost drivers to assign overhead and the company's bid is full cost plus 10 per cent, the company's bid would be

A)£108,804.
B)£105,413.
C)£103,235.
D)£101,013.

Question 14

Figure 3-6
Ray Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: $$\begin{array} { l l } \text { Maintenance } & £ 510,000 \\\text { Materials handling } & 250,000 \\\text { Setups } & 60,000 \\\text { Inspection } & 210,000\end{array}$$ Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 100,000 direct labour hours are budgeted.
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: $$\begin{array} { l l } \text { Direct materials } & £ 30,000 \\\text { Direct labour (8,000 hours) } & £ 24,000 \\\text { Number of materials moves } & 100 \\\text { Number of inspections } & 120 \\\text { Number of setups } & 24 \\\text { Number of machine hours } & 4,000\end{array}$$ The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity-based cost drivers that would be used are as follows: $\begin{array}{ll}\text { Machine hours } & 60,000 \\\text { Material moves } & 20,000 \\\text { Setups } & 3,000 \\\text { Quality inspections } & 12,000\end{array}$

-Refer to Figure 3-6. If Ray Manufacturing used activity-based cost drivers to assign overhead, the total cost of the proposed job would be

A)£98,913.
B)£95,830.
C)£93,850.
D)£91,830.

Question 15

More accurate product costing information is produced by assigning costs using

A)volume-based, plantwide rates.
B)volume-based, departmental rates.
C)activity-based pool rates.
D)All of the above produce accurate product costing information.

Question 16

The calculation of unit costs is important for

A)inventory valuation.
B)income determination.
C)pricing.
D)all of the above.

Question 17

Figure 3-1
The Xiang plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{lr}\text { Maintenance } & £ 50,000 \\\text { Inspection } & 75,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 50,000 direct labour hours. The following data have been assembled for use in developing a bid for a proposed job: $\begin{array}{lr}\text { Direct materials } & £ 500 \\\text { Direct labour } & £ 2,000 \\\text { Machine hours } & 500 \\\text { Number of inspections } & 4 \\\text { Direct labour hours } & 800\end{array}$ Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.

-Refer to Figure 3-1. Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be

A)£1,200.
B)£1,800.
C)£3,700.
D)£3,875.

Question 18

Figure 3-5
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: $\begin{array}{lr}\text { Direct materials } & £ 1,500 \\\text { Direct labour } & £ 5,000 \\\text { Machine hours } & 400 \\\text { Number of inspections } & 6 \\\text { Direct labour hours } & 750\end{array}$ Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.

-Refer to Figure 3-5. Using direct labour hours to assign overhead, the total cost of the potential job would be

A)£9,500.
B)£6,000.
C)£3,000.
D)£1,600.

Question 19

Figure 3-5
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: $\begin{array}{lr}\text { Direct materials } & £ 1,500 \\\text { Direct labour } & £ 5,000 \\\text { Machine hours } & 400 \\\text { Number of inspections } & 6 \\\text { Direct labour hours } & 750\end{array}$ Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.

-Refer to Figure 3-5. Using activity-based costing and the appropriate cost drivers, the total cost of the potential job would be

A)£9,230.
B)£8,180.
C)£2,250.
D)£1,680.

Question 20

Figure 3-7
Granite, Inc., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l r l r } \text { Overhead Item } & \text { Expected Cost } & { \text { Cost Driver } } & \text { Expected Quantity } \\\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lrr}&\text { Job } 500&\text { Job } 501\\\text { Direct materials } & £ 1,500 & £ 2,000 \\\text { Direct labour } & £ 1,400 & £ 2,400 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 100 & 160 \\\text { Number of setups } & 2 & 8 \\\text { Number of orders } & 8 & 10 \\\text { Machine hours } & 40 & 50 \\\text { Kilowatt hours } & 60 & 100\end{array}$ The company's normal activity is 4,000 direct labour hours.

-Refer to Figure 3-7. If Granite, Inc., used activity-based cost drivers to allocate overhead costs, the total cost of Job 500 would be

A)£5,715.
B)£5,667.
C)£5,415.
D)£5,315.

Question 21

Support department costs are accounted for in which one of the following ways?

A)They are allocated directly to units of product.
B)They are allocated to producing departments and then allocated to units of product.
C)They are allocated to units of product and then allocated to the producing departments.
D)They are expensed as incurred.

Question 22

The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:

A)absorption costing.
B)FIFO.
C)the weighted average cost method.
D)conversion costing.

Question 23

A possible causal factor to use when allocating cafeteria costs would be

A)number of square feet.
B)number of direct labour hours.
C)number of employees.
D)appraised value of square footage.

Question 24

Which of the following allocation methods fully recognizes services that support departments provide to each other?

A)direct method
B)sequential method
C)reciprocal method
D)all of the above

Question 25

Which of the following is a reason to accumulate and separately assign costs by departments?

A)The company wants to reduce the complexity of its cost accounting system.
B)The company is comprised of multiple departments, each of which exhibit unique cost behaviour patterns.
C)The company wishes to implement an activity based costing system.
D)The company has a large amount of capital invested in human resource training.

Question 26

Which of the following methods of assigning costs is based on convenience or some assumed linkage, and reduces the overall accuracy of the cost assignments?

A)direct tracing
B)cost driver tracing
C)allocation
D)all of the above

Question 27

Which of the following is a key consideration in selecting an allocation base?

A)The allocation base should have an indirect association with the cost objective.
B)The allocation base should be difficult to measure.
C)There should be logical association between the allocation base and the incidence of costs.
D)The allocation base should be out of the control of management.

Question 28

The optimal level in the trade-off between measurement and error costs is when

A)measurement costs are greater than error costs.
B)measurement costs are less than error costs.
C)measurement costs equal error costs.
D)the total of measurement costs and error costs are maximized.

Question 29

Support departments

A)are responsible for manufacturing the products sold to customers.
B)work directly on the products of the firm.
C)provide services directly to customers.
D)provide essential services to the producing departments.

Question 30

Examples of producing departments include all of the following EXCEPT

A)mixing.
B)molding.
C)packaging.
D)accounting.

Question 31

Examples of support departments include all of the following EXCEPT

A)maintenance.
B)personnel.
C)machining.
D)data processing.

Question 32

Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of £30,000 are allocated on the basis of standard service used. The Personnel Department costs of £4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are £9,000 and £15,000, respectively. Data on standard service hours and number of employees are as follows: $\begin{array}{lrrrr}&\text { MD } & \text { PD } & \text { P1 } & \text { P2 }\\\text { Standard service hours used } & 100 & 50 & 300 & 150 \\\text { Number of employees } & 10 & 20 & 90 & 90 \\\\\text { Direct labour hours } & 50 & 50 & 250 & 250\end{array}$ Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the support departments allocated to Department P1 is

A)£12,750.
B)£24,000.
C)£20,295.
D)£21,750.

Question 33

Which of the following principles should be applied when the step method of allocating service department costs is used?

A)The sequence of allocation among departments should be randomly selected.
B)The sequence of allocation among departments should proceed from the largest department as measured by total assets to the smallest.
C)The sequence of allocation among departments should proceed from the largest provider of interdepartmental services to the smallest.
D)All possible sequences of service department allocations should be computed. The sequence that provides the largest allocation of service costs should then be selected.

Question 34

____ is (are) a method of allocating service department costs that gives partial recognition to interdepartmental services by using a methodology that allocates service department costs sequentially both to the remaining service departments and the producing departments.

A)The direct method
B)The step method
C)The linear algebra method
D)The direct and step methods

Question 35

Which of the following departments is NOT a support department?

A)food services
B)bottling
C)health services
D)security

Question 36

Figure 3-7
Granite, Inc., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l r l r } \text { Overhead Item } & \text { Expected Cost } & { \text { Cost Driver } } & \text { Expected Quantity } \\\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lrr}&\text { Job } 500&\text { Job } 501\\\text { Direct materials } & £ 1,500 & £ 2,000 \\\text { Direct labour } & £ 1,400 & £ 2,400 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 100 & 160 \\\text { Number of setups } & 2 & 8 \\\text { Number of orders } & 8 & 10 \\\text { Machine hours } & 40 & 50 \\\text { Kilowatt hours } & 60 & 100\end{array}$ The company's normal activity is 4,000 direct labour hours.

-Refer to Figure 3-7. If Granite's direct labour hours are used to assign overhead, the unit cost for Job 500 would be

A)£104.
B)£105.
C)£114.
D)£119.

Question 37

Staff Company allocates common Building Department costs to producing departments (P1 and P2) based on space occupied, and it allocates common Personnel Department costs based on the number of employees. Space occupancy and employee data are as follows: $$\begin{array} { l c c c c } & \text { Building } & \text { Personnel } & \text { Dept. P1 } & \text { Dept. P2 } \\\text { Space occupied } & 2,000 \mathrm {~m} & 10,000 \mathrm {~m} & 120,000 \mathrm {~m} & 70,000 \mathrm {~m} . \\\text { Employees } & 6 & 10 & 80 & 50\end{array}$$ If Staff Company uses the sequential allocation method and the support department with the highest percentage of interdepartmental services is allocated first, the ratio representing the portion of Personnel Department costs allocated to Department P2 is

A)50/146.
B)90/140.
C)50/140.
D)50/130.

Question 38

Service departments:

A)are responsible for manufacturing the products sold to customers.
B)work directly on the firm's products.
C)provide services directly to customers.
D)provide support services to the producing departments.

Question 39

Which of the following characteristics is a consequence of the implementation of a plant-wide allocation rate?

A)The uniqueness of individual departments is not reflected in the cost numbers.
B)Allocations are first conducted among departments, and then aggregated for the plant as a whole.
C)Downstream costs are not measured at all.
D)Managers have absolutely no incentive to control costs.

Question 40

Which of the following accurately describes advantages and disadvantages of employing a system of allocation that uses a plant-wide rate?

A)The plant-wide rate approach is the simplest to apply, but it is also the most costly to implement.
B)The plant-wide rate approach is the simplest to apply, but most likely provides the least accurate product costs.
C)The plant-wide rate may be straightforward, but it is not appropriate for small businesses that offer a single service or product.
D)The plant-wide rate really offers no advantage whatsoever.

Question 41

The support departments typically found in manufacturing and nonmanufacturing organizations are as follows: Cafeteria
Personnel
Maintenance
Purchasing
Accounting

Question 42

Parkes Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: $\begin{array}{lr}\text { Maintenance } & £ 300,000 \\\text { Materials handling } & 150,000 \\\text { Setups } & 200,000 \\\text { Inspection } & 250,000\end{array}$ Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 100,000 direct labour hours are budgeted.
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 25 per cent.
Estimates for the proposed job are as follows: $\begin{array}{lr}\text { Direct materials } & £ 20,000 \\\text { Direct labour (1,500 hours) } & £ 15,000 \\\text { Number of materials moves } & 20 \\\text { Number of inspections } & 25 \\\text { Number of setups } & 5 \\\text { Number of machine hours } & 750\end{array}$ In the past, full manufacturing cost has been calculated by allocating overhead using a traditional volume-based cost driver system--direct labour hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would be used are as follows: $\begin{array}{lr}\text { Machine hours } & 40,000 \\\text { Material moves } & 8,000 \\\text { Setups } & 10,000 \\\text { Quality inspections } & 15,625\end{array}$
a.Determine the amount of overhead that would be allocated to the proposed job if direct labour hours are used as the cost driver.Determine the total cost of the proposed job.Determine the company's bid if the bid is based upon full manufacturing cost plus 25 per cent.
b.Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used.Determine the total cost of the proposed job if activity-based costing is used.Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 25 per cent.
c.Which product costing method produces the more competitive bid?

Question 43

Although adding more activity cost pools to an activity-based costing system may improve the accuracy of product costing, this increase in accuracy must be judged against:

A)the cost of the product.
B)the price of the product.
C)the cost of developing and maintaining the additional cost pools.
D)all of the above.

Question 44

Rounders Company used the following information when determining the appropriate overhead rates to use in its two production departments: $\begin{array}{lrr}&\text { Fabrication }&\text {Assembly }\\\text { Budgeted overhead } & £ 350,000 & £ 500,000 \\\text { Budgeted activity: } & & \\\text { Direct labour hours (DLH) } & 14,000 & 12,500 \\\text { Machine hours (M H) } & 20,000 & 25,000 \\\text { Units projected } & 7,000 & 4,000\\\\\text { Actual operating results were as follows: }\\ \text { Actual overhead cost } & £ 355,000 & £ 505,000 \\\text { Actual activity: } & & \\\text { Direct labour hours (DLH) } & 13,500 & 13,000 \\\text { Machine hours (M H) } & 19,000 & 27,000\end{array}$
Two of the products in the product line were as follows: $\begin{array}{llc}&\text { Product } 1&\text { Product } 2\\\text { Prime costs } & £ 900,000 & £ 1,200,000 \\\text { Activity: } & & \\\text { Fabrication } & 5,000 \mathrm{DLH} & 6,000 \mathrm{DLH} \\\text { Assembly } & 9,000 \mathrm{MH} & 12,000 \mathrm{MH} \\\text { Units produced } & 7,000 & 4,000\end{array}$
a.Assume that Rounders applies overhead using a plantwide rate based on direct labour hours. Determine the unit cost of Products 1 and 2.
b.Assume that Rounders uses direct labour hours to apply overhead in the Fabrication Department and machine hours to apply overhead in the Assembly Department. Determine the unit cost of Products 1 and 2.

Question 45

Ernest, Inc., has identified the following overhead costs and cost drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 32,000 direct labour hours. (Round amounts to two decimal places.)
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four cost drivers.
c.Which method produces the more accurate cost assignment? Why?

Question 46

Fox Company has two support departments (S1 and S2) and two producing departments (P1 and P2). Estimated direct costs and percentages of services used by these departments are as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {Used by Department}$
$\begin{array} { c c c c c } \text { Support Dept. } & \underline { \mathrm { S } 1 } & \underline { \mathrm { S } 2 } & \underline { \mathrm { P } 1 } & \underline { \mathrm { P } 2 } \\ \mathrm {~S} 1 & - & 10 \% & 40 \% & 50 \% \\ \mathrm {~S} 2 & 20 \% & - & 50 \% & 30 \% \\ \text { Direct costs } & £ 4,500 & £ 8,000 & £ 10,000 & £ 15,000 \end{array}$

a.Prepare a schedule allocating the support department costs to the producing departments using the direct allocation method.
b.Prepare a schedule allocating the support department costs to the producing departments using the sequential allocation method.

Question 47

Lyons, Inc., has identified the following overhead costs and activity drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 20,000 direct labour hours.
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.)
c.Which method produces the more accurate cost assignment? Why?

Question 48

Manchester Ltd. uses a job-order costing system and a predetermined overhead rate based on machine hours.
At the beginning of the year, the company estimated manufacturing overhead for the year would be £135,000 and 9,000 machine hours would be used.
The following information pertains to December of the current year: $\begin{array}{lrrrr}&\text { Job No. } & \text { Job No. } & \text { Job No. } & \\&380 & \underline{381} & \underline{382} & \text { Totals } \\\hline\text { Work in process, December 1 } & £ 8,000 & £ 13,000 & £ 19,000 & £ 40,000 \\\text { December production activity: } & & & & \\\text { Materials requisitioned } & £ 2,000 & £ 2,400 & £ 3,600 & £ 8,000 \\\text { Direct labour costs } & £ 1,200 & £ 1,800 & £ 2,000 & £ 5,000 \\\text { Machine hours } & 400 & 700 & 900 & 2,000\end{array}$ Actual manufacturing overhead costs incurred in December were £31,000.
a.Compute the predetermined overhead application rate.
b.Determine the total cost associated with each job.

Question 49

Hunter Company manufactures two products (XX and YY). The overhead costs have been divided into four cost pools that use the following activity drivers: $\begin{array}{ccccc}&\text { Number of }&\text { Number of }&\text { Number of Labour } &\text { Labour } \\\text { Product } &\text { Orders }&\text { Setups }&\text { Setups }&\text { Transactions }&\text { Hours }\\ \mathrm{XX} & 60 & 20 & 50 & \text { 2,000 } \\ \text { YY } & 20 & 80 & 70 & 500 \\\\\text { Cost per pool } & £ 16,000 & £ 13,000 & £ 2,400 & £ 20,000 \\\end{array}$
a.Compute the allocation rates for each of the activity drivers listed.
b.Allocate the overhead costs to Products XX and YY using activity-based costing.
c.Compute the overhead rate using labour hours under the traditional functional-based costing system.
d.Allocate the overhead costs to Products XX and YY using the traditional functional-based costing system overhead rate calculated in part (c).

Question 50

Gray Enterprises has two support departments (S1 and S2) and two producing departments (A and B). The distribution of services by the support departments is as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Services Provided to }$
$\begin{array}{ccccc}\underline{\text { Services Provided from}}&\underline{\text { S1}}&\underline{\text { S2}}&\underline{A} &\underline{B} \\\text { S } 1 & - & 8 \% & 74 \% & 18 \% \\\text { S2 } & 21 \% & - & 47 \% & 32 \%\end{array}$ Total department costs for the support and producing departments are as follows: $\begin{array}{lr}\mathrm{S} 1 & £ 58,000 \\\mathrm{~S} 2 & 124,000 \\\mathrm{~A} & 712,000 \\\mathrm{~B} & 568,000\end{array}$

Question 51

The Jewell plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{lr}\text { Maintenance } & £ 360,000 \\\text { Inspection } & 750,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 100,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus a 20 per cent markup. $\begin{array}{lr}\text { Direct materials } & £ 2,100 \\\text { Direct labour } & £ 5,625 \\\text { Machine hours } & 450 \\\text { Number of inspections } & 4 \\\text { Direct labour hours } & 550\end{array}$ Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000.
a.Compute the total cost of the potential job using direct labour hours to assign overhead.Determine the bid price for the potential job.
b.Compute the total cost of the job using activity-based costing and the appropriate activity drivers.Determine the bid price if activity-based costing is used.
c.Prepare a memorandum to the plant manager recommending a bid price for the potential job. Support your recommendation by explaining which costing method best reflects the actual cost of the job.

Question 52

Holbrook, Inc., has identified the following overhead costs and cost drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 40,000 direct labour hours.
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four cost drivers. (Round amounts to two decimal places.)
c.Which method produces the more accurate cost assignment? Why?