Deck 17: Activity-Based Costing

Question 1

SCS Co. uses activity . The company produces two products, ABC and XYZ. SCS has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
What is the expected overhead allocated per unit of product ABC? NOTE: Round all per-unit costs to nearest cent.

A) $10.30
B) $30.77
C) $84.00
D) $200.00
E) None of the above

Answer 1

None of the above

Question 2

SCS Co. uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. SCS has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
What is the total expected overhead allocated to product XYZ? NOTE: Round all per-unit costs to nearest cent.

A) $22,646.20
B) $27,353.90
C) $28,200.00
D) $30,353.90
E) None of the above

Answer 2

$30,353.90

Question 3

Advanced Coding is a software development company that sells specialized practice management software to large professional services firms. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $200,000 of overhead costs related to the corporate jet should be assigned to individual customers.
Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $1,000 per hour for trips to customers as follows:
Gross profit per customer is as follows:
(NOTE: Do not round amounts until final calculation of customer profitability, then round to the nearest dollar).
Which customer is the most profitable?

A) Customer #1
B) Customer #2
C) Customer #3
D) Customer #4
E) Customer #5

Answer 3

Customer #1

Question 4

Advanced Coding is a software development company that sells specialized practice management software to large professional services firms. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $200,000 of overhead costs related to the corporate jet should be assigned to individual customers.
Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $1,000 per hour for trips to customers as follows:
Gross profit per customer is as follows:
(NOTE: Do not round amounts until final calculation of customer profitability, then round to the nearest dollar).
Which customer is the least profitable?

A) Customer #1
B) Customer #2
C) Customer #3
D) Customer #4
E) Customer #5

Question 5

What is a cost driver?

Question 6

Renewable Timber Inc. is a lumber company. The company owns two 20,000-acre plots of timber, and sells to construction suppliers. Renewable Timber uses ABC costing to better manage the company, and has accumulated the following information for last year:
At the end of the year, Renewable Timber's management is concerned about their financial statements. Overhead costs were greater than expected, but sales did not meet budgeted levels. Each yard of timber generally sells for $4.
Below is information relating to production this year, in board-feet:
Assume that you are Renewable Timber's auditor, and you are worried that management is trying to absorb overhead costs into inventory.
Assuming that Renewable Timber has the storage capacity to accommodate overproduction, by how much would you expect Operating Income to increase if management were to have a non-sales-driven production run of 10,000 board-feet, requiring 350 machine hours, 500 miles driven, and 2 overnight stays?
The production run would naturally not have an order associated, but you assume that it would incur the same scheduling costs as 1 order. (Note: round all driver rates to the nearest cent).

Question 7

Old Lace (OL) is a well-established manufacturing company that produces vintage furniture. OL has used direct labor hours as the basis for allocating company-wide overhead for many years. However, given recent investments in manufacturing technologies, management feels that ABC costing would perhaps provide a more accurate assessment of the true price of the goods produced.
The following costs have been accumulated and corresponding drivers measured:
Additionally, the following information is available relative to production levels:
In addition to evaluating costs, OL's management wants to evaluate the overall profitability of its customers. Below is an analysis of several of OL's customers, their purchasing habits, and related costs:
Chairs are sold for $310 each, and tables are sold for $1,180 each. The materials required for a chair are $45, and $150 for a table. Direct labor is paid at a rate of $15/hour.
Under the old costing method (using direct labor hours to allocate company-wide overhead), which customer would have been considered the most profitable? Which customer is most profitable under ABC costing?

Question 8

Use the following information to answer
Old'n'New (ON) is a well-established manufacturing company that produces vintage furniture. ON has used direct labor hours as the basis for allocating company-wide overhead for many years. However, given recent investments in manufacturing technologies, management feels that ABC costing would perhaps provide a more accurate assessment of the true price of the goods produced. The following costs have been accumulated and corresponding drivers measured:
Additionally, the following information is available relative to production levels:

-In addition to evaluating costs, ON's management wants to evaluate the overall profitability of its customers. Below is an analysis of several of ON's customers, their purchasing habits, and related costs:
Chairs are sold for $250 each, and tables are sold for $850 each. The materials required for a chair are $15, and for a table are $50. Direct labor is paid at a rate of $15/hour.
Under the old costing method (using direct labor hours to allocate company-wide overhead), which customer would have been considered the most profitable?