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Exam 4: Activity-Based Cost Management

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Question 51

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Dogs for Diabetes (DFD) is a not-for-profit organization focused on training dogs and handlers to assist young children with diabetes. The dogs are trained to detect low and high blood sugar levels, and ring an alarm to notify parents or other caregivers of the potentially dangerous condition. DFD provides both education for the dogs, and training for handlers (kids or parent). Currently there are 60 dogs being trained and there are 14,000 hours per year of training scheduled for these dogs. DFD also provides training for the children and families who will host a dog, and there are 2,000 hours of such training scheduled for the 20 families who will host a dog this year. DFD has just hired a new controller who wants to utilize ABC. The controller has identified 2 key activities performed by the organization as it trains dogs and handlers, and the cost of each of these activities: • DFD has 1 building with a total of 30,000 square feet of space. Due to the large space requirements for kennels, dog runs, and other facilities for the dogs, the dog education service utilizes 20,000 square feet. The facility is rented at an annual cost of $60,000. • Salaries for training personnel, $240,000 annually. Required: a. Select a cost driver and compute an activity rate for each of the activities identified by the controller. b. Compute activity cost driver values and activity proportions for each activity. c. Determine the amount of costs assigned to each group of students and the cost per student to UDH to provide these three key activities.

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a. b. Act...

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Question 52

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Washington, Inc. produces two different products (Product C and Product 2) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $750,000, while the cost of Inspection is $90,000. The activity drivers are used as follows: What is the activity rate for Inspection?

A) $45,000 per batch
B) $1,500 per batch
C) $6,000 per batch
D) $2,000 per batch

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Question 53

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When a traditional, volume-based costing system is used, which of the following products is most likely to suffer from cost distortion?

Largo, Inc., which uses a volume-based cost system, produces cat condos, and has a gross profit margin of 50%. Direct materials cost $15 per unit, and direct labor costs $10 per unit. Manufacturing overhead is applied at a rate of 200% of direct labor cost. Nonmanufacturing costs are $27 per unit. How much does each cat condo sell for?

An activity that is performed for each individual unit is a ___________ level activity.

Yuma, Inc. manufactures teddy bears and dolls. Currently, Yuma makes 2,000 teddy bears each month. Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor. Yuma uses two activities in manufacturing the teddy bears: Sewing and Processing. The cost associated with Sewing is $15,000 a month, allocated on the basis of direct labor hours. The cost associated with Processing is $10,000 a month, allocated on the basis of batches. Teddy bears use 1/2 of the direct labor hours, and 35% of total batches. What is the total manufacturing cost for one teddy bear?

Hayden, Inc. produces two different products, Product A and Product B. Hayden uses a traditional volume-based costing system in which direct labor hours are the allocation base. Hayden is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Engineering, Manufacturing, and Inspection. The cost of each activity and usage of the activity drivers are as follows: Hayden manufactures 10,000 units of Product A and 5,000 units of Product B per month. Required: a. Calculate the predetermined overhead rate under the traditional costing system. b. Calculate the activity rate for Engineering. c. Calculate the activity rate for Manufacturing. d. Calculate the activity rate for Inspection. e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system. f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system. h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system. i. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Harwell, Inc. produces two different products, Product A and Product B. Harwell uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Setup, Production, and Finishing. The cost of each activity and usage of the activity drivers are as follows: Harwell manufactures 10,000 units of Product A and 7,500 units of Product B per month. Required: a. Calculate the predetermined overhead rate under the traditional costing system. b. Calculate the activity rate for Setup. c. Calculate the activity rate for Production. d. Calculate the activity rate for Finishing. e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system. f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system. h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system. i. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Carter, Inc. produces two different products, Product A and Product B. Carter uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Design, Production, and Inspection. The cost of each activity and usage of the activity drivers are as follows: Carter manufactures 10,000 units of Product A and 7,500 units of Product B per month. Required: a. Calculate the predetermined overhead rate under the traditional costing system. b. Calculate the activity rate for Design. c. Calculate the activity rate for Machining. d. Calculate the activity rate for Inspection. e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system. f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system. h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system. i. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows: What proportion of Machining activity is used by Product Z?

Using non-volume-based activity drivers allows activity-based costing to:

Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Inspection cost assigned to Product 5?

Amy Andrews is a CPA who works as a managerial accounting consultant for a variety of firms. To determine her hourly rate, Amy uses a cost-plus pricing system, which she updates each year. The hourly cost of her assistant (including taxes and benefits) is $18, the hourly cost of her office space is $4, the hourly cost of her marketing and other overhead materials is $6, and Amy's own hourly salary (again, including taxes and benefits) is $62. Amy adds a 20% premium to her costs. What is her hourly rate using a cost-plus pricing strategy?

Which of the following would be considered a non-volume-based cost driver?

The cost measurement system can impact how indirect costs are spread among product lines, which may affect decisions managers make

Prevention costs are costs that:

Harwell, Inc. produces two different products, Product A and Product B. Harwell uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $400,000 across three activities: Setup, Production, and Finishing. Under the traditional volume-based costing system, the predetermined overhead rate is $4.00/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows: Required: a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system. b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system. d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system. e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Culver, Inc. produces two different products (Product V3 and Product G8) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity drivers are used as follows: The activity rate for Machining is $67.50 per machine hour. What is the total cost of Machining?

Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Machining activity is used by Standard?

Which of the following is the correct formula to compute an activity rate?