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Exam 17: Activity-Based Costing and Analysis

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Question 31

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Distorted product cost information can result in poor decisions.

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The ________________________ is the target of the cost assignment.

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The cost to heat a manufacturing facility can be directly linked to the number of units produced.

Product costs consist of direct labor, direct materials and ______________.

Slosh, Inc. produces washing machines which require two processes, assembling and finishing, to complete. The company's bestselling machine is the commercial washer. Information related to the 500 commercial washers produced annually is shown below. Slosh's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on direct labor hours in the assembling department and machine hours in the finishing department. Determine the total product cost of this product line and each individual commercial washer.

A company uses activity-based costing to determine the costs of its three products: A, B andC. The activity rates and activity levels for each of the company's three activity cost pools are shown below. $\begin{array} { | l | l | r | r | r | } \hline & & { \text { Budgeted Activity } } \\\hline \begin{array} { l } \text { Activity Cost } \\\text { Pool }\end{array} & \text { Activity Rate } & \text { Product A } & \text { Product B } & \text { Product C } \\\hline \text { Activity 1 } & \$ 48 & 3,500 & 1,000 & 500 \\\hline \text { Activity 2 } & \$ 51 & 300 & 2,100 & 600 \\\hline \text { Activity 3 } & \$ 73 & 400 & 200 & 1,400 \\\hline\end{array}$ Compute the company's budgeted overhead cost for each of the three products under activity-based costing.

Aztec Industries produces bread which goes through two operations, mixing and baking, before it is ready to be packaged. Next year's expected costs and activities are shown below. -Compute Aztec's departmental overhead rate for the baking department based on machine hours.

A company uses activity-based costing to determine the costs of its three products: A, B and C. The budgeted cost and activity for each of the company's three activity cost pools are shown below. $\begin{array} { | l | l | r | r | r | } \hline & & { \text { Budgeted Activity } } \\\hline \begin{array} { l } \text { Activity Cost } \\\text { Pool }\end{array} & \begin{array} { l } \text { Budgeted } \\\text { Cost }\end{array} & \text { Product A } & \text { Product B } & \text { Product C } \\\hline \text { Activity 1 } & \$ 425,000 & 1,700 & 680 & 1,870 \\\hline \text { Activity 2 } & \$ 144,900 & 1,890 & 1,575 & 2,835 \\\hline \text { Activity 3 } & \$ 85,000 & 2,400 & 1,000 & 1,600 \\\hline\end{array}$ Compute the company's activity rates under activity-based costing for each of the three activities.

Multiple cost pools are used when allocating overhead using the plantwide overhead rate method.

Case Company allocates $5.00 overhead to each unit produced. The company uses a plantwide overhead rate with machine hours as the allocation base. Given the amounts below, how many machine hours does the company expect in department 2? $\begin{array} { l c c } \text { Estimated: } & \text { Department 1 } & \text { Department 2 } \\\text { Manufacturing overhead costs } & \$ 250,000 & \$ 150,000 \\\text { Direct labor hours } & 8,000 \mathrm { DLH } & 12,000 \mathrm { DLH } \\\text { Machine hours } & 55,000 \mathrm { MH } & ? \mathrm { MH }\end{array}$

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Annual production and sales level of Product A1 is 8,480 units, and the annual production and sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of Product A1 under activity-based costing?

Activities are the cost objects of the second stage of ABC.

Facility level costs are not traceable to individual product lines, batches or units.

________________________ focuses on activities and the cost of carrying out activities.

A company has two products: A andB. It uses activity based costing and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's overhead rates on each of the three activities and (b) the amount of overhead allocated to ProductA.

What are the main advantages of traditional volume-based allocation methods compared to activity-based costing?

Base Runner, Inc. manufactures baseball bats which go through two operations, cutting and sanding, before they are complete. Expected costs and activities for the two departments are shown below. $\begin{array} { | l | c | c | } \hline & \text { Cutting } & \text { Sanding } \\\hline \text { Direct labor hours } & 50,000 \mathrm { DLH } & 5,000 \mathrm { DLH } \\\hline \text { Machine hours } & 25,000 \mathrm { MH } & 50,000 \mathrm { MH } \\\hline \text { Overhead costs } & \$ 50,000 & \$ 37,500 \\\hline\end{array}$ (a.) Compute a departmental overhead rate for the cutting department based on machine hours. (b.) Compute a departmental overhead rate for the sanding department based on machine hours.

Explain cost flows for the departmental overhead rate method.

A company produces garden benches which go through two operations, operation 1A1 and operation 2B2, before they are complete. Expected costs and activities for the two departments are shown below. Both departments have departmental overhead rates based on machine hours. Therefore, the overhead rates for department 1A1 and department 2B2 are the same. $\begin{array}{lcc}&\text { Department } & \text { Department } \\&1 \mathrm{~A} 1 & 2 \mathrm{~B} 2\\\text { Machine hours } & 70,000 \mathrm{MH} & 60,000 \mathrm{MH} \\\text { Direct labor hours } & 56,350 \mathrm{DLH} & 50,160 \mathrm{DLH} \\\text { Overhead costs } & \$ 225,400 & \$ 250,800\end{array}$

Ridley Company estimates that overhead costs for the next year will be $6,870,000 for indirect labor and $450,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 160,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?