Chapter 5 accounting

It only makes sense to implement an ABC system when​ ________.

it benefits exceed its implementation costs

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that​ ________.

product-pricing errors are minimal

With traditional costing​ systems, products manufactured in small batches and in small annual volumes may be​ ________ because batch−related and product−sustaining costs are assigned using unit−related drivers.

undercoated

Tiger Pride produces two product​ lines: T−shirts and Sweatshirts. Product profitability is analyzed as​ follows: T−SHIRTS SWEATSHIRTS Production and sales volume ​192,000 units ​24,000 units Selling price ​$17.00 ​$29.00 Direct material ​$1.70 ​$5.00 Direct labor ​$4.30 ​$7.20 Manufacturing overhead ​$3.50 ​$3.00 Gross profit ​$7.50 ​$13.80 Selling and administrative ​$4.10 ​$7.00 Operating profit ​$3.40 ​$6.80 Tiger​ Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost​ information: Activity Activity cost Activity−cost driver Supervision ​$123,480 Direct labor hours​ (DLH) Inspection ​$104,800 Inspections Activities demanded T−SHIRTS SWEATSHIRTS 0.25​ DLH/unit 1.50​ DLH/unit ​48,000 DLHs ​36,000 DLHs ​50,000 inspections ​15,500 inspections Under the revised ABC​ system, supervision costs allocated to Sweatshirts will be​ ________. (Do not round interim calculations. Round the final answer to the nearest whole​ dollar.)

$52,920

High Traffic Products Corporation has two​ departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage ​6,700 ​17,750 Number of employees ​1,000 410 Sales ​$370,000 ​$1,800,000 If total advertising expense of​ $629,300 is allocated on the basis of​ sales, the amount allocated to the Large Department would be​ ________.

$522,000

Stark Corporation has two​ departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 880 410 Number of employees 105 50 Sales ​$760,000 ​$380,000 If advertising expense of​ $456,000 is allocated on the basis of​ sales, the cost per cost driver rate would be​ ________.

0.40

Milan Manufacturing Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming​ year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor ​$539,000 Direct labor−hours ​920,000 Machine maintenance ​$120,000 Machine−hours ​1,000,000 Facility rent ​$215,000 Square feet of area ​160,000 Total overhead costs ​$874,000 The accounting records show the Mossman Job consumed the following​ resources: Cost driver Actual level Direct labor−hours 300 Machine−hours ​1,675 Square feet of area 70 If direct labor−hours are considered the only overhead cost​ driver, what is the single cost driver rate for​ Milan?

0.95 per direct labor hour

North Street Corporation manufactures two models of motorized go−​carts, a standard and a deluxe model. The following activity and cost information has been​ compiled: Product Number of Setups Number of Components Number of Direct Labor Hours Standard 17 6 710 Deluxe 27 18 420 Overhead Costs ​$15,400 ​$22,560 Assume a traditional costing system applies the​ $37,960 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the deluxe​ model? ​ (Do not round interim calculations. Round the final answer to the nearest whole​ dollar.)

14,109

Columbus Company provides the following ABC costing​ information: Activities Total Costs ​Activity-cost drivers Labor ​$384,000 ​8,000 hours Gas ​$40,000 ​4,000 gallons Invoices ​$40,000 ​2,500 invoices Total costs ​$464,000 The above activities used by their three departments​ are: Lawn Department Bush Department Plowing Department Labor ​2,800 hours ​1,500 hours ​3,700 hours Gas ​1,800 gallons 900 gallons ​1,300 gallons Invoices ​1,400 invoices 300 invoices 800 invoices How much of the total costs will be assigned to the Lawn​ Department?

174,800

High Traffic Products Corporation has two​ departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage ​6,550 ​17,300 Number of employees ​1,080 470 Sales ​$330,000 ​$1,700,000 If total rent expense of​ $71,550 is allocated on the basis of square​ footage, the amount allocated to the Small Department would be​ ________. (Do not round interim calculations. Round the final answer to the nearest whole​ dollar.)

19,650

Velshi Printers has contracts to complete weekly supplements required by forty−six customers. For the year​ 2018, manufacturing overhead cost estimates total​ $1,800,000 for an annual production capacity of 20 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead​ costs, it was determined that number of design​ changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the​ analysis: Cost Pool Manufacturing overhead costs Activity level Design changes ​$200,000 400 design changes Setups ​1,550,000 ​2,000 setups Inspections ​50,000 ​11,000 inspections Total manufacturing overhead costs ​$1,800,000 During​ 2018, two​ customers, Money Managers and Hospital​ Systems, are expected to use the following printing​ services: Activity Money Managers Hospital Systems Pages ​80,000 ​96,000 Design changes 13 0 Setups 18 8 Inspections 29 37 Using the three cost pools to allocate overhead​ costs, what is the total manufacturing overhead cost estimate for Money Managers during​ 2018? (Do not round interim calculations. Round the final answer to the n

20,581.82

North Street Corporation manufactures two models of motorized go−​carts, a standard and a deluxe model. The following activity and cost information has been​ compiled: Product Number of Setups Number of Components Number of Direct Labor Hours Standard 17 7 720 Deluxe 33 12 410 Overhead Costs ​$16,000 ​$18,050 Number of setups and number of components are identified as activity−cost drivers for overhead. Assuming an activity−based costing system is​ used, what is the total amount of overhead cost assigned to the deluxe​ model?

21,960

Extreme Manufacturing Company provides the following ABC costing​ information: Activities Total Costs Activity−cost drivers Account inquiry ​$750,000 ​15,000 hours Account billing ​$250,000 ​5,000,000 lines Account verification accounts ​$173,250 ​70,000 accounts Correspondence letters ​$42,000 ​7,000 letters Total costs ​$1,215,250 The above activities are used by Departments A and B as​ follows: Department A Department B Account inquiry hours ​2,000 hours ​3,500 hours Account billing lines ​900,000 lines ​750,000 lines Account verification accounts ​9,000 accounts ​7,000 accounts Correspondence letters ​1,200 letters ​1,600 letters How much of the total costs will be assigned to Department​ B?

239,425

Stark Corporation has two​ departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 870 460 Number of employees 125 55 Sales ​$720,000 ​$380,000 If the facility lease expense of​ $381,000 is allocated on the basis of vehicles in the​ fleet, the amount allocated to the Car Rental Department would be​ ________. (Do not round interim calculations. Round the final answer to the nearest whole​ dollar.)

249,226

Columbus Company provides the following ABC costing​ information: Activities Total Costs ​Activity-cost drivers Labor ​$352,000 ​8,000 hours Gas ​$8,000 ​4,000 gallons Invoices ​$110,000 ​5,500 invoices Total costs ​$470,000 The above activities used by their three departments​ are: Lawn Department Bush Department Plowing Department Labor ​3,200 hours ​1,200 hours ​3,600 hours Gas ​1,900 gallons 900 gallons ​1,200 gallons Invoices ​1,500 invoices 300 invoices ​3,700 invoices How much of the gas cost will be assigned to the Lawn​ Department?

3800

Stark Corporation has two​ departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 880 450 Number of employees 125 60 Sales ​$700,000 ​$395,000 If administrative expense of​ $77,500 is allocated on the basis of number of​ employees, the amount allocated to the Car Rental Department would be​ ________.

52,364.86

Extreme Manufacturing Company provides the following ABC costing​ information: Activities Total Costs Activity−cost drivers Account inquiry ​$320,000 ​16,000 hours Account billing ​$200,000 ​4,000,000 lines Account verification accounts ​$173,250 ​70,000 accounts Correspondence letters ​$24,000 ​4,000 letters Total costs ​$717,250 The above activities are used by Departments A and B as​ follows: Department A Department B Account inquiry hours ​2,700 hours ​4,200 hours Account billing lines ​900,000 lines ​750,000 lines Account verification accounts ​8,000 accounts ​6,000 accounts Correspondence letters ​1,400 letters ​1,800 letters How much of the account inquiry cost will be assigned to Department​ A?

54,000

Dartmouth Corporation manufactures two models of office​ chairs, a standard and a deluxe model. The following activity and cost information has been​ compiled: Product Number of Setups Number of Components Number of Direct Labor Hours Standard 18 9 275 Deluxe 32 14 215 Overhead Costs ​$75,000 ​$87,400 Number of setups and number of components are identified as activity−cost drivers for overhead. Assuming an activity−based costing system is​ used, what is the total amount of overhead costs assigned to the standard​ model?

61200

Columbus Company provides the following ABC costing​ information: Activities Total Costs ​Activity-cost drivers Labor ​$392,000 ​8,000 hours Gas ​$30,000 ​5,000 gallons Invoices ​$180,000 ​7,500 invoices Total costs ​$602,000 The above activities used by their three departments​ are: Lawn Department Bush Department Plowing Department Labor ​2,600 hours ​1,300 hours ​4,100 hours Gas ​1,800 gallons ​1,000 gallons ​2,200 gallons Invoices ​1,600 invoices 100 invoices ​5,800 invoices How much of the labor cost will be assigned to the Bush​ Department?

63,700

Question content area top Part 1 Columbus Company provides the following ABC costing​ information: Activities Total Costs ​Activity-cost drivers Labor ​$392,000 ​8,000 hours Gas ​$30,000 ​5,000 gallons Invoices ​$180,000 ​7,500 invoices Total costs ​$602,000 The above activities used by their three departments​ are: Lawn Department Bush Department Plowing Department Labor ​2,600 hours ​1,300 hours ​4,100 hours Gas ​1,800 gallons ​1,000 gallons ​2,200 gallons Invoices ​1,600 invoices 100 invoices ​5,800 invoices How much of the labor cost will be assigned to the Bush​ Department?

63,700

Dartmouth Corporation manufactures two models of office​ chairs, a standard and a deluxe model. The following activity and cost information has been​ compiled: Product Number of Setups Number of Components Number of Direct Labor Hours Standard 11 5 265 Deluxe 35 15 200 Overhead Costs ​$82,800 ​$74,000 Assume a traditional costing system applies the overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the deluxe​ model?

67,441

Nichols Inc. manufactures remote controls. Currently the company uses a plant−wide rate for allocating manufacturing overhead. The plant manager is considering switching−over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as​ follows: Activities Cost driver Allocation Rate Material handling Number of parts ​$1 per part Assembly Labor hours ​$20 per hour Inspection Time at inspection station ​$10 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of​ $30 per labor hour. ​Nichols' management is considering to implement ABC system because​ ________.

ABC system is a highly refined costing system

Put the following ABC implementation steps in order​ ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases.

CDAB

Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming​ year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor ​$320,000 Direct labor−hours ​800,000 Machine maintenance ​$120,000 Machine−hours ​960,000 Facility rent ​$200,000 Square feet of area ​100,000 Total overhead costs ​$640,000 The accounting records show the Mossman Job consumed the following​ resources: Cost driver Actual level Direct labor−hours 200 Machine−hours ​1,600 Square feet of area 50 Which method of allocation probably best estimates actual overhead costs​ used? Why?

Three activity−cost drivers because they best reflect the relative consumption of resources.

ABC reveals opportunities to reduce costs on nonvalue added activities.

True

It is usually difficult to find good cost driver (cause−and−effect relationship) between​ ________ and a cost allocation base.

facility-sustaining costs

Indirect labor and distribution costs would most likely be in the same activity−cost pool.

false

Refining a cost system involves which of the​ following?

identifying the activities involved in a process and understanding how those activities consume resources

Which of the following has accelerated need for refined cost​ systems?

intense competition

Overcosting a particular product may result​ in:

pricing the product too high

Facility−sustaining costs are the costs of activities​________.

that managers cannot trace to individual products or services but that support the organization as a whole

A single indirect−cost rate distorts product costs because​ ________.

there is an assumption that all support activities affect all products in a uniform way

a single indirect−cost rate distorts product costs because​ ________.

there is an assumption that all support activities affect all products in a uniform way