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