Managerial Accounting: Chapter 4 & 5 Braun & Tietz
Product Level Activities
Activities and costs incurred for a particular product, regardless of the number of units or batches of the product produced.
Batch Level Activities
Activities and costs incurred for every batch, regardless of the number of units in the batch.
Unit Level Activities
Activities and costs incurred for every unit produced.
Facility Level Activities
Activities and costs incurred no matter how many units, batches, or products are produced in the plant.
Value Added Activities
Activities for which the customer is willing to pay because these activities add value to the final product or service.
Waste Activities
Activities that neither enhance the customer's image of the product or service nor provide a competitive advantage; also known as non-value added activities.
Non-Value Added Activities
Activities that neither enhance the customer's image of the product or service nor provide a competitive advantage; also known as waste activities.
DOWNTIME
An acronym for the eight wastes: defects, overproduction, waiting, not utilizing people to their full potential, transportation, inventory, movement, excess processing.
Just In Time
An inventory management philosophy that focuses on purchasing raw materials just in time for production and completing finished goods just in time for delivery to customers.
Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,000 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. The departmental manufacturing overhead rate for the Small Bag line would be closest to A) $202.20 per machine hour. B) $212.00 per machine hour. C) $170.00 per machine hour. D) $222.00 per machine hour.
B) $212.00 per machine hour. Explanation: $2,459,000 / 11,600 hrs = 212.00 per hr
Which of the following does activity-based costing consider to be the fundamental cost object? A) Direct labor hours B) Activities C) Direct materials D) Finished goods
B) Activities
Which of the following systems focuses on activities as the fundamental cost objects and uses the costs of those activities as building blocks for compiling the indirect costs of products and other cost objects? A) Job costing B) Activity-based costing C) Process costing D) Product costing
B) Activity-based costing
Which of the following is not likely to be a cost driver of activities associated with determining product cost? A) Number of material requisitions B) Number of cost accountant's labor hours C) Number of product inspections D) Number of production orders
B) Number of cost accountant's labor hours
Which of the following is most likely to be the cost driver for the packaging and shipping activity? A) Number of setups B) Number of orders shipped C) Number of units produced D) Hours of testing
B) Number of orders shipped
In ABC, how is the activity allocation rate computed? A) The total estimated activity allocation base is divided by the total estimated activity cost pool. B) The total estimated activity cost pool is divided by the total estimated activity allocation base. C) The total estimated activity allocation base is multiplied by the total estimated activity cost pool. D) You take the total estimated activity allocation base and subtract the total estimated total activity cost pool.
B) The total estimated activity cost pool is divided by the total estimated activity allocation base.
When calculating a departmental overhead rate, what should the numerator be? A) Total estimated amount of the departmental allocation base B) Total estimated departmental overhead cost pool C) Total estimated amount of manufacturing overhead for the factory D) Actual quantity of the departmental allocation base used by the job
B) Total estimated departmental overhead cost pool
Four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below: a. Identify the primary activities and estimate a total cost pool for each. b. Allocate the costs to the cost object using the activity cost allocation rates. c. Select an allocation base for each activity. d. Calculate an activity cost allocation rate for each activity. A) c, a, b, d B) a, c, d, b C) b, a, c, d D) a, d, c, b
B) a, c, d, b 1. Identify the primary activities and estimate a total cost pool for each. 2. Select an allocation base for each activity. 3. Calculate an activity cost allocation rate for each activity. 4. Allocate the costs to the cost object using the activity cost allocation rates.
Using factory utilities would most likely be classified as a ________ cost. A) unit-level B) batch-level C) facility-level D) product-level
C) facility-level
Cost Distortion
Overcosting some products while undercosting other products.
Quality at the Source
Refers to shifting the responsibility for quality adherence to the operators at each step in the value stream, rather than relying on supervisors or a quality assurance department to catch errors.
Departmental Overhead Rates
Separate manufacturing overhead rates established for each department.
T/F Facility-level activities and costs are incurred no matter how many units, batches, or products are produced in the plant.
TRUE
T/F A departmental overhead rate is calculated by dividing the total estimated departmental overhead cost pool by the estimated total amount of the department's cost allocation base.
TRUE
T/F A plantwide overhead rate is calculated by dividing the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year.
TRUE
T/F As a result of cost distortion, some products will be overcosted while other products will be undercosted.
TRUE
T/F As compared to traditional volume-based costing using a single plantwide overhead rate, activity-based costing (ABC) is a more refined costing system that reduces cost distortion.
TRUE
T/F Batch-level activities and costs are incurred again each time a batch is produced.
TRUE
T/F Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems.
TRUE
T/F Companies that use ABC trace direct materials and direct labor to cost objects just as would be done using traditional costing systems.
TRUE
T/F Companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as they would in a traditional costing system.
TRUE
T/F Cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system.
TRUE
T/F Departmental overhead rates typically do a better job of matching each department's overhead costs to the products that use the department's resources than do plantwide overhead rates.
TRUE
T/F If a company's plantwide overhead rate is allocated based on direct labor hours, then each job will be allocated manufacturing overhead based on the total direct labor hours incurred on the job, regardless of the manufacturing department in which those hours were incurred.
TRUE
T/F It is easier to allocate indirect costs to the products that actually caused those costs if an ABC system is used rather than a traditional costing system.
TRUE
T/F Machine set-up would be considered a batch-level cost.
TRUE
T/F Merchandising and service companies, as well as governmental agencies, can use refined cost allocation systems to provide their managers with better cost information.
TRUE
T/F One condition that favors using a departmental overhead rate, rather than plantwide overhead rates, is that different departments incur different amounts and types of manufacturing overhead.
TRUE
T/F Product-level activities and costs are incurred for a particular product, regardless of the number of units or batches of the product produced.
TRUE
T/F Refined costing systems can be used to allocate any indirect costs to any cost objects.
TRUE
T/F The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool.
TRUE
T/F The cost allocation rate for each activity is equal to the total estimated activity cost pool divided by the total estimated activity allocation base.
TRUE
T/F The cost of depreciation, insurance, and property tax on the entire production plant would be considered a facility-level cost.
TRUE
T/F The cost of maintenance on the entire production plant would be considered a facility-level cost.
TRUE
T/F The cost to research and develop, design and market new models would be considered a product-level cost.
TRUE
T/F The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base.
TRUE
T/F Two main benefits of ABC are (1) more accurate product cost information and (2) more detailed information on the costs of activities and the drivers of those costs.
TRUE
T/F Unit-level activities and costs are incurred for every single unit.
TRUE
T/F With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products.
TRUE
Takt Time
The rate of production needed to meet customer demand yet avoid overproduction.
Customer Response Time
The time that elapses between receipt of a customer order and delivery of the product or service.
Manufacturing Cycle Time
The time that elapses between the start of production and the product's completion.
Activity Based Management
Using activity based cost information to make decisions that increase profits while satisfying customers' needs
Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee tables consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Materials handling /# of parts / $2.00 per part Machining / Machine hours / $2.75 per MH Assembling / # of parts / $1.00 per part Packaging / # of finished units / $3.00 per finished unit What is the total manufacturing cost per coffee table? A) $316.75 B) $76.75 C) $313.75 D) $55.00
What is the total manufacturing cost per coffee table? A) $316.75 Explanation: Handling 20 parts × 2.00 = 40.00 Machining 5 hrs × 2.75 = 13.75 Assembly 20 parts × 1.00 = 20.00 Packaging = 3.00 Direct materials = 240.00 Total = 316.75
Plantwide Overhead Rate
When overhead is allocated to every product using the same manufacturing overhead rate.
The Braveheart Corporation uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: cutting and painting. The Cutting Department uses a departmental overhead rate of $12 per machine hour, while the Painting Department uses a departmental overhead rate of $17 per direct labor hour. Job 422 used the following direct labor hours and machine hours in the two departments: CUTTING 12 DL 14 MH PAINTING 10 DL 12 MH The cost for direct labor is $20 per direct labor hour and the cost of the direct materials used by Job 422 is $800. Required: What was the total cost of Job 422 if the Braveheart Corporation used the departmental overhead rates to allocate manufacturing overhead?
$1,578 EXPLANATION: CUTTING 12 RATE X 14 MH=168 PLUS PAINTING 17 RATE X 10 DL=170 TOTAL MOH 338 CUTTING 12 DL + PAINTING 10 DL= 22 X DL RATE 20 = 440 DIRECT LABOR DM USED 800 338+440+800=1,578
Using traditional costing instead of ABC costing might lead to all of the following except A) cutting back on high-volume products that appear unprofitable. B) expanding low-volume products that appear profitable. C) raising the selling price of low-volume products. D) raising the selling price of high-volume products.
C) raising the selling price of low-volume products.
Kramer Company manufactures coffee tables and uses an activity-based costing system. Each coffee table consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Materials handling /# of parts / $2.00 per part Machining / Machine hours / $2.75 per MH Assembling / # of parts / $1.00 per part Packaging / # of finished units / $3.00 per finished unit What is the cost of materials handling per coffee table? A) $40.00 B) $20.00 C) $7.75 D) $15.00
A) $40.00 Explanation: 1 table = 20 parts × $2.00 per part = $40.00
Kaizen
A Japanese word meaning "change for the better"
Lean Thinking
A management philosophy and strategy focused on creating value for the customer by eliminating waste.
Total Quality Management
A management philosophy of delighting customers with superior products and services by continually setting higher goals and improving the performance of every business function.
Costs of Quality Report
A report that lists the costs incurred by the company related to quality. The costs are categorized as prevention costs, appraisal costs, internal failure costs, and external failure costs.
Backflush Costing
A simplified accounting system in which production costs are not assigned to the units until they are finished, or even sold, thereby saving the bookeeping steps of moving the product through the various inventory accounts.
Point of Use Storage
A storage system used to reduce the waste of transportation and movement in which tools, materials, and equipment are stored in proximity to where they will be used most frequently.
The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Materials handling / # of parts / $1.75 per part Machining / Machine hours / $2.00 per MH Assembling / # of parts / $0.50 per part Packaging / # of finished units / $2.75 per finished unit What is the cost of materials handling per chair? A) $26.25 B) $7.50 C) $5.50 D) $4.00
A) $26.25 Explanation: 1 chair = 15 parts × $1.75 per part = $26.25
The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Materials handling / # of parts / $1.75 per part Machining / Machine hours / $2.00 per MH Assembling / # of parts / $0.50 per part Packaging / # of finished units / $2.75 per finished unit What is the cost of machining per chair? A) $4.00 B) $30.00 C) $15.50 D) $5.50
A) $4.00 Explanation: 2 machine hours × $2.00 = $4.00
James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $35 per machine hour, while the Sanding Department uses a departmental overhead rate of $20 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments: Actual results Assembly Department 8 DL 10 MH Sanding Department 5 DL 7 MH The cost for direct labor is $30 per direct labor hour and the cost of the direct materials used by Job 603 is $1,400. How much manufacturing overhead would be allocated to Job 603 using the departmental overhead rates? A) $450 B) $380 C) $715 D) $390
A) $450 Explanation: A) Assembly Dept. $35 × 10 machining hrs = $350.00 Sanding Dept. $20 × 5 direct hrs = $100.00 Total $450.00
Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labor hour. Job A216 used the following direct labor hours and machine hours in the two departments: Actual results Casting Department 5 DL 4 MH Finishing Department 12 DL 3 MH The cost for direct labor is $32 per direct labor hour and the cost of the direct materials used by Job A216 is $1,800. How much manufacturing overhead would be allocated to Job A216 using the departmental overhead rates? A) $544 B) $596 C) $1,360 D) $454
A) $544 Explanation: Casting Dept. $52 × 4 machine hrs = $208.00 Finishing Dept. $28 × 12 direct hrs = $336.00 Total $544.00
All of the following describe an ABC system except A) ABC systems may only be used by service companies. B) ABC systems can create more accurate product costs. C) ABC systems are more complex and costly than traditional costing systems. D) ABC systems are used in both manufacturing and nonmanufacturing companies.
A) ABC systems may only be used by service companies.
What will the use of departmental overhead rates generally result in? A) The use of a separate cost allocation base for each department in the factory B) The use of a single cost allocation base C) The use of a single overhead cost pool for the factory D) The use of separate cost allocation base for each activity in the factory
A) The use of a separate cost allocation base for each department in the factory
Machine set-up would most likely be classified as a ________ cost. A) batch-level B) unit-level C) product-level D) facility-level
A) batch-level
When a company has established separate manufacturing overhead rates for each department, it is using A) departmental overhead rates. B) cost distortion. C) a plantwide overhead rate. D) none of the above.
A) departmental overhead rates.
All of the following are considered to be part of the cost hierarchy often used to implement ABC, with the exception of A) production-level activity. B) batch-level activity. C) product-level activity. D) unit-level activity.
A) production-level activity.
Molding and sanding each unit of product would most likely be classified as a ________ cost. A) unit-level B) batch-level C) product-level D) facility-level
A) unit-level
High Rise Display Company manufactures display cases to be sold to retail stores. The cases come in three sizes: Large, Medium, and Small. Currently, High Rise Display Company uses a single plant-wide overhead rate to allocate its $3,357,800 of annual manufacturing overhead. Of this amount, $820,000 is associated with the Large Case line, $1,276,800 is associated with the Medium Case line, and $1,261,000 is associated with the Small Case line. Clearview Display Company is currently running a total of 33,000 machine hours: 10,000 in the Large Case line, 13,300 in the Medium Case line, and 9,700 in the Small Case line. High Rise Display Company uses machine hours as the cost driver for manufacturing overhead costs. Required: a. Calculate the plant-wide manufacturing overhead rate. b. Calculate the departmental overhead rate for each of the three departments listed. c. Which product line(s) have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s) have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour?
A. Large Cases DEPT. MOH = $820,000 Medium Cases DEPT. MOH = $1,276,800 Small Cases DEPT. MOH = $1,261,000 Total overhead = $3,357,800 Large Cases = 10,000.0 MH Medium Cases = 13,300.0 MH Small Cases = 9,700.0 MH Total machine hours = 33,000.0 Total overhead = $3,357,800.00 / Total machine hours = 33,000 Plantwide overhead rate $101.75 B. Large 820,000/10,000=$82 per MH Medium 1,276,800/13,300=$96 per MH Small 1,261,000/9,700=$346.16 per MH c. Large overcost by $19.75 per MH Medium overcost by $5.75 per MH Small undercoost by ($244.41 per MH)
Bobke Technologies manufactures three types of computers for a well known national brand. The three types are: laptops, desktops, and tablets. Currently, Bobke uses a single plant-wide overhead rate to allocate its $1,667,250 of annual manufacturing overhead. Of this amount, $562,000 is associated with laptops, $492,000 is associated with desktops, and $612,750 is associated with tablets. Bobke is currently using a total of 22,150 machine hours: 7,500 for laptops, 8,200 for desktops, and 6,450 for tablets. Bobke uses machine hours to allocate overhead costs. Required: a. Calculate the plant-wide manufacturing overhead rate. b. Calculate the departmental overhead rate for each of the three departments listed. c. Which product line(s) have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s) have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour?
A. PW = $1,667,250 ESTIMATED ANNUAL MOH / 22,150 ESTIMATED ANNUAL MH = $75.27 PER MH PW ALLOCATION RATE B. DEPARTMENTAL MOH PER MH: LAPTOP 562,000 / 7,500 = 74.93 DESKTOP 492,000 / 8,200 = 60.00 TABLET 612,750 / 6,450 = 95.00 C. LAPTOP OVERCOST $0.34 PER MH DESKTOP OVERCOST $15.27 PER MH TABLET UNDERCOST ($19.73) PER MH
Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee tables consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Materials handling /# of parts / $2.00 per part Machining / Machine hours / $2.75 per MH Assembling / # of parts / $1.00 per part Packaging / # of finished units / $3.00 per finished unit What is the cost of machining per coffee table? A) $15.00 B) $21.00 C) $13.75 D) $55.00
C) $13.75 Explanation: 5 machine hours × $2.75 = $13.75
James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $35 per machine hour, while the Sanding Department uses a departmental overhead rate of $20 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments: Actual results Assembly Department 8 DL 10 MH Sanding Department 5 DL 7 MH The cost for direct labor is $30 per direct labor hour and the cost of the direct materials used by Job 542 is $1,400. What was the total cost of Job 542 if James Industries used the departmental overhead rates to allocate manufacturing overhead? A) $1,850 B) $2,170 C) $2,240 D) $1,790
C) $2,240 Explanation: Labor ($30 × 8 hrs) + ($30 × 5 hrs) = $390.00 Materials = $1,400.00 Overhead Assembly Dept. $35 × 10 hrs = $350.00 Sanding Dept. $20 × 5 hrs = $100.00 Total = $2,240.00
Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labor hour. Job A216 used the following direct labor hours and machine hours in the two departments: Actual results Casting Department 5 DL 4 MH Finishing Department 12 DL 3 MH The cost for direct labor is $32 per direct labor hour and the cost of the direct materials used by Job A216 is $1,800. What was the total cost of Job A216 if Ryan Fabrication used the departmental overhead rates to allocate manufacturing overhead? A) $2,434 B) $2,344 C) $2,888 D) $2,940
C) $2,888
Regarding activity-based costing systems, which of the following statements is true? A) ABC systems accumulate overhead costs by departments. B) ABC costing systems are less complex and, therefore, less costly than traditional systems. C) ABC costing systems have separate indirect cost allocation rates for each activity. D) ABC costing systems can be used in manufacturing firms only.
C) ABC costing systems have separate indirect cost allocation rates for each activity.
Which of the following is not an activity in an ABC system that determines the cost of a manufactured product? A) Machining B) Inspecting C) Accounting D) Materials handling
C) Accounting
In developing an ABC system, what is the last step? A) Identify the primary activities and estimate a total cost pool for each. B) Select an allocation base for each activity. C) Allocate the costs to the cost object using the activity cost allocation rates. D) Calculate an activity cost allocation rate for each activity.
C) Allocate the costs to the cost object using the activity cost allocation rates.
Which of the following can be used in conjunction with activity-based costing? A) Job costing B) Process costing C) Both A and B D) Neither A nor B
C) Both A and B
Which of the following does ABC take into account? A) The types of manufacturing activities used by the product B) The extent to which the manufacturing activities are used by the product C) Both A and B D) Neither A nor B
C) Both A and B
Which of the following condition(s) favors using departmental overhead rates in place of a plantwide overhead rate? A) Different departments incur different amounts and types of manufacturing overhead. B) Different jobs or products use the departments to a different extent. C) Both of the above. D) Neither of the above.
C) Both of the above.
In using an ABC system, all of the following steps are performed before the company's year begins except A) identify the primary activities and estimate a total cost pool for each. B) select an allocation base for each activity. C) allocate the costs to the cost object using the activity cost allocation rates. D) calculate an activity cost allocation rate for each activity.
C) allocate the costs to the cost object using the activity cost allocation rates.
ABC generally causes the least amount of cost distortion among products because indirect costs are allocated to the products based on A) types of activities used by the product. B) the extent to which the activities are used. C) both A and B. D) none of the above.
C) both A and B.
When calculating the total amount of manufacturing overhead to allocate to a particular job, the company would multiply each departmental overhead rate by ________ and then ________ together the allocated amounts from each department. A) the actual amount of the departmental allocation based used by the job; multiply B) the actual amount of the plantwide allocation based used by the job; add C) the actual amount of the departmental allocation based used by the job; add D) the actual amount of the plantwide allocation based used by the job; multiply
C) the actual amount of the departmental allocation base used by the job; add
Prevention Costs
Costs incurred to avoid poor quality goods or services.
Appraisal Costs
Costs incurred to detect poor quality goods or services
Internal Failure Costs
Costs incurred when the company detects and corrects poor quality goods or services before making delivery to customers.
External Failure Costs
Costs incurred when the company does not detect poor quality goods or services until after delivery is made to customers.
Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee tables consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Materials handling /# of parts / $2.00 per part Machining / Machine hours / $2.75 per MH Assembling / # of parts / $1.00 per part Packaging / # of finished units / $3.00 per finished unit What is the cost of assembling per coffee table? A) $40.00 B) $15.00 C) $7.75 D) $20.00
D) $20.00 Explanation: 20 parts × $1.00 per part = $20.00
Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plant-wide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,200 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. The plant-wide manufacturing overhead rate would be closest to A) $55.25 per machine hour. B) $170.00 per machine hour. C) $222.00 per machine hour. D) $202.20 per machine hour.
D) $202.20 per machine hour.
Wadsworth Industries manufactures small appliances and uses an activity-based costing system. Information from its system for the year for all products follows: Wadsworth makes 775 of its stand mixers a year, which requires a total of 25 machine hours, 10 inspection hours, and 12 orders. The stand mixer requires $15.00 in direct materials per unit and $11.50 in direct labor per unit. The stand mixer sells for $120 per unit. What is the profit margin in total for the stand mixer? A) $91,979.50 B) $26.50 C) $20,537.50 D) $71,468.50
D) $71,468.50
The use of which of the following costing systems is most likely to reduce cost distortion to a minimum? A) Plantwide overhead rate B) Departmental overhead allocation rates C) Traditional costing system D) Activity-based costing
D) Activity-based costing
Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee tables consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Materials handling /# of parts / $2.00 per part Machining / Machine hours / $2.75 per MH Assembling / # of parts / $1.00 per part Packaging / # of finished units / $3.00 per finished unit What is the number of finished coffee tables? A) 20 B) 100 C) 250 D) Cannot be determined from the information given
D) Cannot be determined from the information given
The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Materials handling / # of parts / $1.75 per part Machining / Machine hours / $2.00 per MH Assembling / # of parts / $0.50 per part Packaging / # of finished units / $2.75 per finished unit What is the number of finished office chairs? A) 20 B) 100 C) 250 D) Cannot be determined from the information given
D) Cannot be determined from the information given
Activity Based Costing
Focuses on activities as the fundamental cost objects. The costs of those activities become building blocks for compiling the indirect costs of products, services, and customers.
Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,000 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. Which product line(s) have been overcosted or undercosted by using the plantwide manufacturing overhead rate? A) Large Bags has been undercosted; Medium and Small have been overcosted. B) Large, Medium, and Small Bags have all been overcosted. C) Large, Medium, and Small Bags have all been undercosted. D) Large Bags has been overcosted; Medium and Small have been undercosted.
D) Large Bags has been overcosted; Medium and Small have been undercosted. Large 170 DEPT. VS. 202 PW (32 OVER) Medium 222 DEPT. VS. 202 PW (20 UNDER) Small 212 DEPT. VS. 202 PW (10 UNDER)
Which of the following is a result of cost distortion? A) Overcosting of all products B) Undercosting of all products C) Accurate costing of all products D) Overcosting of some products and undercosting of other products
D) Overcosting of some products and undercosting of other products
59) The first step in developing an ABC system is A) calculate an activity cost allocation rate for each activity. B) allocate the costs to the cost object using the activity cost allocation rates. C) select an allocation base for each activity. D) identify the primary activities and estimate a total cost pool for each.
D) identify the primary activities and estimate a total cost pool for each.
Research and development would most likely be classified as a ________ cost. A) unit-level B) batch-level C) facility-level D) product-level
D) product-level
Value Engineering
Eliminating waste in the system by making the company's processes as effective and efficient as possible.
The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Materials handling / # of parts / $1.75 per part Machining / Machine hours / $2.00 per MH Assembling / # of parts / $0.50 per part Packaging / # of finished units / $2.75 per finished unit What is the cost of assembling per chair? A) $4.00 B) $5.50 C) $7.50 D) $26.25
Explanation: 15 parts × $0.50 per part = $7.50
T/F If a company uses departmental overhead allocation rates, then the amount of manufacturing overhead allocated to the job is equal to the plantwide overhead rate multiplied by the actual use of the cost allocation base.
FALSE
T/F One condition that favors using plantwide overhead rates, rather than departmental overhead rates, is that different jobs or products use the departments to a different extent.
FALSE
T/F Only manufacturers can use refined costing systems to allocate manufacturing overhead.
FALSE
T/F A plantwide overhead rate is calculated by multiplying the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year.
FALSE
T/F Direct labor hours would be the most appropriate cost allocation base for a Machining Department that uses machine robotics extensively.
FALSE
T/F Facility-level activities and costs are incurred for every individual unit.
FALSE
T/F The cost of inspecting and packaging each unit the company produces would be considered a facility-level activity cost.
FALSE
T/F The cost to design and market new models would be considered a facility-level cost.
FALSE
T/F The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools.
FALSE
T/F The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.
FALSE
T/F To determine the amount of overhead allocated, the overhead rate is divided by the cost driver.
FALSE
T/F Traditional costing systems are generally more accurate than ABC costing.
FALSE
T/F Using departmental overhead rates is generally less accurate than using a single plantwide overhead rate.
FALSE
T/F When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate.
FALSE