ACG6308 - Chapter 5
Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost PoolCost DriverOverhead Cost Budgeted Level for Cost DriverBudgetedQuality ControlNumber of inspections$ 78,0001,200Machine TimeMachine hours188,000800Materials HandlingNumber of Batches1,20050Miscellaneous Overhead CostDirect labor hours59,0005,000 Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections375Number of Machine hours220Number of Batches8Direct Labor Hours840 Using activity-based costing, applied materials handling factory overhead for the baseball cleat order is:
1. $1200 / 50 = $24 per batch 2. $24 × 8 batches = $192
In an activity-based costing system, overhead costs are divided into separate:
Activity cost pools.
The management of activities to improve the value received by the customer and the competitiveness of the organization is:
Activity-based management.
Which of the following is a step in developing an Activity-Based Costing System?
Assign activity costs to cost objects.
Purchase order, set-up, and inspection costs are examples of:
Batch-level costs.
In the context of activity-based costing, cross-subsidization refers to:
Costing inaccuracies which affect the relative profitability of products.
Which of the following is a description of categorizing related customer costs into cost pools on the basis of cost drivers?
Customer cost analysis.
Which of the following is a benefit of activity-based costing?
Facilitate better product pricing decisions.
The use of activity-based costing is most appropriate for:
Firms that manufacture multiple product lines.
Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Budgeted Overhead Cost Driver Estimated Cost Driver Level Machine setups$ 120,000 Number of setups120setups Materials handling104,400 Number of barrels8,700barrels Quality control264,000 Number of inspections1,100inspections Other overhead cost144,000 Number of machine hours12,000machine hours Total overhead$ 632,400 A current product order has the following requirements: Machine setups8setups Materials handling606barrels Quality inspections80inspections Machine hours830machine hours Direct labor hour336hours Using activity-based costing, how much other overhead is assigned to the order?
($144,000 / 12,000) × 830 = $9,960
ModelAnnual Sales in UnitsHigh F10,000Great P16,000 Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High FGreat PDirect materials$ 38.00$ 25.40Direct labor$ 17.52$ 13.14 Budget factory overhead: Engineering and Design2,409engineering hours$ 404,712Quality Control12,848inspection hours269,808Machinery33,726machine hours539,616Miscellaneous Overhead26,400direct labor hours134,904Total $ 1,349,040 Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities: High FGreat PEngineering and design hours9691,440Quality control inspection hours5,6487,200Machine hours20,28613,440Labor hours12,00014,400 Using activity-based costing, total overhead per unit of Great P model is:
(($404,712 / 2,409) × (1,440 / 16,000)) + (($269,808 / 12,848) × (7,200 / 16,000)) + (($539,616 / 33,726) × (13,440 / 16,000)) + (($134,904 / 26,400) × (14,440 / 16,000)) = $15.12 + $9.45 + $13.44 + $4.60 = $42.61
ModelAnnual Sales in UnitsHigh F10,000 Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High FGreat PDirect materials$ 38.00$ 25.40Direct labor$ 17.52$ 13.14 Budget factory overhead: Engineering and Design2,409engineering hours$ 404,712Quality Control12,848inspection hours269,808Machinery33,726machine hours539,616Miscellaneous Overhead26,400direct labor hours134,904Total $ 1,349,040 Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities: High FGreat PEngineering and design hours9691,440Quality control inspection hours5,6487,200Machine hours20,28613,440Labor hours12,00014,400 Using activity-based costing, total overhead per unit of the High F model is:
((404,712/2,409) × 969)/10,000 + ((269,808/12,848) × 5,648/10,000 + ((539,616/33,726) × 20,286)/10,000 + ((134,904/26,400) × 12,000)/10,000 = $16.28 + $11.86 + $32.46 + $6.13 = $66.73
Metal Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead: Overhead Cost PoolBudgeted Overhead CostBudgeted Level for Cost DriverOverhead Cost DriverMaterials handling$ 160,0003,200poundsWeight of materialsMachine setup13,260390setupsNumber of setupsMachine repair1,38030,000machine hoursMachine hoursInspections10,560160inspectionsNumber of inspections Requirements for Job #971 which manufactured 4 units of product: Direct labor20hoursDirect materials130poundsMachine setup30setupsMachine hours15,000machine hoursInspections15inspections Using Activity-Based Costing, overhead cost assigned to Job #971 for machine setup is:
1. $13,260 / 390 setups = $34 per setup 2. $34 × 30 setups = $1,020
Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs PoolCost DriverOverhead CostBudgeted Level for Cost DriverQuality controlNumber of inspections$ 64,8001,080Machine operationMachine hours132,0001,100Materials handlingNumber of batches90030Miscellaneous overhead costDirect labor hours48,0004,000 Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections175Machine hours180Number of batches5Direct labor hours650 Using activity-based costing, applied machine operation overhead for the 1,000 laser printers order is:
1. $132,000 / 1,100 = $120 per machine hour 2. $120 × 180 = $21,600
ModelAnnual Sales in UnitsHigh F10,000Great P16,000 Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High FGreat PDirect materials$ 38.00$ 25.40Direct labor$ 17.52$ 13.14 Budget factory overhead: Engineering and Design2,409engineering hours$ 404,712Quality Control12,848inspection hours269,808Machinery33,726machine hours539,616Miscellaneous Overhead26,400direct labor hours134,904Total $ 1,349,040 Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities: High FGreat PEngineering and design hours9691,440Quality control inspection hours5,6487,200Machine hours20,28613,440Labor hours12,00014,400 Using activity-based costing, applied miscellaneous overhead for the High F model per unit is:
1. $134,904 / 26,400 = $5.11 2. ($5.11 × 12,000) / 10,000 = $6.13
ModelAnnual Sales in UnitsHigh F10,000 Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High FGreat PDirect materials$ 38.00$ 25.40Direct labor$ 17.52$ 13.14 Budget factory overhead: Engineering and Design2,409engineering hours$ 404,712Quality Control12,848inspection hours269,808Machinery33,726machine hours539,616Miscellaneous Overhead26,400direct labor hours134,904Total $ 1,349,040 Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities: High FGreat PEngineering and design hours9691,440Quality control inspection hours5,6487,200Machine hours20,28613,440Labor hours12,00014,400 Using activity-based costing, applied quality control factory overhead for the High F model per unit is:
1. $269,808 / 12,848 inspection hours = $21 per inspection hour 2. $21 × 5,648 = $118,608 3. $118,608 / 10,000 High F units = $11.86
ModelAnnual Sales in UnitsHigh F10,000Great P16,000 Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: Great PDirect materials$ 25.40Direct labor$ 17.52$ 13.14 Budget factory overhead: Engineering and Design2,409engineering hours$ 404,712Quality Control12,848inspection hours269,808Machinery33,726machine hours539,616Miscellaneous Overhead26,400direct labor hours134,904Total $ 1,349,040 Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities: High FGreat PEngineering and design hours9691,440Quality control inspection hours5,6487,200Machine hours20,28613,440Labor hours12,00014,400 Using activity-based costing, applied quality control factory overhead for the Great P model per unit is:
1. $269,808 / 12,848 inspection hours = $21 per inspection hour 2. $21 × 7,200 = $151,200 3. $151,200 / 16,000 Great P units = $9.45
.ModelAnnual Sales in Units Great P16,000 Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: Great PDirect materials$ 25.40Direct labor$ 17.52$ 13.14 Budget factory overhead: Engineering and Design2,409engineering hours$ 404,712Quality Control12,848inspection hours269,808Machinery33,726machine hours539,616Miscellaneous Overhead26,400direct labor hours134,904Total $ 1,349,040 Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities: High FGreat PEngineering and design hours9691,440Quality control inspection hours5,6487,200Machine hours20,28613,440Labor hours12,00014,400 Using activity-based costing, applied engineering and design factory overhead for the Great P model per unit is:
1. $404,712 / 2,409 hours = $168 per engineering & design hour 2. $168 × 1,440 hours = $241,920 3. $241,920 / 16,000 Great P units = $15.12
Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs PoolCost DriverOverhead CostBudgeted Level for Cost DriverQuality controlNumber of inspections$ 64,8001,080Machine operationMachine hours132,0001,100Materials handlingNumber of batches90030Miscellaneous overhead costDirect labor hours48,0004,000 Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections175Machine hours180Number of batches5Direct labor hours650 Using activity-based costing, applied quality control factory overhead for the 1,000 laser printers order is:
1. $64,800 / 1,080 = $60 per inspection 2. $60 × 175 = $10,500
Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs PoolCost DriverOverhead CostBudgeted Level for Cost DriverQuality controlNumber of inspections$ 64,8001,080Machine operationMachine hours132,0001,100Materials handlingNumber of batches90030Miscellaneous overhead costDirect labor hours48,0004,000 Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections175Machine hours180Number of batches5Direct labor hours650 Using activity-based costing, applied materials handling factory overhead for the 1,000 laser printers order is:
1. $900 / 30 = $30 per batch 2. $30 × 5 batches = $150
Fast Company has established the following overhead cost pools and cost drivers for the month of May: Cost Poo lOverhead Costs Cost Driver Levels Purchase orders $ 30,000 50orders Machine setups50,000 100setups Electricity10,000 10,000kilowatt hours The following information pertains to the actual consumption of activity resources for two sample jobs completed during May. Job M1 Job M2 Number of units produced500 1,000 Number of purchase orders15 10 Number of setups20 10 Number of kilowatt hours500 1,000 Using activity-based costing, what is the overhead cost per unit produced for Job M2?
1. ($30,000 / 50) × 10 + ($50,000 / 100) × 10 + ($10,000 / 10,000) × 1,000 = $12,000 2. $12,000 / 1,000 = $12
Fast Company has established the following overhead cost pools and cost drivers for the month of May: Cost PoolOverhead CostsCost Driver LevelsPurchase orders$ 30,00050ordersMachine setups50,000100setupsElectricity10,00010,000kilowatt hours The following information pertains to the actual consumption of activity resources for two sample jobs completed during May. Job M1Job M2Number of units produced5001,000Number of purchase orders1510Number of setups2010Number of kilowatt hours5001,000 Using activity-based costing, what is the overhead cost per unit produced for Job M2?
1. ($30,000 / 50) × 10 + ($50,000 / 100) × 10 + ($10,000 / 10,000) × 1,000 = $12,000 2. $12,000 / 1,000 = $12
Which of the following describes a cost driver?
A factor that causes or relates to a change in the total cost of an activity.
Customer profitability analysis:
Helps identify actions that affect customer profitability.
Which of the following would be the most appropriate cost driver to allocate factory electricity costs to products?
Machine hours.
Which of the following activity cost pools would most likely be allocated based on the number of production runs?
Machinery set-up costs.
Which of the following is most likely to be the cost driver for the packaging and shipping activity?
Number of orders.
Which of the following would likely be the most appropriate cost driver to allocate machine set-up costs to products?
Number of production runs.
A volume-based rate is an appropriate overhead application base when:
Only one product is manufactured.
Which of the following has the weakest linkage between activity and cost driver? Model Cost Driver A)Machine setup Number of setups B)Machine maintenance Machine hours C)Lighting on shop floor Number of kilowatt-hours D)Quality control Square feet of floor space E)Materials Handling Weight of materials in process
Option D
The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry White, the firm's new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Listed below are activity and cost information relating to two of Chocolate Baker's major products. Muffins Cheesecake Revenue53,000 46,000 Cost of goods sold26,000 21,000 Delivery Activity Number of deliveries150 85 Average time for delivery10 Minutes 15 Minutes Cost per hour for delivery$20.00 $20.00 Using activity-based costing, which one of the following statements is correct?
Product profiability: Revenues - Cost of Goods Sold - Cost of Delivery The muffins are $1,925 more profitable.
If a costing system uses a single base to allocate overhead costs that are the result of several production activities:
Products that use relatively more of this base tend to be overcosted.
Effective implementation of activity-based costing (ABC) requires:
Support of top management and key employees.
A firm has many products, some produced in an automated production process and some produced in a manual production process. Using direct labor hours to assign manufacturing overhead to a product manufactured with a highly automated process is likely to:
Understate overhead of the product.
A company using a volume-based overhead assignment (allocation) method will tend to:
Understate the cost of low volume products.
In an organization that makes furniture, which of the following is a high value-added activity?
Using direct materials in production. Correct
