Acc 202 Chapter 7

Sample Exam Question: First Stage Allocations Youd Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Wages and Salaries 420,000 Depreciation 140,000 Utilities 100,000 Total 660,000 Distribution of resource consumption: Activity Cost Pools Assembly Setting Up Other Total Wages and salaries 15% 60% 25% 100% Depreciation 20% 35% 45% 100% Utilities 15% 45% 40% 100% How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?

$208,000 Allocations to the Other activity cost pool: Wages and salaries (25% of 420,000) 105,000 Depreciation (45% of 140,000) 63,000 Utilities (40% of 100,000) 40,000 Total 208,000

Sample Exam Question: Calculating Activity Rates Capizzi Corporation has an activity-based costing system with three activity cost pools- Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resources consumption. Data used in the first stage allocations follow: Equipment Deprecation 78,000 Supervisory Expense 2,000 Activity Cost Pool Machining Order Filling Other Equipment depreciation .40 .10 .50 Supervisory expense .50 .10 .40 Machining costs are assigned to products using machine-hours and order filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: MHs (Machining) Orders (Order Filling) Product Y7 1,000 600 Product Y2 9,000 1,400 Total 10,000 2,000 The activity rate for the order filling activity cost pool under activity-based costing is closest to:

$4.00 per order Overhead costs- Equipment depreciation = 78,000 x .10 = 7,800 Overhead costs- Supervisory expense = 2,000 x .10 = 200 Overhead costs for order filling = 7,800 + 200 = 8,000 Order Filling: 8,000 / 2,000 orders = 4.00 per order

Sample Exam Question: Customer Margin Calculation Roskam Housecleaning provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system. Activity Cost Pool Total Cost Total Activity Cleaning $252,787 44,900 hours Job Support 73,758 5,700 jobs Client Support 7,668 270 clients Other 230,000 Not applicable Total $564,213 The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. One particular client, the Haan family, requested 49 jobs during the year that required a total of 245 hours of housecleaning. For this service, the client was charged $2,500. The customer margin for the Haan family is closest to: (Round off all calculations to the nearest whole cent.)

$458.19 The customer margin for the family is computed as follows: Client charges 2,500 Costs: Cleaning 1,379.35 Job support 634.06 Client support 28.40 Customer margin 458.19

Sample Exam Question: Second Stage Allocations Reach Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Two of the company's activity cost pools are General Service and Research Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: Activity Cost Pool Activity Measure Estimated Cost General Service % of time devoted to branch $700,000 Research Service Computer Time $140,000 Estimated branch data for next year is as follows: % of Time Computer Time Portland 30% 200,000 minutes Dallas 60% 150,000 minutes Miami 10% 50,000 minutes How much of the headquarters cost allocation should Dallas expect to receive next year?

$472,500 Allocations to the Dallas branch: General Service (60% x 700,000) 420,000 Research Service ((140,000/400,000) x 150,000) 52,500 Total 472,500

Sample Exam Question: Product Margin Calculation Goold Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools- Machining, Order Filling, and Other. The costs in those activity cost pools appear below: Machining $3,200 Order Filling $7,600 Other $5,200 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below: MHs (Machining) Orders (Order Filling) Product R9 3,900 700 Product H2 16,100 1,300 Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins. Product R9 Product H2 Sales (total) $28,200 $36,800 Direct materials (total) $17,300 $13,500 Direct labor (total) $6,700 $13,500 What is the product margin for Product R9 under activity-based costing?

$916 Product Margin for Product R9 Sales 28,200 Direct materials 17,300 Direct labor 6,700 Machining (3,200/20,000 x 3,900) 624 Order filling (7,600/2,000 x 700) 2,660 Product Margin $916

Product Margins Computed Using the Tradition Cost System

1. Gather each product's sales and direct cost data 2. Compute the plantwide overhead rate 3. Allocate manufacturing overhead to each product 4. Actually compute the product margins

Product Margin Calculations

1. Gather each product's sales and direct cost data 2. Incorporate the previously computed activity-based cost assignments pertaining to each product 3. Deduct each product's direct and indirect costs from sales to find product margin 4. To find company net operating income/loss add product margins together and subtract expenses not assigned to products

Customer Margin Calculation

1. Gather its sales and direct cost data. 2. Incorporate previously computed activity-based cost assignments. 3. Deduct all its direct and indirect costs from its sales to find customer margin.

Activity-based costing (ABC)

ABC is a costing method designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and therefore, fixed as well as variable costs. It is ordinarily used as a supplement to, rather than as a replacement for, the company's usual costing system.

Key Definitions and Concepts for Chapter 7 Activity Activity Cost Pool Activity Measure Common Types of Activity Measures

Activity: An event that causes the consumption of overhead resources. Activity Cost Pool: A cost bucket in which costs related to a single activity measure are accumulated. Activity Measure: The term cost driver is also used to refer to an activity measure. An allocation base in an activity-based costing system. Common Types of Activity Measures: Transaction driver is a simple count of the number of times an activity occurs. Duration driver is a measure of the amount of time needed for an activity.

ABC Costing- Activity Levels Unit level, Batch level, Product level, Customer level

Unit level: Performed each time a unit is produced Batch level: Performed each time a batch is handled or processed Product level: Relates to specific products regardless of batches produced or units sold Customer level: Relates to specific customers