Chapter 4

Product costs consist of all of the following except

dividends.

The total factory overhead for Magnum Corporation is budgeted for the year at $500,000. This is divided into three activity pools: fabrication, $246,000; assembly, $144,000, and setup, $110,000. Magnum manufactures two types of kayaks: Basic and Deluxe. The activity-based usage quantities for each project by activity is as follows: Fabrication Assembly Setup Basic 2,000 dlh 8,000 dlh 5 setups Deluxe 10,000 dlh 24,000 dlh 15 setups Total activity-base usage 12,000 dlh 32,000 dlh 20 setups Each product is budgeted for 2,500 units of production for the year. What is the activity-based factory overhead per unit for the Deluxe kayak?

$158.20 Activity rates are calculated by dividing the budgeted activity cost by the total activity-base usage. The factory overhead costs are allocated to products by multiplying the activity-base usage by the activity rate. Fabrication: $246,000 / 12,000 dlh =$20.50 per dlh Assembly: $144,000 / 32,000 dlh =$4.50 per dlh Setup: $110,000 / 20 setups =$5,500 per setup Deluxe Kayak:10,000 dlh × $20.50 per hour =$205,000 24,000 dlh × $4.50 per hour =108,000 15 setups × $5,500 per setup =82,500 Total allocation $395,500 Per unit overhead = $395,500 / 2,500 units = $158.20

Coastal Bank uses activity-based costing to determine the cost of servicing customers. There are three activity pools: teller transaction processing ($2. 80 per teller transaction), check processing ($0. 25 per canceled check), and ATM transaction processing ($0. 20 per ATM transaction).Jacki Marshall had 4 teller transactions, 12 canceled checks, and 9 ATM transactions during the month. Determine the total monthly activity-based cost for Jacki Marshall during the month.

$16.00 Total activity costs are determined by multiplying the activity-base usage by the activity rate. Teller transactions (4 × $2.80) =$11.20 Check processing (12 × $0.25) =3.00 ATM transactions (9 × $0.20) =1.80 $16.00

Ranada Company manufactures and sells sportswear products. Ranada uses activity-based costing to determine the cost of the customer return processing and the shipping activity. The customer return processing activity has an activity rate of $45 per return, and the shipping activity has an activity rate of $10 per shipment. Ranada shipped 3,000 units of Product 1 in 1,200 shipments (some shipments are more than one unit). There were 150 returns. Determine the total activity costs for the return and shipping activities of Product 1.

$18,750 Total activity costs are determined by multiplying the activity-base usage by the activity rate.

The total factory overhead for Martin Company is budgeted for the year at $375,000. Martin manufactures two garden products: a leaf blower and a garden wagon. These products each require four direct labor hours (dlh) to manufacture. Each product is budgeted for 2,500 units of production for the year. Determine the single plantwide factory overhead rate.

$18.75 per dlh Single plantwide factory overhead rate is calculated as total budgeted factory overhead divided by total budgeted plantwide allocation base. 2,500 units × 4 dlh =10,000 dlh leaf blower 2,500 units × 4 dlh =10,000 dlh garden wagon 20,000 dlh $375,000 / 20,000 dlh = $18.75

Sebastian Company manufactures and sells sportswear products. Sebastian uses activity-based costing to determine the cost of the customer return processing and the shipping activity. The customer return processing activity has an activity rate of $60 per return, and the shipping activity has an activity rate of $20 per shipment. Sebastian shipped 4,000 units of Product 1 in 800 shipments (some shipments are more than one unit). There were 90 returns. Determine the total activity costs for the return and shipping activities of Product 1.

$21,400 Total activity costs are determined by multiplying the activity-base usage by the activity rate. Return activities: 90 returns × $60 per return =$5,400 Shipping activities:800 shipments × $20 per shipment =16,000 Total activity cost $21,400

The Lazy Pelican Resort uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in ($9. 00 per guest visit), room cleaning ($21. 75 per day), and room service ($3. 25 per order, not including food).Gregory Petricoff visited the hotel for a 9-day stay. He used room service 2 times during his stay. Determine the total activity-based cost for Petricoff's visit.

$211.25 Total activity costs are determined by multiplying the activity-base usage by the activity rate. Check-in $9.00 Room cleaning (9 × $21.75) =195.75 Room service (2 × $3.25) =6.50 $211.25

The total factory overhead for Norton Company is budgeted for the year at $300,000, divided into three activities: assembly, $200,000; setup, $50,000; and materials handling, $150,000. Norton manufactures two products: Product A and Product B. The activity-based usage quantities for each product by each activity are estimated as follows: Assembly Setup Materials Handling Product A 5,000 dlh 60 setups 25 moves Product B 15,000 dlh 110 setups 250 moves Total activity-base usage 20,000 dlh 170 setups 275 moves Determine the activity rate for the setup activity (round to nearest dollar).

$294 per setup Activity rates are calculated by dividing the budgeted activity cost by the total activity-base usage. $50,000 / 170 setups = $294 per setup

The Flowering Desert Hotel uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in ($8. 50 per guest visit), room cleaning ($21. 00 per day), and room service ($3. 00 per order, not including food).Martin Hemphill visited the hotel for a two-week stay. He used room service 10 times during his stay. Determine the total activity-based cost for Hemphill's visit.

$332.50 Total activity costs are determined by multiplying the activity-base usage by the activity rate. Check-in$8.50 Room cleaning (14 × $21.00) =294.00 Room service (10 × $3.00) =30.00 $332.50

The total factory overhead for Landen Company is budgeted for the year at $675,000. Landen manufactures two drapery products: sheer curtains and insulated curtains. These products each require six direct labor hours (dlh) to manufacture. Each product is budgeted for 7,500 units of production for the year. Determine the factory overhead allocated per unit for insulated curtains using the single plantwide factory overhead rate.

$45.00 Single plantwide factory overhead rate is calculated as total budgeted factory overhead divided by total budgeted plantwide allocation base. The overhead rate is then multiplied by the dhls for each product individually. 7,500 units × 6 dlh =45,000 dlh sheer curtains 7,500 units × 6 dlh = 45,000 dlh insulated curtains 90,000 dlh $675,000 / 90,000 dlh = $7.50 per dlh $7.50 per dlh × 6 hours = $45.00 allocated per insulated curtain

Ranada Company manufactures and sells sportswear products. Ranada uses activity-based costing to determine the cost of the customer return processing and the shipping activity. The customer return processing activity has an activity rate of $45 per return, and the shipping activity has an activity rate of $10 per shipment. Ranada shipped 3,000 units of Product 1 in 1,200 shipments (some shipments are more than one unit). There were 150 returns. Determine the per-unit customer costs for combined shipping and returns of Product 1.

$6.25 per unit Total activity costs are determined by multiplying the activity-base usage by the activity rate. The total cost can then be divided by total units to determine per unit cost. Return activities:150 returns × $45 per return =$6,750 Shipping activities:1,200 shipments × $10 per shipment =12,000 Total activity cost$18,750 $18,750 / 3,000 units = $6.25 per unit

The total factory overhead for Rowland Company is budgeted for the year at $652,000 and divided into two departments: Fabrication $460,000 and Assembly $192,000. Rowland manufactures two products: treadmills and weight machines. Each treadmill requires 3 direct labor hours in Fabrication and 1 direct labor hour in Assembly. Each weight machine requires 2 direct labor hours in Fabrication and 5 direct labor hours in Assembly. Each product is budgeted for 4,000 units of production for the year. Determine the factory overhead allocated per unit for each weight machine, using the department factory overhead allocation rates.

$86.00 A department factory overhead rate is calculated as budgeted department factory overhead divided by budgeted department allocation base. The overhead rate is then multiplied by the dhls for each product individually. Fabrication dlh (4,000 treadmills × 3 dlh) + (4,000 weight machines × 2 dlh) = 20,000 dlh $460,000 / 20,000 dlh = $23 per dlh Assembly dlh (4,000 treadmills × 1 dlh) + (4,000 weight machines × 5 dlh) =24,000 dlh $192,000 / 24,000 dlh = $8 per dlh Weight Machine: Fabrication: 2 dlh × $23 per dlh =$46 Assembly: 5 dlh × $8 per dlh =40 Allocation per unit$86

The total factory overhead for Martin Company is budgeted for the year at $375,000. Martin manufactures two garden products: a leaf blower and a garden wagon. These products each require four direct labor hours (dlh) to manufacture. Each product is budgeted for 2,500 units of production for the year. Determine the total number of budgeted direct labor hours for the year.

20,000 dlh Budgeted direct labor hours is calculated by multiplying planned production in units times direct labor hours per unit for each product. 2,500 units × 4 dlh = 10,000 dlh leaf blower 2,500 units × 4 dlh =10,000 dlh garden wagon 20,000 dlh

The total factory overhead for Rowland Company is budgeted for the year at $652,000 and divided into two departments: Fabrication $460,000 and Assembly $192,000. Rowland manufactures two products: treadmills and weight machines. Each treadmill requires 3 direct labor hours in Fabrication and 1 direct labor hour in Assembly. Each weight machine requires 2 direct labor hours in Fabrication and 5 direct labor hours in Assembly. Each product is budgeted for 4,000 units of production for the year. Determine the total number of budgeted direct labor hours for the year in the Assembly Department.

24,000 dlh Budgeted direct labor hours is calculated by multiplying planned production in units times direct labor hours per unit for each product. Assembly: (4,000 treadmills × 1 dlh) + (4,000 weight machines × 5 dlh) = 24,000 dlh

The total factory overhead for Simmons Company is budgeted for the year at $450,000 and divided into two departments: Fabrication $315,000 and Assembly $135,000. Simmons manufactures two products: chairs and tables. Each chair requires 1 direct labor hour in Fabrication and 3 direct labor hours in Assembly. Each table requires 3 direct labor hours in Fabrication and 6 direct labor hours in Assembly. Each product is budgeted for 3,750 units of production for the year. Determine the total number of budgeted direct labor hours (dlh) for the year in the Assembly Department.

33,750 dlh Budgeted direct labor hours is calculated by multiplying planned production in units times direct labor hours per unit for each product. Assembly: (3,750 chairs × 3 dlh) + (3,750 tables × 6 dlh) = 33,750 dlh.

Jason's Outdoors manufactures two products: snow skis and water skis. Jason's managerial accountant suspects that product cost distortion through factory overhead allocation is occurring where snow skis are underpriced and water skis are overpriced. As a result, all of the following statements are true except

Jason's accountant should consider a single plantwide rate to correct the problem.

Which of the following is a common method of allocating factory overhead costs to products?

Multiple production department factory overhead rate method

Which of the following is true regarding quality control inspections?

a.Inspection requires product tear down. b.Inspection requires product reassembly. c.Neither of these choices are required. d.Both of these choices are required. D

All of the following are true with regards to activity-based costing for service businesses except

activity-based costing is not applicable to service businesses.

Single plantwide factory overhead rate is calculated

as total budgeted factory overhead divided by total budgeted plantwide allocation base.

Activity rates are calculated by

dividing the budgeted activity cost by the total activity-base usage.

Factory overhead includes

indirect costs that must be allocated to the product.

The ____________________ uses different rates for each production department to allocate factory overhead costs to products.

multiple production department factory overhead rate method