Managerial Accounting- Chapter 17

Phillip Company uses activity-based costing. Phillip Company produces two types of lamps, floor lamps and table lamps. The floor lamp requires 15 setup activities at $60 per setup and 5 design changes at $50 per design. If Phillip Company produces 1,200 floor lamps, what is the total overhead cost per floor lamp? Round your answer to two decimal places.

$0.96 (15 * 60)+(5*50)= 1,150 (1,150/1,200= .9583)

Which of the following are a type of overhead allocation method? (Check all that apply).

- plantwide overhead rate method - activity-based costing method - departmental overhead rate method

_______(Identifying, Assigning,Tracing) activities is the first step in applying activity-based costing.

Identifying

The basic principle of activity-based costing is that a(n) _______is what causes overhead cost to be incurred.

activity

The basis of the activity-based costing method is a(n)

activity

Each of the following are types of ______ allocation methods: plantwide rate method, departmental overhead rate method and activity-based costing method.

overhead

In activity-based costing, activities in each cost pool should be (similar / dissimilar) ______

similar

When using activity-based costing, it is very important that the activities in each cost pool are

similar

A company has the following activities and costs: machine setup of $5,000 per setup and factory services of $100 per square foot. If product 1 uses 2 setups and has 10,000 square feet, overhead allocated to product 1 is $_____

$1,01,000 (10,000 * 100 + 5,000 *2)

The Factory Services Department incurs costs of $130,000 while maintaining machinery that is operated 1,000,000 machine hours. If Job 276 requires 1,500 machine hours, the amount of costs allocated to the job will be $_______

$195 (1,500 * 130,000/ 1,000,000)

In the _________ (third,fourth) stage of activity-based costing, overhead allocation rate is determined for each activity.

third

Landen Company uses a single plantwide overhead rate based on direct labor hours. Total budgeted overhead costs are $200,000. Total budgeted direct materials are $50,000 and total budgeted direct labor hours are 80,000. What is the plantwide overhead rate per direct labor hour?

$2.50 (200,000/80,000= 2.5)

Spring Company uses activity-based costing to allocate their overhead costs. Setup costs of $100,000 are based on number of setups. Factory services of $65,000 are based on square footage. Spring Company has identified 500 setups and has 10,000 square feet in their factory. What is the activity rate for the setup activity cost pool.

$200 (100,000/500=200)

Jackson Company uses activity-based costing to allocate their overhead costs. Setup costs of $850,000 are based on number of batches. Design modification costs of $155,000 are based on number of design changes. Jackson Company has identified 40,000 batches and has 5,000 design changes in their factory. What is the activity rate for setup.

$21.25 (850,000/40,000)

A company uses the departmental overhead rate method. Total overhead costs are $5,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the machining department.

$50.00 (4,000,000/ 80,000= 50)

Mobile Company uses activity-based costing. One of their products, a phone, requires 20 setup activities at $50 per setup and 15 design changes at $1,000 per design. If Mobile Company produces 2,000 phones, what is the total overhead cost per unit?

$8.00 (20x$50)+(15x$1,000)=$16,000. $16,000/2,000=$8.00

Strengths of the departmental overhead rate method and the plantwide overhead method include all of the following:

-They are easy to implement. -They are based on readily available information. -They comply with GAAP.

Activities causing overhead include all of the following:

-facility-level -unit-level -batch-level

Advantages of the activity-based costing include: Check all that apply.

-more effective overhead cost control -accurate assignment of costs to products -better production and pricing decisions

A batch level activity will vary with the

Number of batches

Match the activity to the most appropriate cost driver.

Production- direct labor hours setup-number of setups factory services- square feet design- number of design changes

A ______(unit, batch, product, facility) level activity are those that are performed on each group of units.

batch

All of the following are types of activities which cause overhead except:

customer-level

The ______ overhead rate method uses a different overhead rate per production department.

departmental

A company uses the departmental overhead rate method. Total overhead costs are $6,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the assembly department.

$40 per direct labor hour (2,000,000/ 50,000 = 40)

Landen Company uses a single plantwide overhead rate of $100 per direct labor hour (DLH). Landen has two products as follows: basic chairs which used 20 DLH and deluxe chairs which used 35 DLH. What is the total amount allocated to these products?

$5,500 (35 + 20) * 100

Johnson Company has the following overhead costs: machine setup $25,000; factory services $10,000; design of $15,000; and selling expenses of $5,000. What is the total overhead costs using activity-based costing?

$50,000 (25,000 + 10,000 + 15,000= 50,000)

The departmental overhead rate method allows individual departments to have

their own overhead rate and allocation base.

The plantwide and departmental overhead rate methods are based on readily available information such as direct ______ hour or _________ hours

- labor - machine

The departmental overhead rate method uses a three-step process to allocate cost objects. List these steps in the correct order

1. assign overhead costs to departmental cost pool 2. select an allocation base and compute overhead allocation rate for each department 3. allocate overhead costs to cost objects

The Production Department incurs costs of $250,000 while working 12,500 direct labor hours. If Job 421 requires 25 direct labor hours to assemble, the amount of overhead allocated to the job will be $______

500 (12,500/25= 500)

The overhead rate method which uses a different overhead rate for each department is the

departmental method

in the _________ (first/second) stage of activity-based costing the activities and overhead costs are identified.

first

The first step in applying activity-based costing is

identifying the activities.

One of the characteristics of activity-based costing is that it allows ________ (more, less) effective control over costs.

more

If a company uses activity-based costing, the most appropriate cost driver for the production department would be the:

number of direct labor hours

The weakness of the departmental and the plantwide overhead rate methods is that

overhead cost is often too complex to be explained by direct labor hours or machine hours.

True or false: One of the advantages of the departmental overhead rate method over the plantwide overhead rate method is that in the departmental overhead rate method, individual departments can have their own overhead rate and allocation base.

true

True or false: The cost object of the plantwide overhead rate method is the unit of product.

true

True or false: The departmental overhead rate method uses a three-step process where costs are assigned to cost pools in the first step and overhead is allocated to cost objects in the last step.

true

_______(Unit, Batch, Product) activities are performed on each product unit.

unit

The cost object of the cost assignment under the plantwide overhead rate method is the

unit of production

Activities which are focused at the unit level are called

unit- level activities