Managerial Acct Chp 17

manufacturing which focuses on eliminating waste and satisfying customers

lean manufacturing

1 Disadvantages of Plantwide and Departmental overhead rate method

overhead costs are frequently too complex to be explained by only one factor like direct labor hours or machine hours.

The FOUR STEPS process for departmental overhead rate method

1. Assign overhead costs to departmental cost pools. 2. Select an allocation base for each department. 3. Compute overhead allocation rates for each department. 4. Use departmental overhead rates to assign overhead costs to cost objects (products).

List the four steps of activity-based costing in the correct order

1. Identify activities and the overhead costs they cause 2. Trace overhead costs to activity cost pol 3. Compute overhead allocation rates for each activity 4. Use the activity overhead rates to assign overhead costs to cost objects (products)

4 basic steps to the activity based cost method

1. Identify activities and the overhead costs they cause. 2. Trace overhead costs to activity cost pools. 3. Compute overhead allocation rates for each activity. 4. Use the activity overhead rates to assign overhead costs to cost objects (products).

List the three basis of the activity-based costing method

1. Operation 2. Procedure 3. Task

Three methods of overhead allocation

1. The single plantwide overhead rate method 2. The Departmental overhead rate method 3. The activity-based costing method

3 advantages of the plantwide and departmental overhead rate methods.

1. They are based on readily available information, like direct labor hours. 2. They are easy to implement. 3. They are consistent with GAAP and can be used for external reporting.

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

20 x $50 = 1,000 15 x 1,000 = 15,000 1,000 + 15,000 = 16,000 16,000/ 2,000 = $8

Activity-based costing focuses primarily on

Activities

An activity cost pool is a

Collection of costs that are related to an activity

A report which focuses on providing gross profit margin per customer, is referred to as

Customer profitability report

Example of activity-cost pool

Handling raw materials that requires several activities, including wages of receiving department employees, wages of forklift employees who move materials, and deprecation on forklifts.

_____ activities is the first step in applying activity-based costing

Identifying activities

Calculating overhead for single plant wide and departmental.

Times the total number of units by number of direct labor or machine hours. For example, 5,000 number of units x 10 Machine hours per unit = 50,000 MH. Overhead cost is 4,200,000. Now divide 4,200,000/ 50,000. Thats the overhead rate.

Formula for Cost pool activity rate

Overhead cost assigned to pool / Expected activity level

One of the disadvantages of the departmental and the plantwide overhead rate methods is that

Overhead costs are frequently too complex to be explained by only one factor

How to calculate Plantwide overhead allocated to each product unit

Plantwide overhead rate x DLH per unit

Cost Object

Product, process, department, or customer to which costs are assigned.

How to calculate Departmental overhead rate

Total budgeted departmental overhead cost / Total amount of departmental allocation base

In activity-based costing, activities in each cost pool should be

Similar

Activity-Cost Pool

Temporary account that accumulates costs a company incurs to support an activity.

How to calculate Plantwide Overhead Rate

Total budgeted overhead cost / Total budgeted direct labor hours

Formula for Overhead Cost per Unit using Activity based cost

Total overhead cost allocated / units produced

Activity cost driver

Variable that causes an activity's cost to go up or down; a causal factor.

Differences between ABC and using multiple departmental rates include all of the following

a. overhead cost pools are identified differently d. overhead costs are allocated differently