ACCT 202 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

Advantages of the activity-based costing include:

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

Applying a single overhead rate to all products is known as the _____ overhead rate method.

plantwide

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

unit of product

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 $

$1,010,000

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

third

Using a single overhead rate to apply overhead to products is called the

Plantwide overhead rate method.

An activity cost __________ is a group of costs that are related to the same activity.

Pools

A cost driver is

A factor that causes activity to go up or down

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

Departmental

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

Landen Company uses a single plantwide overhead rate based on direct labor hours. Total budgeted overhead costs are $200,000. The 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 Reason: $200,000/80,000=$2.50 per direct labor hour.

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.

$200.00

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 Reason: $850,000/40,000=$21.25.

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?

$25,000 + $10,000 + $15,000 = $50,000.

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 Reason: $2,000,000/50,000 direct labor hours=$40 per direct labor hour.

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 per machine hour Reason: $4,000,000/80,000 machine hours=$50 per machine hour.

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

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

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 pools 2.) select an allocation base and compute overhead allocation rate for each department 3.) allocate overhead costs to cost objects

Activity-based cost systems allocate costs by focusing on ____________.

Activities

The third step in activity-based costing is to

Allocate costs to cost objects

Which of the following are a type of overhead allocation method?

Departmental overhead rate method Plantwide overhead rate method Activity-based costing method

T or F: the plantwide overhead rate method used multiple rates to allocate overhead costs to products.

False

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

A batch level activity will vary with the

Number of batches

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

Overhead

The two assumptions regarding the usefulness of the single plantwide overhead rate methods includes:

Overhead costs change with the allocation base All products use overhead costs in the same proportion

T or F: the departmental overhead rate method uses a 3 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

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

activity

The two assumptions regarding the usefulness of the single plantwide overhead rate method includes:

all products use overhead costs in the same proportion overhead costs change with the allocation base

Activities causing overhead include all of the following:

batch-level unit-level facility-level

A report which focuses on individual customers and shows total profit margin generated by specific customers is known as a ____ profitability report.

customer

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

customer-level

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 main advantage of the plantwide overhead rate method is:

it is easy to implement

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.

Disadvantages of using activity-based costing includes all of the following:

product cost can be distorted. cost to implement.

The plantwide overhead rate method is most appropriate for companies which have

single product

The plantwide overhead rate method can be based on each of the following except

supervisor hours

A departmental overhead rate method allows individual departments to have

their own overhead rate and allocation base.

The departmental overhead rate method allows individual departments to have

their own overhead rate and allocation base.

Activities which are focused at the unit level are called

unit level activities

In activity-based costing, costs are first traced to ____________, activity rates are computed, and then allocated _____________.

Activities ; cost objects

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

Activity

The plantwide and departmental overhead rate methods are based on readily available information such as direct _______________ hours or __________________ hours.

Machine and labor

The plantwide overhead rate can be based on:

Machine hours Direct labor hours

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

T or F: The cost object of the plantwide overhead rate method is the unit of the product.

True