ARE 119 Ch 5
When "available time" (i.e., setup-hours) is used to calculate a cost of a resource and to allocate costs to cost objects , the system is called:
time-driven activity based costing
The goal of a properly constructed ABC system is to ________.
develop the best cost system that meets the cost/benefit test
For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what would be the best allocation base for human resource adminstration costs?
direct labor hours
Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.
establish a cause-and-effect relationship with the activities performed
________ costs support the organization as a whole.
Facility-sustaining
Which of the following is a sign that an ABC system may be useful for an organization?
Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.
The fundamental cost objects of ABC are ________.
activities
A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________.
can be used to eliminate nonvalue-added activities
Demand for refinements to the costing system has accelerated due to ________.
competition in product markets
Activity-based costing information can be used for ________.
pricing decisions
Overcosting a particular product may result in:
pricing the product too high
It only makes sense to implement an ABC system when ________.
its benefits exceed its implementation costs
High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,850 17,750 Number of employees 1,120 500 Sales $320,000 $1,740,000 If advertising expense of $432,600 is allocated on the basis of sales, the cost per cost driver rate would be ________.
$0.21 per dollar of sales
Which of the following statements is true of a peanut-butter costing system?
A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects.
Which of the following statements about ABC is not true?
ABC should be implemented solely by the accountants as they are the guardians of the accounting information system
Which of the following statements is true of ABC systems?
ABC system employs multiple activity-cost drivers.
Which of the following statements is true of ABC systems?
ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies.
Which of the following statements is true of costing systems?
ABC systems classify some indirect costs as direct costs helping to improve processes
Which of the following statements is true of ABC systems?
ABC systems provide valuable information to managers beyond accurate product costs.
________ is considered while choosing a cost allocation base for activity costs in ABC costing.
Availability of reliable data and measures
Given this change in the cost structure ________.
The costing results for chess pieces under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system.
ABC systems create ________.
homogeneous activity-related cost pools
ABC systems help managers to ________.
identify new designs to reduce costs
Refining a cost system involves which of the following?
identifying the activities involved in a process and understanding how those activities consume resources
Which of the following ordering of the levels best depicts the cost hierarchy within an ABC system?
output unit-level, batch-level, product-sustaining level, and facility-sustaining level
Excellent Printing has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2018, Excellent Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $ 120,000 200 design changes Setups 640,000 4,000 setups Inspections 80,000 16,000 inspections Total manufacturing overhead costs $840,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 60,000 76,000 Design changes 10 2 Setups 20 10 Inspections 30 38 When costs are assigned using the single cost driver, number of pages printed, then Hospital Systems ________.
will likely seek to do business with competitors
Which of the following is true of refinement of a costing system?
It reduces the use of broad averages for assigning the cost of resources to cost objects.
Johnson Superior Products Inc. produces hospital equipment and the setup requirements vary from product to product. Johnson produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution costs are pooled together. Costs in this pool are allocated using number of customer orders for the easiness of costing operations. Based on the information provided, which of the following arguments is valid?
Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.
Extracts from cost information of Hebar Corp.: Simple L3 Pack Complex L7 Pack Total Setup cost allocated using direct labor-hours $19,250 $5,750 $25,000 Setup cost allocated using setup-hours $13,400 $11,600 $25,000 Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours. Which of the following statements is true of Hebar's setup costs under traditional costing?
L3 pack is overcosted by $5,850
________ is an example of an output unit-level cost in the cost hierarchy.
Machine depreciation
With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.
undercosted
It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________.
product-pricing errors are minimal
Which of the following cost and cost allocation base have a strong cause and effect relationship?
quality control costs and the number of inspections
The following conditions with departmental indirect-cost rates will result in allocation of costs similar to ABC costing except:
several activities cause a sizable portion of the costs of the department
Facility-sustaining costs are the costs of activities ________.
that managers cannot trace to individual products or services but that support the organization as a whole
One reason for assigning selling and distribution costs to products for analytical purposes is ________.
to ensure that all costs are considered
Management accountants use the cost hierarchy to first calculate the ________.
total costs of each product and then they compute per-unit costs
Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $900,000 for an annual production capacity of 10 million pages. For 2018, Xylon decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $190,000 200 design changes Setups 550,000 5,000 setups Inspections 160,000 16,000 inspections Total manufacturing overhead costs $900,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 70,000 86,000 Design changes 15 7 Setups 18 8 Inspections 25 63 If manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity, what is the cost driver rate? (Round the final answer to three decimal places.)
$0.09 per page
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $1,500,000 for an annual production capacity of 10 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $100,000 400 design changes Setups 1,300,000 3,000 setups Inspections 100,000 10,000 inspections Total manufacturing overhead costs $1,500,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 90,000 106,000 Design changes 13 0 Setups 18 8 Inspections 30 38 What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity?
$0.15 per page
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 880 410 Number of employees 105 50 Sales $760,000 $380,000 If advertising expense of $456,000 is allocated on the basis of sales, the cost per cost driver rate would be ________.
$0.40
Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $474,000 Direct labor-hours 790,000 Machine maintenance $147,200 Machine-hours 920,000 Facility rent $243,000 Square feet of area 135,000 Total overhead costs $864,200 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 240 Machine-hours 1,700 Square feet of area 50 If Nile Corp. uses the three activity cost pools to allocate overhead costs, what are the activity-cost driver rates for supervision of direct labor, machine maintenance, and facility rent, respectively?
$0.60 per dlh; $0.16 per mh; $1.80 per sq ft
Milan Manufacturing Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $539,000 Direct labor-hours 920,000 Machine maintenance $120,000 Machine-hours 1,000,000 Facility rent $215,000 Square feet of area 160,000 Total overhead costs $874,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 300 Machine-hours 1,675 Square feet of area 70 If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for Milan?
$0.95 per direct labor-hour
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 180,000 units 24,000 units Selling price $20.00 $29.00 Direct material $1.80 $ 5.00 Direct labor $4.70 $ 7.20 Manufacturing overhead $6.00 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $4.30 $ 7.00 Operating profit $3.20 $ 6.80 Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Activity Activity cost Activity-cost driver Supervision $97,200 Direct labor hours (DLH) Inspection $164,050 Inspections Activities demanded T-SHIRTS SWEATSHIRTS 0.25 DLH/unit 1.50 DLH/unit 45,000 DLHs 36,000 DLHs 80,000 inspections 16,500 inspections Under the revised ABC system, the activity-cost driver rate for the supervision activity is ________.
$1.2
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 64,000 units 40,000 units Selling price $16.00 $29.00 Direct material $2.50 $ 5.00 Direct labor $4.30 $ 7.20 Manufacturing overhead $1.70 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $4.30 $ 7.00 Operating profit $3.20 $ 6.80 Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Activity Activity cost Activity-cost driver Supervision $107,520 Direct labor hours (DLH) Inspection $70,200 Inspections Activities demanded T-SHIRTS SWEATSHIRTS 0.75 DLH/unit 1.20 DLH/unit 48,000 DLHs 48,000 DLHs 40,000 inspections 18,500 inspections Under the revised ABC system, overhead costs per unit for the Sweatshirts will be ________. (Do not round interim calculations. Round the final answer to the nearest cent)
$1.90 per unit
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 900 480 Number of employees 110 75 Sales $720,000 $380,000 If the facility lease expense of $380,000 is allocated on the basis of vehicles in the fleet, the amount allocated to the Truck Rental Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$132,174
High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,850 17,200 Number of employees 1,180 460 Sales $300,000 $1,790,000 If total rent expense of $144,300 is allocated on the basis of square footage, the amount allocated to the Large Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$103,200
Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $390,000 13,000 hours Account billing $275,000 5,000,000 lines Account verification accounts $130,500 60,000 accounts Correspondence letters $22,000 4,000 letters Total costs $817,500 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,500 hours 4,000 hours Account billing lines 800,000 lines 650,000 lines Account verification accounts 9,000 accounts 7,000 accounts Correspondence letters 2,000 letters 2,400 letters How much of correspondence costs will be assigned to Department A?
$11,000
North Street Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 20 5 720 Deluxe 29 17 460 Overhead costs $17,150 $19,800 Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$11,500
Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Cost driver Allocation Rate Material handling Number of parts $2 per part Assembly Labor hours $10 per hour Inspection Time at inspection station $20 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $600 per labor hour. What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 460 parts, 5 direct manufacturing labor hours, and 18 minutes of inspection time.
$13.30 per remote control
North Street Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 17 6 710 Deluxe 27 18 420 Overhead costs $15,400 $22,560 Assume a traditional costing system applies the $37,960 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the deluxe model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$14,109
Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $384,000 8,000 hours Gas $40,000 4,000 gallons Invoices $40,000 2,500 invoices Total costs $464,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 2,800 hours 1,500 hours 3,700 hours Gas 1,800 gallons 900 gallons 1,300 gallons Invoices 1,400 invoices 300 invoices 800 invoices How much of the total costs will be assigned to the Lawn Department?
$174,800
High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,550 17,300 Number of employees 1,080 470 Sales $330,000 $1,700,000 If total rent expense of $71,550 is allocated on the basis of square footage, the amount allocated to the Small Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$19,650
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $1,800,000 for an annual production capacity of 20 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $200,000 400 design changes Setups 1,550,000 2,000 setups Inspections 50,000 11,000 inspections Total manufacturing overhead costs $1,800,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 80,000 96,000 Design changes 13 0 Setups 18 8 Inspections 29 37 Using the three cost pools to allocate overhead costs, what is the total manufacturing overhead cost estimate for Money Managers during 2018? (Do not round interim calculations. Round the final answer to the nearest cent.)
$20,581.82
Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $750,000 15,000 hours Account billing $250,000 5,000,000 lines Account verification accounts $173,250 70,000 accounts Correspondence letters $42,000 7,000 letters Total costs $1,215,250 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,000 hours 3,500 hours Account billing lines 900,000 lines 750,000 lines Account verification accounts 9,000 accounts 7,000 accounts Correspondence letters 1,200 letters 1,600 letters How much of the total costs will be assigned to Department B?
$239,425
Milan Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $624,000 Direct labor-hours 940,000 Machine maintenance $100,000 Machine-hours 840,000 Facility rent $216,000 Square feet of area 140,000 Total overhead costs $940,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 290 Machine-hours 1,681.68 Square feet of area 50 Under activity-based costing, what is the amount of machine maintenance costs allocated to the Mossman Job? (Do not round any intermediary calculations.)
$200.20
High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,600 17,350 Number of employees 1,030 510 Sales $350,000 $1,750,000 If total payroll processing costs of $64,680 are allocated on the basis of number of employees, the amount allocated to the Large Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$21,420
North Street Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 17 7 720 Deluxe 33 12 410 Overhead costs $16,000 $18,050 Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the deluxe model?
$21,960
Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $320,000 16,000 hours Account billing $220,000 4,000,000 lines Account verification accounts $182,000 80,000 accounts Correspondence letters $25,000 4,000 letters Total costs $747,000 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,200 hours 3,700 hours Account billing lines 600,000 lines 450,000 lines Account verification accounts 5,000 accounts 3,000 accounts Correspondence letters 1,000 letters 1,400 letters How much of the account billing cost will be assigned to Department B?
$24,750
High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,550 17,600 Number of employees 1,040 400 Sales $350,000 $1,740,000 If total payroll processing costs of $34,560 are allocated on the basis of number of employees, the amount allocated to the Small Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$24,960
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 870 460 Number of employees 125 55 Sales $720,000 $380,000 If the facility lease expense of $381,000 is allocated on the basis of vehicles in the fleet, the amount allocated to the Car Rental Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$249,226
Dartmouth Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 17 6 790 Deluxe 31 15 400 Overhead costs $18,240 $21,000 Assume a traditional costing system applies the $39,240 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$26,050
Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $420,000 14,000 hours Account billing $225,000 5,000,000 lines Account verification accounts $95,000 40,000 accounts Correspondence letters $46,000 8,000 letters Total costs $786,000 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,900 hours 4,400 hours Account billing lines 600,000 lines 450,000 lines Account verification accounts 12,000 accounts 10,000 accounts Correspondence letters 1,800 letters 2,200 letters How much of account verification costs will be assigned to Department A?
$28,500
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $600,000 for an annual production capacity of 12 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $120,000 500 design changes Setups 380,000 4,000 setups Inspections 100,000 9,000 inspections Total manufacturing overhead costs $600,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 70,000 86,000 Design changes 12 0 Setups 17 7 Inspections 26 34 Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Money Managers during 2018?
$3,500
Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $352,000 8,000 hours Gas $8,000 4,000 gallons Invoices $110,000 5,500 invoices Total costs $470,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 3,200 hours 1,200 hours 3,600 hours Gas 1,900 gallons 900 gallons 1,200 gallons Invoices 1,500 invoices 300 invoices 3,700 invoices How much of the gas cost will be assigned to the Lawn Department?
$3,800
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 204,000 units 34,000 units Selling price $18.00 $29.00 Direct material $1.60 $ 5.00 Direct labor $4.30 $ 7.20 Manufacturing overhead $4.60 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $3.50 $ 7.00 Operating profit $4.00 $ 6.80 Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Activity Activity cost Activity-cost driver Supervision $130,560 Direct labor hours (DLH) Inspection $69,300 Inspections Activities demanded T-SHIRTS SWEATSHIRTS 0.25 DLH/unit 1.50 DLH/unit 51,000 DLHs 51,000 DLHs 30,000 inspections 19,500 inspections Using an ABC system, next year's estimates show manufacturing overhead costs will total $227,300 for 46,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is ________. (Round the final answer to the nearest whole cent.)
$3.66 per t-shirt
Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $490,000 10,000 hours Gas $18,000 3,000 gallons Invoices $56,000 3,500 invoices Total costs $564,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 2,800 hours 1,400 hours 5,800 hours Gas 1,800 gallons 900 gallons 300 gallons Invoices 1,600 invoices 300 invoices 1,600 invoices How much of the total cost will be assigned to the Plowing Department?
$311,600
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 900 460 Number of employees 145 55 Sales $700,000 $390,000 If administrative expense of $62,800.00 is allocated on the basis of number of employees, the cost per cost driver rate would be ________.
$314.00
Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $336,000 8,000 hours Gas $84,000 7,000 gallons Invoices $180,000 7,500 invoices Total costs $600,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 3,100 hours 1,500 hours 3,400 hours Gas 1,900 gallons 900 gallons 4,200 gallons Invoices 1,300 invoices 400 invoices 5,800 invoices If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate?
$33.00 per hour
Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $304,000 Direct labor-hours 760,000 Machine maintenance $153,600 Machine-hours 960,000 Facility rent $165,000 Square feet of area 110,000 Total overhead costs $622,600 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 260 Machine-hours 1,500 Square feet of area 70 Using the three cost pools to allocate overhead costs, what is the total amount of overhead costs to be allocated to the Mossman Job?
$449.00
Answer the following questions using the information below: Eagle Eye Company produces two types of lenses-L7 and L9. Single Indirect-Cost Pool System ABC System Total direct costs $77,000 $50,000 Total indirect costs $37,000 (a) Total costs assigned to L7 $68,000 $50,500 Total costs assigned to L9 (b) $32,500 What is the total costs assigned to L9 (b) under single indirect-cost pool system?
$46,000
Canton Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Cost Pool Overhead Costs Activity-cost driver Materials handling $46,000 94,000 orders Machine maintenance $310,000 20,000 maintenance hours Setups $261,000 45,000 setups Inspections $132,370 21,700 inspections Total support costs $749,370 Production Estimates Production units: Regular = 8,000,000 units Jumbo = 16,000,000 units Machine-hours = 500,000 mh Labor-hours = 1,000,000 dlh Expected direct costs amounts to $942,000 for the period. Support cost requirements of both products are substantially different from one another. Canton uses an ABC costing system. The setups activity-cost driver rate is ________.
$5.80 per setup
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 880 450 Number of employees 125 60 Sales $700,000 $395,000 If administrative expense of $77,500 is allocated on the basis of number of employees, the amount allocated to the Car Rental Department would be ________.
$52,364.86
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 192,000 units 24,000 units Selling price $17.00 $29.00 Direct material $1.70 $ 5.00 Direct labor $4.30 $ 7.20 Manufacturing overhead $3.50 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $4.10 $ 7.00 Operating profit $3.40 $ 6.80 Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Activity Activity cost Activity-cost driver Supervision $123,480 Direct labor hours (DLH) Inspection $104,800 Inspections Activities demanded T-SHIRTS SWEATSHIRTS 0.25 DLH/unit 1.50 DLH/unit 48,000 DLHs 36,000 DLHs 50,000 inspections 15,500 inspections Under the revised ABC system, supervision costs allocated to Sweatshirts will be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$52,920
High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,700 17,750 Number of employees 1,000 410 Sales $370,000 $1,800,000 If total advertising expense of $629,300 is allocated on the basis of sales, the amount allocated to the Large Department would be ________.
$522,000
Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $320,000 16,000 hours Account billing $200,000 4,000,000 lines Account verification accounts $173,250 70,000 accounts Correspondence letters $24,000 4,000 letters Total costs $717,250 The above activities are used by Departments A and B as follows:
$54,000
Answer the following questions using the information below: Eagle Eye Company produces two types of lenses-L7 and L9. Single Indirect-Cost Pool System ABC System Total direct costs $78,500 $53,000 Total indirect costs $32,500 (a) Total costs assigned to L7 $68,000 $58,500 Total costs assigned to L9 (b) $55,500 What is the total indirect costs (a) under ABC system?
$58,000
Canton's Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Cost Pool Overhead Costs Activity-cost driver Materials handling $42,000 96,000 orders Machine maintenance $360,000 16,000 maintenance hours Setups $236,600 45,500 setups Inspections $135,780 21,900 inspections Total support costs $774,380 Production Estimates Production units: Regular = 11,000,000 units Jumbo = 22,000,000 units Machine-hours = 300,000 mh Labor-hours = 600,000 dlh Expected direct costs amounts to $928,000 for the period. Support cost requirements of both products are substantially different from one another. Canton's uses an ABC costing system. The inspections activity-cost driver rate is ________.
$6.20
Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity?
$6.25
Dartmouth Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 18 9 275 Deluxe 32 14 215 Overhead costs $75,000 $87,400 Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead costs assigned to the standard model?
$61,200
Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $392,000 8,000 hours Gas $30,000 5,000 gallons Invoices $180,000 7,500 invoices Total costs $602,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 2,600 hours 1,300 hours 4,100 hours Gas 1,800 gallons 1,000 gallons 2,200 gallons Invoices 1,600 invoices 100 invoices 5,800 invoices How much of the labor cost will be assigned to the Bush Department?
$63,700
Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Cost driver Allocation Rate Material handling Number of parts $5 per part Assembly Labor hours $20 per hour Inspection Time at inspection station $10 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $20 per labor hour. What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 10 remote controls are produced? The batch requires 100 parts, 5 direct manufacturing labor hours, and 3 minutes of inspection time.
$63.00 per remote control
Dartmouth Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 11 5 265 Deluxe 35 15 200 Overhead costs $82,800 $74,000 Assume a traditional costing system applies the overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the deluxe model?
$67,441
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 72,000 units 26,250 units Selling price $15.00 $29.00 Direct material $1.50 $ 5.00 Direct labor $4.20 $ 7.20 Manufacturing overhead $1.80 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $3.60 $ 7.00 Operating profit $3.90 $ 6.80 Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Activity Activity cost Activity-cost driver Supervision $108,480 Direct labor hours (DLH) Inspection $93,000 Inspections Activities demanded T-SHIRTS SWEATSHIRTS 0.75 DLH/unit 1.60 DLH/unit 54,000 DLHs 42,000 DLHs 60,000 inspections 17,500 inspections Under the revised ABC system, total overhead costs allocated to Sweatshirts will be ________.
$68,460
Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $384,000 8,000 hours Gas $36,000 6,000 gallons Invoices $180,000 7,500 invoices Total costs $600,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 2,500 hours 1,400 hours 4,100 hours Gas 1,800 gallons 1,000 gallons 3,200 gallons Invoices 1,300 invoices 300 invoices 5,900 invoices How much of invoice cost will be assigned to the Bush Department?
$7,200
Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $940,000 for an annual production capacity of 10 million pages. For 2018, Xylon decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $160,000 500 design changes Setups 692,000 2,000 setups Inspections 88,000 8,000 inspections Total manufacturing overhead costs $940,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 70,000 86,000 Design changes 11 3 Setups 19 9 Inspections 26 64 Under ABC costing, what is the inspection cost allocated to Hospital Systems?
$704
Comfort Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 18 6 265 Deluxe 29 12 200 Overhead costs $61,100 $64,800 Assume a traditional costing system applies the overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$71,749
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $1,760,000 for an annual production capacity of 16 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $160,000 200 design changes Setups 1,530,000 5,000 setups Inspections 70,000 7,000 inspections Total manufacturing overhead costs $1,760,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 60,000 76,000 Design changes 14 0 Setups 16 6 Inspections 25 33 Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools
$800.00 per change, $306.00 per setup, $10.00 per inspection
Dartmouth Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 11 6 295 Deluxe 29 13 205 Overhead costs $60,000 $58,900 Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead costs assigned to the deluxe model?
$83,800
Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $280,000 14,000 hours Account billing $350,000 7,000,000 lines Account verification accounts $93,750 50,000 accounts Correspondence letters $29,000 4,000 letters Total costs $752,750 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,100 hours 3,600 hours Account billing lines 500,000 lines 350,000 lines Account verification accounts 7,000 accounts 5,000 accounts Correspondence letters 1,200 letters 1,600 letters How much of the total costs will be assigned to Department A?
$88,825
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 830 460 Number of employees 120 70 Sales $720,000 $370,000 If advertising expense of $140,000 is allocated on the basis of sales, the amount allocated to the Car Rental Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)
$92,477.06
Which of the following reasons explain why ABC concepts may be of great value to service companies?
A significant portion of the cost structure of a service firm is composed of indirect costs
Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Cost driver Allocation Rate Material handling Number of parts $1 per part Assembly Labor hours $20 per hour Inspection Time at inspection station $10 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour. Nichols' management is considering to implement ABC system because ________.
ABC system is a highly refined costing system
Which of the following statements is true of activity-based costing?
Activity based costing is more suited to companies with high product diversity than companies with single product line.
Which of the following is a sign that an ABC system will provide benefits?
All or most indirect costs are treated as output-unit level costs.
Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua?
Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
Advanced Technology Products produces 10 different fastners. Each time a type of fastener is produced, the equipment must be stopped and items such as filters and drill bits must be changed, oil must be added to the equipment and some parts need lubrication. This work must be done before the products can be produced, the costs related to this activity would be part of which cost pool?
Batch-level costs
Put the following ABC implementation steps in order ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases.
CDAB
Canton's Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Cost Pool Overhead Costs Activity-cost driver Materials handling $43,000 98,000 orders Machine maintenance $400,000 15,000 maintenance hours Setups $269,630 45,700 setups Inspections $144,840 21,300 inspections Total support costs $857,470 Production Estimates Production units: Regular = 11,000,000 units Jumbo = 22,000,000 units Machine-hours = 600,000 mh Labor-hours = 1,200,000 dlh Expected direct costs amounts to $9,130,000 for the period. Support cost requirements of both products are substantially different from one another. Canton uses an ABC costing system. Which of the following statements is true of implementing an ABC system?
Identifying the cost-allocation bases defines the number of activity pools into which costs must be grouped in an ABC system.
Excellent Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2018 Excellent Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $ 120,000 300 design changes Setups 640,000 5,000 setups Inspections 80,000 8,000 inspections Total manufacturing overhead costs $840,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 60,000 76,000 Design changes 10 0 Setups 20 10 Inspections 30 38 When costs are assigned using the single cost driver, number of pages printed, then ________.
Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed
Canton Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Cost Pool Overhead Costs Activity-cost driver Materials handling $46,000 97,000 orders Machine maintenance $360,000 19,000 maintenance hours Setups $258,780 45,400 setups Inspections $149,800 21,400 inspections Total support costs $814,580 Production Estimates Production units: Regular = 12,000,000 units Jumbo = 24,000,000 units Machine-hours = 400,000 mh Labor-hours = 800,000 dlh Expected direct costs amounts to $927,000 for the period. Support cost requirements of both products are substantially different from one another. Zitriks uses an ABC costing system. Which of the following is true of Canton's overhead costing?
Multiple cost pools are appropriate for Canton's because of diverse support costs.
________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced.
Product-sustaining costs
Which of the following is true with activity based cost accounting?
The focus is on activities that account for a sizable fraction of indirect costs
Which of the following is a reason that has accelerated the demand for refinements to the costing system?
The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.
Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $320,000 Direct labor-hours 800,000 Machine maintenance $120,000 Machine-hours 960,000 Facility rent $200,000 Square feet of area 100,000 Total overhead costs $640,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 200 Machine-hours 1,600 Square feet of area 50 Which method of allocation probably best estimates actual overhead costs used? Why?
Three activity-cost drivers because they best reflect the relative consumption of resources.
Using department indirect-cost rates to allocate costs will result in results similar to ABC if:
a single activity accounts for a sizable portion of the costs of the department
For a company which produce its products in batches, the CEO's salary is a(n) ________ cost.
facility-sustaining
It is usually difficult to find good cost driver (cause-and-effect relationship) between ________ and a cost allocation base.
facility-sustaining costs
Top management compensation cost is an example of ________ in the cost hierarchy.
facility-sustaining costs
Recognizing ABC information is not always perfect because ________.
it balances the need for better information against the costs of creating a complex system
Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs.
indirect
Activity based costing system differs from traditional costing systems in the treatment of ________.
indirect costs
Answer the following questions using the information below: Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. 11) The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of ________.
indirect costs
For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that:
indirect costs of another product are misallocated
Which of the following has accelerated need for refined cost systems?
intense competition
Answer the following questions using the information below: Cannady produces six products. Under their traditional cost system using one cost driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of SR6 was determined to be $178.00 per unit. 9) The total amount of indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC.
less than
For a business that offers customers a store where product can be purchased and picked up or a delivery service that can ship the product directly to the customer, which of the following would most likely be the best cost allocation base for distribution costs?
number of pounds of product shipped or delivered
Lavender Company is a logistics company and has recently implemented ABC system. Using activity-based information, it decides to reduce the bulkiness of the packages delivered, thereby reducing costs. This suggests that ABC system helps managers in ________ decisions.
process-improvement
Given this change in the cost ________.
the costing results for SR6 under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system
ABC and traditional systems are quite similar in ________.
the treatment of direct costs
Using activity-cost rates rather than department indirect-cost rates to allocate costs results in different product costs when ________.
there are several homogeneous cost pools
A single indirect-cost rate distorts product costs because ________.
there is an assumption that all support activities affect all products in a uniform way
Product-cost cross-subsidization means that:
when a company undercosts one of its products, it will overcost at least one of its other products
Activity-based costing is most likely to yield benefits for companies ________.
with complex product design processes that vary significantly from product to product