Chapter 17: Activity-Based Costing and Analysis (SmartBook Assignment)

Activity cost pools are:

group of costs related to the same activity

The first step in applying activity-based costing is

identifying the activities.

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

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

similar

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

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 $100,000/500 setups=$200.

True or false: The plantwide overhead rate method uses multiple rates to allocate overhead costs to products.

False Reason: The plantwide method uses a single rate to allocate overhead.

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.

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 ($6,000,000-$4,000,000)/50,000 direct labor hours=$40 per direct labor hour.

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 The total is computed as: (35+$20 DLH) x $100=$5,500.

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

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

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

plantwide

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

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

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

List the three steps of activity-based costing in the correct order.

1. Identify the activities and assign costs to cost pools. 2. Compute overhead activity rate for each activity cost p 3. Allocate overhead costs to products.

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 $130,000/1,000,000=$0.13. $0.13x1,500=$195.

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 $250,000/12,500=$20.00. $20.00x25=500.

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

True or false: The usefulness of the single plantwide overhead rate method depends on assuming that overhead costs change with the allocation base and all products use overhead costs in the same proportions.

True

A cost driver is

a factor that causes activity to go up or down.

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

a single product.

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

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

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

activities

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

activities; cost objects

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

ABC can be used by service providers who usually classify costs by

activity level

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

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

The third step in activity-based costing is to

allocate costs to cost objects.

A _____ level activity are those that are performed on each group of units.

batch

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

cost to implement. product cost can be distorted.

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

customer-level

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

departmental

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

departmental method

As it relates to the departmental overhead rate method, when products differ in batch size and complexity, they usually consume _____ amounts of overhead costs.

different

The two main assumptions of the departmental overhead rate method include:

different products are similar in volume, complexity and batch size departmental overhead costs are proportional to the departmental allocation base

The main advantage of the plantwide overhead rate method is:

it is easy to implement

The plantwide and departmental overhead rate methods are based on readily available information such as direct ____ hours or _____ hours

labor machine

Select all answers which apply. The plantwide overhead rate can be based on:

machine hours direct labor hours

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

number of direct labor hours

Under the plantwide overhead rate method, total budgeted overhead costs are divided by the chosen allocation base to determine the

one overhead cost rate

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

overhead

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.

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

pool

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

supervisor hours

The departmental overhead rate method allows individual departments to have

their own overhead rate and allocation base.

In the _____ stage of activity-based costing, overhead allocation rate is determined for each activity.

third

Activities which are focused at the unit level are called

unit level activities

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

unit of product