chp.7- acis 2116
Which of the following does not describe a difference between activity-based costing (ABC) and traditional absorption costing?
ABC usually excludes manufacturing overhead from its calculations whereas traditional absorption costing includes it.
Activity-based costing (ABC) is a costing method that provides managers with cost information for
strategic and other decisions that potentially affect capacity and therefore "fixed" as well as variable costs
Assume a company's activity-based costing system included three expenses: vehicle operating expenses. $300,000; vehicle depreciation, $140,000; and customer service salaries , $180,000. These costs were consumed by four activities as follows: Trav del cust oth tot Vehicle operating systems 45% 40% 10% 5% 100% vehicle depreciation 40% 50% 0% 10% 100% customer service salaries 20% 30% 35% 15% 100% how much total cost (including all three expenses) would be allocated to the travel activity?
$227,000 Vehicle operating expenses ($300,000x45%) $135,000 vehicle depreciation 56000 ($140,000x40%) customer service salaries ($180,000x20%) 36,000 Total cost allocated to the travel activity $227,000
Which of the following statements is true?
A batch-level activity cost is unaffected by the number of units in the batch.
Which of the following is an example of a product-level activity?
Advertising products
Which of the following is an example of a unit-level activity?
Assembling products
Assume a company incurs $200,000 of customer service salaries. The employees in the Customer Service Department spend their time performing four activities as follows: 40% of their time is spent in "Problem Resolution," 25% of their time is spent in "New Account Setup," 20% of their time is spent in "Payment Processing," and 15% is spent in "Other" activities. In the company's activity-based costing system, how much of the customer service salaries would be allocated to the "New Account Setup" activity?
Customer service salaries(a) $200,000 Time spend in "New Account Setup" (b) 25% Customer service salaries allocated to "New Account Setup" (a)x(b) $50,000
which of the following is an example of duration driver?
Direct labor-hours
Assume a service company has implemented an activity-based costing system with five activities as shown below: Activ cost pool-act measure tot cost tot activity cust deliveries-> # of del $400000 8000 del man order processing--># of man ord $280,000 5000 man ord electronic order processig (# of elect order) $150000 15,000 elec ord line item picking (# of line items picked) $450000 375000 line items other organization-sustainign costs (none)$300000 The company serves numerous customers, two of which include Hospital A and Hospital B. The activity demands pertaining to these two customers are as follows: Activity Act measure Hospital A Hospital B # of del 10 25 # of manual ord 0 30 # of electronic orders 15 0 # of line items picked 120 250 # of line items picked
Estimated Overhead Cost (a)Expected Activity (b)Activity Rate (a) ÷ (b)Customer deliveries$ 400,0008,000deliveries$ 50per deliveryManual order processing$ 280,0005,000manual orders$ 56per manual orderElectronic order processing$ 150,00015,000electronic orders$ 10per electronic orderLine item picking$ 450,000375,000line items$ 1.20per line item Step 2: Calculate the total overhead cost assigned to Hospital A: Customer deliveries (10 deliveries × $50 per delivery)$ 500Manual order processing (0 manual orders × $56 per manual order)0Electronic order processing (15 electronic orders × $10 per electronic order)150Line item picking (120 line items × $1.20 per line item)144Total overhead cost assigned to Hospital A$ 794
Which of the following is an example of an organization-sustaining activity?
Heating a manufacturing facility
Assume a company's activity-based costing system includes three activities with the following activity rates: Activity Cost Pool Activity Rate Travel $2 per mile driven Deliveries $50 per delivery Customer Service $22 per phone call Two of the company's many customers include customer A and customer B. These two customers consumed the company's activities as follows: Total expected Activity Cus A Cus B Travel (number of miles driven) 300 250 Deliveries (number of deliveries) 15 5 customer service 20 12 (number of phone calls) How much cost would be assigned from the Travel Activity Customer A
Number of miles driven(a) 300 Activity rate (per mile driven)(b) $2 Cost assigned from Travel activity to customer A $600 (a)x(b)
Relying exclusively on unit-level overhead allocation is most likely to:
Overcost high-volume products.
Which of the following is an example of a batch-level activity?
Setting up machines
Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units of Product B. The selling prices are $65 per unit for Product A and $96 per unit for Product B. Product A's direct materials and direct labor costs per unit are $30 and $12, respectively. Product B's direct materials and direct labor costs per unit are $34 and $15, respectively. The company uses a plantwide overhead rate based on direct labor dollars. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to three cost pools. The following additional information is available for the company as a whole and for Products A and B: Activity cost pool Activity measure Est OH cost Expec act machining machine-hours $300000 15,000 MH machine setups # of setups $150,000 200 setups product design # of prod $80,000 2 prod Activity Measure Product A Product B Machine-hours 9000 6000 number of setups 50 150 number of products 1 1 Using the company's plantwide approach, the total overhead cost allocated to product A is closest to:
Step 1: calculate the company's total oh cost: Machining----> $300,000 machine setups--> 150,000 product design---> 80,000 total OH cost--> 530,000 step 2: calculate the company's total direct labor hours: Product A (14,000units x $12) (a) $168000 Plantwide OH rate (b) 205% total oh allocated to product a (rounded) axb---> $344400
Assume a company has a plantwide overhead rate of $20 per machine hour. Recently, the company experimented with an ABC system that broke down its total overhead of $400,000 into various cost pools including one titled "Machining" that was assigned to products using machine hours. One product called the "widget" consumed two machine hours and was assigned a total of $10 of overhead from the "Machining" cost pool. What is the total amount of overhead cost included in the Machining activity-based cost pool?
Step 1: calculate the total machine-hours in the denominator of the plantwide overhead cost pool: Total overhead cost(a) $400,000 Plantwide overhead rate(b) $20 Total machine-hours in the denominator of the plantwide rate (a)/(b) 20,000 Step 2: calculate the activity rate for the machining cost pool: Total cost assigned to the widget(a) $10 Total machine-hours worked on the widget (b) 2 Activity rate for the Machining cost pool (a)/(b) $5 Step 3: calculate the total overhead cost in the machining cost pool: Total machine-hours in the denominator of the plantwide (a) --> 20,000 Activity rate for the machining cost pool (b) $5 Total overhead cost in the machining cost (a)x(b) $100,000
Which of the following statements is true regarding the traditional cost system?
Traditional cost systems usually over cost high volume products and under cost low volume products when compared to activity-based costing systems.
Assume a company's activity-based costing system included three expenses: Vehicle operating expenses, $300,000; and Customer service salaries, $180,000. These costs were consumed by four activities as follows: How much of the company's total costs should not be allocated to customers when analyzing customer profitability? vehicle operating expenses Trav Deliveries Customer Service Other Tot 45% 40% 10% 5% 100% vehicle depreciation Trav Deliveries Customer other total 40% 50% 0% 10% 100% customer service salaries: Trav: Del Customer service other Total 20% 30% 35% 15% 100% How much of the company's total costs should not be allocated to customers when analyzing customer profitability?
Vehicle operating expense ($300,000x5%)-----> $15,000 vehicle depreciation($140,000x10%)--> 14,000 customer service salaries($180,000x15%)--> 27000 Total cost allocated to the other activity--> $56,000
Assume a company's activity-based costing system included three expenses: vehicle operating expenses, $3000,000; vehicle depreciation, $140,000; and customer service salaries, $180,000. These costs were consumed by four activities as follows: Travel Deliveries Customer other total service Vehicle operating 45% 40% 10% 5% 100% expenses vehicle depreciation 40% 50% 0% 10% 100% customer service salaries 20% 30% 35% 15% 100% How much total cost (including all three expenses) would be allocated to the travel activity?
Vehicle operating expense (300,000x45%) $135,000 vehicle depreciation ($140,000x40%) 56,000 Customer service salaries ($180,000x20%) 36,000 Total cost allocated to the travel activity: $227,000
Assume a company's activity-based costing system includes three activities with the following activity rate: Activity cost pool Activity Rate Travel $2 per mile driven Deliveries $50 per delivery Customer service $22 per phone call Two of the company's many customers include customer A and customer B. These two customers consumed the company's activities as follows: Total expected activity Customer A CustomerB Travel (number of miles driven) 300 250 Deliveries (number of deliveries) 15 5 Customer service (number of phone calls)20 12 if the company earned $1150 in revenue serving customer B, then what is the customer margin for this customer?
sales (given) $1150 Travel (250 milesx$2 per mile)$500 Deliveries(5 deliveries x $50 per delivery)250 Customer service (12 phone calls x $22 per call)264 1014 Customer margin for customer B: $136
Assume a company manufactures only two products- 14000 units of product A and 6000 units of product B. It is considered implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to three cost pools. The following additional information is available for the company a whole and for products A and B: Activity cost pool Activity measure Est oh Exp act Machining Machine-hours $300,000 15000MH machine setups Number of setups $150,000 200set product design Number of products $78000 2 prod Activity measure Product A Product B Machine-hours 9000 6000 number of setups 50 150 number of products 1 1 Using the ABC system, how much total overhead cost would be assigned from all of the activities to product A?
step 1: calculate the activity rate for each activity: est OH Exp act Activity rate Machining $300,000 15,000 MH $20permh machine setups $150,000 200 setups $750perset product design $78,000 2 products $39,000 pp Step 2: calculate the total overhead cost assigned to product A: Machining(9000MHx20 per MH) $180,000 Machine setups (50setupsx$750 37,500 per setup) prod desi(1 prodx$39,000 per prod) 39000 Total overhead assigned to product A $256,500
Assume a company's activity-based costing system contains an activity called Engineering Change Orders (ECOs). This activity cost pool includes a total of $150,000 in its numerator. One of the company's products was charged $400 from this activity because it required two ECOs during the year. How many ECOs were used to calculate the ECO activity rate?
step 1: calculate the engineering change order (ECO) activity rate: ECO cost assigned to product (a) $400 Number of ECOs required by prod(b) 2 Activity rate (a)/(b)----> $200 Step 2: calculate the number of ECOs used to compute the activity rate: total cost in the numerator(a) $150,000 Activity rate(b)-----> $200 # of ECOs used to compute activity rate (a)/(b) 750
