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Exam 17: Activity-Based Costing and Analysis

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Question 61

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A _______________________ overhead rate is a single overhead rate determined by using volume-related measures.

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Question 62

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The use of a plantwide overhead rate is not acceptable for external reporting under GAAP .

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The cost to heat a manufacturing facility can be directly linked to the number of units produced.

Activities causing overhead cost in an organization are typically separated into four levels: (1)direct activities,(2)indirect activities,(3)batch level activities,and (4)facility level activities.

Overhead costs:

Reference: 17_02 Aztec Industries produces bread which goes through two operations, mixing and baking, before it is ready to be packaged. Next year's expected costs and activities are shown below. $\begin{array} { | l | c | c | } \hline & \text { Mixing } & \text { Baking } \\\hline \text { Direct labor hours } & 400,000 \mathrm { DLH } & 8 0, 000 \mathrm { DLH } \\\hline \text { Machine hours } & 8 0 0 , 0 0 0 \mathrm { MH }&8 0 0, 000 \mathrm { MH } \\\hline \text { Overhead costs } & \$ 600,000 & \$ 400,000 \\\hline\end{array}$ -Compute Aztec's departmental overhead rate for the baking department based on direct labor hours.

Consider the following activities that take place in a veterinary clinic. (a) ) Cleaning cages. (b) ) Heating and air conditioning the clinic. (c) ) Sending blood work to a lab. (d) ) Dispensing medicine. Which of the following statements is true?

Facility level costs are not traceable to individual product lines,batches or units.

The premise of ABC is that it takes ____________________ to make products and provide services.

Overhead costs cannot be ________________________ in the same way that direct materials and direct labor can.

Aurora Corporation produces outdoor security lighting products.All products go through three processes before completion.Use the expected overhead costs and related data shown below to compute departmental overhead rates based on machine hours in Department A1A; based on direct labor hours in Department B2B; and machine hours in Department C3C. $\begin{array} { | l | r | r | r | } \hline & { \begin{array} { c } \text { Department } \\\text { A1A }\end{array} } & \begin{array} { c } \text { Department } \\\text { B2B }\end{array} & \begin{array} { c } \text { Department } \\\text { C3C }\end{array} \\\hline \text { Direct labor hours } & 90,000 \mathrm { DLH } & 80,000 \mathrm { DLH } & 72,000 \mathrm { DLH } \\\hline \text { Machine hours } & 54,000 \mathrm { MH } & 32,000 \mathrm { MH } & 54,000 \mathrm { MH } \\\hline \begin{array} { l } \text { Manuffacturing overhead } \\\text { costs }\end{array} & \$ 540,000 & \$ 160,000 & \$ 216,000 \\\hline\end{array}$

Which types of overhead allocation methods result in the use of more than one overhead rate during the same time period?

A company identified the following partial list of activities,costs,and activity drivers expected for the next year: $\begin{array} { | l | c | l | } \hline \text { Activity } & \text { Expected Costs } & { \text { Cost Driver } } \\\hline \text { Extrusion costs } & \$ 83600 & \text { Number batches made } \\\hline \text { Handling costs } & \$ 8,800 & \text { Number of arders Filled } \\\hline \text { Packaging costs } & \$ 40,500 & \text { Number of units made } \\\hline\end{array}$ $\begin{array} { | l | c | c | } \hline & \text { Product A } & \text { Product B } \\\hline \text { Production volume } & 750,000 \text { units } & 600,000 \text { units } \\\hline \text { Batches made } & 200 \text { batches } & 750 \text { batches } \\\hline \text { Orders Filled } & 75 & 200 \\\hline\end{array}$ How much overhead in total will be assigned to the Product A line using activity based costing?

The following data relates to Tier One Company's estimated amounts for next year. $\begin{array} { l c c } \text { Estimated: } & \text { Department I } & \text { Department } 2 \\\text { Manufacturing overhead costs } & \$ 50,000 & \$ 40,000 \\\text { Direct labor hours } & 150,000 D L H & 200,000 \mathrm { DLH } \\\text { Machine hours } & 300,000 \mathrm { MH } & 400,000 \mathrm { MH }\end{array}$ What is the company's plantwide overhead rate if direct labor hours are the allocation base? (Round to two decimal places.)

Reference: 17_01 Kudzu Company sells two products Big X and Little X. Current direct material and direct labor costs are detailed below. Next year, the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $525,000. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $20 per hour and the company expects to manufacture 16,000 units of Big X and 18,000 units of Little X next year. $\begin{array}{|c|c|c|}\hline & \begin{array}{l}\text { Direct } \\\text { Material } \\\text { per Unit }\end{array} & \begin{array}{c}\text { Direct } \\\text { Labor Dollars } \\\text { per Unit }\end{array} \\\hline \operatorname{Big} X & \$5 & \$ 20 \\\hline \text { Little X } &\$3 & \$ 10 \\\hline\end{array}$ -If the direct labor time estimates are met,Kudzu will allocate $10.50 of overhead cost to each unit of Little X.

Inside Out,Company designs custom showroom spaces in interior design marts across the country.The following data pertain to a recent reporting period. $\begin{array}{l}\text { Design Department }\\\begin{array} { l c c } \text { Client consultation } & 750 \text { contact hours } & \$ 127,500 \\\text { Drawing } & 1,200 \text { design hours } & \$ 96,000 \\\text { Models } & 15,000 \text { square feet } & \$ 21,000 \\\text { Project Management } & & \\\text { Supervision } & 225 \text { days } & \$ 40,500 \\\text { Billings } & 150 \text { jobs } & \$ 54,000\end{array}\end{array}$ Required a.Use ABC to compute overhead rates for each activity. b.Assign costs to a 3,000 square-foot job that requires 70 contact hours,20 design hours,and 14 days to complete.

A company's total expected overhead costs and related overhead data are shown below. $\begin{array} { | l | c | r | } \hline & \text { Department A } & \text { Department B } \\\hline \text { Direct labor hours } & 75,000 \mathrm { DLH } & 30,000 \mathrm { DLH } \\\hline \text { Machine hours } & 3,000 \mathrm { MH } & 6,000 \mathrm { MH } \\\hline \begin{array} { l } \text { Manufacturing overhead } \\\text { costs }\end{array} & ? & ? \\\hline \begin{array} { l } \text { Departmental overhead } \\\text { rate }\end{array} & \$ 2.40 \mathrm { per } \text { DLH } & \$ 36 \text { per MH } \\\hline\end{array}$ a.Compute estimated manufacturing overhead costs for Department A. b. Compute estimated manufacturing overhead costs for Department B.

Batch level costs vary with the number of units produced.

A company has two products: X and Y.It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Annual production and sales level of Product X is 161,100 units,and the annual production and sales level of Product Y is 275,200 units. a.Compute the approximate overhead cost per unit of Product X under activity-based costing. b.Compute the approximate overhead cost per unit of Product Y under activity-based costing.

Reference: 17_02 Aztec Industries produces bread which goes through two operations, mixing and baking, before it is ready to be packaged. Next year's expected costs and activities are shown below. $\begin{array} { | l | c | c | } \hline & \text { Mixing } & \text { Baking } \\\hline \text { Direct labor hours } & 400,000 \mathrm { DLH } & 8 0, 000 \mathrm { DLH } \\\hline \text { Machine hours } & 8 0 0 , 0 0 0 \mathrm { MH }&8 0 0, 000 \mathrm { MH } \\\hline \text { Overhead costs } & \$ 600,000 & \$ 400,000 \\\hline\end{array}$ -Compute Aztec's departmental overhead rate for the mixing department based on machine hours.