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Exam 4: Activity-Based Costing and Analysis

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Question 41

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A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools: $\begin{array} { l c c c } & &{ \text { Budgeted Activity } } \\\text { Activity Cost Pool } & \text { Budgeted Cost } & \text { Product A } & \text { Product B } \\\text { Activity 1 } & \$ 87,000 & 3,000 & 2,800 \\\text { Activity 2 } & \$ 62,000 & 4,500 & 5,500 \\\text { Activity 3 } & \$ 93,000 & 2,500 & 5,250\end{array}$ Annual production and sales level of Product A is 34,300 units, and the annual production and sales level of Product B is 69,550 units. What is the approximate overhead cost per unit of Product B under activity-based costing?

A) $3.00
B) $2.00
C) $10.28
D) $15.00
E) $2.33

F) D) and E)
G) A) and D)

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Question 42

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Explain cost flows for activity-based costing.

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There are two basic stages to activity-b...

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Question 43

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Activities are the cost objects of the second stage of ABC.

Facility-level costs vary with the number of units or batches produced.

A company produces surgical equipment that goes through three departments, 1A1, 2B2, and 3C3, before they are complete. Expected costs and activities for the three departments are shown below. All departments have departmental overhead rates based on direct labor hours. Therefore, the overhead rate for each department is $5 per direct labor hour.

The departmental overhead rate method uses the same overhead rate for each production department.

[The following information applies to the questions displayed below.] 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. -Compute Aztec's departmental overhead rate for the mixing department based on machine hours.

Cleveland Choppers manufactures two types of motorcycles, a Base and a Loaded model. The following activity and costs have been gathered: The number of components and number of setups are chosen as activity-cost drivers for overhead. Assuming an ABC costing system is being used, what is the total overhead cost assigned to the Base model?

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

A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools: $\begin{array} { l c c c } & &{ \text { Budgeted Activity } } \\\text { Activity Cost Pool } & \text { Budgeted Cost } & \text { Product A } & \text { Product B } \\\text { Activity 1 } & \$ 87,000 & 3,000 & 2,800 \\\text { Activity 2 } & \$ 62,000 & 4,500 & 5,500 \\\text { Activity 3 } & \$ 93,000 & 2,500 & 5,250\end{array}$ Annual production and sales level of Product A is 34,300 units, and the annual production and sales level of Product B is 69,550 units. What is the approximate overhead cost per unit of Product A under activity-based costing?

[The following information applies to the questions displayed below.] Wall Nuts, Inc. produces paneling that requires two processes, A and B, to complete. Oak is the best-selling of all the many types of paneling produced. Information related to the 40,000 units of oak paneling produced annually is shown in the following table: Wall Nuts' total expected overhead costs and related overhead data are shown below. -Use the data for Wall Nuts, Inc. to compute the dollar amount of overhead applied to each unit of oak paneling, assuming the company uses departmental overhead rates based on machine hours in Department A and machine hours in Department B.

[The following information applies to the questions displayed below.] Wall Nuts, Inc. produces paneling that requires two processes, A and B, to complete. Oak is the best-selling of all the many types of paneling produced. Information related to the 40,000 units of oak paneling produced annually is shown in the following table: Wall Nuts' total expected overhead costs and related overhead data are shown below. -Use the above data for Wall Nuts, Inc. to compute the total manufacturing cost per unit of oak paneling assuming the company uses departmental overhead rates based on machine hours in Department A and machine hours in Department B.

[The following information applies to the questions displayed below.] 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. -Compute Aztec's departmental overhead rate for the baking department based on direct labor hours.

Why is overhead allocation under ABC usually more accurate than either the plantwide overhead allocation method or the departmental overhead allocation method?

________ focuses on activities and the cost of carrying out activities.

Gray Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product Q.

A company estimates total overhead costs for the next year to be $1,200,000 and wishes to use direct labor hours as its overhead allocation base. This company makes two products: (1) Fancy X, which requires three direct labor hours per unit, and (2) Plain X, which requires one direct labor hour per unit. If the company plans to make 10,000 units of Fancy X and 10,000 units of Plain X, then each unit produced will be allocated the same amount of overhead.

A company expects next year's overhead costs to be $400,000. During this time, the company also expects to produce 1,000,000 units, have 200,000 direct labor hours, and 800,000 machine hours. Make the following independent calculations. a. Compute a plantwide overhead rate using units of production as the allocation base. b. Compute a plantwide overhead rate using direct labor hours as the allocation base. c. Compute a plantwide overhead rate using machine hours as the allocation base.

Sparks Company produces and distributes two types of garden sculptures, Plain and Fancy. Budgeted cost and activity for each of its three activity cost pools are shown below. The company plans to produce and sell 64,000 plain units and 49,150 fancy units. $\begin{array} { | l | l | l | l | } \hline & &{ \text { Budgeted Activity } } \\\hline \text { Activity Cost Pool } & \text { Budgeted Cost } & \text { Plain } & \text { Fancy } \\\hline \text { Packaging } & \$ 360,000 & 70,000 \text { finished units } & 130,000 \text { finished units } \\\hline \text { Material handling } & \$ 262,500 & 140,000 \text { total parts } & 210,000 \text { total parts } \\\hline \text { Production setups } & \$ 125,000 & 5 \text { total setups } & 20 \text { total setups } \\\hline\end{array}$ a. Compute the approximate overhead cost per unit of Plain under activity-based costing. b. Compute the approximate overhead cost per unit of Fancy under activity-based costing.

[The following information applies to the questions displayed below.] Tasty Bakery produces donuts which go through two operations, mixing and baking, before they are ready to be packaged. Next year's expected costs and activities are shown below. $\begin{array}{lcc} & \text { Mixing } & \text { Baking } \\\text { Direct labor hours } & 300,000 \mathrm{DLH} & 70,000 \mathrm{DLH}\\\text { Machine hours } & 1,000,000 \mathrm{MH} & 800,000 \mathrm{MH} \\\text { Overhead costs } & \$ 500,000 & \$ 400,00 0\end{array}$ -Compute Tasty's departmental overhead rate for the mixing department based on direct labor hours.