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Exam 17: Activity-Based Costing and Analysis

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Question 31

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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 machine hours.

A) $1.50 per MH
B) $5.00 per MH
C) $0.75 per MH
D) $0.50 per MH
E) $2.08 per MH

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

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Question 32

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Reference: 17_06 Assume that the Oregon Ice Cream Company is considering the costs of two of their product lines-ice cream sandwiches and dessert bars. The company identified the following partial list of activities, costs, and activity drivers expected for the next year. $\begin{array} { | l | c | c | } \hline \text { Activity } & \text { Expected Costs } & \text { Cost Driver } \\\hline \text { Extrusion costs } & \$ 637,500 & \text { Number batches made } \\\hline \text { Packaging costs } & \$ 44,000 & \text { Number of units made } \\\hline\end{array}$ $\begin{array} { | l | c | c | } \hline & \text { Ice Crearn Sandwiches } & \text { Dessert Bars } \\\hline \text { Production volume } & 350,000 \text { urits } & 2 0 0 , 0 0 0 \text { urits } \\\hline \text { Batches made } & 400 \text { batches } & 350 \text { batches } \\\hline\end{array}$ -Refer to the data above.How much overhead cost will be assigned to the dessert bar product line using activity-based costing (ABC) ?

A) 340,750
B) $247,818
C) $16,000
D) $297,500
E) $313,500

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

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Question 33

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Explain cost flows for the departmental overhead rate method.

Explain cost flows for activity-based costing.

Name and briefly describe three overhead rate methods.

A company has two products: Big and Little.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 big product is 62,525 units,and the annual production and sales level of little product is 251,900 units. a.Compute the approximate overhead cost per unit of big product under activity-based costing. b.Compute the approximate overhead cost per unit of little product under activity-based costing.

Orange 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. $\begin{array}{llr} \text {Direct material cost per unit of Q } &\$10\\ \text { Total estimated manufacturing overhead } &\$100,000\\ \text { Total cost per unit of \( Q \) } &\$65\\ \text {Total estimated machine hours } &200,000\\&\mathrm{MH}\\ \text { Direct labor cost per unit of } \mathrm{Q}&\$20\\\end{array}$

Data concerning volume-related measures are readily available in most manufacturing settings.

A company produces garden benches that go through two operations,operation 1A1 and operation 2B2,before they are complete.Expected costs and activities for the two departments are shown below.Both departments have departmental overhead rates based on machine hours.Therefore,the overhead rates for department 1A1 and department 2B2 are the same. $\begin{array} { l c c } & \text { Department } & \text { Department } \\& 1 \mathrm { A1 } & 2 \mathrm { B2 } \\\text { Machine hours } & 70,000 \mathrm { MH } & 60,000 \mathrm { MH } \\\text { Direct labor hours } & 56,350 \mathrm { DLH } & 50,160 \mathrm { DLH } \\\text { Overhead costs } & \$ 225,400 & \$ 250,800\end{array}$

Upside Down,Incorporated designs custom storage spaces to eliminate clutter in both residential and business settings.The following data pertain to a recent reporting period: Design department $\begin{array} { l l l } \text { Client consultation } & 500 \text { contact hours } & \$ 100,000 \\ \text { Drawing } & 1,000 \text { design hours } & \$ 75,000 \\ \text { Models } & 20,000 \text { square feet } & \$ 25,000 \end{array}$ Project Management $\begin{array}{lll}\text { Supervision } & 250 \text { days } & \$ 43,750 \\\text { Billings } & 150 \text { jobs } & \$ 52,500\end{array}$ 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.

Rain Maker Company uses a plantwide overhead rate with direct labor hours as the allocation base.Next year,350,000 units are expected to be produced taking .80 direct-labor hours each.How much overhead will be assigned to each unit produced given the following estimated amounts? $\begin{array} { l c c } \text { Estimated: } & \text { Department 1 } & \text { Department } 2 \\\text { Manufacturing overhead costs } & \$ 2,730,000 & \$ 910,000 \\\text { Direct labor hours } & 168,000 \mathrm { D L H} & 112,000 \mathrm { DLH } \\\text { Machine hours } & 30,000 \mathrm { MH } & 7,000 \mathrm { MH }\end{array}$

Product pricing,product mix decisions,and cost control are examples of _________________ activities.

Reference: 17_06 Assume that the Oregon Ice Cream Company is considering the costs of two of their product lines-ice cream sandwiches and dessert bars. The company identified the following partial list of activities, costs, and activity drivers expected for the next year. $\begin{array} { | l | c | c | } \hline \text { Activity } & \text { Expected Costs } & \text { Cost Driver } \\\hline \text { Extrusion costs } & \$ 637,500 & \text { Number batches made } \\\hline \text { Packaging costs } & \$ 44,000 & \text { Number of units made } \\\hline\end{array}$ $\begin{array} { | l | c | c | } \hline & \text { Ice Crearn Sandwiches } & \text { Dessert Bars } \\\hline \text { Production volume } & 350,000 \text { urits } & 2 0 0 , 0 0 0 \text { urits } \\\hline \text { Batches made } & 400 \text { batches } & 350 \text { batches } \\\hline\end{array}$ -Refer to the data in the preceding tables.How much overhead cost will be assigned to the ice cream sandwich product line using activity-based costing (ABC) ?

Which of the following statements is true with regard to the plantwide overhead rate method?

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: 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?

What are the major advantages of using a plantwide overhead rate?

Which of the following statements is true with regard to activity-based costing rates?

Freeze Frame,Inc.produces cameras that require three processes,A,B,and C,to complete.Digital camera model #789 is the best-selling of all the many types of cameras produced.Information related to the 550,000 units of digital camera model #789 produced annually is shown below. $\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 450,000 \\\hline \text { Direct labor } & \\\hline \text { Department A } ( 7,000 \text { DLL } \times \$ 21 \text { per DLH } ) & \$ 147,000 \\\hline \text { Department B } ( 25,000 \text { DLH } \times \$ 19 \text { per DLH) } & \$ 475,000 \\\hline \text { Department C } ( 10,000 \text { DLHH } \times \$ 26 \text { per DLH) } & \$ 260,000 \\\hline \text { Machine Hours } & \\\hline \text { Department } A & 42,000 \mathrm { MH } \\\hline \text { Department B } & 23,000 \mathrm { MH } \\\hline \text { Department C } & 38,000 \mathrm { MH } \\\hline\end{array}$ Freeze Frame's total expected overhead costs and related overhead data are shown below: $\begin{array} { | l | r | r | r | } \hline & \text { Department A } & { \begin{array} { l } \text { Department } \\\text { B }\end{array} } &{ \begin{array} { l } \text {Department } \\\text { C }\end{array} } \\\hline \text { Direct labor hours } & 90,000 \mathrm { DLH } & 75,000 \mathrm { DLH } & 42,000 \mathrm { DLH } \\\hline \text { Machine hours } & 67,500 \mathrm { MH } & 135,000 \mathrm { MH } & 53,200 \mathrm { MH } \\\hline \begin{array} { l } \text { Manuffacturing overhead } \\\text { costs }\end{array} & \$ 540,000 & \$ 675,000 & \$ 399,000 \\\hline\end{array}$ a.Compute a departmental overhead rate for department A based on direct labor hours. b.How much overhead is associated with model 789 from department A? c.Compute a departmental overhead rate for department B based on direct labor hours. d.How much overhead is associated with model 789 from department B? e.Compute a departmental overhead rate for department C based on direct labor hours. f.How much overhead is associated with model 789 from department C? g What is the per unit cost of the 550,000 units of model 789?

How does ABC differ from using multiple departmental rates?

Ridley Company estimates that overhead costs for the next year will be $6,870,000 for indirect labor and $450,000 for factory utilities.The company uses machine hours as its overhead allocation base.If 160,000 machine hours are planned for this next year,what is the company's plantwide overhead rate?