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Exam 4: Activity-Based Costing and Analysis

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Question 91

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Assume that a pet food manufacturer is considering adding two types of pet food to its existing product line. Research had determined that good demand exists for dog food in 40-pound bags and cat food in 1/2pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year: $\begin{array} { | l | c | l | } \hline \text { Activity } & \text { Expected Costs } &{ \text { Cost Driver } } \\\hline \text { Handling materials } & \$ 105,000 & \text { Number of batches made } \\\hline \text { Storage costs } & \$ 820,000 & \text { Weight of finished product } \\\hline\end{array}$ $\begin{array} { | l | c | c | } \hline & \text { Dog Food } & \text { Cat Food } \\\hline \text { Production volume } & 100,000 \text { units } & 200,000 \text { units } \\\hline \text { Batches made } & 200 \text { batches } & 150 \text { batches } \\\hline\end{array}$ -Refer to the data in the preceding tables.How much overhead cost will be assigned to each product line using activity-based costing (ABC) ?

A) Dog food: $462,500; cat food: $462,500.
B) Dog food: $860,000; cat food: $65,000.
C) Dog food: $60,000; cat food: $45,000.
D) Dog food: $800,000; cat food: $20,000.
E) Dog food: $320; cat food: $320.

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

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Question 92

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Heritage Industries produces miniature models of farm equipment. These collectibles are in great demand. It takes two operations, molding and finishing, to complete the miniatures. Next year’s expected activities are shown in the following table: $\begin{array} { | l | c | c | } \hline & \text { Molding } & \text { Finishing } \\\hline \text { Direct labor hours } & 65,000 \mathrm { DLH } & 162,500 \mathrm { DLH } \\\hline \text { Machine hours } & 97,500 \mathrm { MH } & 81,250 \mathrm { MH } \\\hline\end{array}$ -Heritage Industries uses departmental overhead rates and is planning on a $3.20 per machine hour overhead rate for the finishing department.Compute the estimated manufacturing overhead cost for the finishing department given the information shown in the table.

A) $208,000
B) $312,000
C) $520,000
D) $260,000
E) $572,000

F) B) and C)
G) A) and C)

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Question 93

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

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.

The plantwide overhead rate is determined by using volume-related measures.

ABC can be used to assign costs to any cost object that is of management interest.

The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.

The departmental overhead rate method allows each department to have its own overhead rate and its own ____________________.

ABC is significantly less costly to implement and maintain than more traditional overhead costing systems.

The following data relates to Lead Company's estimated amounts for next year. $\begin{array} { l c c } \text { Estimated: } & \text { Department 1 } & \text { Department } 2 \\\text { Marufacturing overhead costs } & \$ 1,200,000 & \$ 3,400,000 \\\text { Direct labor hours } & 560,000 \mathrm { DLH } & 780,000 \mathrm { DLH } \\\text { Machine hours } & 91,000 \mathrm { MH } & 23,000 \mathrm { MH }\end{array}$ What is the company's plantwide overhead rate if direct labor hours are the allocation base? (Round to two decimal places)

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

Product costs consist of direct labor, direct materials, and ______________.