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Exam 17: Activity-Based Costing and Analysis

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Question 1

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A company has two products: AA and BB.It uses a plantwide overhead allocation method based on activity 33 and has prepared the following analysis showing budgeted costs and activities.Use this information to compute the company's plantwide overhead rate.

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$185,000/2,000 units...

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Match each of the following terms a through j with the appropriate definitions 1 through 10.

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Activities performed to sustain facility capacity as a whole.

Pool rate

An outgrowth of ABC that uses the link between activities and costs.

Activity cost driver

A cost allocation method that focuses on activities performed.

Value-added activities

Actions which cause costs to be incurred.

Cost pool

The target of a cost assignment.

Facility-level activities

An allocation rate used to assign overhead costs to cost objects.

Cost object

Activities performed only on groups of units.

Activity-based costing

Actions which add value to a product.

Batch level activities

Factor that drives cost.

Activity

A collection of costs that are related to the same or similar activity.

Activity-based management

Premises

Activities performed to sustain facility capacity as a whole.

An outgrowth of ABC that uses the link between activities and costs.

A cost allocation method that focuses on activities performed.

Actions which cause costs to be incurred.

The target of a cost assignment.

An allocation rate used to assign overhead costs to cost objects.

Activities performed only on groups of units.

Actions which add value to a product.

Factor that drives cost.

A collection of costs that are related to the same or similar activity.

Responses

Pool rate

Activity cost driver

Value-added activities

Cost pool

Facility-level activities

Cost object

Activity-based costing

Batch level activities

Activity

Activity-based management

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Premises

Responses

Activities performed to sustain facility capacity as a whole.

An outgrowth of ABC that uses the link between activities and costs.

A cost allocation method that focuses on activities performed.

Actions which cause costs to be incurred.

The target of a cost assignment.

An allocation rate used to assign overhead costs to cost objects.

Activities performed only on groups of units.

Actions which add value to a product.

Factor that drives cost.

A collection of costs that are related to the same or similar activity.

Premises

Activities performed to sustain facility capacity as a whole.

An outgrowth of ABC that uses the link between activities and costs.

A cost allocation method that focuses on activities performed.

Actions which cause costs to be incurred.

The target of a cost assignment.

An allocation rate used to assign overhead costs to cost objects.

Activities performed only on groups of units.

Actions which add value to a product.

Factor that drives cost.

A collection of costs that are related to the same or similar activity.

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Question 3

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By definition,costs classified as overhead are consumed in basically the same manner regardless of the process involved.

Slosh,Inc.produces washing machines that require two processes,assembling and finishing,to complete.The company's bestselling machine is the commercial washer.Information related to the 500 commercial washers produced annually is shown below. Slosh's total expected overhead costs and related overhead data are shown below.The company uses departmental overhead rates based on direct labor hours in the Assembling Department and machine hours in the Finishing Department. Determine the total product cost of this product line and each individual commercial washer.

A company produces garden benches that go through two departments,department 1A1 and department 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.

Overhead costs:

Product design costs are an example of a unit level activity.

Batch-level costs do not vary with the number of units produced.

The ________ overhead rate method uses a different overhead rate for each production department.

What are the main advantages of volume-based allocation methods compared to activity-based costing?

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

Explain cost flows for activity-based costing.

Machine setup costs are an example of a batch level activity.

Allocated overhead costs vary depending upon the allocation methods used.

Superior Products Manufacturing identified the following data in its two production departments: Compute departmental overhead rates assuming the Assembly rate is based on machine hours and the Finishing rate is based on direct labor hours.

Tarnish 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: -Tarnish Industries uses departmental overhead rates and is planning on a $1.80 per direct labor hour overhead rate for the finishing department.Compute the estimated manufacturing overhead cost for the finishing department given the information shown in the table.

Identify and explain the four control levels associated with activity-based costing.

Assume that Angle Max Industries allocates overhead using a plantwide overhead rate based on machine hours.How much total overhead will be assigned to a product that requires 1 direct labor hour and 2.5 machine hours in the Assembly Department,and 3.5 direct labor hours and 0.5 machine hours in the Finishing Department?

The final step of activity-based costing assigns overhead costs to pools rather than to products.

A company uses activity-based costing to determine the costs of its three products: A,B,and C.The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table: -What are the activity rates for the three activities under activity-based costing?