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Exam 17: Activity-Based Costing and Analysis

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Question 61

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____________________________ is an out-growth of ABC that draws on the link between activities and cost incurrence for better management.

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Question 62

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From an ABC perspective, what causes costs to be incurred?

A) Financial transactions.
B) The volume of units produced.
C) Debits and credits.
D) Management decisions.
E) Activities.

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

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Question 63

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A company's total expected overhead costs and related overhead data are shown below. (a.) Compute estimated manufacturing overhead costs for department A. (b.) Compute estimated manufacturing overhead costs for department B. (c.) Compute the departmental overhead rate based on direct labor hours for department A. (d.) Compute the departmental overhead rate based on machine hours for department B.

How does ABC differ from using multiple departmental rates?

Kamper Company sells two products Big Z and Little Z. 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 $475,000. 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 32,000 units of Big Z and 9,000 units of Little Z next year. What are total estimated direct labor hours for this next year?

Activity-based costing involves four steps: (1) identify activities and the costs they cause, (2) group similar activities into cost pools, (3) determine an activity rate for each activity cost pool, and (4) allocate overhead costs to products using those activity rates.

Overhead costs:

Which of the following is a disadvantage of the departmental overhead rate method?

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

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

Inside Out, Company designs custom showroom spaces in interior design marts across the country. The following data pertain to a recent reporting period. 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.

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?

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. (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.

A major disadvantage of using a plantwide overhead rate is the extreme difficulty in gathering the needed information.

Bark Mode, Incorporated produces and distributes two types of security systems, Standard and Deluxe. Budgeted cost and activity for each of its three activity cost pools are shown below. The company plans to produce and sell 120,000 standard units and 80,000 deluxe units. (a.) Compute the approximate overhead cost per unit of standard under activity-based costing. (b.) Compute the approximate overhead cost per unit of deluxe under activity-based costing.

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

A company allocates $7.50 overhead to each unit produced. The company uses a plantwide overhead rate with direct labor hours as the allocation base. Given the amounts below, how many direct labor hours does the company expect in department 2? $\begin{array} { l c c } \text { Estimated: } & \text { Department 1 } & \text { Department 2 } \\\text { Manufacturing overhead costs } & \$ 74,358 & \$ 49,572 \\\text { Direct labor hours } & 6,610 \mathrm { DLH } & ? \mathrm { DLH } \\\text { Machine hours } & 700 \mathrm { MH } & 800 \mathrm { MH }\end{array}$

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

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