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Exam 4: Activity-Based Cost Management

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Question 1

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Hayden, Inc. produces two different products, Product A and Product B. Hayden uses a traditional volume-based costing system in which direct labor hours are the allocation base. Hayden is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,600,000 across three activities: Engineering, Manufacturing, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.00/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows: Required: a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system. b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system. d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system. e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

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a. $800,000 = $2.00 × 400,000
b. $800,00...

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Question 2

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Magnolia Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the amount of activity driver used for each of Magnolia's two products, the activity rate, and the activity cost assigned to each product. Fill in the blanks below: Activity Cost Activity Driver Driver Usage Activity Rate Activity Cost: Prod. 1 Activity Cost: Prod. 2 Prod. 1 Prod. 2 Design $60,000 Design time 800 hours 1,200 hours a. b. c. Preparation $18,000 Labor hours 3,000 hours d. e. $9,000 f. Machining $90,000 Machine hours g. h. $18.00/hour $27,000 i. Finishing j. Batches 200 300 $50/batch k. l. Inspection m. Units n. o. $6/unit $3,000 $6,000 Packaging p. Orders q. 50 $300/order $13,500 r. Shipping $17,000 Packages 70 s. t. u. $3,000

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a. $30.00 = $60,000/(800 + 1,200)
b. $24...

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Question 3

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Target costing involves determining what the product price must be in order to meet the target cost and still provide a profit for the company's shareholders

Internal failure costs result from defects that are caught during the inspection process

The gross margin does not take into account:

Which of the following best defines a product-level activity?

Harwell, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell produces two different products: Product A, which uses 40,000 direct labor hours, and Product B, which uses 60,000 direct labor hours. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $400,000 across three activities: Setup, Production, and Finishing. Under the traditional volume-based costing system, the predetermined overhead rate is $4.00/direct labor hour. Under the ABC system, the cost of each activity and proportion of the activity drivers used by each product are as follows: Required: a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system. b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system. d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system. e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

An activity that is performed for a specific customer is a(n) :

An activity cost driver is:

Chipman Inc. produces water pumps. Overhead costs have been identified as follows: Chipman makes 3 models of pumps with the following details: Required: a. Calculate the activity rate for each activity. b. Determine the amount of indirect costs assigned to each of the products.

When target costing is used, the target cost is determined by:

An activity that is performed for a group of units all at once is a(n) :

Yallow, Inc. manufactures teddy bears and dolls. Currently, Yallow makes 2,000 teddy bears each month. Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor. Yallow uses two activities in manufacturing the teddy bears: Sewing and Processing. The cost associated with Sewing is $15,000 a month, allocated on the basis of direct labor hours. The cost associated with Processing is $10,000 a month, allocated on the basis of batches. The activity drivers are used as follows: Teddy Bears Dolls Direct labor hours 200 200 Batches 35 65 What is the total manufacturing cost for one teddy bear?

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: What is the amount of Machining cost assigned to Product A?

Activity Based Costing divides activities into two categories: unit-level activities and facility level activities

Which of the following involves analyzing the market and estimating what consumers will be willing to pay for a product with specific features?

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: What is the amount of Inspection cost assigned to Product A?

Which of the following sets just-in-time systems apart from traditional manufacturing systems?

A just-in-time (JIT) system is a demand-push system

Carter, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter produces two different products: Product A, which uses 100,000 direct labor hours, and Product B, which uses 300,000 direct labor hours. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design, Production, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.50/direct labor hour. Under the ABC system, the cost of each activity and proportion of the activity drivers used by each product are as follows: Required: a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system. b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system. d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system. e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?