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Exam 17: Activity-Based Costing and Analysis

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Question 91

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

A) True
B) False

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Question 92

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The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1)the overhead cost is correlated with the allocation base; and (2)all products use overhead cost in dissimilar proportions.

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B) False

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Question 93

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All of the following are examples of facility sustaining costs except:

Distorted product cost information can result in poor decisions.

The departmental overhead rate method traces costs to each department and then determines an allocation base for each department.

A company has two products: A1 and B2.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 A1 is 8,480 units,and the annual production and sales level of Product B2 is 22,310 units.What is the approximate overhead cost per unit of Product B2 under activity-based costing?

A method of assigning overhead costs to a product using a single overhead rate is:

Direct labor,direct materials,and manufacturing overhead are all product costs.Why is overhead more difficult to account for than either direct labor or direct materials?

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? $\begin{array} { l c c } \text { Estirnated: } & \text { Department 1 } & \text { Department } 2 \\\text { Manufacturing overhead costs } & \$ 74,358 & \$ 49,572 \\\text { Direct labor hours } & 6,610 \mathrm { DLH } & ? \mathrm { DLH } \\\text { Machine hours } & 700 \mathrm { MH } & \mathbf { 8 0 \mathrm { MH } }\end{array}$

Products are the first stage cost objects when using a departmental overhead rate method.

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

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

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

Reference: 17_04 Wall Nuts, Inc. produces paneling that requires two processes, A and B, to complete. Oak is the best-selling of all the many types of paneling produced. Information related to the 40,000 units of oak paneling produced annually is shown in the following table: $\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 380,000 \\\hline \text { Direct labor } & \\\hline \text { Department A (6,000 DLH x \$25 per DLH) } &\$ 150,000 \\\hline \text { Department B (35,125 DLH x \$16 per DLH) } & \$ 562,000\\\hline\end{array}$ $\begin{array} { | l | r | } \hline \text { Machine Hours } & \\\hline \text { Department A } & 24,000 \mathrm { MH } \\\hline \text { Department B } & 32,000 \mathrm { MH } \\\hline\end{array}$ Wall Nuts’ total expected overhead costs and related overhead data are shown below. $\begin{array} { | l | r | r | } \hline & \text { Department A } & \text { Department B } \\\hline \text { Direct labor hours } & 67,000 \mathrm { DLH } & 170,000 \mathrm { DLH } \\\hline \text { Machine hours } & 100,000 \mathrm { MH } & 80,000 \mathrm { MH } \\\hline \begin{array} { l } \text { Manufacturing overhead } \\\text { costs }\end{array} & \$ 450,000 & \$ 600,000 \\\hline\end{array}$ -Use the data for Wall Nuts,Inc.to compute departmental overhead rates based on machine hours in Department A and machine hours in Department B.

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: Which of the following statements is true regarding this company's activity rates?

Consider the following activities that take place in a medical clinic. (a) ) Cleaning exam rooms. (b) ) Heating and air conditioning the clinic. (c) ) Sending blood work to a lab. (d) ) Dispensing medicine. Which of the following statements is true?

Some companies allocate their overhead cost using a plantwide overhead rate largely because of its simplicity.

Product costs consist of direct labor,direct materials,manufacturing overhead,and indirect costs.

A company estimates total overhead costs for the next year to be $1,500,000 and wishes to use direct labor hours as its overhead allocation base.This company makes two products: (1) Fancy X ,which requires three direct labor hours per unit,and (2)Plain X,which requires one direct labor hour per unit.If the company plans to make 20,000 units of Fancy X and 20,000 units of Plain X,then each unit produced will be allocated the same amount of overhead.

Time Bender Company makes watches and clocks.The following estimated data are available for the company's next fiscal year: Total direct labor costs: $1,700,000 Total setup costs: $190,000 $\begin{array} { | l | c | c | } \hline & \text { Watches } & \text { Clocks } \\\hline \text { Expected production } & 800,000 & 100,000 \\\hline \text { Direct labor hours needed } & 68,000 D L H & 17,000 D L . H \\\hline \text { Machine setups needed } & 1,000 \text { setups } & 1,000 \text { setups } \\\hline\end{array}$ Determine the setup cost per unit for the watches and the clocks if setup costs are assigned using a plantwide overhead rate based on direct labor hours.(Round to two decimal places.)