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Exam 17: Activity-Based Costing and Analysis

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Question 21

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

A) True
B) False

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Question 22

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A company estimates that overhead costs for the next year will be $3,600,000 for indirect labor, $200,000 for factory utilities and $21,500 for depreciation on factory machinery. The company uses machine hours as its overhead allocation base. If 764,300 machine hours are planned for this next year, what is the company's plantwide overhead rate?

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($3,600,000 + $200,0...

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Question 23

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

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

Activity-based costing first assigns costs to products and then uses these product costs to assign costs to manufacturing activities.

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

Lake Prairie Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 500,000 units are expected to be produced taking .75 machine hours each. How much overhead will be assigned to each unit produced given the following estimated amounts? $\begin{array}{lcc}\text { Estimated: } & \text { Department 1 } & \text { Department 2 } \\\text { Manufacturing overhead costs } & \$ 3,107,500 & \$ 1,520,000 \\\text { Direct labor hours } & 150,000 \mathrm{DLH} & 200,000 \mathrm{DLH} \\\text { Machine hours } & 200,000 \mathrm{MH} & 175,000 \mathrm{MH}\end{array}$

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

A company has two products: Big and Little. 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 big product is 62,525 units, and the annual production and sales level of little product is 251,900 units. (a.) Compute the approximate overhead cost per unit of big product under activity-based costing. (b.) Compute the approximate overhead cost per unit of little product under activity-based costing.

When using the plantwide overhead rate method, total budgeted overhead costs are combined into one overhead cost pool.

The major advantages of using a single plantwide overhead rate are ____________________ and ____________________.

Upside Down, Incorporated designs custom storage spaces to eliminate clutter in both residential and business settings. 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.

Why is overhead allocation under ABC usually more accurate than either the plantwide overhead allocation method or the departmental overhead allocation method?

Activity-based costing eliminates the need for overhead allocation rates.

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 Set-up costs$190,000 Determine the set-up cost per unit for the watches and the clocks if set-up costs are assigned using a plantwide overhead rate based on direct labor hours (Round to two decimal places)

The more activities tracked by activity-based costing, the more accurately overhead costs are assigned.

Which of the following are advantages of using the plantwide overhead rate method?

Blast Rocket Company manufactures candy-coated popcorn treats which go through two operations, popping and baking, before they are complete. Expected costs and activities for the two departments are shown below. $\begin{array} { | l | c | c | } \hline & \text { Popping } & \text { Baking } \\\hline \text { Direct labor hours } & 238,000 \mathrm { DLH } & 50,000 \mathrm { DLH } \\\hline \text { Machine hours } & 25,000 \mathrm { MH } & 141,500 \mathrm { MH } \\\hline \text { Overhead costs } & \$ 357,000 & \$ 452,800 \\\hline\end{array}$ (a.) Compute a departmental overhead rate for the popping department based on direct labor hours. (b.) Compute a departmental overhead rate for the baking department based on machine hours.

The cost object of the plantwide overhead rate method is:

Because departmental overhead costs are allocated based on measures closely related to production volume, they accurately assign overhead, such as utility costs.