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Exam 4: Activity-Based Costing and Analysis

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Question 101

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[The following information applies to the questions displayed below.] 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: Wall Nuts' total expected overhead costs and related overhead data are shown below. -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) $4.50 per MH in Dept. A; $4.50 per MH in Dept. B.
B) $7.50 per MH in Dept. A; $7.50 per MH in Dept. B.
C) $4.50 per MH in Dept. A; $7.50 per MH in Dept. B.
D) $2.70 per MH in Dept. A; $6.00 per MH in Dept. B.
E) $0.60 per MH in Dept. A; $0.80 per MH in Dept. B.

F) A) and E)
G) A) and B)

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Question 102

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Which of the following costing systems is more accurate for overhead cost allocation and most likely to allow managers the ability to make better pricing decisions?

A) Departmental overhead allocation rates.
B) Plantwide overhead rate.
C) Activity-based costing.
D) Traditional costing system.
E) Direct costing.

F) None of the above
G) C) and D)

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Question 103

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[The following information applies to the questions displayed below.] Assume that a pet food manufacturer is considering adding two types of pet food to its existing product line. Research had determined that good demand exists for dog food in 40-pound bags and cat food in 0.5 pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year: -How much overhead cost will be assigned to each unit of product using activity-based costing (ABC) ?

The unit of product is the cost object when the plantwide overhead rate method is used.

The plantwide overhead rate is determined using volume-related measures.

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

Which of the following would not be considered a product cost?

[The following information applies to the questions displayed below.] 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 $4.10 per machine hour overhead rate for the finishing department. Compute the estimated manufacturing overhead cost for the finishing department given the information shown in the table.

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

Freeze Frame, Inc. produces cameras that require three processes, A, B, and C, to complete. Digital camera model #789 is the best-selling of all the many types of cameras produced. Information related to the 550,000 units of digital camera model #789 produced annually is shown below. Freeze Frame's total expected overhead costs and related overhead data are shown below: $\begin{array} { | l | l | l | l | } \hline & \text { Department A } & \text { Department B } & \text { Department C } \\\hline \text { Direct labor hours } & 90,000 \mathrm { DLH } & 75,000 \mathrm { DLH } & 42,000 \mathrm { DLH } \\\hline \text { Machine hours } & 67,500 \mathrm { MH } & 135,000 \mathrm { MH } & 53,200 \mathrm { MH } \\\hline \text { Manufacturing overhead costs } & \$ 540,000 & \$ 675,000 & \$ 399,000 \\\hline\end{array}$ a. Compute a departmental overhead rate for department A based on direct labor hours. b. How much overhead is associated with model 789 from department A? c. Compute a departmental overhead rate for department B based on direct labor hours. d. How much overhead is associated with model 789 from department B? e. Compute a departmental overhead rate for department C based on direct labor hours. f. How much overhead is associated with model 789 from department C? g. What is the per unit cost of the 550,000 units of model 789?

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.

[The following information applies to the questions displayed below.] Angle Max Industries produces a product which goes through two operations, Assembly and Finishing, before it is ready to be shipped. Next year's expected costs and activities are shown below. -Assume that the Assembly Department allocates overhead based on machine hours, and the Finishing Department allocates overhead based on direct labor 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?

Multiple cost pools are used when allocating overhead using the plantwide overhead rate method.

The cost object(s) of the departmental overhead rate method is:

Activity-based costing often shifts overhead costs from large volume, standardized products to low-volume, specialty products that consume disproportionate resources.

[The following information applies to the questions displayed below.] Aztec Industries produces bread which goes through two operations, mixing and baking, before it is ready to be packaged. Next year's expected costs and activities are shown below. -Compute Aztec's departmental overhead rate for the mixing department based on direct labor hours.

Fischer Company identified the following activities, costs, and activity drivers: $\begin{array} { | l | l | l | } \hline \text { Activity } & \text { Expected Costs } & \text { Expected Activity } \\\hline \text { Handling parts } & \$ 425,000 & 25,000 \text { parts in stock } \\\hline \text { Inspecting product } & \$ 390,000 & 940 \text { batches } \\\hline \text { Processing purchase orders } & \$ 220,000 & 440 \text { orders } \\\hline \text { Designing packaging } & \$ 230,000 & 5 \text { models } \\\hline\end{array}$ a. Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals). b. Compute separate rates for each of the four activities using the activity-based costing.

A company produces paint that goes through two operations, operation A and operation B, before it is complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for Department B based on machine hours is $4 per machine hour.

If the direct labor time estimates are met, Malone will allocate $12.59 of overhead cost to each unit of Little X.

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.