Assignment 4

 

1.  Which of the following is a reason for the popularity of plantwide overhead rates to allocate overhead costs?

 

multiple choice
Simplicity
Traceability
Accuracy
Lower allocation base

 

2.   In an activity-based costing system, _____________  expresses how much of the activity is carried out and is used as the allocation base for assigning overhead costs

 

 

3.   Which of the following are part of the four-level hierarchy used in activity-based costing systems? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

 

check all that apply
Batch-level activities
Company-wide activities
Facility-level activities
Overhead activities
Product-level activities
Unit-level activities.

 

 

4.   Which of the following is a product-level activity?

 

multiple choice
Processing units by hand
General factory administration
Processing purchase orders
Administering parts inventories

 

 

5.  The following activities occur at Greenwich Corporation, a company that manufactures a variety of products:

Required:

Classify each of the activities below as either a unit-level, batch-level, product-level, or facility-level activity.

Activity	Activity Classification
a. Various individuals manage the parts inventories.
b. A clerk in the factory issues purchase orders for a job.
c. The personnel department trains new production workers.
d. The factory’s general manager meets with other department heads to coordinate plans.
e. Direct labor workers assemble products.
f. Engineers design new products.
g. The materials storekeeper issues raw materials to be used in jobs.
h. The maintenance department performs periodic preventive maintenance on general-use equipment.

 

 

6.   Under an ABC system, overhead costs are allocated to the products using a two-stage process. What happens during the second stage of that process?

 

We allocate the overhead costs to individual activity pools.
We allocate the costs in the activity pools to the products using activity rates and activity measures. Correct
We identify the activity pools.
We calculate the activity rate for each activity pool.

 

 

7.   Helio Company has two products: A and B. The annual production and sales of Product A is 1,850 units and of Product B is 1,250 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $100,485. What is the company’s predetermined overhead rate?

 

 

8.

Transformation Corporation has provided the information set forth above regarding the overhead to be allocated between the two products it produces: CDE and EFG. What is the activity rate for the hand-processing units activity?

 

$3.20 per setup
$5.00 per setup
$150.00 per part-type
$3.20 per direct labor-hour

 

 

9.  Rustafson Corporation is a diversified manufacturer of consumer goods. The company’s activity-based costing system has the following seven activity cost pools:

 
Activity Cost Pool    Estimated Overhead Cost    Expected Activity
Labor-related    $ 21,200    5,000    direct labor-hours
Machine-related    $ 2,000    8,000    machine-hours
Machine setups    $ 48,000    1,000    setups
Production orders    $ 9,800    200    orders
Product testing    $ 22,800    600    tests
Packaging    $ 64,600    3,800    packages
General factory    $ 56,000    5,000    direct labor-hours

2. Compute the company’s predetermined overhead rate, assuming that the company uses a single plantwide predetermined overhead rate based on direct labor-hours. (Round your answer to 2 decimal places.)

 

 

10.  Activities    Activity Rates
Assembly    $ 14.35    per machine-hour
Processing Orders    $ 47.85    per order
inspection    $ 70.30    per inspection-hour
 

True Blue Corporation provided the data set forth above from its activity-based costing system. The company makes 430 units of product D28K a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product’s direct materials cost is $35.82 per unit and its direct labor cost is $29.56 per unit. What is the unit product cost of product D28K? (Round your answer to 2 decimal places.)

 

 

11.  Harrington Company has two products: A and B. The annual production and sales of Product A is 1,750 units and of Product B is 1,150 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.7 direct labor-hours per unit. The predetermined overhead rate is $66.00 per direct labor-hour. What it the amount of overhead cost that will be allocated to each unit of Product B? (Round your answer to 2 decimal places.)

 

 

12.

Implementing an activity-based costing system often results in a shift of overhead costs from:

 

overpriced to underpriced products.
unit-level to batch-level activities.
high-volume to low-volume products.
low-volume to high-volume products.

 

13.  Activity-based management involves focusing on activities to:

 

avoid cost shifts due to the use of activity-based costing.
identify a single allocation base that causes overhead costs.
decrease the cost of implementing an activity-based costing system.
eliminate waste, decrease processing time, and reduce defects.

 

 

14.   Activity-based costing improves accuracy of product costs by:

 

using multiple-activity pools to accumulate overhead costs.
relying on a single measure that causes overhead costs.
implementing absorption costing approach for decision-making purposes.
using departmental overhead rates that vary by process.

 

 

15.  Larner Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

 

Activity Cost Pool    Activity Rates
Labor-related    $ 8.00    per direct labor-hour
Machine-related    $ 9.00    per machine-hour
Machine setups    $ 50.00    per setup
Production orders    $ 100.00    per order
Shipments    $ 180.00    per shipment
General factory    $ 9.00    per direct labor-hour
  

Cost and activity data have been supplied for the following products:

  

     J78    B52
Direct materials cost per unit    $ 4.50    $ 45.00
Direct labor cost per unit    $ 4.75    $ 10.00
Number of units produced per year    4,000    500
 

     Total Expected Activity
J78    B52
Direct labor-hours    900    50
Machine-hours    2,900    20
Machine setups    4    4
Production orders    8    4
Shipments    12    4
 

Required:

Compute the unit product cost of each product listed above. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

 

16. 

Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 37,000 units next year and Product L is expected to sell 7,400 units. A unit of either product requires 0.4 direct labor-hours.

 

The company’s total manufacturing overhead for the year is expected to be $1,509,600.

 

Required:

1-a. The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product?

1-b. Compute the total amount of overhead cost that would be applied to each product.

2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $754,800 assigned to Product H and $754,800 assigned to Product L.

If this suggestion is followed, how much overhead cost per unit would be assigned to each product?

 

 

17. 

Gino’s Restaurant is a popular restaurant in Boston, Massachusetts. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified the following major activities:

 

Activity Cost Pool    Activity Measure
Serving a party of diners    Number of parties served
Serving a diner    Number of diners served
Serving drinks    Number of drinks ordered
 

A group of diners who ask to sit at the same table is counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served.

  

Data concerning these activities are shown below:

   

     Serving a Party    Serving a Diner    Serving Drinks    Total
Total cost    $ 19,000         $ 112,000         $ 91,800         $ 222,800
Total activity    5,000    parties    20,000    diners    51,000    drinks     
 

Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month was $222,800 and that 20,000 diners had been served. Therefore, the average cost per diner was $11.14 ($222,800 ÷ 20,000 diners = $11.14 per diner).

 

Required:

1. Compute the activity rates for each of the three activities.

2. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners?

a. A party of four diners who order three drinks in total.

b. A party of two diners who do not order any drinks.

c. A lone diner who orders two drinks.

3. Convert the total costs you computed in part (2) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties?

a. A party of four diners who order three drinks in total.

b. A party of two diners who do not order any drinks.

c. A lone diner who orders two drinks.