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Exam 4: Activity Based Costing and Analysis

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Question 61

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

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Question 62

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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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Question 63

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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 below. Compute the company's activity rates under activity-based costing for each of the three activities.

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

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

Tarnish Industries uses departmental overhead rates and is planning on a $2 per direct labor hour overhead rate for the molding department. Compute the estimated manufacturing overhead cost for the molding department given the information shown in the table.

What are the overhead rates used to apply material handling (MH) and storage costs (SC) using activity-based costing?

Malone's plantwide overhead rate will be $20.99 per direct labor hour next year.

Which of the following is true?

How much overhead cost will be assigned to each unit of product using activity-based costing (ABC) ?

What are the main advantages of volume-based allocation methods compared to activity-based costing?

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 A1 under activity-based costing?

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: 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?

Which of the following companies would be best served by a plantwide overhead rate?

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

Cleveland Choppers manufactures two types of motorcycles, a Base and a Loaded model. The following activity and costs have been gathered: The number of components and number of setups are chosen as activity-cost drivers for overhead. Assuming an ABC costing system is being used, what is the total overhead cost assigned to the Base model?

Examples of volume-related measures include direct labor hours and machine hours.

Data concerning volume-related measures are readily available in most manufacturing settings.

Activities causing overhead cost in an organization are typically separated into four levels: (1) direct activities, (2) indirect activities, (3) batch level activities, and (4) facility level activities.

Identify and explain the four control levels associated with activity-based costing.