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Exam 4: Activity-Based Costing and Analysis

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Question 61

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Which of the following statements is true with regard to the departmental overhead rate method?

A) It is logical to use this method when overhead resources are consumed by various products in substantially the same way throughout multiple departments.
B) It is logical to use this method when overhead resources are consumed by various products in substantially different ways throughout multiple departments.
C) Each department has the same rate for the same activity pool.
D) It requires one overhead cost pool and one rate.
E) It is the same as activity-based costing.

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Question 62

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Lemon Yellow Company produces children's clothing that requires two processes, cutting and sewing, to complete. The company is concerned about one product, a hooded jacket, which hasn't been selling as well as it had in past years. Information related to the 20,000 jackets produced annually is shown in the following table: Lemon Yellow'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 Cutting Department and machine hours in the Sewing Department. Assume this jacket currently sells for $10. How much profit does the company make per jacket?

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Cutting Dept. overhead: $480,000/16,000 ...

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Question 63

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Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor.

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.

Overhead costs are indirect costs so assigning these costs to products requires an allocation method.

What are three advantages of activity-based costing over traditional volume-based allocation methods?

A company estimates that overhead costs for the next year will be $8,320,000 for indirect labor and $155,500 for factory utilities. The company uses machine hours as its overhead allocation base. If 400,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

Base Runner, Inc. manufactures baseball bats that go through two operations, cutting and sanding, before they are complete. Expected costs and activities for the two departments are shown in the following table: $\begin{array} { | l | l | l | } \hline & \text { Cutting } & \text { Sanding } \\\hline \text { Direct labor hours } & 50,000 \mathrm { DLH } & 5,000 \mathrm { DLH } \\\hline \text { Machine hours } & 25,000 \mathrm { MH } & 50,000 \mathrm { MH } \\\hline \text { Overhead costs } & \$ 50,000 & \$ 37,500 \\\hline\end{array}$ a. Compute a departmental overhead rate for the cutting department based on machine hours. b. Compute a departmental overhead rate for the sanding department based on machine hours.

What is the basic principle underlying activity-based costing?

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

Bark Mode, Incorporated produces and distributes two types of security systems, Standard and Deluxe. Budgeted cost and activity for each of its three activity cost pools are shown below. The company plans to produce and sell 120,000 standard units and 80,000 deluxe units. a. Compute the approximate overhead cost per unit of standard under activity-based costing. b. Compute the approximate overhead cost per unit of deluxe under activity-based costing.

The ________ overhead rate method uses a different overhead rate for each production department.

Departments are the cost objects when the plantwide overhead rate method is used.

Product costs consist of direct labor, direct materials, and ________.

The ________ overhead rate method uses multiple volume-based measures to allocate overhead costs to products.

From an ABC perspective, what causes costs to be incurred?

[The following information applies to the questions displayed below.] Assume that the Oregon Ice Cream Company is considering the costs of two of their product lines-ice cream sandwiches and dessert bars. 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 the ice cream sandwich product line using activity-based costing (ABC) ?

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

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: Design department $\begin{array} { l l l } \text { Client consultation } & 500 \text { contact hours } & \$ 100,000 \\ \text { Drawing } & 1,000 \text { design hours } & \$ 75,000 \\ \text { Models } & 20,000 \text { square feet } & \$ 25,000 \end{array}$ Project Management $\begin{array} { l l l } \text { Supervision } & 250 \text { days } & \$ 43,750 \\ \text { Billings } & 150 \text { jobs } & \$ 52,500 \end{array}$ 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.

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