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Exam 17: Activity-Based Costing and Analysis

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Question 1

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The cost object of the departmental overhead rate method is:

A) The unit of product.
B) The production departments of the company.
C) The production departments in the first stage and the unit of product in the second stage.
D) The unit of product in the first stage and the production departments in the second stage.
E) The production activities of the company.

F) D) and E)
G) All of the above

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Question 2

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When products differ in batch size and complexity, they usually consume different amounts of overhead resources.

A) True
B) False

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Question 3

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Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for indirect labor and $400,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 50,000 direct labor hours are planned for this next year, then the plantwide overhead rate is $.025 per direct labor hour.

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

Freeze Frame, Inc. produces cameras which 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?

In competitive markets, the price of a given product is established through the forces of supply and demand.

What is the basic principle underlying activity-based costing?

The _______________ stage of ABC is to compute an activity rate for each cost pool and then use this rate to allocate overhead costs to products.

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

The ________________________ overhead rate method uses a single rate for allocating overhead costs to products.

Superior Products Manufacturing identified the following data in its two production departments. $\begin{array} { | l | c | c | } \hline & \text { Assembly } & \text { Finishing } \\\hline \begin{array} { l } \text { Manufacturing overhead } \\\text { costs }\end{array} & \$ 225,000 & \$ 420,000 \\\hline \text { Direct labor hours worked } & 6,600 \mathrm { DLH } & 10,000 \mathrm { DLH } \\\hline \text { Machine hours used } & 2,400 \mathrm { MH } & 5,200 \mathrm { MH } \\\hline\end{array}$ Compute departmental overhead rates assuming the Assembly rate is based on machine hours and the Finishing rate is based on direct labor hours.

Aurora Corporation produces outdoor security lighting products. All products go through three processes before completion. Use the expected overhead costs and related data shown below to compute departmental overhead rates based on machine hours in Department A1A; based on direct labor hours in Department B2B; and machine hours in Department C3C.

Heritage 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 below. -Heritage Industries uses departmental overhead rates and is planning on a $1.60 per direct labor hour overhead rate for the finishing department. Compute the estimated manufacturing overhead cost for the finishing department given the information above.

A company has two products: A and B. It uses a plantwide overhead allocation method based on activity 2 and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's plantwide overhead rate and (b) the amount of overhead allocated to Product A.

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

Kudzu Company sells two products Big X and Little X. Current direct material and direct labor costs are detailed below. Next year, the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $525,000. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $20 per hour and the company expects to manufacture 16,000 units of Big X and 18,000 units of Little X next year. $\begin{array}{|c|c|c|}\hline & \text { Direct } & \text { Direct } \\& \text { Material } & \text { Labor Dollars } \\&\text { Per Unit } & \text { Per Unit } \\\hline \text { Big X } & \$ 5 & \$ 20 \\\hline \text { Little X } & \$ 3 & \$ 10 \\\hline\end{array}$ -Kudzu's plantwide overhead rate will be $21 per direct labor hour next year. Plantwide overhead rate = $525,000/25,000 DLH = $21 per DLH

Consider the following activities which take place in a veterinary clinic. (a.) Cleaning cages (b) ) Heating and air conditioning the clinic (c) ) Sending blood work to a lab (d) ) Dispensing medicine Which of the following statements is(are) true?

Product pricing, product mix decisions, and cost control are examples of _________________ activities.

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

Crinkle Cut Clothes Company manufactures two products CC1 and CC2. Current direct material and direct labor costs are detailed below. Next year the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $338,250. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year. Compute the plantwide overhead rate for next year.