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Exam 17: Activity-Based Costing and Analysis

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Question 51

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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.

A) True
B) False

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Question 52

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Overhead costs cannot be ________________________ in the same way that direct materials and direct labor can.

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Question 53

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ssume that a pet food manufacturer is considering adding two types of pet food to their existing product line. Research had determined that there is good demand for dog food in forty pound bags and cat food in one-half pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year. -Refer to the data above. How much overhead cost will be assigned to each product line using activity-based costing (ABC) ?

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

If the direct labor time estimates are met, Kudzu will allocate $10.50 of overhead cost to each unit of Little X. 2 units of Little X are produced each hour. $21/2 = $10.50

Superior Products Manufacturing identified the following data in its two production departments. $\begin{array} { | l | c | c | } \hline & \text { Assembly } & \text { Finishing } \\\hline \begin{array} { l } \text { Manufacturing overhead } \\\text { costs }\end{array} & \$ 225,000 & \$ 420,000 \\\hline \text { Direct labor hours worked } & 6,600 \mathrm { DLH } & 9,000 \mathrm { DLH } \\\hline \text { Machine hours used } & 2,400 \mathrm { MH } & 5,200 \mathrm { MH } \\\hline\end{array}$ Make the following independent calculations (Round to two decimals). (a.) Compute a plantwide overhead rate using machine hours as the allocation base. (b.) Compute a plantwide overhead rate using direct labor hours as the allocation base.

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 baking department based on direct labor hours.

The cost object(s) of the activity-based costing method is(are) :

In activity-based costing, an activity can involve several related tasks.

The following data relates to All-Out Company's estimated amounts for next year. $\begin{array}{lcc}\text { Estimated: } & \text { Department 1 } & \text { Department 2 } \\\text { Manufacturing overhead costs } & \$ 200,000 & \$ 400,000 \\\text { Direct labor hours } & 60,000 \mathrm{DLH} & 80,000 \mathrm{DLH} \\\text { Machine hours } & 1,000 \mathrm{MH} & 3,000 \mathrm{MH}\end{array}$ What is the company's plantwide overhead rate if machine hours are the allocation base? (Round to two decimal places.)

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.

Greene Company uses a plantwide overhead rate with direct-labor hours as the allocation base. Use the following information to solve for the amount of direct-labor hours estimated per unit of product G2.

Explain some of the disadvantages of the departmental overhead rate method.

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

Name and briefly describe three overhead rate methods.

A company has two products: AA and BB. It uses a plantwide overhead allocation method based on activity 33 and has prepared the following analysis showing budgeted costs and activities. Use this information to compute the company's plantwide overhead rate.

ssume that a pet food manufacturer is considering adding two types of pet food to their existing product line. Research had determined that there is good demand for dog food in forty pound bags and cat food in one-half pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year. -Refer to the data above. How much overhead cost will be assigned to each unit of product using activity-based costing (ABC) ?

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. $\begin{array} { | l | r | r | r | r | } \hline & & { \text { Budgeted Activity } } \\\hline \begin{array} { l } \text { Activity Cost } \\\text { Pool }\end{array} & { \begin{array} { l } \text { Budgeted } \\\text { Cost }\end{array} } & \text { Product A } & \text { Product B } & \text { Product C } \\\hline \text { Activity 1 } & \$ 140,000 & 7,500 & 4,000 & 6,000 \\\hline \text { Activity 2 } & \$ 54,000 & 2,500 & 2,000 & 1,500 \\\hline \text { Activity 3 } & \$ 28,000 & 15,000 & 25,000 & 30,000 \\\hline\end{array}$ Compute the company's activity rates under activity-based costing for each of the three activities.

Outer Limits, Inc. produces fencing units which require two processes, A and B, to complete. The best selling type of fence is made of pvc. Information related to the 8,000 units of pvc fencing produced annually is shown below. Outer Limits' total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in department A and direct labor hours in departmentB. Determine the total amount of overhead assigned to each unit of pvc fencing.

Product level costs do not vary with the number of units or batches produced.