Activity-Based Costing: A Tool to Aid Decision Making
True/False Questions
1. If a manufacturing company is using activity-based costing for internal purposes only, then organization-sustaining overhead costs should not be allocated to any of the products.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
2. Batch-level activities are performed each time a batch of goods is handled or processed.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
3. Organization-sustaining activities are carried out regardless of how many units are made, how many batches are run, or how many different products are made.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
4. Direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
5. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” costs.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
6. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
7. A duration driver provides a measure of the amount of time required to perform an activity.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
8. In general, transaction drivers are more accurate measures of the consumption of resources than duration drivers.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
9. The costs of idle capacity should not be assigned to products in activity-based costing.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
10. In traditional costing systems, all manufacturing costs are assigned to products--even manufacturing costs that are not caused by the products.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
11. Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs on the basis of direct labor hours.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
12. In activity-based costing, some costs may be broken down and assigned to two activity cost pools. For example, part of a supervisor's salary may be classified as a product-level activity and part of it may be classified as a batch-level activity.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
13. Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
14. In the second-stage allocation in activity-based costing, activity rates are used to apply costs to products, customers, and other cost objects.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium
15. When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium
Multiple Choice Questions
16. Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _________ percentage of total product cost and where there is ___________ diversity among the various products that they produce.
A) low, little
B) low, considerable
C) high, little
D) high, considerable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
17. Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-sustaining?
| |Security |Assembly |
|A) |Product |Unit |
|B) |Batch |Batch |
|C) |Organization |Unit |
|D) |Organization |Product |
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
18. Which of the following would be an acceptable measure of activity for a material handling activity cost pool?
| |Number of |Weight of |
| |material moves |material moved |
|A) |Yes |Yes |
|B) |No |Yes |
|C) |Yes |No |
|D) |No |No |
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
19. An activity-based costing system that is designed for internal decision-making generally will not conform to generally accepted accounting principles. Which of the following is NOT a reason for this happening?
A) Some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.
B) Some nonmanufacturing costs are assigned to products.
C) Allocation bases other than direct labor-hours, direct labor cost, and machine-hours are used.
D) First-stage allocations may be based on subjective interview data.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard
20. Providing the power required to run production equipment is an example of a:
A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
21. Parts administration is an example of a:
A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining.
Ans: C LO: 1 Level: Medium
22. If a cost object such as a product or customer has a negative green margin, then:
A) its red margin will be positive.
B) its red margin may be either positive or negative.
C) its red margin will be negative.
D) its red margin will be zero.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium
23. Tatman Corporation uses an activity-based costing system with the following three activity cost pools:
| |Activity Cost Pool |Total Activity |
| |Fabrication |10,000 machine-hours |
| |Order processing |800 orders |
| |Other |Not applicable |
The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.
The company has provided the following data concerning its costs:
| |Wages and salaries |$320,000 |
| |Depreciation |220,000 |
| |Occupancy | 120,000 |
| |Total |$660,000 |
The distribution of resource consumption across activity cost pools is given below:
| | |Activity Cost Pools |
| | |Fabrication |Order Processing |Other |Total |
| |Wages and salaries |20% |65% |15% |100% |
| |Depreciation |15% |35% |50% |100% |
| |Occupancy |5% |70% |25% |100% |
The activity rate for the Fabrication activity cost pool is closest to:
A) $3.30 per machine-hour
B) $13.20 per machine-hour
C) $10.30 per machine-hour
D) $8.80 per machine-hour
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Total Fabrication Cost:
| |Wages and salaries: 20% × $320,000 |$ 64,000 |
| |Depreciation: 15% × $220,000 |33,000 |
| |Occupancy: 5% × $120,000 | 6,000 |
| |Total |$103,000 |
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Fabrication |$103,000 |10,000 machine-hours |$10.30 per machine-hour |
24. Leaper Corporation uses an activity-based costing system with the following three activity cost pools:
| |Activity Cost Pool |Total Activity |
| |Fabrication |40,000 machine-hours |
| |Order processing |200 orders |
| |Other |Not applicable |
The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.
The company has provided the following data concerning its costs:
| |Wages and salaries |$360,000 |
| |Depreciation |140,000 |
| |Occupancy | 160,000 |
| |Total |$660,000 |
The distribution of resource consumption across activity cost pools is given below:
| | |Activity Cost Pools |
| | |Fabrication |Order Processing |Other |Total |
| |Wages and salaries |35% |40% |25% |100% |
| |Depreciation |5% |55% |40% |100% |
| |Occupancy |30% |45% |25% |100% |
The activity rate for the Order Processing activity cost pool is closest to:
A) $1,485 per order
B) $1,540 per order
C) $1,465 per order
D) $1,320 per order
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Total Order Processing Cost:
| |Wages and salaries: 40% × $360,000 |$144,000 |
| |Depreciation: 55% × $140,000 |77,000 |
| |Occupancy: 45% × $160,000 | 72,000 |
| |Total |$293,000 |
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Order Processing |$293,000 |200 orders |$1,465 per order |
25. Huelskamp Corporation has provided the following data concerning its overhead costs for the coming year:
| |Wages and salaries |$360,000 |
| |Depreciation |120,000 |
| |Rent | 180,000 |
| |Total |$660,000 |
The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:
| |Activity Cost Pool |Total Activity |
| |Assembly |60,000 labor-hours |
| |Order processing |400 orders |
| |Other |Not applicable |
The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:
| | |Activity Cost Pools |
| | |Assembly |Order Processing |Other |Total |
| |Wages and salaries |25% |65% |10% |100% |
| |Depreciation |15% |45% |40% |100% |
| |Rent |35% |40% |25% |100% |
The activity rate for the Assembly activity cost pool is closest to:
A) $2.65 per labor-hour
B) $3.85 per labor-hour
C) $2.85 per labor-hour
D) $2.75 per labor-hour
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Total Assembly Cost:
| |Wages and salaries: 25% × $360,000 |$ 90,000 |
| |Depreciation: 15% × $120,000 |18,000 |
| |Rent: 35% × $180,000 | 63,000 |
| |Total |$171,000 |
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Assembly |$171,000 |60,000 labor-hours |$2.85 per labor-hour |
26. Bennette Corporation has provided the following data concerning its overhead costs for the coming year:
| |Wages and salaries |$340,000 |
| |Depreciation |120,000 |
| |Rent | 140,000 |
| |Total |$600,000 |
The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:
| |Activity Cost Pool |Total Activity |
| |Assembly |30,000 labor-hours |
| |Order processing |500 orders |
| |Other |Not applicable |
The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:
| | |Activity Cost Pools |
| | |Assembly |Order Processing |Other |Total |
| |Wages and salaries |40% |35% |25% |100% |
| |Depreciation |15% |45% |40% |100% |
| |Rent |35% |30% |35% |100% |
The activity rate for the Order Processing activity cost pool is closest to:
A) $430 per order
B) $420 per order
C) $360 per order
D) $440 per order
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Total Order Processing Cost:
| |Wages and salaries: 35% × $340,000 |$119,000 |
| |Depreciation: 45% × $120,000 |54,000 |
| |Rent: 30% × $140,000 | 42,000 |
| |Total |$215,000 |
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Order Processing |$215,000 |500 orders |$430 per order |
27. Eccles Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:
Costs:
| |Wages and salaries |$340,000 |
| |Depreciation |180,000 |
| |Utilities | 200,000 |
| |Total |$720,000 |
Distribution of resource consumption:
| | |Activity Cost Pools |
| | |Assembly |Setting Up |Other |Total |
| |Wages and salaries |20% |60% |20% |100% |
| |Depreciation |15% |35% |50% |100% |
| |Utilities |5% |55% |40% |100% |
How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?
A) $144,000
B) $96,000
C) $36,000
PD) $105,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Total Assembly Cost:
| |Wages and salaries: 20% × $340,000 |$ 68,000 |
| |Depreciation: 15% × $180,000 |27,000 |
| |Utilities: 5% × $200,000 | 10,000 |
| |Total |$105,000 |
28. Mayeux Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:
Costs:
| |Wages and salaries |$320,000 |
| |Depreciation |160,000 |
| |Utilities | 240,000 |
| |Total |$720,000 |
Distribution of resource consumption:
| | |Activity Cost Pools |
| | |Assembly |Setting Up |Other |Total |
| |Wages and salaries |50% |40% |10% |100% |
| |Depreciation |10% |55% |35% |100% |
| |Utilities |15% |50% |35% |100% |
How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool?
A) $360,000
B) $336,000
C) $288,000
D) $348,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Total Setting Up Cost:
| |Wages and salaries: 40% × $320,000 |$128,000 |
| |Depreciation: 55% × $160,000 |88,000 |
| |Utilities: 50% × $240,000 | 120,000 |
| |Total |$336,000 |
29. Gutknecht Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:
Costs:
| |Wages and salaries |$300,000 |
| |Depreciation |180,000 |
| |Utilities | 240,000 |
| |Total |$720,000 |
Distribution of resource consumption:
| | |Activity Cost Pools |
| | |Assembly |Setting Up |Other |Total |
| |Wages and salaries |35% |40% |25% |100% |
| |Depreciation |5% |60% |35% |100% |
| |Utilities |10% |60% |30% |100% |
How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?
A) $138,000
B) $210,000
C) $180,000
D) $216,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Total Other Cost:
| |Wages and salaries: 25% × $300,000 |$ 75,000 |
| |Depreciation: 35% × $180,000 |63,000 |
| |Utilities: 30% × $240,000 | 72,000 |
| |Total |$210,000 |
30. Lakatos Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:
Costs:
| |Wages and salaries |$420,000 |
| |Depreciation |240,000 |
| |Occupancy | 220,000 |
| |Total |$880,000 |
The distribution of resource consumption across the three activity cost pools is given below:
| | |Activity Cost Pools |
| | |Fabricating |Order Processing |Other |Total |
| |Wages and salaries |10% |75% |15% |100% |
| |Depreciation |5% |50% |45% |100% |
| |Occupancy |30% |35% |35% |100% |
How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool?
A) $88,000
B) $132,000
C) $264,000
D) $120,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Total Fabricating Cost:
| |Wages and salaries: 10% × $420,000 |$ 42,000 |
| |Depreciation: 5% × $240,000 |12,000 |
| |Occupancy: 30% × $220,000 | 66,000 |
| |Total |$120,000 |
31. Perl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:
Costs:
| |Wages and salaries |$360,000 |
| |Depreciation |200,000 |
| |Occupancy | 100,000 |
| |Total |$660,000 |
The distribution of resource consumption across the three activity cost pools is given below:
| | |Activity Cost Pools |
| | |Fabricating |Order Processing |Other |Total |
| |Wages and salaries |15% |60% |25% |100% |
| |Depreciation |20% |35% |45% |100% |
| |Occupancy |25% |50% |25% |100% |
How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool?
A) $336,000
B) $319,000
C) $330,000
D) $396,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Total Order Processing Cost:
| |Wages and salaries: 60% × $360,000 |$216,000 |
| |Depreciation: 35% × $200,000 |70,000 |
| |Occupancy: 50% × $100,000 | 50,000 |
| |Total |$336,000 |
32. Hosley Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:
Costs:
| |Wages and salaries |$360,000 |
| |Depreciation |100,000 |
| |Occupancy | 120,000 |
| |Total |$580,000 |
The distribution of resource consumption across the three activity cost pools is given below:
| | |Activity Cost Pools |
| | |Fabricating |Order Processing |Other |Total |
| |Wages and salaries |50% |40% |10% |100% |
| |Depreciation |10% |45% |45% |100% |
| |Occupancy |5% |60% |35% |100% |
How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?
A) $123,000
B) $174,000
C) $58,000
D) $203,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Total Other Cost:
| |Wages and salaries: 10% × $360,000 |$ 36,000 |
| |Depreciation: 45% × $100,000 |45,000 |
| |Occupancy: 35% × $120,000 | 42,000 |
| |Total |$123,000 |
33. Feldpausch Corporation has provided the following data from its activity-based costing system:
| |Activity Cost Pool |Total Cost |Total Activity |
| |Assembly |$1,137,360 |84,000 |machine-hours |
| |Processing orders |$28,479 |1,100 |orders |
| |Inspection |$97,155 |1,270 |inspection-hours |
The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit. According to the activity-based costing system, the product margin for product W26B is:
A) $6,444.70 per unit
B) $4,679.20 per unit
C) $3,384.70 per unit
D) $16,675.60 per unit
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Assembly |$1,137,360 |84,000 machine-hours |$13.54 per |
| | | | |machine-hour |
| |Processing Orders |28,479 |1,100 orders |$25.89 per order |
| |Inspection |97,155 |1,270 inspection-hours |$76.50 per inspection-hour |
Calculation of Overhead Costs:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Assembly |$13.54 per MH |660 MHs |$8,936.40 |
| |Processing Orders |$25.89 per order |50 orders |$1,294.50 |
| |Inspection |$76.50 per IH |40 IHs |$3,060.00 |
| |Sales | |$55,460.00 |
| |Costs: | | |
| | Direct materials (470 × $40.30) |$18,941.00 | |
| | Direct labor (470 × $42.22) |19,843.40 | |
| | Assembly |8,936.40 | |
| | Processing |1,294.50 | |
| | Inspection | 3,060.00 | 52,075.30 |
| |Product margin | |$ 3,384.70 |
34. Houseal Corporation has provided the following data from its activity-based costing system:
| |Activity Cost Pool |Total Cost |Total Activity |
| |Assembly |$613,250 |55,000 |machine-hours |
| |Processing orders |$46,170 |1,500 |orders |
| |Inspection |$146,110 |1,900 |inspection-hours |
Data concerning one of the company’s products, Product W58B, appear below:
| |Selling price per unit |$113.70 |
| |Direct materials cost per unit |$48.14 |
| |Direct labor cost per unit |$11.62 |
| |Annual unit production and sales |360 |
| |Annual machine-hours |1,040 |
| |Annual orders |60 |
| |Annual inspection-hours |30 |
According to the activity-based costing system, the product margin for product W58B is:
A) $3,668.60
B) $5,975.60
C) $5,515.40
D) $19,418.40
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Assembly |$613,250 |55,000 machine-hours |$11.15 per |
| | | | |machine-hour |
| |Processing Orders |46,170 |1,500 orders |$30.78 per order |
| |Inspection |146,110 |1,900 inspection-hours |$76.90 per inspection-hour |
Calculation of Overhead Costs:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Assembly |$11.15 per MH |1,040 MHs |$11,596.00 |
| |Processing Orders |$30.78 per order |60 orders |$1,846.80 |
| |Inspection |$76.90 per IH |30 IHs |$2,307.00 |
| |Sales (360 × $113.70) | |$40,932.00 |
| |Costs: | | |
| | Direct materials (360 × $48.14) |$17,330.40 | |
| | Direct labor (360 × $11.62) |4,183.20 | |
| | Assembly |11,596.00 | |
| | Processing |1,846.80 | |
| | Inspection | 2,307.00 | 37,263.40 |
| |Product margin | |$ 3,668.60 |
35. Dobles Corporation has provided the following data from its activity-based costing system:
| |Activity Cost Pool |Total Cost |Total Activity |
| |Assembly |$228,060 |18,000 |machine-hours |
| |Processing orders |$34,068 |1,200 |orders |
| |Inspection |$125,560 |1,720 |inspection-hours |
The company makes 420 units of product D28K a year, requiring a total of 460 machine-hours, 80 orders, and 10 inspection-hours per year. The product's direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit. According to the activity-based costing system, the average cost of product D28K is closest to:
A) $95.34 per unit
B) $93.60 per unit
C) $74.32 per unit
D) $89.93 per unit
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Assembly |$228,060 |18,000 machine-hours |$12.67 per |
| | | | |machine-hour |
| |Processing Orders |34,068 |1,200 orders |$28.39 per order |
| |Inspection |125,560 |1,720 inspection-hours |$73.00 per inspection-hour |
Average Cost of Product D28K:
| |Direct materials |$48.96 |
| |Direct labor |25.36 |
| |Assembly [($12.67 × 460) ÷ 420] |13.88 |
| |Processing orders [($28.39 × 80) ÷ 420] |5.40 |
| |Inspection [($73.00 × 10) ÷ 420] | 1.74 |
| | |$95.34 |
36. Paparo Corporation has provided the following data from its activity-based costing system:
| |Activity Cost Pool |Total Cost |Total Activity |
| |Assembly |$846,040 |52,000 |machine-hours |
| |Processing orders |$64,056 |1,700 |orders |
| |Inspection |$102,408 |1,360 |inspection-hours |
Data concerning the company’s product Q79Y appear below:
| |Annual unit production and sales |450 | |
| |Annual machine-hours |1,080 | |
| |Annual number of orders |70 | |
| |Annual inspection hours |20 | |
| |Direct materials cost |$44.00 |per unit |
| |Direct labor cost |$41.03 |per unit |
According to the activity-based costing system, the average cost of product Q79Y is closest to:
A) $133.29 per unit
B) $85.03 per unit
C) $127.43 per unit
D) $129.94 per unit
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Assembly |$846,040 |52,000 machine-hours |$16.27 per |
| | | | |machine-hour |
| |Processing Orders |64,056 |1,700 orders |$37.68 per order |
| |Inspection |102,408 |1,360 inspection-hours |$75.30 per inspection-hour |
Average Cost of Product Q79Y:
| |Direct materials |$ 44.00 |
| |Direct labor |41.03 |
| |Assembly [($16.27 × 1,080) ÷ 450] |39.05 |
| |Processing orders [($37.68 × 70) ÷ 450] |5.86 |
| |Inspection [($75.30 × 20) ÷ 450] | 3.35 |
| | |$133.29 |
37. Millner Corporation has provided the following data from its activity-based costing accounting system:
| |Activity Cost Pools |Total Cost |Total Activity |
| |Designing products |$1,372,448 |7,798 |product design hours |
| |Setting up batches |$33,300 |740 |batch set-ups |
| |Assembling products |$126,160 |6,640 |assembly hours |
The activity rate for the “designing products” activity cost pool is closest to:
A) $101 per product design hour
B) $1,372,448 per product design hour
C) $176 per product design hour
D) $57 per product design hour
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
Solution:
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Designing Products |$1,372,448 |7,798 PDHs |$176 per PDH |
38. Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below:
| |Activity Cost Pools |Total Cost |Total Activity |
| |Researching legal issues |$20,480 |640 |research hours |
| |Meeting with clients |$1,182,239 |7,253 |meeting hours |
| |Preparing documents |$91,840 |5,740 |documents |
The activity rate for the “meeting with clients” activity cost pool is closest to:
A) $95 per meeting hour
B) $61 per meeting hour
C) $163 per meeting hour
D) $1,182,239 per meeting hour
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
Solution:
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Meeting with clients |$1,182,239 |7,253 meeting hours |$163 per meeting hour |
39. Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:
| |Activity Cost Pools |Activity Rate |
| |Setting up batches |$59.06 |per batch |
| |Processing customer orders |$72.66 |per customer order |
| |Assembling products |$3.75 |per assembly hour |
Data concerning two products appear below:
| | |Product K91B |Product F65O |
| |Number of batches |84 |50 |
| |Number of customer orders |32 |43 |
| |Number of assembly hours |483 |890 |
How much overhead cost would be assigned to Product K91B using the activity-based costing system?
A) $9,097.41
B) $81,146.53
C) $4,961.04
D) $135.47
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Solution:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Setting up batches |$59.06 per batch |84 batches |$4,961.04 |
| |Processing customer orders |$72.66 per order |32 orders |2,325.12 |
| |Assembling products |$3.75 per AH |483 AHs | 1,811.25 |
| | | | |$9,097.41 |
40. Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:
| |Activity Cost Pools |Activity Rate |
| |Assembling products |$8.90 |per assembly hour |
| |Processing customer orders |$31.23 |per customer order |
| |Setting up batches |$43.72 |per batch |
Data for one of the company’s products follow:
| | |Product U94W |
| |Number of assembly hours |389 |
| |Number of customer orders |53 |
| |Number of batches |61 |
How much overhead cost would be assigned to Product U94W using the activity-based costing system?
A) $42,176.55
B) $83.85
C) $7,784.21
D) $2,666.92
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Solution:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Assembling products |$8.90 per AH |389 AHs |$3,462.10 |
| |Processing customer orders |$31.23 per order |53 orders |1,655.19 |
| |Setting up batches |$43.72 per batch |61 batches | 2,666.92 |
| | | | |$7,784.21 |
41. Activity rates from Lippard Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products:
| |Activity Cost Pools |Activity Rate |
| |Processing customer orders |$31.62 |per customer order |
| |Assembling products |$2.86 |per assembly hour |
| |Setting up batches |$46.61 |per batch |
Last year, Product H50E involved 9 customer orders, 666 assembly hours, and 77 batches. How much overhead cost would be assigned to Product H50E using the activity-based costing system?
A) $60,979.68
B) $3,588.97
C) $5,778.31
D) $81.09
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Solution:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Processing customer orders |$31.62 per order |9 orders |$ 284.58 |
| |Assembling products |$2.86 per AH |666 AHs |1,904.76 |
| |Setting up batches |$46.61 per batch |77 batches | 3,588.97 |
| | | | |$5,778.31 |
Use the following to answer questions 42-43:
Weldon Corporation has provided the following data from its activity-based costing accounting system:
| |Indirect factory wages |$340,000 |
| |Factory equipment depreciation |$240,000 |
Distribution of Resource Consumption across Activity Cost Pools:
| | |Activity Cost Pools |
| | |Customer Orders |Product Processing|Other |Total |
| |Indirect factory wages |25% |65% |10% |100% |
| |Factory equipment depreciation |40% |40% |20% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
42. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool?
A) $188,500
B) $181,000
C) $290,000
D) $580,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Solution:
Customer Orders Cost:
| |Indirect factory wages: 25% × $340,000 |$ 85,000 |
| |Factory equipment depreciation: 40% × $240,000 | 96,000 |
| |Total |$181,000 |
43. How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system?
A) $340,000
B) $82,000
C) $0
D) $240,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Solution:
Other Cost:
| |Indirect factory wages: 10% × $340,000 |$34,000 |
| |Factory equipment depreciation: 20% × $240,000 | 48,000 |
| |Total |$82,000 |
Use the following to answer questions 44-45:
Tomasini Corporation has provided the following data from its activity-based costing accounting system:
| |Supervisory wages |$660,000 |
| |Factory supplies |$280,000 |
Distribution of Resource Consumption across Activity Cost Pools:
| | |Activity Cost Pools |
| | |Batch Processing |Unit Processing |Other |Total |
| |Supervisory wages |20% |70% |10% |100% |
| |Factory supplies |45% |35% |20% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
44. How much supervisory wages and factory supplies cost would be assigned to the Batch Processing activity cost pool?
A) $940,000
B) $470,000
C) $305,500
D) $258,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Solution:
Batch Processing Cost:
| |Supervisory wages: 20% × $660,000 |$132,000 |
| |Factory supplies: 45% × $280,000 | 126,000 |
| |Total |$258,000 |
45. How much supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system?
A) $122,000
B) $660,000
C) $280,000
D) $0
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Solution:
Other Cost:
| |Supervisory wages: 10% × $660,000 |$ 66,000 |
| |Factory supplies: 20% × $280,000 | 56,000 |
| |Total |$122,000 |
Use the following to answer questions 46-47:
The following data have been provided by Letze Corporation from its activity-based costing accounting system:
| |Factory supervision |$460,000 |
| |Indirect factory labor |$220,000 |
Distribution of Resource Consumption across Activity Cost Pools:
| | |Activity Cost Pools |
| | |Batch Set-Up |Expediting |Other |Total |
| |Factory supervision |55% |35% |10% |100% |
| |Indirect factory labor |60% |20% |20% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
46. How much factory supervision and indirect factory labor cost would be assigned to the Batch Set-Up activity cost pool?
A) $680,000
B) $385,000
C) $391,000
D) $340,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Solution:
Batch Set-Up Cost:
| |Factory supervision: 55% × $460,000 |$253,000 |
| |Indirect factory labor: 60% × $220,000 | 132,000 |
| |Total |$385,000 |
47. How much factory supervision and indirect factory labor cost would NOT be assigned to products using the activity-based costing system?
A) $220,000
B) $90,000
C) $0
D) $460,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Solution:
Other Cost:
| |Factory supervision: 10% × $460,000 |$46,000 |
| |Indirect factory labor: 20% × $220,000 | 44,000 |
| |Total |$90,000 |
Use the following to answer questions 48-49:
Forliche Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
| |Wages and salaries |$ 80,000 |
| |Other expenses | 40,000 |
| |Total |$120,000 |
Distribution of resource consumption:
| | |Activity Cost Pools |
| | |Making Bouquets |Delivery |Other |Total |
| |Wages and salaries |60% |30% |10% |100% |
| |Other expenses |45% |25% |30% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
| |Activity Cost Pool |Activity |
| |Making bouquets |40,000 |bouquets |
| |Delivery |5,000 |deliveries |
48. What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round to the nearest whole cent.)
A) $1.65
B) $1.35
C) $1.58
D) $1.80
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Making Bouquets Cost:
| |Wages and salaries: 60% × $80,000 |$48,000 |
| |Other expenses: 45% × $40,000 | 18,000 |
| |Total |$66,000 |
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Making Bouquets |$66,000 |40,000 bouquets |$1.65 per bouquet |
49. What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round to the nearest whole cent.)
A) $7.20
B) $6.60
C) $6.00
D) $6.80
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Delivery Cost:
| |Wages and salaries: 30% × $80,000 |$24,000 |
| |Other expenses: 25% × $40,000 | 10,000 |
| |Total |$34,000 |
| | | (a) | (b) | |
| | | | |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Delivery |$34,000 |5,000 deliveries |$6.80 per delivery |
Use the following to answer questions 50-52:
Dietz Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:
Costs:
| |Manufacturing overhead |$440,000 |
| |Selling and administrative expenses | 240,000 |
| |Total |$680,000 |
Distribution of resource consumption:
| | |Activity Cost Pools |
| | |Order Size |Customer Support|Other |Total |
| |Manufacturing overhead |55% |35% |10% |100% |
| |Selling and administrative expenses |30% |50% |20% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools.
50. How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool?
A) $314,000
B) $289,000
C) $204,000
D) $374,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Order Size Cost:
| |Manufacturing overhead: 55% × $440,000 |$242,000 |
| |Selling and administrative expenses: 30% × $240,000 | 72,000 |
| |Total |$314,000 |
51. How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool?
A) $274,000
B) $238,000
C) $289,000
D) $340,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Customer Support Cost:
| |Manufacturing overhead: 35% × $440,000 |$154,000 |
| |Selling and administrative expenses: 50% × $240,000 | 120,000 |
| |Total |$274,000 |
52. How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision-making?
A) $68,000
B) $0
C) $92,000
D) $136,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Other Cost:
| |Manufacturing overhead: 10% × $440,000 |$44,000 |
| |Selling and administrative expenses: 20% × $240,000 | 48,000 |
| |Total |$92,000 |
Use the following to answer questions 53-54:
The controller of Hendershot Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below:
| | |Wall Mirrors |Specialty Windows |
| |Total expected units produced |6,000 |3,000 |
| |Total expected material moves |500 |100 |
| |Expected direct labor-hours per unit |6 |9 |
The total materials handling cost for the year is expected to be $6,123.60.
53. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the wall mirrors? (Round off your answer to the nearest whole dollar.)
A) $2,449
B) $4,144
C) $3,499
D) $3,062
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted
Solution:
Total Direct Labor-Hours
| |Wall Mirrors: 6,000 units × 6 DLHs per unit |36,000 DLHs |
| |Specialty Mirrors: 3,000 units × 9 DLHs per unit |27,000 DLHs |
| |Total |63,000 DLHs |
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Direct labor-hours |$6,123.60 |63,000 DLHs |$.0972 per DLH |
Materials Handling Cost for Wall Mirrors:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Direct labor-hours |$.0972 per DLH |36,000 DLHs |$3,499 |
54. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the specialty windows? (Round off your answer to the nearest whole dollar.)
A) $1,021
B) $3,674
C) $3,062
D) $1,980
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Material moves |$6,123.60 |600 moves* |$10.206 per move |
*500 + 100 = 600 moves
Materials Handling Cost for Specialty Mirrors:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Material moves |$10.206 per move |100 moves |$1,021 |
Use the following to answer questions 55-56:
Swimm Company allocates materials handling cost to the company's two products using the below data:
| | |Modular Homes |Prefab Barns |
| |Total expected units produced |3,000 |4,000 |
| |Total expected material moves |400 |100 |
| |Expected direct labor-hours per unit |700 |200 |
The total materials handling cost for the year is expected to be $72,065.
55. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the prefab barns? (Round off your answer to the nearest whole dollar.)
A) $16,014
B) $19,880
C) $36,890
D) $36,033
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted
Solution:
Total Direct Labor-Hours
| |Modular Homes: 3,000 units × 700 DLHs per unit |2,100,000 DLHs |
| |Prefab Barns: 4,000 units × 200 DLHs per unit | 800,000 DLHs |
| |Total |2,900,000 DLHs |
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Direct labor-hours |$72,065 |2,900,000 DLHs |$.02485 per DLH |
Materials Handling Cost for Prefab Barns:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Direct labor-hours |$.02485 per DLH |800,000 DLHs |$19,880 |
56. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the modular homes? (Round off your answer to the nearest whole dollar.)
A) $36,033
B) $57,652
C) $56,051
D) $35,175
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Material moves |$72,065 |500 moves* |$144.13 per move |
*400 + 100 = 500 moves
Materials Handling Cost for Modular Homes:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Material moves |$144.13 per move |400 moves |$57,652 |
Use the following to answer questions 57-58:
Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows:
| | | |Expected Activity |
| |Activity Cost Pool |Estimated Cost |Product A |Product B |Total |
| |Activity 1 |$16,660 |600 |100 |700 |
| |Activity 2 |$18,450 |1,100 |700 |1,800 |
| |Activity 3 |$9,731 |60 |160 |220 |
57. The activity rate for Activity 2 is closest to:
A) $24.91
B) $26.36
C) $16.77
D) $10.25
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Activity 2 |$18,450 |1,800 |$10.25 |
58. The cost per unit of Product B is closest to:
A) $41.58
B) $81.53
C) $74.73
D) $17.69
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Hard
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Activity 1 |$16,660 |700 |$23.80 |
| |Activity 2 |$18,450 |1,800 |$10.25 |
| |Activity 3 |$9,731 |220 |$44.23 |
Total Cost of Product B:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Activity 1 |$23.80 |100 |$ 2,380.00 |
| |Activity 2 |$10.25 |700 | 7,175.00 |
| |Activity 3 |$44.23 |160 | 7,076.80 |
| | | | |$16,631.80 |
Cost per unit of Product B = $16,631.80 ÷ 400 units = $41.58 per unit
Use the following to answer questions 59-60:
Andris Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:
| |Activity Cost Pools(and Activity Measures) |Estimated Overhead Cost |
| |Machine related (machine-hours) |$46,400 |
| |Batch setup (setups) |$434,000 |
| |General factory (direct labor-hours) |$226,500 |
| | |Expected Activity |
| |Activity Cost Pools |Total |Product X |Product Y |
| |Machine related |4,000 |3,000 |1,000 |
| |Batch setup |7,000 |3,000 |4,000 |
| |General factory |15,000 |7,000 |8,000 |
59. The activity rate for the batch setup activity cost pool is closest to:
A) $62.00
B) $101.00
C) $144.70
D) $108.50
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Batch setup |$434,000 |7,000 |$62.00 |
60. Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to:
A) $353,450
B) $303,000
C) $326,500
D) $434,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Machine related |$46,400 |4,000 |$11.60 |
| |Batch setup |$434,000 |7,000 |$62.00 |
| |General factory |$226,500 |15,000 |$15.10 |
Total Overhead Cost Allocated to Product X:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Machine related |$11.60 |3,000 |$ 34,800 |
| |Batch setup |$62.00 |3,000 | 186,000 |
| |General factory |$15.10 |7,000 | 105,700 |
| | | | |$326,500 |
Use the following to answer questions 61-63:
Nissley Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:
| |Activity Cost Pools |Activity Rate |
| |Size-related |$1.13 |per guest |
| |Complexity-related |$28.22 |per tier |
| |Order-related |$74.72 |per order |
The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.
Data concerning two recent orders appear below:
| | |Tijerina Wedding |Twersky Wedding |
| |Number of reception guests |49 |126 |
| |Number of tiers on the cake |2 |4 |
| |Cost of purchased decorations for cake |$28.60 |$54.64 |
61. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Tijerina wedding cake to just break even?
A) $74.72
B) $215.13
C) $28.60
D) $260.31
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium
Solution:
Total Cost for Tijerina Wedding Cake Order:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Size-related |$1.13 per guest |49 guests |$ 55.37 |
| |Complexity-related |$28.22 per tier |2 tiers | 56.44 |
| |Order-related |$74.72 per order |1 order | 74.72 |
| |Cost of purchased decorations for cake | 28.60 |
| |Total cost |$215.13 |
62. Assuming that the company charges $465.39 for the Twersky wedding cake, what would be the overall margin on the order?
A) $135.41
B) $80.77
C) $384.62
D) $155.49
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium
Solution:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Size-related |$1.13 per guest |126 guests |$142.38 |
| |Complexity-related |$28.22 per tier |4 tiers | 112.88 |
| |Order-related |$74.72 per order |1 order | 74.72 |
| |Cost of purchased decorations for cake | 54.64 |
| |Total cost |$384.62 |
| |Sales |$465.39 |
| |Total cost | 384.62 |
| |Margin on order |$ 80.77 |
63. Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes?
A) The costs of all cakes would go up.
B) The cost of cakes for receptions with fewer than the average number of guests would go down.
C) The cost of cakes for receptions with more than the average number of guests would go down.
D) The costs of all cakes would go down.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium
Use the following to answer questions 64-65:
Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $1.13 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $43.52 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $61.44 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.
Data concerning two recent orders appear below:
| | |Ericson Wedding |Haupt Wedding |
| |Number of reception guests |60 |162 |
| |Number of tiers on the cake |4 |3 |
| |Cost of purchased decorations for cake |$16.89 |$38.61 |
64. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Ericson wedding cake to just break even?
A) $61.44
B) $387.45
C) $16.89
D) $320.21
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium
Solution:
Total Cost for Ericson Wedding Cake Order:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Size-related |$1.13 per guest |60 guests |$ 67.80 |
| |Complexity-related |$43.52 per tier |4 tiers | 174.08 |
| |Order-related |$61.44 per order |1 order | 61.44 |
| |Cost of purchased decorations for cake | 16.89 |
| |Total cost |$320.21 |
65. Assuming that the company charges $500.54 for the Haupt wedding cake, what would be the overall margin on the order?
A) $86.87
B) $413.67
C) $148.31
D) $125.48
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium
Solution:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Size-related |$1.13 per guest |162 guests |$183.06 |
| |Complexity-related |$43.52 per tier |3 tiers | 130.56 |
| |Order-related |$61.44 per order |1 order | 61.44 |
| |Cost of purchased decorations for cake | 38.61 |
| |Total cost |$413.67 |
| |Sales |$500.54 |
| |Total cost | 413.67 |
| |Margin on order |$ 86.87 |
Use the following to answer questions 66-68:
(Appendix 8A) Espinoza Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
| |Wages and salaries |$220,000 |
| |Other expenses | 160,000 |
| |Total |$380,000 |
Distribution of resource consumption:
| |Activity Cost Pools |Filling Orders |Customer Support|Other |Total |
| |Wages and salaries |35% |55% |10% |100% |
| |Other expenses |15% |65% |20% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
| |Activity Cost Pool |Activity |
| |Filling orders |4,000 |orders |
| |Customer support |20 |customers |
66. What would be the total overhead cost per order according to the activity based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.)
A) $25.25
B) $23.75
C) $33.25
D) $14.25
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Filling Orders Cost:
| |Wages and salaries: 35% × $220,000 |$ 77,000 |
| |Other expenses: 15% × $160,000 | 24,000 |
| |Total |$101,000 |
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Filling orders |$101,000 |4,000 order |$25.25 per order |
67. What would be the total overhead cost per customer according to the activity based costing system? In other words, what would be the overall activity rate for the customer support activity cost pool? (Round to the nearest whole dollar.)
A) $10,450
B) $11,250
C) $12,350
D) $11,400
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Customer Support Cost:
| |Wages and salaries: 55% × $220,000 |$121,000 |
| |Other expenses: 65% × $160,000 | 104,000 |
| |Total |$225,000 |
| | | (a) | (b) | (a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Customer support |$225,000 |20 customers |$11,250 per customer |
68. To the nearest whole dollar, how much wages and salaries cost would be allocated to a customer who made 6 orders in a year?
A) $5,745
B) $10,650
C) $6,166
D) $5,325
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard
Solution:
Wages and Salaries Cost:
| |Allocated to Filling Orders: 35% × $220,000 |$77,000 |
| |Allocated to Customer Support: 55% × $220,000 |$121,000 |
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Total Cost |Total Activity |Activity Rate |
| |Filling orders |$77,000 |4,000 orders |$19.25 per order |
| |Customer support |$121,000 |20 customers |$6,050 per customer |
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Total Activity |ABC Cost |
| |Filling orders |$19.25 per order |6 orders |$ 116 |
| |Customer support |$6,050 per customer |1 customer | 6,050 |
| | | | |$6,166 |
Use the following to answer questions 69-71:
(Appendix 8A) Groats Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system:
| |Activity Cost Pools |Preparing Meals |Arranging Functions |
| |Wages |$1.15 |$180.00 |
| |Supplies |$0.40 |$320.00 |
| |Other expenses |$0.15 |$130.00 |
The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.
Management would like to know whether the company made any money on a recent function at which 150 meals were served. The company catered the function for a fixed price of $18.00 per meal. The cost of the raw ingredients for the meals was $12.40 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost.
69. According to the activity-based costing system, what was the total cost (including the costs of raw ingredients) of the function mentioned above? (Round to the nearest whole dollar.)
A) $2,945
B) $2,745
C) $2,095
D) $2,245
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
| |Cost of preparing meals [($1.15 + $0.40 + $0.15) × 150] |$ 255 |
| |Cost of arranging functions ($180 + $320 + $130) |630 |
| |Cost of raw ingredients ($12.40 × 150) | 1,860 |
| |Total |$2,745 |
70. Suppose an action analysis report is prepared for the function mentioned above. What would be the “red margin” in the action analysis report? (Round to the nearest whole dollar.)
A) $(45)
B) $(195)
C) $(145)
D) $105
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard
Solution:
| |Sales ($18.00 × 150) | |$2,700.00 |
| |Green costs: | | |
| | Supplies−Preparing meals ($0.40 × 150) |$ 60.00 | |
| | Supplies−Arranging functions |320.00 | |
| | Raw ingredients ($12.40 × 150) |1,860.00 | 2,240.00 |
| |Green margin | |460.00 |
| |Yellow costs: | | |
| | Wages−Preparing meals ($1.15 × 150) |172.50 | |
| | Wages−Arranging functions |180.00 | 352.50 |
| |Yellow margin | |107.50 |
| |Red costs: | | |
| | Other expenses−Preparing meals ($0.15 × 150) |22.50 | |
| | Other expenses−Arranging functions |130.00 |152.50 |
| |Red margin | |$(45.00) |
71. Suppose an action analysis report is prepared for the function mentioned above. What would be the “yellow margin” in the action analysis report? (Round to the nearest whole dollar.)
A) $183
B) $288
C) $233
D) $108
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard
Solution:
| |Sales ($18.00 × 150) | |$2,700 |
| |Green costs: | | |
| | Supplies−Preparing meals ($0.40 × 150) |$ 60 | |
| | Supplies−Arranging functions |320 | |
| | Raw ingredients ($12.40 × 150) |1,860 | 2,240 |
| |Green margin | |460 |
| |Yellow costs: | | |
| | Wages−Preparing meals ($1.15 × 150) |173 | |
| | Wages−Arranging functions |180 | 353 |
| |Yellow margin | |$ 108 |
Use the following to answer questions 72-75:
(Appendix 8B) Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labor hours per unit and Product B requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $71,286.
The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:
| | | |Expected Activity |
| |Activity Cost Pool |Estimated Overhead Costs |Product A |Product B |Total |
| |Activity 1 |$20,272 |300 |500 |800 |
| |Activity 2 |29,380 |800 |500 |1,300 |
| |General Factory | 21,634 |160 |420 |580 |
| |Total |$71,286 | | | |
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)
72. The predetermined overhead rate under the traditional costing system is closest to:
A) $25.34
B) $22.60
C) $37.30
D) $122.91
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Total Direct Labor-Hours
| |Product A: 800 units × .2 DLHs per unit |160 DLHs |
| |Product B: 700 units × .6 DLHs per unit |420 DLHs |
| |Total |580 DLHs |
Predetermined overhead rate = $71,286 ÷ 580 DLHs = $122.91
73. The overhead cost per unit of Product B under the traditional costing system is closest to:
A) $22.38
B) $13.56
C) $73.74
D) $15.20
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Total Direct Labor-Hours
| |Product A: 800 units × .2 DLHs per unit |160 DLHs |
| |Product B: 700 units × .6 DLHs per unit |420 DLHs |
| |Total |580 DLHs |
Predetermined overhead rate = $71,286 ÷ 580 DLHs = $122.9069
Total overhead cost applied to Product B using traditional costing: $122.9069 × 420 DLHs = $51,621 (rounded)
Overhead cost per unit = $51,621 ÷ 700 units = $73.74
74. The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
A) $22.60
B) $54.84
C) $58.76
D) $36.73
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Estimated Cost |Estimated Activity |Activity Rate |
| |Activity 2 |$29,380 |1,300 |$22.60 |
75. The overhead cost per unit of Product B under the activity-based costing system is closest to:
A) $73.74
B) $56.62
C) $22.38
D) $47.52
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Hard
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Estimated Cost |Estimated Activity |Activity Rate |
| |Activity 1 |$20,272 |800 |$25.34 |
| |Activity 2 |$29,380 |1,300 |$22.60 |
| |General Factory |$21,634 |580 |$37.30 |
Total Cost of Product B:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Activity |ABC Cost |
| |Activity 1 |$25.34 |500 |$12,670 |
| |Activity 2 |$22.60 |500 | 11,300 |
| |General Factory |$37.30 |420 | 15,666 |
| | | | |$39,636 |
Overhead cost per unit = $39,636 ÷ 700 units = $56.62 per unit (rounded)
Use the following to answer questions 76-77:
(Appendix 8B) Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, P85G and C43S, about which it has provided the following data:
| | |P85G |C43S |
| |Direct materials per unit |$36.50 |$63.10 |
| |Direct labor per unit |$20.80 |$31.20 |
| |Direct labor-hours per unit |0.80 |1.20 |
| |Annual production |35,000 |10,000 |
The company’s estimated total manufacturing overhead for the year is $2,264,000 and the company’s estimated total direct labor-hours for the year is 40,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Supporting direct labor (DLHs) |$1,160,000 |
| |Setting up machines (setups) |288,000 |
| |Parts administration (part types) | 816,000 |
| |Total |$2,264,000 |
| | |Expected Activity |
| | |P85G |C43S |Total |
| |DLHs |28,000 |12,000 |40,000 |
| |Setups |1,480 |920 |2,400 |
| |Part types |1,880 |840 |2,720 |
76. The manufacturing overhead that would be applied to a unit of product P85G under the company's traditional costing system is closest to:
A) $89.67
B) $45.28
C) $44.39
D) $23.20
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Predetermined overhead rate = $2,264,000 ÷ 40,000 DLHs = $56.60 per DLH
Applied overhead per unit =
$56.60 per DLH × 0.80 DLHs per unit = $45.28 per unit
77. The manufacturing overhead that would be applied to a unit of product C43S under the activity-based costing system is closest to:
A) $71.04
B) $138.96
C) $67.92
D) $11.04
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Estimated Cost |Estimated Activity | |
| | | | |Activity Rate |
| |Supporting direct labor |$1,160,000 |40,000 DLHs |$29 per DLH |
| |Setting up machines |$288,000 |2,400 setups |$120 per setup |
| |Parts administration |$816,000 |2,720 part types |$300 per part type |
Total Overhead applied to Product C43S:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Expected Activity |ABC Cost |
| |Supporting direct labor |$29 per DLH |12,000 DLHs |$348,000 |
| |Setting up machines |$120 per setup |920 setups | 110,400 |
| |Parts administration |$300 per part type |840 part types | 252,000 |
| | | | |$710,400 |
Applied overhead per unit = $710,400 ÷ 10,000 units = $71.04 per unit
Use the following to answer questions 78-79:
(Appendix 8B) Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R58G and R09O, about which it has provided the following data:
| | |R58G |R09O |
| |Direct materials per unit |$15.90 |$52.40 |
| |Direct labor per unit |$1.30 |$27.30 |
| |Direct labor-hours per unit |0.10 |2.10 |
| |Annual production |30,000 |10,000 |
The company’s estimated total manufacturing overhead for the year is $1,617,600 and the company’s estimated total direct labor-hours for the year is 24,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Assembling products (DLHs) |$ 696,000 |
| |Preparing batches (batches) |252,000 |
| |Product support (product variations) | 669,600 |
| |Total |$1,617,600 |
| | |Expected Activity |
| | |R58G |R09O |Total |
| |DLHs |3,000 |21,000 |24,000 |
| |Batches |528 |1,152 |1,680 |
| |Product variations |1,056 |1,176 |2,232 |
78. The manufacturing overhead that would be applied to a unit of product R58G under the company's traditional costing system is closest to:
A) $6.74
B) $16.10
C) $22.84
D) $2.90
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Predetermined overhead rate = $1,617,600 ÷ 24,000 DLHs = $67.40 per DLH
Total applied overhead = 3,000 DLHs × $67.40 per DLH = $202,200
Applied overhead per unit = $202,200 ÷ 30,000 units = $6.74 per unit
79. The manufacturing overhead that would be applied to a unit of product R09O under the activity-based costing system is closest to:
A) $113.46
B) $255.00
C) $141.54
D) $17.28
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Estimated Cost |Estimated Activity | |
| | | | |Activity Rate |
| |Assembling products |$696,000 |24,000 DLHs |$29 per DLH |
| |Preparing batches |$252,000 |1,680 batches |$150 per batch |
| |Product support |$669,600 |2,232 product variations |$300 per product variation |
Total Overhead applied to Product R09O:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Expected Activity |ABC Cost |
| |Assembling products |$29 per DLH |21,000 DLHs |$ 609,000 |
| |Preparing batches |$150 per batch |1,152 batches | 172,800 |
| |Product support |$300 per product variation |1,176 product variations | |
| | | | |352,800 |
| | | | |$1,134,600 |
Applied overhead per unit = $1,134,600 ÷ 10,000 units = $113.46 per unit
Use the following to answer questions 80-81:
(Appendix 8B) Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, U86Y and M91F, about which it has provided the following data:
| | |U86Y |M91F |
| |Direct materials per unit |$19.80 |$45.80 |
| |Direct labor per unit |$18.20 |$49.40 |
| |Direct labor-hours per unit |0.70 |1.90 |
| |Annual production |40,000 |10,000 |
The company’s estimated total manufacturing overhead for the year is $2,541,760 and the company’s estimated total direct labor-hours for the year is 47,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Direct labor support (DLHs) |$1,175,000 |
| |Setting up machines (setups) |407,960 |
| |Part administration (part types) | 958,800 |
| |Total |$2,541,760 |
| | |Expected Activity |
| | |U86Y |M91F |Total |
| |DLHs |28,000 |19,000 |47,000 |
| |Setups |2,256 |658 |2,914 |
| |Part types |1,034 |2,162 |3,196 |
80. The unit product cost of product U86Y under the company's traditional costing system is closest to:
A) $71.15
B) $55.50
C) $75.86
D) $38.00
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Predetermined overhead rate = $2,541,760 ÷ 47,000 DLHs = $54.08 per DLH
Applied overhead = [(40,000 units × 0.70 DLHs per unit) × $54.08 per DLH] ÷ 40,000 units = $37.86 per unit
Unit Product Cost:
| |Direct materials |$19.80 |
| |Direct labor |18.20 |
| |Applied manufacturing overhead | 37.86 |
| |Total |$75.86 |
81. The unit product cost of product M91F under the activity-based costing system is closest to:
A) $95.20
B) $121.57
C) $216.77
D) $197.95
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Estimated Cost |Expected Activity | |
| | | | |Activity Rate |
| |Direct labor support |$1,175,000 |47,000 DLHs |$25 per DLH |
| |Setting up machines |$407,960 |2,914 setups |$140 per setup |
| |Part administration |$958,800 |3,196 part types |$300 per part type |
Total Overhead applied to Product M91F:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Expected Activity |ABC Cost |
| |Direct labor support |$25 per DLH |19,000 DLHs |$ 475,000 |
| |Setting up machines |$140 per setup |658 setups | 92,120 |
| |Part administration |$300 per part type |2,162 part types | |
| | | | |648,600 |
| | | | |$1,215,720 |
Overhead Cost per unit = $1,215,720 ÷ 10,000 units = $121.57 per unit
Unit Product Cost:
| |Direct materials |$ 45.80 |
| |Direct labor |49.40 |
| |Applied manufacturing overhead | 121.57 |
| |Total |$216.77 |
Use the following to answer questions 82-83:
(Appendix 8B) Pacchiana Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R21V and D00B, about which it has provided the following data:
| | |R21V |D00B |
| |Direct materials per unit |$19.60 |$61.70 |
| |Direct labor per unit |$3.90 |$19.50 |
| |Direct labor-hours per unit |0.30 |1.50 |
| |Annual production |45,000 |15,000 |
The company’s estimated total manufacturing overhead for the year is $1,262,880 and the company’s estimated total direct labor-hours for the year is 36,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Assembling products (DLHs) |$ 108,000 |
| |Preparing batches (batches) |362,880 |
| |Product support (product variations) | 792,000 |
| |Total |$1,262,880 |
| | |Expected Activity |
| | |R21V |D00B |Total |
| |DLHs |13,500 |22,500 |36,000 |
| |Batches |1,440 |1,152 |2,592 |
| |Product variations |1,404 |576 |1,980 |
82. The unit product cost of product R21V under the company's traditional costing system is closest to:
A) $34.02
B) $24.40
C) $41.36
D) $23.50
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Predetermined overhead rate = $1,262,880 ÷ 36,000 DLHs = $35.08 per DLH
Applied overhead = [(45,000 units × 0.30 DLHs per unit) × $35.08 per DLH] ÷ 45,000 units = $10.52 per unit
Unit Product Cost:
| |Direct materials |$19.60 |
| |Direct labor |3.90 |
| |Applied manufacturing overhead | 10.52 |
| |Total |$34.02 |
83. The unit product cost of product D00B under the activity-based costing system is closest to:
A) $111.81
B) $133.82
C) $81.20
D) $30.61
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
| | |(a) |(b) |(a) ÷ (b) |
| |Activity Cost Pool |Estimated Cost |Expected Activity | |
| | | | |Activity Rate |
| |Assembling products |$108,000 |36,000 DLHs |$3 per DLH |
| |Preparing batches |$362,880 |2,592 batches |$140 per batches |
| |Product support |$792,000 |1,980 product variations |$400 per product variation |
Total Overhead applied to Product D00B:
| | |(a) |(b) |(a) × (b) |
| |Activity Cost Pool |Activity Rate |Expected Activity |ABC Cost |
| |Assembling products |$3 per DLH |22,500 DLHs |$ 67,500 |
| |Preparing batches |$140 per batch |1,152 batches | 161,280 |
| |Product support |$400 per product variation |576 product variations | |
| | | | |230,400 |
| | | | |$459,180 |
Overhead Cost per unit = $459,180 ÷ 15,000 units = $30.61 per unit
Unit Product Cost:
| |Direct materials |$ 61.70 |
| |Direct labor |19.50 |
| |Applied manufacturing overhead | 30.61 |
| |Total |$111.81 |
Essay Questions
84. Beckley Corporation has provided the following data from its activity-based costing accounting system:
| |Indirect factory wages |$16,000 |
| |Factory equipment depreciation |$193,000 |
Distribution of Resource Consumption across Activity Cost Pools:
| |Activity Cost Pools |Customer Orders |Product Processing|Other |Total |
| |Indirect factory wages |48% |47% |5% |100% |
| |Factory equipment depreciation |61% |25% |14% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work!
b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!
Ans:
a. Allocations to the Product Processing activity cost pool:
| |Indirect factory wages (47% × $16,000) |$ 7,520 |
| |Factory equipment depreciation (25% × $193,000) | 48,250 |
| |Total |$55,770 |
b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products.
| |Indirect factory wages (5% × $16,000) |$ 800 |
| |Factory equipment depreciation (14% × $193,000) | 27,020 |
| |Total |$27,820 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
85. Desilets Corporation has provided the following data from its activity-based costing accounting system:
| |Supervisory wages |$94,000 |
| |Factory utilities |$128,000 |
Distribution of Resource Consumption across Activity Cost Pools:
| |Activity Cost Pools |Batch Set-Ups |Unit Processing |Other |Total |
| |Supervisory wages |34% |64% |2% |100% |
| |Factory utilities |49% |35% |16% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Unit Processing activity cost pool. Show your work!
b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!
Ans:
a. Allocations to the Unit Processing activity cost pool:
| |Supervisory wages (64% × $94,000) |$ 60,160 |
| |Factory utilities (35% × $128,000) | 44,800 |
| |Total |$104,960 |
b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products.
| |Supervisory wages (2% × $94,000) |$ 1,880 |
| |Factory utilities (16% × $128,000) | 20,480 |
| |Total |$22,360 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
86. The following data have been provided by Hooey Corporation from its activity-based costing accounting system:
| |Supervisory wages |$46,000 |
| |Factory utilities |$199,000 |
Distribution of Resource Consumption across Activity Cost Pools:
| |Activity Cost Pools |Product Change-Overs |Machining |Other |Total |
| |Supervisory wages |59% |33% |8% |100% |
| |Factory utilities |18% |69% |13% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Machining activity cost pool. Show your work!
b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!
Ans:
a. Allocations to the Machining activity cost pool:
| |Supervisory wages (33% × $46,000) |$ 15,180 |
| |Factory utilities (69% × $199,000) | 137,310 |
| |Total |$152,490 |
b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products.
| |Supervisory wages (8% × $46,000) |$ 3,680 |
| |Factory utilities (13% × $199,000) | 25,870 |
| |Total |$29,550 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
87. Fidler & Jenkins PLC, a consulting firm, uses an activity-based costing in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:
Costs:
| |Wages and salaries |$620,000 |
| |Travel expenses |140,000 |
| |Other expenses | 120,000 |
| |Total |$880,000 |
Distribution of resource consumption:
| |Activity Cost Pools |Working On Engagements|Business Development |Other |Total |
| |Wages and salaries |60% |10% |30% |100% |
| |Travel expenses |50% |40% |10% |100% |
| |Other expenses |35% |25% |40% |100% |
Required:
a. How much cost, in total, would be allocated to the Working On Engagements activity cost pool?
b. How much cost, in total, would be allocated to the Business Development activity cost pool?
c. How much cost, in total, would be allocated to the Other activity cost pool?
Ans:
All three parts can be answered using a first-stage allocation of costs.
| |Working On Engagements |Business Development |Other |Total |
|Wages and salaries |$372,000 |$ 62,000 |$186,000 |$620,000 |
|Travel expenses |70,000 |56,000 |14,000 |140,000 |
|Other expenses | 42,000 | 30,000 | 48,000 | 120,000 |
|Total |$484,000 |$148,000 |$248,000 |$880,000 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
88. Dane Housecleaning provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.
| |Activity Cost Pool |Total Cost |Total Activity |
| |Cleaning |$263,784 |34,800 |hours |
| |Job support |145,180 |7,000 |jobs |
| |Client support |4,774 |220 |clients |
| |Other | 170,000 |Not |applicable |
| |Total |$583,738 | | |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Hoium family, requested 45 jobs during the year that required a total of 90 hours of housecleaning. For this service, the client was charged $2,000.
Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the Hoium family. Round off all calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Hoium family. Round off all calculations to the nearest whole cent.
Ans:
a. The computation of the activity rates follow:
| | |Total Cost |Total Activity |Activity Rates |
| |Cleaning |$263,784 |34,800 hours |$7.58 per hour |
| |Job support |$145,180 |7,000 jobs |$20.74 per job |
| |Client support |$4,774 |220 clients |$21.70 per client |
b. The customer margin for the family is computed as follows:
| |Client charges | |$2,000.00 |
| |Costs: | | |
| |Cleaning |$682.20 | |
| |Job support |933.30 | |
| |Client support | 21.70 | 1,637.20 |
| |Customer margin | |$ 362.80 |
Computations for costs:
Cleaning: 90 hours × $7.58 per hour = $682.20
Job support: 45 jobs × $20.74 per job = $933.30
Client support: 1 client × $21.70 per client = $21.70
c. The margin if all costs are allocated on the basis of cleaning hours:
Predetermined overhead rate = $583,738 ÷ 34,800 hours = $16.77 per hour
| |Client charges |$2,000.00 |
| |Allocated costs* | 1,509.30 |
| |Customer margin |$ 490.70 |
* 90 hours × $16.77 per hour = $1,509.30
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium
89. The Kamienski Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.
| |Activity Cost Pool |Total Cost |Total Activity |
| |Cleaning |$185,752 |21,700 |hours |
| |Job support |171,532 |6,100 |jobs |
| |Client support |15,124 |760 |clients |
| |Other | 240,000 |Not |applicable |
| |Total |$612,408 | | |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Whiddon family, requested 15 jobs during the year that required a total of 60 hours of housecleaning. For this service, the client was charged $1,170.
Required:
a. Using the activity-based costing system, compute the customer margin for the Whiddon family. Round off all calculations to the nearest whole cent.
b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Whiddon family. Round off all calculations to the nearest whole cent.
Ans:
a. The first step is to compute activity rates:
| | |Total Cost |Total Activity |Activity Rates |
| |Cleaning |$185,752 |21,700 hours |$8.56 per hour |
| |Job support |$171,532 |6,100 jobs |$28.12 per job |
| |Client support |$15,124 |760 clients |$19.90 per client |
The customer margin for the family is computed as follows:
| |Client charges | |$1,170.00 |
| |Costs: | | |
| |Cleaning |$513.60 | |
| |Job support |421.80 | |
| |Client support | 19.90 | 955.30 |
| |Customer margin | |$ 214.70 |
Computations for costs:
Cleaning: 60 hours × $8.56 per hour = $513.60
Job support: 15 jobs × $28.12 per job = $421.80
Client support: 1 client × $19.90 per client = $19.90
b. The margin if all costs are allocated on the basis of cleaning hours:
Predetermined overhead rate = $612,408 ÷ 21,700 hours = $28.22 per hour
| |Client charges |$1,170.00 |
| |Allocated costs* | 1,693.20 |
| |Customer margin |($523.20) |
* 60 hours × $28.22 per hour = $1,693.20
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium
90. Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $119,100 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor hours. Data concerning the current period's operations appear below:
| | |Product C |Product D |
| |Estimated volume |400 |units |3,000 |units |
| |Direct labor hours per unit |1.20 |hours |1.30 |hour |
| |Direct materials cost per unit |$4.00 | |$22.80 | |
| |Direct labor cost per unit |$12.00 | |$13.00 | |
Required:
a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.
b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
| | | |Expected Activity |
| |Activity Cost Pool |Estimated Overhead|Product C |Product D |Total |
| | |Costs | | | |
| |Machine setups |$ 10,440 |60 |120 |180 |
| |Purchase orders |78,000 |820 |1,180 |2,000 |
| |General factory | 30,660 |480 |3,900 |4,380 |
| |Total |$119,100 | | | |
Determine the unit product cost of each product for the current period using the activity-based costing approach.
Ans:
a. The expected total direct labor hours during the period are computed as follows:
| |Product C: 400 units × 1.2 hours per unit |480 hours |
| |Product D: 3,000 units × 1.3 hours per unit |3,900 hours |
| |Total direct labor hours |4,380 hours |
Using these hours as a base, the predetermined overhead using direct labor hours would be:
Estimated overhead cost ÷ Estimated direct labor-hours =
$119,100 ÷ 4,380 DLHs = $27.19 per DLH
Using this overhead rate, the unit product costs are:
| | |Product C |Product D |
| |Direct materials |$ 4.00 |$22.80 |
| |Direct labor |12.00 |13.00 |
| |Manufacturing overhead | 32.63 | 35.35 |
| |Total unit product cost |$48.63 |$71.15 |
b. The activity rates for each activity cost pool are as follows:
| | |Estimated Overhead |Expected |Activity Rate |
| | |Costs |Activity | |
| |Machine setups |$10,440 |180 |$58.00 |
| |Purchase orders |$78,000 |2,000 |$39.00 |
| |General factory |$30,660 |4,380 |$7.00 |
The overhead cost charged to each product is:
| | |Product C |Product D |
| | |Activity |Amount |Activity |Amount |
| |Machine setups |60 |$ 3,480 |120 |$ 6,960 |
| |Purchase orders |820 |31,980 |1,180 |46,020 |
| |General factory |480 | 3,360 |3,900 | 27,300 |
| |Total overhead cost | |$38,820 | |$80,280 |
Overhead cost per unit:
Product C: $38,820 ÷ 400 units = $97.05 per unit
Product D: $80,280 ÷ 3,000 units = $26.76 per unit
Using activity based costing, the unit product cost of each product would be:
| | |Product C |Product D |
| |Direct materials |$ 4.00 |$22.80 |
| |Direct labor |12.00 |13.00 |
| |Manufacturing overhead | 97.05 | 26.76 |
| |Total unit product cost |$113.05 |$62.56 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Hard
91. Danton Company manufactures two products, Product F and Product G. The company expects to produce and sell 600 units of Product F and 3,000 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year:
| | | |Expected Activity |
| |Activity Cost Pool |Estimated Overhead|Product F |Product G |Total |
| | |Costs | | | |
| |Machine setups |$13,720 |140 |140 |280 |
| |Purchase orders |$74,730 |630 |960 |1,590 |
| |General factory |$15,000 |600 |2,400 |3,000 |
Required:
Using the activity-based costing approach, determine the overhead cost per unit for each product.
Ans:
The activity rates for each activity cost pool are as follows:
| |Activity Cost Pool |Overhead Estimated|Expected |Activity Rate |
| | |Costs |Activity | |
| |Machine setups |$13,720 |280 |$49.00 |
| |Purchase orders |$74,730 |1,590 |$47.00 |
| |General factory |$15,000 |3,000 |$5.00 |
The overhead cost charged to each product is:
| | |Product F |Product G |
| | |Activity |Amount |Activity |Amount |
| |Machine setups |140 |$ 6,860 |140 |$ 6,860 |
| |Purchase orders |630 |29,610 |960 |45,120 |
| |General factory |600 | 3,000 |2,400 | 12,000 |
| |Total overhead cost | |$39,470 | |$63,980 |
Overhead cost per unit:
Product F: $39,470 ÷ 600 units = $65.78 per unit
Product G: $63,980 ÷ 3,000 units = $21.33 per unit
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Medium
92. Kretlow Corporation has provided the following data from its activity-based costing accounting system:
| |Activity Cost Pools |Total Cost |Total Activity |
| |Designing products |$700,502 |3,746 |product design hours |
| |Setting up batches |$12,400 |620 |batch set-ups |
| |Assembling products |$125,440 |8,960 |assembly hours |
Required:
Compute the activity rates for each of the three cost pools. Show your work!
Ans:
|Activity Cost Pools |Total Cost |Total Activity |Activity Rate |
|Designing products |$700,502 |3,746 |$187 |
|Setting up batches |$12,400 |620 |$20 |
|Assembling products |$125,440 |8,960 |$14 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
93. Data concerning three of Kilmon Corporation's activity cost pools appear below:
| |Activity Cost Pools |Total Cost |Total Activity |
| |Assembling products |$150,300 |8,350 |assembly hours |
| |Designing products |$1,177,535 |7,597 |product design hours |
| |Setting up batches |$14,400 |600 |batch set-ups |
Required:
Compute the activity rates for each of the three cost pools. Show your work!
Ans:
|Activity Cost Pools |Total Cost |Total Activity |Activity Rate |
|Assembling products |$150,300 |8,350 |$18 |
|Designing products |$1,177,535 |7,597 |$155 |
|Setting up batches |$14,400 |600 |$24 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
94. Doles Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.
| |Activity Cost Pools |Activity Rate |
| |Setting up batches |$98.54 |per batch |
| |Processing customer orders |$42.00 |per customer order |
| |Assembling products |$3.53 |per assembly hour |
Data concerning two products appear below:
| | |Product K52W |Product X94T |
| |Number of batches |55 |73 |
| |Number of customer orders |9 |17 |
| |Number of assembly hours |697 |402 |
Required:
How much overhead cost would be assigned to each of the two products using the company's activity-based costing system?
Ans:
| |Product K52W |Product X94T |
|Setting up batches |$5,419.70 |$7,193.42 |
|Processing customer orders |378.00 |714.00 |
|Assembling products | 2,460.41 | 1,419.06 |
|Total overhead cost |$8,258.11 |$9,326.48 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
95. Desjarlais Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.
| |Activity Cost Pools |Activity Rate |
| |Setting up batches |$32.22 |per batch |
| |Assembling products |$6.13 |per assembly hour |
| |Processing customer orders |$72.75 |per customer order |
Data concerning two products appear below:
| | |Product S96U |Product Q06F |
| |Number of batches |78 |24 |
| |Number of assembly hours |412 |178 |
| |Number of customer orders |53 |18 |
Required:
a. How much overhead cost would be assigned to Product S96U using the company's activity-based costing system? Show your work!
b. How much overhead cost would be assigned to Product Q06F using the company's activity-based costing system? Show your work!
Ans:
a. Product S96U
| |Setting up batches (78 batches × $32.22 per batch) |$2,513.16 |
| |Assembling products (412 assembly hours × $6.13 per assembly hour) |2,525.56 |
| |Processing customer orders (53 customer orders × $72.75 per customer order) | 3,855.75 |
| |Total overhead cost |$8,894.47 |
b. Product Q06F
| |Setting up batches (24 batches × $32.22 per batch) |$ 773.28 |
| |Assembling products (178 assembly hours × $6.13 per assembly hour) |1,091.14 |
| |Processing customer orders (18 customer orders × $72.75 per customer order) | 1,309.50 |
| |Total overhead cost |$3,173.92 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
96. Archie Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.
| |Activity Cost Pools |Activity Rate |
| |Setting up batches |$16.68 |per batch |
| |Processing customer orders |$98.60 |per customer order |
| |Assembling products |$7.89 |per assembly hour |
Last year, Product X26X involved 18 batches, 4 customer orders, and 103 assembly hours.
Required:
How much overhead cost would be assigned to Product X26X using the company's activity-based costing system? Show your work!
Ans:
|Setting up batches (18 batches × $16.68 per batch) |$ 300.24 |
|Processing customer orders (4 customer orders × $98.60 per customer order) |394.40 |
|Assembling products (103 assembly hours × $7.89 per assembly hour) | 812.67 |
|Total overhead cost |$1,507.31 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
97. IGL Draperies makes custom draperies for homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity cost pools.
Overhead costs:
| |Production overhead |$140,000 |
| |Office expense | 140,000 |
| |Total |$280,000 |
Distribution of resource consumption:
| |Activity Cost Pools |Making Drapes |Job Support |Other |Total |
| |Production overhead |60% |20% |20% |100% |
| |Office expense |15% |55% |30% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
| |Activity Cost Pool |Annual Activity |
| |Making drapes |3,000 |yards |
| |Job support |140 |jobs |
| |Other |Not |applicable |
Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:
| | |Making Drapes |Job Support |Other |Total |
| |Production overhead | | | | |
| |Office expense | | | | |
| |Total | | | | |
b. Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support activity cost pools by filling in the table below:
| | |Making Drapes |Job Support |
| |Production overhead | | |
| |Office expense | | |
| |Total | | |
c. Prepare an action analysis report in good form of a job that involves making 85 yards of drapes and has direct materials and direct labor cost of $2,990. The sales revenue from this job is $6,000. For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; production overhead as a Red cost; and office expense as a Yellow cost.
Ans:
a. First-stage allocation
| | |Making Drapes |Job Support |Other |Total |
| |Production overhead |$84,000 |$28,000 |$28,000 |$140,000 |
| |Office expense |21,000 |77,000 |42,000 |140,000 |
| |Total |$105,000 |$105,000 |$70,000 |$280,000 |
| |Activity |3,000 yards |140 jobs | | |
b. Activity rates (costs divided by activity)
| | |Making |Job |
| | |Drapes |Support |
| |Activity |3,000 yards |140 jobs |
| | | | |
| |Production overhead |$28.00 |$200.00 |
| |Office expense | 7.00 | 550.00 |
| |Total |$35.00 |$750.00 |
c. Overhead cost of the job.
| | |Making Drapes |Job Support |Total |
| |Activity |85 |1 | |
| |Production overhead |$2,380 |$200 |$2,580 |
| |Office expense | 595 | 550 | 1,145 |
| |Total |$2,975 |$750 |$3,725 |
| |Sales |$6,000 |
| |Green costs: | |
| |Direct materials and labor | 2,990 |
| |Green margin |3,010 |
| |Yellow costs: | |
| |Office expense | 1,145 |
| |Yellow margin |1,865 |
| |Red costs: | |
| |Production overhead | 2,580 |
| |Red margin |($ 715) |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Hard
98. Haskell Hardwood Floors installs oak and other hardwood floors in homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
| |Production overhead |$120,000 |
| |Office expense | 140,000 |
| |Total |$260,000 |
Distribution of resource consumption:
| | |Installing |Job | | |
| |Activity Cost Pools |Floors |Support |Other |Total |
| |Production overhead |55% |25% |20% |100% |
| |Office expense |20% |50% |30% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
| |Activity Cost Pool |Annual Activity |
| |Installing floors |800 squares |
| |Job support |100 jobs |
| |Other |Not applicable |
A “square” is a measure of area that is roughly equivalent to 1,000 square feet.
Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:
| | |Installing |Job | | |
| | |Floors |Support |Other |Total |
| |Production overhead | | | | |
| |Office expense | | | | |
| |Total | | | | |
b. Compute the activity rates (i.e., cost per unit of activity) for the Installing Floors and Job Support activity cost pools by filling in the table below:
| | |Installing |Job |
| | |Floors |Support |
| |Production overhead | | |
| |Office expense | | |
| |Total | | |
c. Compute the overhead cost, according to the activity-based costing system, of a job that involves installing 3.2 squares.
Ans:
a. First-stage allocation
| | |Installing |Job | | |
| | |Floors |Support |Other |Total |
| |Production overhead |$66,000 |$ 30,000 |$24,000 |$120,000 |
| |Office expense | 28,000 | 70,000 | 42,000 | 140,000 |
| |Total |$94,000 |$100,000 |$66,000 |$260,000 |
b. Activity rates (costs divided by activity)
| | |Installing |Job |
| | |Floors |Support |
| |Activity |800 squares |100 jobs |
| | | | |
| |Production overhead |$ 82.50 |$ 300.00 |
| |Office expense | 35.00 | 700.00 |
| |Total |$117.50 |$1,000.00 |
c. Overhead cost of the job.
| | |Installing |Job | |
| | |Floors |Support |Total |
| |Activity |3.2 |1 | |
| | | | | |
| |Production overhead |$264.00 |$ 300.00 |$ 564.00 |
| |Office expense | 112.00 | 700.00 | 812.00 |
| |Total |$376.00 |$1,000.00 |$1,376.00 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium
99. Golden Company, a wholesale distributor, uses activity-based costing for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
| |Wages and salaries |$680,000 |
| |Nonwage expenses | 120,000 |
| |Total |$800,000 |
Distribution of resource consumption:
| | |Filling |Product | | |
| |Activity Cost Pools |Orders |Support |Other |Total |
| |Wages and salaries |15% |75% |10% |100% |
| |Nonwage expenses |25% |55% |20% |100% |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
| |Activity Cost Pool |Annual Activity |
| |Filling orders |4,000 orders |
| |Product support |40 products |
| |Other |Not applicable |
Required:
Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and Product Support activity cost pools by filling in the table below:
| | |Filling |Product | | |
| | |Orders |Support |Other |Total |
| |Wages and salaries | | | | |
| |Nonwage expenses | | | | |
Ans:
First-stage allocation
| | |Filling |Product | | |
| | |Orders |Support |Other |Total |
| |Wages and salaries |$102,000 |$510,000 |$68,000 |$680,000 |
| |Nonwage expenses | 30,000 | 66,000 | 24,000 | 120,000 |
| |Total |$132,000 |$576,000 |$92,000 |$800,000 |
| | |Filling |Product |
| | |Orders |Support |
| |Activity |4,000 orders |40 products |
| | | | |
| |Wages and salaries |$25.50 |$12,750 |
| |Nonwage expenses | 7.50 | 1,650 |
| |Total |$33.00 |$14,400 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium
100. Jared Painting paints the interiors and exteriors of homes and commercial buildings. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its activity-based costing system.
| |Activity Cost Pool |Activity Measure |Annual Activity |
| |Painting overhead |Square meters |10,000 |square meters |
| |Job support |Jobs |200 |jobs |
| |Other |None |Not |applicable |
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centers. The results are listed below:
| | | |Job | | |
| | |Painting |Support |Other |Total |
| |Painting overhead |$ 99,000 |$ 45,000 |$36,000 |$180,000 |
| |Office expense | 6,000 | 78,000 | 36,000 | 120,000 |
| |Total |$105,000 |$123,000 |$72,000 |$300,000 |
Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Support activity cost pools by filling in the table below. Round off all calculations to the nearest whole cent.
| | | |Job |
| | |Painting |Support |
| |Painting overhead | | |
| |Office expense | | |
| |Total | | |
b. Prepare an action analysis report in good form of a job that involves painting 71 square meters and has direct materials and direct labor cost of $2,410. The sales revenue from this job is $3,800.
For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; painting overhead as a Red cost; and office expense as a Yellow cost.
Ans:
a. Activity rates (costs divided by activity)
| | | |Job |
| | |Painting |Support |
| |Painting overhead |$ 9.90 |$225.00 |
| |Office expense | 0.60 | 390.00 |
| |Total |$10.50 |$615.00 |
b. Overhead cost of the job.
| | | |Job | |
| | |Painting |Support |Total |
| |Activity |71 |1 | |
| | | | | |
| |Painting overhead |$702.90 |$225.00 |$ 927.90 |
| |Office expense | 42.60 | 390.00 | 432.60 |
| |Total |$745.50 |$615.00 |$1,360.50 |
| |Sales |$3,800.00 |
| |Green costs: | |
| |Direct materials and labor | 2,410.00 |
| |Green margin |1,390.00 |
| |Yellow costs: | |
| |Office expense | 432.60 |
| |Yellow margin |957.40 |
| |Red costs: | |
| |Painting overhead | 927.90 |
| |Red margin |$ 29.50 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium
101. Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, W82R and L48S, about which it has provided the following data:
| | |W82R |L48S |
| |Direct materials per unit |$11.50 |$62.90 |
| |Direct labor per unit |$2.00 |$13.00 |
| |Direct labor-hours per unit |0.20 |1.30 |
| |Annual production |45,000 |10,000 |
The company’s estimated total manufacturing overhead for the year is $1,521,960 and the company’s estimated total direct labor-hours for the year is 22,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Supporting direct labor (DLHs) |$ 352,000 |
| |Setting up machines (setups) |201,960 |
| |Parts administration (part types) | 968,000 |
| |Total |$1,521,960 |
| |Activities |W82R |L48S |Total |
| |Supporting direct labor |9,000 |13,000 |22,000 |
| |Setting up machines |814 |374 |1,188 |
| |Parts administration |924 |1,012 |1,936 |
Required:
a. Determine the unit product cost of each of the company's two products under the traditional costing system.
b. Determine the unit product cost of each of the company's two products under activity-based costing system.
Ans:
a. Traditional Unit Product Costs
Predetermined overhead rate = $1,521,960 ÷ 22,000 DLHs = $69.18 per DLH
| | |W82R |L48S |
| |Direct materials |$11.50 |$ 62.90 |
| |Direct labor |2.00 |13.00 |
| |Manufacturing overhead (0.2 DLHs × $69.18 per DLH; 1.3 DLHs × $69.18 per DLH) | 13.84 | 89.93 |
| |Unit product cost |$27.34 |$165.83 |
b. ABC Unit Product Costs
| | |Estimated Overhead|Total Expected Activity |Activity Rate |
| | |Cost | | |
| |Supporting direct labor |$352,000 |22,000 |DLHs |$16 |per DLH |
| |Setting up machines |$201,960 |1,188 |setups |$170 |per setup |
| |Parts administration |$968,000 |1,936 |part types |$500 |per part type |
Overhead cost for W82R
| | |Activity Rate |Activity |ABC Cost |
| |Supporting direct labor |$16 |per DLH |9,000 |DLHs |$144,000 |
| |Setting up machines |$170 |per setup |814 |setups |138,380 |
| |Parts administration |$500 |per part type |924 |part types | 462,000 |
| |Total | | | | |$744,380 |
Overhead cost for L48S
| | |Activity Rate |Activity |ABC Cost |
| |Supporting direct labor |$16 |per DLH |13,000 |DLHs |$208,000 |
| |Setting up machines |$170 |per setup |374 |setups |63,580 |
| |Parts administration |$500 |per part type |1,012 |part types | 506,000 |
| |Total | | | | |$777,580 |
| | |W82R |L48S |
| |Direct materials |$11.50 |$62.90 |
| |Direct labor |2.00 |13.00 |
| |Manufacturing overhead ($744,400 ÷ 45,000 units; $777,600 ÷ 10,000 units) | 16.54 | 77.76 |
| |Unit product cost |$30.04 |$153.66 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
102. Torri Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, B40W and C63J, about which it has provided the following data:
| | |B40W |C63J |
| |Direct materials per unit |$34.90 |$63.70 |
| |Direct labor per unit |$20.80 |$62.40 |
| |Direct labor-hours per unit |0.80 |2.40 |
| |Annual production |35,000 |15,000 |
The company’s estimated total manufacturing overhead for the year is $2,656,000 and the company’s estimated total direct labor-hours for the year is 64,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Assembling products (DLHs) |$1,216,000 |
| |Preparing batches (batches) |480,000 |
| |Milling (MHs) | 960,000 |
| |Total |$2,656,000 |
| |Activities |B40W |C63J |Total |
| |Assembling products |28,000 |36,000 |64,000 |
| |Preparing batches |2,304 |2,496 |4,800 |
| |Milling |1,088 |2,112 |3,200 |
Required:
a. Determine the unit product cost of each of the company's two products under the traditional costing system.
b. Determine the unit product cost of each of the company's two products under activity-based costing system.
Ans:
a. Traditional Unit Product Costs
Predetermined overhead rate = $2,656,000 ÷ 64,000 DLHs = $41.50 per DLH
| | |B40W |C63J |
| |Direct materials |$34.90 |$ 63.70 |
| |Direct labor |20.80 |62.40 |
| |Manufacturing overhead (0.8 DLHs × $41.50 per DLH; 2.4 DLHs × $41.50 per DLH) | 33.20 | 99.60 |
| |Unit product cost |$88.90 |$225.70 |
b. ABC Unit Product Costs
| | |Estimated Overhead |Total Expected Activity |Activity Rate |
| | |Cost | | |
| |Assembling products |$1,216,000 |64,000 |DLHs |$19 |per DLH |
| |Preparing batches |$480,000 |4,800 |batches |$100 |per setup |
| |Milling |$960,000 |3,200 |MHs |$300 |per MH |
Overhead cost for B40W
| |Activity Rate |Activity |ABC Cost | |
| |Assembling products |$19 |per DLH |28,000 |DLHs |$ 532,000 |
| |Preparing batches |$100 |per setup |2,304 |batches |230,400 |
| |Milling |$300 |per MH |1,088 |MHs | 326,400 |
| |Total | | | | |$1,088,800 |
Overhead cost for C63J
| |Activity Rate |Activity |ABC Cost | |
| |Assembling products |$19 |per DLH |36,000 |DLHs |$ 684,000 |
| |Preparing batches |$100 |per setup |2,496 |batches |249,600 |
| |Milling |$300 |per MH |2,112 |MHs | 633,600 |
| |Total | | | | |$1,567,200 |
| | |B40W |C63J |
| |Direct materials |$34.90 |$ 63.70 |
| |Direct labor |20.80 |62.40 |
| |Manufacturing overhead ($1,088,800 ÷ 35,000 units; $1,567,200 ÷ 15,000 units) | 31.11 | 104.48 |
| |Unit product cost |$86.81 |$230.58 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
103. Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data:
| | |H16Z |P25P |
| |Direct materials per unit |$10.20 |$50.50 |
| |Direct labor per unit |$8.40 |$25.20 |
| |Direct labor-hours per unit |0.40 |1.20 |
| |Annual production |30,000 |10,000 |
The company’s estimated total manufacturing overhead for the year is $1,464,480 and the company’s estimated total direct labor-hours for the year is 24,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Supporting direct labor (DLHs) |$ 552,000 |
| |Setting up machines (setups) |132,480 |
| |Parts administration (part types) | 780,000 |
| |Total |$1,464,480 |
| | |H16Z |P25P |Total |
| |Supporting direct labor |12,000 |12,000 |24,000 |
| |Setting up machines |864 |240 |1,104 |
| |Parts administration |600 |960 |1,560 |
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.
Ans:
a. Traditional Manufacturing Overhead Costs
Predetermined overhead rate = $1,464,480 ÷ 24,000 DLHs = $61.02 per DLH
| | |H16Z |P25P |
| |Direct labor-hours |0.40 |1.20 |
| |Predetermined overhead rate per DLH |$61.02 |$61.02 |
| |Manufacturing overhead cost per unit |$24.41 |$73.22 |
b. ABC Manufacturing Overhead Costs
| | |Estimated Overhead|Total Expected Activity |Activity Rate |
| | |Cost | | |
| |Supporting direct labor |$552,000 |24,000 |DLHs |$23 |per DLH |
| |Setting up machines |$132,480 |1,104 |setups |$120 |per setup |
| |Parts administration |$780,000 |1,560 |part types |$500 |per part type |
Overhead cost for H16Z
| | |Activity Rate |Activity |ABC Cost |
| |Supporting direct labor |$23 |per DLH |12,000 |DLHs |$276,000 |
| |Setting up machines |$120 |per setup |864 |setups |103,680 |
| |Parts administration |$500 |per part type |600 |part types | 300,000 |
| |Total | | | | |$679,680 |
| |Annual production | | | | |30,000 |
| |Manufacturing overhead cost per unit | | | | |$22.66 |
Overhead cost for P25P
| | |Activity Rate |Activity |ABC Cost |
| |Supporting direct labor |$23 |per DLH |12,000 |DLHs |$276,000 |
| |Setting up machines |$120 |per setup |240 |setups |28,800 |
| |Parts administration |$500 |per part type |960 |part types | 480,000 |
| |Total | | | | |$784,800 |
| |Annual production | | | | |10,000 |
| |Manufacturing overhead cost per unit | | | | |$78.48 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
104. Bullie Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, D31X and U75X, about which it has provided the following data:
| | |D31X |U75X |
| |Direct materials per unit |$29.20 |$47.40 |
| |Direct labor per unit |$1.10 |$23.10 |
| |Direct labor-hours per unit |0.10 |2.10 |
| |Annual production |35,000 |15,000 |
The company’s estimated total manufacturing overhead for the year is $1,147,650 and the company’s estimated total direct labor-hours for the year is 35,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| |Activities and Activity Measures |Estimated Overhead Cost |
| |Assembling products (DLHs) |$ 140,000 |
| |Preparing batches (batches) |241,150 |
| |Axial milling (MHs) | 766,500 |
| |Total |$1,147,650 |
| | |D31X |U75X |Total |
| |Assembling products |3,500 |31,500 |35,000 |
| |Preparing batches |560 |1,295 |1,855 |
| |Axial milling |1,540 |1,015 |2,555 |
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.
Ans:
a. Traditional Manufacturing Overhead Costs
Predetermined overhead rate = $1,147,650 ÷ 35,000 DLHs = $32.79 per DLH
| | |D31X |U75X |
| |Direct labor-hours |0.10 |2.10 |
| |Predetermined overhead rate per DLH |$32.79 |$32.79 |
| |Manufacturing overhead cost per unit |$3.28 |$68.86 |
b. ABC Manufacturing Overhead Costs
| | |Estimated Overhead |Total Expected Activity |Activity Rate |
| | |Cost | | |
| |Assembling products |$140,000 |35,000 |DLHs |$4 |per DLH |
| |Preparing batches |$241,150 |1,855 |batches |$130 |per batch |
| |Axial milling |$766,500 |2,555 |MHs |$300 |per MH |
Overhead cost for D31X
| | |Activity Rate |Activity |ABC Cost |
| |Assembling products |$4 |per DLH |3,500 |DLHs |$ 14,000 |
| |Preparing batches |$130 |per batch |560 |batches |72,800 |
| |Axial milling |$300 |per MH |1,540 |MHs | 462,000 |
| |Total | | | | |$548,800 |
| |Annual production | | | | |35,000 |
| |Manufacturing overhead cost per unit | | | | |$15.68 |
Overhead cost for U75X
| | |Activity Rate |Activity |ABC Cost |
| |Assembling products |$4 |per DLH |31,500 |DLHs |$126,000 |
| |Preparing batches |$130 |per batch |1,295 |batches |168,350 |
| |Axial milling |$300 |per MH |1,015 |MHs | 304,500 |
| |Total | | | | |$598,850 |
| |Annual production | | | | |15,000 |
| |Manufacturing overhead cost per unit | | | | |$39.92 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
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