Exam 7: Activity-Based Costing and Management

Randy Company produces candy sticks (hooked and straight).Both products pass through two producing departments.The hooked stick's production is much more labor-intensive than the straight stick.The straight stick is also more popular.The following data have been gathered for the two products: Total overhead costs equal $400,000.Randy applies overhead based on direct labor hours.

Figure 7-3. Hamilton Company manufactures engines.Hamilton produces all the parts necessary for its engines except for one electronic component,which is purchased from two local suppliers: Traynor Inc.and Bello Company.Both suppliers are reliable and rarely deliver late; however,Traynor sells the component for $10.00 per unit and Bello sells the same component for $8.95.Hamilton purchases 70 percent of its components from Bello,because of the lower price.The total annual demand is 75,000 units. Refer to Figure 7-3.Calculate the activity rate for reworking products based on rework hours.Round to the nearest whole dollar.

Figure 7-2. Steller Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors.The JIT distributor places small,frequent orders and the non-JIT distributor tends to place larger,less frequent orders.Both types of distributors purchase the same product.The customer activities and costs for the previous quarter are found below: Refer to Figure 7-2.Calculate the activity rate for processing sales orders.

Consider the following information on activities:

Figure 7-5. Rizzo Manufacturing produces two types of cameras: 35mm and digital.The cameras are produced using one continuous process.Four activities have been identified: machining,setups,receiving,and packing.Resource drivers have been used to assign costs to each activity.The overhead activities,their costs,and the other related data are as follows: Refer to Figure 7-5.Using an activity rate for receiving based on receiving orders,assign receiving costs to the 35mm camera.

Companies will incur costs to perform such tasks as recycling products,controlling pollution,reducing contaminates.All of these tasks are examples of _____________________ costs.

One way to improve efficiency is to produce higher activity output with higher cost.

Figure 7-4. Honeydew Company produces two products,a high end laptop computer under the label Bunsen Laptops,and an inexpensive desktop computer under the label Beaker Computers.The two products use two overhead activities,with the following costs: The controller has collected the expected annual prime costs for each product,the machine hours,the setup hours,and the expected production. Refer to Figure 7-4.Calculate Beaker's consumption ratio for setup hours.

Receiving provides 12,000 receiving hours and costs $60,000 per year.What is the activity rate for receiving?

The activity driver for the shipping activity is the number of orders shipped.Product A uses 20 orders and Product B uses 60 orders.Calculate the consumption ratios for each product.

Figure 7-2. Steller Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors.The JIT distributor places small,frequent orders and the non-JIT distributor tends to place larger,less frequent orders.Both types of distributors purchase the same product.The customer activities and costs for the previous quarter are found below: Refer to Figure 7-2.Calculate the activity rate for selling goods.

Which of the following is not one of the three conditions necessary to be classified as a discretionary activity?

A ____________________ is classified as value-added provided it simultaneously meets three conditions.

Assume that the accounts payable department of a company has 10 clerks; each one is paid $25,000 per year ($250,000 total clerical salaries).Six of the clerks spend the following percentages of time on the three activities: 20% of their time on processing payments 30% of their time matching invoices,receiving documents,and billing statement 50% of their time correcting errors in the various documents One clerk,the head clerk,spends 50% of her time on administrative duties,and the remainder on error correction.The remaining three clerks spend 30% of their time on processing payments and the remaining 70% of their time on matching documents. Long distance telephone costs of $1,700 are directly traced to the activity "correcting errors."

______________ is concerned with doing the activity right the first time it is performed.

A company spends $12,000 a year for inspecting,$41,000 for purchasing,and $22,000 for reworking products.A good estimate of nonvalue-added costs would be:

The value-added standard is the waste-free component of the value-added activity.

Unit-level activities are performed each time a unit is produced.

A(n)____ is derived from the interview process (or written survey).

Environmental costs are associated with the creation,detection,remediation,and prevention of environmental degradation.