Exam 16: Activity-Based Costing

Windsor Co. incurs $1,050,000 of overhead costs each year in its three main departments, machining ($600,000), inspections ($300,000) and packing ($150,000). The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year. Information about Windsor's two products is as follows: Product X Product Y Machining hours 1,000 3,000 Inspections 100 500 Orders packed 350 650 Direct labor hours 1,700 1,800 Using ABC, how much overhead is assigned to Product X this year?

ABC is particularly useful when product lines differ greatly in volume and manufacturing complexity.

Assigning overhead using ABC will usually

A company incurs $4,050,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Department Expected use of Driver Cost Ordering and Receiving 2,000 \ 1,200,000 Mixing 50,000 1,500,000 Testing 1,500 1,350,000 $\text { Production information for Slime is as follows: }$ Department Expected use of Driver Ordering and Receiving 1,600 Mixing 30,000 Testing 1,000 Compute the amount of overhead assigned to Slime.

Activities required to support or sustain an entire production process are called

Boswell Company manufactures two products, Regular and Supreme. Boswell's overhead costs consist of machining, $3,000,000; and assembling, $1,500,000. Information on the two products is: Regular Supreme Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Supreme using traditional costing using direct labor hours is

Not all activities labeled non-value-added are totally wasteful, nor can they be totally eliminated.

For its inspecting cost pool, Ellsworth, Inc. expected overhead cost of $400,000 and 4,000 inspections. The actual overhead cost for that cost pool was $480,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is

Hale Company manufactures two models of its couch, the Mini and the Maxi. The Mini model requires 10,000 direct labor hours and the Maxi model requires 40,000 direct labor hours. The company produces 4,000 units of the Mini model and 1,000 units of the Maxi model each year. The company produces the Mini model in batch sizes of 200, while it produces the Maxi model in batch sizes of 100. The company expects to incur $360,000 of total setup costs this year. How much of the setup costs are allocated to the Mini model using ABC costing?

Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using cost drivers.

Painting is a product-level activity.

Which of the following is a limitation of activity-based costing?

In traditional costing systems, overhead is generally applied based on

Which of the following is a facility-level activity?

Which of the following is a value-added activity?

Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Audit Tax Direct labor cost \ 50,000 \ 100,000 CPU minutes 40,000 10,000 Leqal hours used 200 800 Overhead applied to audit services using traditional costing is

Which of the following statements is false?

Plant management is a batch-level activity.

When overhead is properly assigned in ABC, it will usually decrease the unit cost of high-volume products.

The presence of any of the following factors would suggest a switch to ABC except when