Exam 11: Pricing Decisions and Profitability Analysis

Figure 11-2 Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. -Refer to Figure 11-2. What is(are) the product-level activity(ies)?

Lyons, SA., has identified the following overhead costs and activity drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 20,000 direct labour hours. Required: a. Determine the unit cost for each job using direct labour hours to apply overhead. b. Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.) c. Which method produces the more accurate cost assignment? Why?

Holbrook, SA., has identified the following overhead costs and cost drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 40,000 direct labour hours. Required: a. Determine the unit cost for each job using direct labour hours to apply overhead. b. Determine the unit cost for each job using the four cost drivers. (Round amounts to two decimal places.) c. Which method produces the more accurate cost assignment? Why?

An activity cost driver is

An example of a production or unit-level driver is

Figure 11-2 Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. -Refer to Figure 11-2. What is(are) the batch-level activity(ies)?

Figure 11-1 Ubben Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: The following costs are reported: -Refer to Figure 11-1. Machine-related overhead would be classified as a

Figure 11-2 Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. -Refer to Figure 11-2. What is(are) the facility-level activity(ies)?

Committed resources are

Godwin Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. Required: a. Identify the activities within each process as unit-level, batch-level, product-level, or facility-level. b. Create homogeneous cost pools. Identify the activities that belong to each pool and the activity driver that will be used for computing pool rates. c. Build an activity relational (i.e. cost) table. d. Compute the cost pool rates.

Which of the following items would be classified as committed resources (short-term)?

Figure 12-3 The Lee Company must choose between two mutually exclusive alternatives. With alternative 1 an inferior product will be marketed that is best suited to low levels of demand whereas alternative 2 is a superior product that is best suited to high levels of demand. There are only two possible levels of demand - high and low and the probabilities of each event occurring is 0.5. The predicted profits for each alterative are: -If activity-based costing is used, product inspections would be classified as a

Discuss how volume-based unit-level analysis underestimates and/or overestimates the cost of products.

Figure 11-6 Peach, SA., has identified the following overhead costs and cost drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 4,000 direct labour hours. -Refer to Figure 11-6. If Peach, SA., used activity-based cost drivers to allocate overhead costs, the unit cost for Job 401 would be (round to two decimal places)

Batch-related costs are added to which of the following costs in break-even analysis?

All of the following are unit-based activity drivers EXCEPT

Describe the unit level approach to cost behaviour analysis. Discuss the appropriateness of this approach.

Funk Manufacturing Company produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. Required: a. Identify the activities within each process as unit-level, batch-level, product-level, or facility-level. b. Create homogeneous cost pools. Identify the activities that belong to each pool and the activity driver that will be used for computing pool rates. c. Build an activity relational (i.e. cost) table. d. Compute the cost pool rates.

Books Company manufactures and sells two products: Soft Cover (S) and Hard Cover (H). The firm's activities have been analyzed and placed into a hierarchy of activity costs. Presented is information on activity cost drivers and costs per unit of cost driver at each activity level. During January 2012, Books Company produced 10,000 units of Soft Covers and 5,000 units of Hard Covers. Each batch of products includes 1,000 units of Soft Covers or 1,000 units of Hard Covers. Required: Determine the total costs for each activity level and the total predicted costs for January.

Figure 11-2 Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. -Refer to Figure 11-2. What is(are) the unit-level activity(ies)?