Exam 18: Activity-Based Costing

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are provided below. ​ -Activity rates are determined by

Use of a plantwide factory overhead rate distorts product costs when there are differences in the factory overhead rates across different production departments and when products require different ratios of allocation-base usage in each production department.

The total factory overhead for Big Light Company is budgeted for the year at $807,500. Big Light manufactures two different products: night lights and desk lamps. Night lights are budgeted for 60,000 units. Each night light requires 1/2 hour of direct labor. Desk lamps are budgeted for 80,000 units. Each desk lamp requires 2 hours of direct labor. Determine (a) the total number of budgeted direct labor hours for the year, (b) the single plantwide factory overhead rate using direct labor hours as the allocation base, and (c) the factory overhead allocated per unit for each product using the single plantwide factory overhead rate determined in (b).

Bob's Biscuit Corporation budgeted $1,200,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Bob's plantwide factory overhead rate is $12 per machine hour.

Dawson Company manufactures small table lamps and desk lamps. The following shows the activities per product and the total overhead information: ​ -Which of the following is not a reason for banks to use activity-based costing?

Aleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $90,000. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $105,000.Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours. -The total factory overhead allocated per unit of Rings is

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are provided below. ​ -Given the following information, determine the activity rate for setups.

Service companies can effectively use activity-based costing to compute product (service) costs.

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are provided below. ​ -The activity rate for the procurement activity cost pool is

Beauty Beyond Words Salon uses an activity-based costing system to determine the cost of services. The salon has determined the costs of services by activity and activity usage as follows: ​ -Graham Company wants to reduce activity costs by $0.30 per unit. The setup activity for a batch of 100 units of Part RR110 currently costs $80 per setup. A process engineer proposes reengineering the setup activity so that it takes 60% of the original cost per setup. By how much will this reduce activity costs per unit? Will more cost savings need to be found?

The use of a single plantwide factory overhead rate assumes that the activities causing overhead costs are the same across all departments and products.

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are provided below. ​ -The activity rate for the materials handling cost pool is

Product costs consist of only direct materials and direct labor.

Multiple production department factory overhead rates are less accurate than are plantwide factory overhead rates.

Roget Factory has budgeted factory overhead for the year at $15,500,000. It plans to produce 2,000,000 units of product. Budgeted direct labor hours are 1,050,000, and budgeted machine hours are 750,000. Using a single plantwide factory overhead rate based on direct labor hours, the factory overhead rate for the year is

Activity-based costing can be used to allocate period costs to various products that the company sells.

Multiple production department factory overhead rates are more accurate than are plantwide factory overhead rates.

Explain why it is imperative that proper factory overhead be allocated in factories that produce multiple products.

When production departments differ significantly in their manufacturing processes, it is recommended that the single plantwide factory overhead rate be used for allocating factory overhead.

Tulip Company produces two products, T and U. The indirect labor costs include the following two items: The following activity-base usage and unit production information is available for the two products: a.Determine the single plantwide factory overhead rate, using direct labor hours as the activity base. b.Determine the factory overhead allocated per unit for Products T and U, using the single plantwide factory overhead rate. c.Determine the activity rate for plant supervision and setup labor, assuming that the activity base for supervision is direct labor hours and the activity base for setup labor is number of setups. d.Determine the factory overhead allocated per unit for Products T and U, using the activity-based costing method. e.Why is the factory overhead allocated per unit different for the two products under the two methods?