Exam 4: Cost Pools, Capacity, and Activity- Based Costing

Homogeneity among resources in a cost pool makes it more difficult to trace resource costs.

Bye-Bye Varmint Company produces a liquid rodent repellant that is packaged and sold in one-liter spray bottles. A single machine that is operated for two, 8-hour daily shifts, five days per week for 50 weeks each year blends the ingredients in the repellant. The annual committed costs of running the machine are $2,628,000, and the managed costs are $1,600,000. -Determine the managed cost per hour.

Capacity of a machine center expressed in time can be translated into units of product or service if the firm can measure its cycle time.

Howe Paper, Inc., produces a number of products, including a replacement filter bag for a popular vacuum cleaner. The filter bags pass through a machine center where the paper pieces are joined with an adhesive. This machine center operates a single eight-hour daily shift totaling 2,000 hours in each 8,760-hour year. Cycle time for each bag is 10 seconds, and in the just-concluded year, 600,000 filter bags were produced. The total committed costs of running the machine center for the year were $70,080, and the total managed costs were $80,000. -What was the productive capacity for the year just concluded?

Birds in Your Backyard produces a line of premium birdseed. Two of its products, flaxseed and safflower seed, are blended in the same machine center. This machine center operates two 2,000-hour shifts per year. Last year, the center processed 300,000 pounds of flaxseed and 650,000 pounds of safflower seed. The flaxseed has a cycle time of 20 seconds per pound and the safflower seed has a cycle time of 10 seconds per pound. Required a) Compute the productive capacity of the machine center measured in time. b) Compute the nonproductive capacity measured in time that the center experienced last year. c) What was the amount of idle time experienced by the machine center?

Competitive cost can be reduced by process improvements that reduce cycle time.

Overhead describes product costs that are indirect to all cost pools and cannot be traced or assigned to those pools.

The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry White, the firm's new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Listed below are activity and cost information relating to two of The Chocolate Baker's major products. Using activity-based costing, which one of the following statements is correct?

The Care Plaza Dialysis Center provides kidney dialysis services to two distinct patient groups. The first group receives all treatments and support directly at the center, while those in the second group self-administer their treatments at home under the center's supervision using equipment leased from third parties. The center also provides nursing support, assistance with ordering supplies, and periodic checkups to patients in the second group. Of the resources listed below, which would most likely be included in a cost pool for the in-house patient group?

The capacity of a machine center can be conveniently expressed in units of time.

The 195 Factory produces replacement parts and assemblies for vintage Cessna aircraft. The company's current costing system traces direct material and direct labor costs into individual jobs and assigns overhead costs to jobs using a predetermined overhead rate based on direct labor hours required by the job. All direct labor is paid at the same rate of $30 per hour. -This year's overhead rate is based on estimated total overhead on $2,000,000 and 10,000 direct labor hours. What is the current overhead rate per labor hour in use?

Although based on estimates, cost assignments are more arbitrary than cost allocations.

Bye-Bye Varmint Company produces a liquid rodent repellant that is packaged and sold in one-liter spray bottles. A single machine that is operated for two, 8-hour daily shifts, five days per week for 50 weeks each year blends the ingredients in the repellant. The annual committed costs of running the machine are $2,628,000, and the managed costs are $1,600,000. - Determine the committed cost per hour.

Mullin Tree Services, Inc., provides a wide variety of landscaping services to residential and commercial clients. The company has defined one cost pool that relates to grinding the stumps of trees it has removed. The resources in this pool included a machine specialized to the grinding task, an operator who works only on stump grinding, and a vehicle used to remove the waste generated by grinding and removal. Mullin is considering no longer offering this service. If it does so, the machine and vehicle would be sold and the operator offered work in another division of the company. Expenditures on the above resources may be described as:

(CMA Adapted) Pelder Products Company manufactures two types of engineering diagnostic equipment used in construction. The two products are based on different technologies, x-ray and ultrasound, but are manufactured in the same factory. Pelder has computed the manufacturing costs of the x-ray and ultrasound products by adding together direct materials, direct labor, and overhead cost applied based on the number of direct labor hours. The factory has three overhead departments that support the single production line that makes both products. Budgeted overhead spending for the departments is as follows. Pelder has identified cost drivers for the three departments as follows: Engineering costs are driven by the number of engineering change orders; material handling by the number of parts; and setup by the number of production setups. Pelder's budgeted manufacturing activities and costs by product line for the period are as follows. Required a) Compute the activity cost rate for each of the three support departments. b) Compute the budgeted cost to manufacture one ultrasound machine using the activity-based costing method.

During a period of idle capacity, the firm wastes both managed and committed capacity costs.

Howe Paper, Inc., produces a number of products, including a replacement filter bag for a popular vacuum cleaner. The filter bags pass through a machine center where the paper pieces are joined with an adhesive. This machine center operates a single eight-hour daily shift totaling 2,000 hours in each 8,760-hour year. Cycle time for each bag is 10 seconds, and in the just-concluded year, 600,000 filter bags were produced. The total committed costs of running the machine center for the year were $70,080, and the total managed costs were $80,000. -What total cost of idleness (to the nearest whole dollar) did Howe suffer for the year?

The 195 Factory produces replacement parts and assemblies for vintage Cessna aircraft. Fred Weems has ordered a new rudder assembly for his Cessna 190. The 195 Factory needs to develop an estimate of its cost to produce the assembly so that it can quote a sales price to Weems. The rudder assembly may be considered by the 195 Factory as a:

Howe Paper, Inc., produces a number of products, including a replacement filter bag for a popular vacuum cleaner. The filter bags pass through a machine center where the paper pieces are joined with an adhesive. This machine center operates a single eight-hour daily shift totaling 2,000 hours in each 8,760-hour year. Cycle time for each bag is 10 seconds, and in the just-concluded year, 600,000 filter bags were produced. The total committed costs of running the machine center for the year were $70,080, and the total managed costs were $80,000. -What was the nonproductive capacity for the year just concluded?

Howe Paper, Inc., produces a number of products, including a replacement filter bag for a popular vacuum cleaner. The filter bags pass through a machine center where the paper pieces are joined with an adhesive. This machine center operates a single eight-hour daily shift totaling 2,000 hours in each 8,760-hour year. Cycle time for each bag is 10 seconds, and in the just-concluded year, 600,000 filter bags were produced. The total committed costs of running the machine center for the year were $70,080, and the total managed costs were $80,000. -What was the idle capacity for the year just concluded?