Exam 8: Activity-Based Management and Activity-Based Costing

What is 'activity-based management' and how can it be used to improve the profitability of a company? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: Fremantle Corporation has two departments,Sails and Masts.Central costs could be allocated to the two departments in various ways. Sails Department Masts Department Square metreage 6000 18000 Number of employees 1120 480 Sales \ 400000 \ 2000000 -If total payroll processing costs of $60 000 are allocated on the basis of number of employees,the amount allocated to the Masts Department would be:

Where outputs consume resources directly,the management accountant traces these to the cost objects.

What is the second step in the seven-step guideline for ABC systems?

Answer the following questions using the information below: Ghan Collectibles produces T-shirts and sweatshirts.Product profitability is analysed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 60000 units 35000 urits Selling price \ 16.00 \ 29.00 Direct material \ 2.00 \ 5.00 Direct labour \ 4.50 \ 7.20 Manufacturing overhead \ 2.00 \ 3.00 Gross profit \ 7.50 \ 13.80 Selling and administrative \ 4.00 \ 7.00 Operating profit \ 3.50 \ 6.80 Ghan Collectibles's managers have decided to revise their current assignment of overhead costs to reflect the following $\mathrm { ABC }$ cost information: Activities demanded T-SHIRTS SWEATSHIRTS 0.75/ unit 1.2/ 45000 42000 60000 inspections 17500 inspections -Under the revised ABC system,total overhead costs allocated to sweatshirts will be:

Answer the following questions using the information below: Barnes Corporation manufactures two models of office chairs,a standard and a deluxe model.The following activity and cost information has been compiled: Product Number of Set-ups Number of Components Number of Direct Labour Hours Standard 22 8 500 Deluxe 28 12 300 Overhead costs \ 30000 \ 60000 -Assume a traditional costing system applies the $90 000 of overhead costs based on direct labour hours.What is the total amount of overhead costs assigned to the deluxe model?

Answer the following questions using the information below: Kosciuszko Land and Snow Company provides the following ABC costing information: Activities Total Costs Activity-cost Drivers Labour hours \ 240000 12000 hours Fuel \ 27000 9000 litres Invoices \ 30000 3750 invoices Total costs \ 1912000 The above activities used by their three departments are: Lawn Department Bush Department Ploughing Department Labour hours 2500 hours 1200 hours 4300 hours Fuel 1500 litres 800 litres 3700 litres Invoices 1600 invoices 400 invoices 500 invoices -How much of the total costs will be assigned to the Lawn Department?

Answer the following questions using the information below: Warne Limited manufactures remote controls.Currently,the company uses a plant-wide rate for allocating manufacturing overhead.The plant manager believes it is time to refine the method of cost-allocation and has the accounting department identify the primary production activities and their cost drivers: Activities Cost Driver Allocation Rate Material handling Number of parts \ 3 per part Assembly Labour hours \ 30 per hour Inspection Time at inspection station \ 4.50 per minute The current traditional cost method allocates overhead based on direct manufacturing labour hours using a rate of $200 per labour hour. -What are the indirect manufacturing costs per remote control assuming an Activity-based costing method is used and a batch of 100 remote controls is produced? The batch requires 500 parts,10 direct manufacturing labour hours and 5 minutes of inspection time.

Direct costs plus indirect costs equal total costs.

Answer the following questions using the information below: Kosciuszko Land and Snow Company provides the following ABC costing information: Activities Total Costs Activity-cost Drivers Labour hours \ 240000 12000 hours Fuel \ 27000 9000 litres Invoices \ 30000 3750 invoices Total costs \ 1912000 The above activities used by their three departments are: Lawn Department Bush Department Ploughing Department Labour hours 2500 hours 1200 hours 4300 hours Fuel 1500 litres 800 litres 3700 litres Invoices 1600 invoices 400 invoices 500 invoices -How much of the fuel cost will be assigned to the Lawn Department?

Today,companies are simplifying their cost systems and moving toward less-detailed and less-complex cost-allocation bases.

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts.Of the following,the MOST appropriate cost driver for assigning materials handling costs to the various products is:

A well-designed,activity-based cost system helps managers make better decisions because information derived from an ABC analysis:

Design costs are an example of:

Answer the following questions using the information below: Katoomba Company provides the following ABC costing information: Activities Total Costs Activity-cost Drivers Account inquiry hours \ 800000 20000 hours Account billing lines \ 560000 8000 000 lines Account verification accounts \ 300000 80000 accounts Correspondence letters \ 100000 8000 letters Total costs \ 1760000 The above activities are uæed by Departments and as follows: Department A Department B Account inquiry hours 2000 hours 8000 hours Account billing lines 400 o00 lines 200000 lines Account verification accounts 20000 accounts 8000 accounts Correspondence letters 1000 letters 1600 letters -How much of the total costs will be assigned to Department B?

Answer the following questions using the information below: Trustme Vehicle Rental Corporation has two departments,Car Rental and Truck Rental.Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of vehicles in fleet 700 300 Number of employees 150 50 Sales \ 1500000 \ 750000 -If the facility lease expense of $350 000 is allocated on the basis of vehicles in the fleet,the amount allocated to the Car Rental Department would be:

Discuss what managers need to consider in implementing an ABC system. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: Trustme Vehicle Rental Corporation has two departments,Car Rental and Truck Rental.Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of vehicles in fleet 700 300 Number of employees 150 50 Sales \ 1500000 \ 750000 -If the administrative expense of $125 000 is allocated on the basis of number of employees,the amount allocated to the Car Rental Department would be:

Which of the following is a challenge to using cost-benefit criteria for allocating costs?

Answer the following questions using the information below: The Sparky Electrical Products Company has an Electric Mixer Division and an Electric Lamp Division.Of a $30 000 000 bond issue,the Electric Mixer Division used $21 000 000 and the Electric Lamp Division used $9 000 000 for expansion.Interest costs on the bond totalled $1 500 000 for the year. -The above interest costs would be considered a(n):