Exam 8: Activity-Based Costing

Flanigan Manufacturing uses an activity-based cost system. The company produces Product R and Product X. Information concerning the two products is as follows: The following costs are reported: Required: a. Classify the overhead activities as: • Unit-level activities • Batch-level activities • Product-sustaining activities b. Calculate the following: • The pool rate for power • The pool rate for setups • The pool rate for engineering c. Calculate the following: • Power costs assigned to Product X • Setup costs assigned to Product R • Engineering costs assigned to Product R

If activity-based costing is used, electricity usage would be an example of a

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 cost drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. What is the cost pool rate for the batch-level activities?

Which of the following quantities is an example of an activity driver in activity-based costing?

If activity-based costing is used, modifications made by engineering to the product design of several products would be classified as a

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

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 cost drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. What is(are) the product-level activity(ies)?

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.

Figure 5 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 5. 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)

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: Machine-related overhead would be classified as a

An activity-based cost system

Figure 2 The management of Chott Industries predicted that overhead cost would total £180,000 for the current year. Management further estimated that under absolutely perfect conditions they could produce 25,000 units. Under efficient conditions, they can produce 23,000 units. The product is expected to appeal to the public for approximately three years during which time Chott expects to sell a total of 60,000 units. Because poor economic conditions are forecast for the upcoming year, Chott plans to produce only 18,000 units. -Refer to Figure 2. What will Chott's overhead application rate be if Chott uses practical capacity?

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 cost drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours. What is the cost pool rate for the product-level activities?

Product costs can be distorted if a unit-based activity driver is used and

Committed resources

Zang Manufacturing Company manufactures two products (A and B). The overhead costs (£58,000) have been divided into three cost pools that use the following activity cost drivers: What is the allocation rate per order using ABC?

More accurate product costing information is produced by assigning costs using

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 2004, 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.

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.

When selecting an activity driver, a company should consider