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Exam 17: Activity-Based Costing and Analysis

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Question 71

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The premise of ABC is that it takes activities to make products and provide services and these activities drive costs.

A) True
B) False

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Question 72

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A company produces paint which goes through two operations, operation A and operation B, before it is complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for Department B based on machine hours is $4.00 per machine hour. $\begin{array} { l c c } & \text { Department } & \text { Department } \\& \mathrm { A } & \mathrm { B } \\\text { Machine hours } & 50,000 \mathrm { MH } & 60,000 \mathrm { MH } \\\text { Direct labor hours } & 78,500 \mathrm { DLH } & 100,800 \mathrm { DLH } \\\text { Overhead costs } & \$ 392,500 & \$ 403,200\end{array}$

A) True
B) False

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Question 73

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Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor.

Batch level costs vary with the number of units produced.

All of the following are examples of facility sustaining costs except:

Heritage Industries produces miniature models of farm equipment. These collectibles are in great demand. It takes two operations, molding and finishing, to complete the miniatures. Next year's expected activities are shown below. -Heritage Industries uses departmental overhead rates and is planning on a $3.20 per machine hour overhead rate for the finishing department. Compute the estimated manufacturing overhead cost for the finishing department given the information above.

The departmental overhead rate method uses a different overhead rate for each production department.

K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 80,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

Allocated overhead costs vary depending upon the allocation methods used.

The use of a plantwide overhead rate is not acceptable for external reporting under GAAP.

A _______________________ overhead rate is a single overhead rate determined by using volume-related measures.

The first step in using the departmental overhead rate method requires that overhead be traced to each of the company's departments.

A company produces surgical equipment which goes through threes processes, 1A1, 2B2 and 3C3, before they are complete. Expected costs and activities for the three departments are shown below. All departments have departmental overhead rates based on direct labor hours. Therefore, the overhead rate for each department is $5 per direct labor hour. $\begin{array} { l c c c } & \text { Department } & \text { Department } & \text { Department } \\& 1 \mathrm {~A} 1 & 2 \mathrm {~B} 2 & 3 \mathrm { C } 3 \\\text { Machine hours } & 15,000 \mathrm { MH } & 25,000 \mathrm { MH } & 20,000 \mathrm { MH } \\\text { Direct labor hours } & 22,830 \mathrm { DLH } & 10,650 \mathrm { DLH } & 29,200 \mathrm { DLH } \\\text { Overhead costs } & \$ 114,150 & \$ 213,000 & \$ 73,000\end{array}$

Assume that the Oregon Ice Cream Company is considering the costs of two of their product lines - ice cream sandwiches and dessert bars. The company identified the following partial list of activities, costs, and activity drivers expected for the next year. $\begin{array}{l}\begin{array} { | l | c | c | } \hline \text { Activity } & \text { Expected Costs } & \text { Cost Driver } \\\hline \text { Extrusion Costs } & \$ 637,500 & \text { Number batches made } \\\hline \text { Packaging Costs } & \$ 44,000 & \text { Number of units made } \\\hline\end{array}\\\\\begin{array} { | l | c | c | } \hline & \text { Ice Cream Sandwiches } & \text { Dessert Bars } \\\hline \text { Production volume } & 350,000 \text { units } & 200,000 \text { units } \\\hline \text { Batches made } & 400 \text { batches } & 350 \text { batches } \\\hline\end{array}\end{array}$ -Refer to the data above. How much overhead cost will be assigned to the ice cream sandwich product line using activity-based costing (ABC) ?

Direct labor, direct materials and manufacturing overhead are all product costs. Why is overhead more difficult to account for than either direct labor or direct materials?

Data concerning volume-related measures are readily available in most manufacturing settings.

Which of the following is not true?

Consider the following activities which take place in a medical clinic. (a.) Cleaning exam rooms (b) ) Heating and air conditioning the clinic (c) ) Sending blood work to a lab (d) ) Dispensing medicine Which of the following statements is true?

A company identified the following partial list of activities, costs, and activity drivers expected for the next year. $\begin{array}{l}\begin{array} { | l | c | c | } \hline \text { Activity } & \text { Expected Costs } & \text { Cost Driver } \\\hline \text { Extrusion Costs } & \$ 83,600 & \text { Number batches made } \\\hline \text { Handling Costs } & \$ 8,800 & \text { Number of orders filled } \\\hline \text { Packaging Costs } & \$ 40,500 & \text { Number of units made } \\\hline\end{array}\\\begin{array} { | l | c | c | } \hline & \text { Product A } & \text { Product B } \\\hline \text { Production volume } & 750,000 \text { units } & 600,000 \text { units } \\\hline \text { Batches made } & 200 \text { batches } & 750 \text { batches } \\\hline \text { Orders filled } & 75 & 200 \\\hline\end{array}\end{array}$ How much overhead in total will be assigned to the Product A line?

Heritage Industries produces miniature models of farm equipment. These collectibles are in great demand. It takes two operations, molding and finishing, to complete the miniatures. Next year's expected activities are shown below. -Heritage Industries uses departmental overhead rates and is planning on a $3 per direct labor hour overhead rate for the molding department. Compute the estimated manufacturing overhead cost for the molding department given the information above.