AFM102 Chapter Notes - Chapter 7: Activity-Based Costing, Cost Driver

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lemonbeetle804

16 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Jie Joyce Tian

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Chapter 7

Activity-Based Costing (ABC): A costing method that is designed to provide

managers with cost information for strategic and other decisions that potentially

affect capacity and therefore fixed as well as variable costs.

Overhead Cost Pools: Groups of overhead cost elements.

Activity: Any event that causes consumption of overhead resources.

- Unit Level

- Batch Level

- Product Level

- Customer Level

- Organization Sustaining Level

Activity Cost Pool: A uket i whih osts are auulated that relate to a

single activity measure in ABC.

Activity Measure: An allocation base in an activity-based costing system; ideally, a

measure of the amount of activity that drives the costs in an activity cost pool;

also called a cost driver.

Transaction Driver: A simple count of the number of times an activity occurs.

Duration Driver: A measure of the amount of time required to perform an

activity.

Unit Level Activities: Activities that arise as a result of the total volume of goods

produced and services performed each time a unit is produced.

Batch Level Activities: Activities performed each time a batch of goods is handled

or processed, regardless of how many units are in a batch. The amount of

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Document Summary

Activity-based costing (abc): a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs. Overhead cost pools: groups of overhead cost elements. Activity: any event that causes consumption of overhead resources. Activity cost pool: a (cid:862)(cid:271)u(cid:272)ket(cid:863) i(cid:374) whi(cid:272)h (cid:272)osts are a(cid:272)(cid:272)u(cid:373)ulated that relate to a single activity measure in abc. Activity measure: an allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool; also called a cost driver. Transaction driver: a simple count of the number of times an activity occurs. Duration driver: a measure of the amount of time required to perform an activity. Unit level activities: activities that arise as a result of the total volume of goods produced and services performed each time a unit is produced.

Related Questions

SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system:

Driver and guard wages $ 1,180,000
Vehicle operating expense 610,000
Vehicle depreciation 490,000
Customer representative salaries and expenses 520,000
Office expenses 380,000
Administrative expenses 680,000

Total cost $ 3,860,000

The distribution of resource consumption across the activity cost pools is as follows:

Travel Pickup
and
Delivery Customer
Service Other Totals
Driver and guard wages 50 % 35 % 10 % 5 % 100 %
Vehicle operating expense 70 % 5 % 0 % 25 % 100 %
Vehicle depreciation 60 % 15 % 0 % 25 % 100 %
Customer representative salaries and expenses 0 % 0 % 90 % 10 % 100 %
Office expenses 0 % 20 % 30 % 50 % 100 %
Administrative expenses 0 % 5 % 60 % 35 % 100 %

Required:
Complete the first stage allocations of costs to activity cost pools.

pucelouse578

EXERCISE 7-2 First Stage Allocation [LO7-2] SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activ- ity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system: Driver and guard wages ... Vehicle operating expense .. Vehicle depreciation ..... Customer representative salaries and expenses Office expenses ... Administrative expenses .. Total cost .... $ 720,000 280,000 120,000 160,000 30,000 320,000 $1,630,000 The distribution of resource consumption across the activity cost pools is as follows: Pickup and Delivery 35% 5% 15% Travel 50% 70% 60% Driver and guard wages Vehicle operating expense ...... Vehicle depreciation .......... Customer Service 10% 0% 0% Other 5% 25% 25% Totals 100% 100% 100% Customer representative salaries and expenses Office expenses ........ Administrative expenses ....... 3 0% 0% 0% 0% 20% na 90% 30% 60% 10% 50% 35% 100% 100% 100% ..... 5% Required: Complete the first stage allocations of costs to activity cost pools as illustrated in Exhibit 7-6.

Greenwood Company manufactures two productsâ15,000 units of Product Y and 7,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z:

Activity Cost Pool Activity Measure Estimated Overhead Cost Expected Activity
Machining Machine-hours $ 221,100 11,000 MHs
Machine setups Number of setups $ 107,100 210 setups
Production design Number of products $ 85,000 2 products
General factory Direct labor-hours $ 251,000 10,000 DLHs

Activity Measure Product Y Product Z
Machining 7,100 3,900
Number of setups 60 150
Number of products 1 1
Direct labor-hours 8,100 1,900

2.
Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y and Product Z? (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)

3.
What is the activity rate for the Machining activity cost pool? (Round your answer to 2 decimal places.)

4.
What is the activity rate for the Machine Setups activity cost pool? (Round your answer to 2 decimal places.)

5.
What is the activity rate for the Product Design activity cost pool? (Round your answer to 2 decimal places.)

3.
What is the activity rate for the Machining activity cost pool? (Round your answer to 2 decimal places.)

4.
What is the activity rate for the Machine Setups activity cost pool? (Round your answer to 2 decimal places.)

5.
What is the activity rate for the Product Design activity cost pool? (Round your answer to 2 decimal places.)

6.
What is the activity rate for the General Factory activity cost pool? (Round your answer to 2 decimal places.)

.Which of the four activities is a batch-level activity? Machining activityGeneral factory activityProduct design activityMachine setups activity

Machining activity
General factory activity
Product design activity
Machine setups activity

8.Which of the four activities is a product-level activity? Machine setups activityMachining activityGeneral factory activityProduct design activity

Product design activity
Machining activity
Machine setups activity
General factory activity

9.
Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)

Total manufacturing overhead cost

.
10.Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)

Total manufacturing overhead cost

11.
Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z? (Round your answers to 2 decimal places.)

Product Y Product Z
Total overhead cost
%
%
12.
Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)

Machining cost
%
%

13.
Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)

Machine setups cost
%
%

14.
Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)
Product Y Product Z
Product design cost
%
%

15.
Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)

General factory cost product Y% product z%

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AFM102 Chapter Notes - Chapter 7: Activity-Based Costing, Cost Driver

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