ACC 336 Chapter Notes - Chapter 4: Activity-Based Costing

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viridianjellyfish544

29 Jun 2020

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Most accurate - doesn"t mean you want to use it. If you spend time, e ort, and cost its not worth it. Oh uses direct tracing, driver tracing, allocation. Oh has plant and departmental cost pools. Overhead costs are assigned to functional units. Creates pooled costs, assigned to products using predetermined oh rates. Normal costing - using your costs to determine an oh rate. Calculated at the beginning of the year. Predetermined oh rate = (budgeted annual oh)/(budgeted annual driver level) Applied oh = overhead rate x actual driver usage. Unit level drivers - factors that measure the demands placed on unit level activities by products. All budgeted oh costs are assigned to a plant wide pool. Underapplied oh: variance that occurs when actual oh is greater than applied oh. Overapplied: variance that occurs when actual oh is less than applied oh.

Related Questions

Tommy Lyons Company manufactures and sells two products: Product S3 and Product S2. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce the output appear below:

Product Info

Product S3: 800 units @ 8.0 DLH/unit = 6,400 hours

Product K2: 900 units @6.0 DLH/unit = 5,400 hours

Direct Material Cost/Unit

The direct labor rate is $18.00 per DLH. The direct materials cost per unit for each product is given below:

Product S3: $280.70

Product K2: $157.90

Activity Cost Pools

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, total overhead costs and expected activity for each product.

Labor Related

Direct labor hours, total OH $523,094

S3 = 6,400

K2 = 5,400

Total = 11,800 DLHs

Machine Set-ups

Number of tests, total OH = $135,478

S3 = 600

K2 = 800

Total = 1,400 Tests

General Factory

Machine hours, total OH = $392,327

S3 = 5,000

K2 = 5,300

Total = 10,300 MHs

Total Overhead Costs

Including: DLHs, machine set-ups, machine hours = $1,050,899

Required:

The company currently uses a traditional costing methodin which overhead is applied to products based solely on direct labor-hours. Compute the company's predetermined overhead rate under this costing method.

How much overhead would be applied to each product under the company's traditional costing method?

Determine the unit product cost of each product under the company's traditional costing method.

Compute the activity rates under the activity-based costing system.

Determine how much overhead would be assigned to each product under the activity-based costing system.

Determine the unit product cost of each product under the activity-based costing method.

What is the difference between the overhead per unit under the traditional costing method and the activity-based costing system for each of the two products?

jadewater-buffalo856

Claire Company produces Tablets and Books. Total overhead coststraditionally have been allocated on the basis of direct laborhours. After implementing activity-based costing, managersdetermined the following cost pools and cost drivers. They alsodecided that general costs should no longer be allocated toproducts. Activity Pool Department Costs Cost Driver Binding$255,816 Number of units Printing 831,402 Machine hours Productdesign 193,116 Change orders General 619,894 None Total overheadcosts $1,900,228 Other information is as follows: Tablets BooksUnits 62,600 20,100 Direct materials cost per unit $3.11 $10.44Direct labor cost per unit $4.17 $7.85 Direct labor hours 25,30016,500 Machine hours 126,000 122,000 Change orders 1,400 2,900Calculate predetermined OH rate. (Round answer to 2 decimal places,e.g. 15.25.) Determine the unit product cost for Tablets and Booksusing the traditional costing system. (Round overhead rate andfinal answers to 2 decmial places, e.g. 15.25.) Calculate ABCrates. (Round answers to 2 decimal places, e.g. 15.25.) Determinethe unit product cost for Tablets and Books using theactivity-based costing system. (Round all rates and final answersto 2 decmial places, e.g. 15.25.) Show that General cost is thedifference between the total overhead costs allocated to productsunder the traditional system and the total cost allocated toproducts under the activity-based costing system. (Round answers to0 decmial places, e.g. 1,525.)

pearcrab948

Baja Industries has recently switched its method of applying manufacturing overhead from a single predetermined overhead rate based on direct labor hours to activity-based costing (ABC). Assume that the direct labor rate is $18.00 per hour and that there were no beginning inventories. The following cost drivers and rates have been developed for allocating manufacturing overhead costs:

Activity Cost Driver Rate
Material handling Number of parts used $2.00 per part
Assembly and inspection Number of direct labor hours $25.00 per DLH
Testing Number of units tested $5.00 per unit

The following production, costs, and activities occurred during the month of August:

Direct Number of
Units Produced Material Cost Parts Used Direct Labor Hours
6,400 $208,600 142,000 26,480

(a.) Calculate the total manufacturing cost and the cost per unit for the month of August.
(b.) Assume instead that Baja Industries applies manufacturing overhead on the basis of $40.00 per direct labor hours (rather than the ABC method). Calculate the total manufacturing overhead cost applied for the month of August.
(c.) Which method of applying overhead do you think provides better information for manufacturing managers?

amethystporcupine666

ACC 336 Chapter Notes - Chapter 4: Activity-Based Costing

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