1.In the predetermined factory overhead rate the budgetedactivity units used in the denominator or formula known as costdriver are measured in all the following except: Select one: a.direct labor hours b. machine hours c. direct labor costs d.indirect labor costs e. production units
2.Activity-based costs include the following steps except:Select one: a. identify activities that consume resources b.identify the cost drivers associated with each activity or activitypool c. calculate an applied rate for each activity d. assign coststo products by multiplying the cost pool rate by the number of costdriver units e. identify predetermined rates
3.Activity cost drivers for marketing expenses include: Selectone: a. selling â sales calls, orders, volume of sales b.warehousing â number of items stored, volume of items stored c.credit and collection ânumber of customer orders, dollar amounts d.all the above e. none of the above
4.Manufacturing organizations perform all the following except:Select one: a. design and manufacture products for sale b. reflectthree inventory accounts on balance sheets c. determine the cost ofgoods manufactured d. include and determine cost of goods incalculation of cost of goods sold e. maintain only one inventoryaccount on the balance sheet
1.In the predetermined factory overhead rate the budgetedactivity units used in the denominator or formula known as costdriver are measured in all the following except: Select one: a.direct labor hours b. machine hours c. direct labor costs d.indirect labor costs e. production units
2.Activity-based costs include the following steps except:Select one: a. identify activities that consume resources b.identify the cost drivers associated with each activity or activitypool c. calculate an applied rate for each activity d. assign coststo products by multiplying the cost pool rate by the number of costdriver units e. identify predetermined rates
3.Activity cost drivers for marketing expenses include: Selectone: a. selling â sales calls, orders, volume of sales b.warehousing â number of items stored, volume of items stored c.credit and collection ânumber of customer orders, dollar amounts d.all the above e. none of the above
4.Manufacturing organizations perform all the following except:Select one: a. design and manufacture products for sale b. reflectthree inventory accounts on balance sheets c. determine the cost ofgoods manufactured d. include and determine cost of goods incalculation of cost of goods sold e. maintain only one inventoryaccount on the balance sheet
Related questions
P7B-3 - Please explain how you arrived at your answers.Thank you!
| Problem 7B-3 Activity-Based Costing as an Alternative toTraditional Product Costing [LO7]
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Maryville Manufacturing designs and builds custom mudroomstorage benches. All of the mudroom storage benches are constructedwith rustic hickory. Its budgeted manufacturing costs for the 2018year are as follows.
Overhead Cost Pools | Amount |
Purchasing | $ 45,000 |
Handling materials | 50,000 |
Production (cutting, milling, finishing) | 130,000 |
Setting up machines | 85,000 |
Inspecting | 60,000 |
Inventory control (raw materials and finished goods) | 80,000 |
Utilities | 100,000 |
Total budgeted overhead costs | $550,000 |
For the last 5 years, Maryville Manufacturing has been chargingoverhead to products on the basis of materials cost. For the year2018, materials cost of $500,000 were budgeted.
Jim Johnson, owner-manager of Maryville Manufacturing, recentlydirected his accountant, Ledger Kaufman, to implement theactivity-based costing system that he has repeatedly proposed. AtJimâs request, Ledger and the production foreman identify thefollowing cost drivers and their usage for the previously budgetedoverhead cost pools.
Overhead Cost Pools | Activity Cost Drivers | Expected Use of Cost Drivers |
Purchasing | Number of orders | 500 |
Handling materials | Number of moves | 5,000 |
Production (cutting, milling, finishing) | Direct labor hours | 65,000 |
Setting up machines | Number of setups | 1,000 |
Inspecting | Number of inspections | 4,000 |
Inventory control (raw materials and finished goods) | Number of components | 40,000 |
Utilities | Square feet occupied | 50,000 |
Doug Russell, sales manager, has received an order for 12 custommudroom storage benches from Homes by Kathy. At Dougâs request,Ledger prepares costs estimates for producing 12 mudroom storagebenches so Doug can submit a contract price per mudroom storagebench to Homes by Kathy. He accumulates the following data for theproduction of 12 mudroom storage benches.
Direct materials | $5,200 |
Direct labor | $3,500 |
Direct labor hours | 200 |
Number of purchase orders | 3 |
Number of material moves | 32 |
Number of machine setups | 4 |
Number of inspections | 20 |
Number of components | 640 |
Number of square feet occupied | 320 |
Required:
Compute the predetermined overhead rate using traditionalcosting with direct materials cost as the allocation base.
Compute the total cost of manufacturing one mudroom storagebench using direct materials cost as the allocation base formanufacturing overhead.
Compute the predetermined overhead rate using traditionalcosting with direct labor hours as the allocation base.
Compute the total cost of manufacturing one mudroom storagebench using direct labor hours as the allocation for manufacturingoverhead.
Compute the predetermined overhead rate per cost driver for eachof the overhead cost pools using the proposed activity-basedcosting system.
Compute the total cost of manufacturing one mudroom storagebench using the proposed activity-based costing system.
Which allocation base is preferable under traditional costingand why?
Which costing system (traditional or activity-based) ispreferable in pricing decisions and why?
Section IV: Alternative Costing Method
Hampshire has always produced stick umbrellas. However, it isconsidering expanding its production to include collapsibleumbrellas. This consideration has been spurred by Tours Today, atouring company that is interested in providing its customers withcollapsible umbrellas imprinted with its logo. The management atHampshire is currently working out a deal with the touring companyto produce 3,000 collapsible umbrellas and believes it can sellthose umbrellas for $14.00 each. Here are the costs that can bedirectly traced to this special order:
Direct Materials: $9,300
Direct Labor Hours: 600
Hourly Rate of Direct labor: $8.00
In the traditional costing approach, overhead is applied at therate of $24.60 per labor hour. This expansion in production willadd additional overhead costs. The total overhead costs (assumingproduction of the stick and collapsible umbrellas) to include thecost pools and cost drivers are provided in Table 2.
An alternative costing method that might benefit Hampshire isthe implementation of activity-based costing (ABC).Hampshire would like to implement an ABC approach to analyze theproduction of this special order of collapsible umbrellas. Thecontroller has assembled the following information:
Stick | Collapsible | |
Units Sold | 60,000 | 3,000 |
Selling Price | $12.50 | $14.00 |
Direct Material Cost per Unit | $3 | $3.10 |
Direct Labor Cost per Hour | $7.50 | $8.00 |
Variable Manufacturing Overhead | $0.40 | $0.40 |
Variable Selling Costs | $1.10 | $1.10 |
Labor Hours per Unit | 0.2 | 0.2 |
Sales Orders | 120 | 1 |
Purchase Orders | 50 | 3 |
Production Runs | 45 | 6 |
Material Moves | 86 | 10 |
Machine Setups | 130 | 6 |
Machine Hours | 525 | 32 |
Inspections | 200 | 10 |
Shipments | 60 | 3 |
Table 1: Direct Cost Information and Activities
Activity | Activity Cost | Activity Cost Driver |
Order Processing | $35,000 | Number of Sales Orders |
Purchasing | $36,000 | Number of Purchase Orders |
Material Handing | $28,000 | Material Moves |
Machine Setup | $14,000 | Machine Setups |
Production | $99,000 | Production Runs |
Assembly | $80,000 | Machine Hours |
Inspecting | $11,000 | Number of Inspections |
Shipping | $7,500 | Number of Shipments |
Table 2: Activity Cost Pools and Cost Drivers
Another alternative to traditional costing and ABC istime-driven activity-based costing (TDABC). You will need todetermine which of these three methods would be the best approachfor the Hampshire Company. The following article may assist you inyour analysis: Time-Driven Activity-Based Costing. Additionally,you may want to use the Shapiro Library to conduct further researchon the three methods. You will need to defend your position whenanswering the prompts for the written portion of this section.
Using the information provided above, complete the following inthe Hampshire Company Spreadsheet in order to assist you inresponding to all components of Section IV:
1.Calculate the allocation rates foreach cost driver using ABC.
2.Use the traditional costing approachto calculate the total cost and the unit cost of the stick andcollapsible umbrellas.
3.Use ABC to compute the total costsand the unit cost for the stick and collapsible umbrellas.
4.Compute the difference between theproduct cost per stick and collapsible umbrellas using the unitcost that you computed with the traditional approach and the onethat you computed using ABC.
