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Exam 4: Activity-Based Costing and Analysis

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Question 21

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[The following information applies to the questions displayed below.] Assume that a pet food manufacturer is considering adding two types of pet food to its existing product line. Research had determined that good demand exists for dog food in 40-pound bags and cat food in 0.5 pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year: -How much overhead cost will be assigned to each product line using activity-based costing (ABC) ?

A) Dog food: $462,500; cat food: $462,500.
B) Dog food: $860,000; cat food: $65,000.
C) Dog food: $60,000; cat food: $45,000.
D) Dog food: $800,000; cat food: $20,000.
E) Dog food: $320; cat food: $320.

F) A) and B)
G) A) and E)

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Question 22

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A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table: Which of the following statements is true regarding this company's activity rates?

A) The activity rate under the activity-based costing system for Activity 2 is $2.00.
B) The activity rate under the activity-based costing system for Activity 2 is $16.00.
C) The activity rate under the activity-based costing system for Activity 2 is $1.50.
D) The activity rate under the activity-based costing system for Activity 2 is $19.50.
E) The activity rate under the activity-based costing system for Activity 2 is $2.81.

F) A) and D)
G) C) and D)

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Question 23

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Overhead costs:

Time Bender Company makes watches and clocks. The following estimated data are available for the company's next fiscal year: Total direct labor costs: $1,700,000 Total setup costs: $190,000 $\begin{array} { | l | l | l | } \hline & \text { Watches } & \text { Clocks } \\\hline \text { Expected production } & 800,000 & 100,000 \\\hline \text { Direct labor hours needed } & 68,000 \mathrm { DLH } & 17,000 \mathrm { DLH } \\\hline \text { Machine setups needed } & 1,000 \text { setups } & 1,000 \text { setups } \\\hline\end{array}$ Determine the setup cost per unit for the watches and the clocks if setup costs are assigned using a plantwide overhead rate based on direct labor hours. (Round to two decimal places.)

Crinkle Cut Clothes Company manufactures two products CC1 and CC2. Current direct material and direct labor costs are detailed below. Next year the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $338,250. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year. $\begin{array}{ccc} & \text { Direct } & \text { Direct } \\& \text { Material } & \text { Labor Dollars } \\& \text { per Unit } & \text { per Unit } \\\text { CC1 } & \$ 37.10& \$ 22.40 \\\mathrm{CC} 2 & \$ 25.20 & \$ 15.40\end{array}$ Compute the plantwide overhead rate for next year.

Allocated overhead costs vary depending upon the allocation methods used.

Product design costs are an example of a unit level activity.

Product-level costs do not vary with the number of units or batches produced.

The activity-based costing method uses volume-based measures to allocate overhead costs.

A company has two products: X and Y. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Annual production and sales level of Product X is 161,100 units, and the annual production and sales level of Product Y is 275,200 units. a. Compute the approximate overhead cost per unit of Product X under activity-based costing. b. Compute the approximate overhead cost per unit of Product Y under activity-based costing.

A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's overhead rates for each of the three activities and (b) the amount of overhead allocated to Product A.

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

Overhead costs are not directly related to production and cannot be traced to units of product like direct materials and direct labor can.

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

Some companies allocate their overhead cost using a plantwide overhead rate largely because of its simplicity.

All of the following are examples of facility-level costs except:

Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 140,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

The following data relates to Black-Out Company's estimated amounts for next year. What is the company's plantwide overhead rate if machine hours are the allocation base? (Round your answer to two decimal places.)

Distorted product cost information can result in poor decisions.

Activity-based costing eliminates the need for overhead allocation rates.