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Exam 26: Cost Allocation and Activity-Based Costing

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Question 1

True/False

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Estimated activity-base usage quantities are the total activity-base quantities related to each product.

A) True
B) False

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Question 2

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Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. -Determine the overhead rate in the Finishing Department for each unit of Product A if Blue Ridge Marketing Inc. uses a multiple department rate system.

A) $99.20 per unit
B) $49.60 per unit
C) $64.00 per unit
D) $28.80 per unit

E) A) and C)
F) A) and B)

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Question 3

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Pinacle Corp. budgeted $700,000 of overhead cost for the current year. Actual overhead costs for the year were $650,000. Pinacle's plantwide allocation base, machine hours, was budgeted at 100,000 hours. Actual machine hours were 80,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually produced. Pinacle's plantwide factory overhead rate for the current year is:

If the budget estimates that a table lamp will require 2 hours of finishing and 1 hours of production, what is the total amount of factory overhead the Kaumajet Factory will allocate to table lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 75,000 units are produced?

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000. -The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the overhead cost per unit for Blinks?

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000. -The Ramapo Company uses a single overhead rate to apply all overhead costs. What would the single plantwide rate be if it was based on machine hours instead of labor hours?

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$ -Which of the following is a cost pool used with the activity-based costing method?

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. -Determine the overhead from both production departments allocated to each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system.

Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are the same across all departments and products.

Service organizations can use activity-based costing to allocate selling and administrative costs to services provided.

The Dawson Company manufactures small lamps and desk lamps. The following shows the activities per product and the total overhead information: $\begin{array}{|l|r|c|c|}\hline & \text { Setups } & \text { Insp ections } & \text { Assembly dlh) } \\\hline \text { Small Lamps-3,000 units } & 8,000 & 9,000 & 16,000 \\\hline \text { Desk Lamps-6,000 units } & 16,000 & 15,000 & 12,000 \\\hline & & & \\\hline\end{array}$ $\begin{array}{|l|c|c|}\hline \text { Activity Pool } & \text { Activity Base } & \text { Budgeted Amount } \\\hline \text { Setups } & 24,000 & \$ 60,000 \\\hline \text { Inspections } & 24,000 & \$ 120,000 \\\hline \text { Assembly dlh) } & 28,000 & \$ 280,000 \\\hline\end{array}$ -The Bonnington Company manufactures small lamps and desk lamps. The following shows the activities per product: $\begin{array} { | l | r | c | c | } \hline & & & \\& \text { Setups } & \text { Inspections } & \text { Assembly dlh) } \\\hline \text { Small Lamps-4,000 units } & 4,000 & 15,000 & 6,000 \\\hline \text { Desk Lamps-8,000 units } & 16,000 & 7,000 & 20,000 \\\hline\end{array}$ Using the following information prepared by the Bonnington Company, determine the total factory overhead to be charged to small lamps. $\begin{array} { | l | c | c | } \hline \text { Activity Pool } & \text { Activity Base } & \text { Budgeted Amount } \\\hline \text { Setups } & 20,000 & \$ 80,000 \\\hline \text { Inspections } & 22,000 & \$ 132,000 \\\hline \text { Assembly d1h) } & 26,000 & \$ 416,000 \\\hline\end{array}$

Zorn Co. budgeted $600,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Zorn's plantwide factory overhead rate is $6.00 per unit.

The selection of the factory overhead allocation method is important because the method selected determines the accuracy of the product cost.

Direct labor hours is not a cost pool that is regularly used in the activity-based costing method.

If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, how much factory overhead will the Kaumajet Factory allocate to each unit of desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours?

In an effort to simplify the multiple production department factory overhead rate method, the same rate can be used for all departments.

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$ -Determine the activity rate for materials handling per move.

5 hours to produce? d) How much total factory overhead will be allocated to glove production if 187,500 pairs are budgeted and 190,000 pairs are actually produced during the period? e) How much total factory overhead will be allocated to mitten production if 150,000 pairs are budgeted and 140,000 pairs are actually produced during the period?

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000. -Common allocation bases are

In a service organization, the multiple department overhead rate method is the most effective in providing information about the cost of services.