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Exam 26: Cost Allocation and Activity-Based Costing

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Question 21

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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 Dinks?

A) $77.00
B) $39.00
C) $19.50
D) $59.92

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

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Question 22

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Activity-based costing is much easier to apply than single plantwide factory overhead allocation.

A) True
B) False

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Question 23

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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 product development per change.

A plantwide factory overhead rate assumes that all overhead is directly related to one activity representing the entire plant.

Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Challenger Factory allocate to deluxe widget production if budgeted production for the period is 50,000 units and actual production for the period is 58,000 units?

Transformations Hair Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: $\begin{array} { | l | c | } \hline \text { Activity } & \text { Activity Rate } \\\hline \text { Hair washing } & \$ 1.50 \\\hline \text { Conditioning } & \$ 2.00 \\\hline \text { Chemical treatment } & \$ 20.00 \\\hline \text { Styling } & \$ 10.00 \\\hline\end{array}$ a) Using the information provided, determine the cost of services for each of the following services provided by the salon: $\begin{array} { | l | c | c | c | c | } \hline & \begin{array} { c } \text { Hair } \\\text { Washing }\end{array} & \text { Conditioning } & \begin{array} { c } \text { Chemical } \\\text { Treatment }\end{array} & \text { Styling } \\\hline \text { Haircut } & 1 & 1 & 0 & 0 \\\hline \text { Complete style } & 1 & 1 & 0 & 1 \\\hline \text { Perm } & 2 & 3 & 1 & 1 \\\hline \text { Highlights } & 3 & 4 & 2 & 1 \\\hline\end{array}$ b) If the company budgets 10,000 haircuts, 4,000 complete styles, 3,500 perms, and 5,500 highlights, determine the budget for cost of services.

Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Challenger Factory allocate to regular widget production if budgeted production for the period is 75,000 units and actual production for the period is 72,000 units?

Everest Co. uses a plantwide factory overhead rate based on direct labor hours. Overhead costs would be overcharged to which of the following departments?

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 A 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 different across different departments and products.

Activity-based costing can be used to allocate period costs to various products that the company sells.

The Valhalla Company manufactures small lamps and desk lamps. The following shows the activities per product: $\begin{array}{|l|c|c|c|}\hline & \text { Setups } & \text { Inspections } & \text { Assembly dlh) } \\\hline \text { Small Lamps-8,000 units } & 10,000 & 32,000 & 8,000 \\\hline \text { Desk Lamps-16,000 units } & 30,000 & 14,000 & 46,000 \\\hline & & & \\\hline\end{array}$ Using the following information prepared by the Valhalla Company, determine a) the activity rates for each activity and b) the activity-based factory overhead per unit for each product. $\begin{array} { | l | c | c | } \hline \text { Activity Pool } & \text { Activity Base } & \text { Budgeted Amount } \\\hline \text { Setups } & 40,000 & \$ 160,000 \\\hline \text { Inspections } & 46,000 & \$ 230,000 \\\hline \text { Assembly dlh) } & 54,000 & \$ 324,000 \\\hline\end{array}$

The Skagit Company manufactures Hooks and Nooks. The following shows the activities per product and total activity information: $\begin{array} { | l | c | c | c | } \hline & \text { Setups } & \text { Inspections } & \text { Assembly dlh) } \\\hline \text { Hooks-4,000 units } & 1 & 3 & 1 \\\hline \text { Nooks-8,000 units } & 2 & 2 & 3 \\\hline & & & \\\hline\end{array}$ $\begin{array} { | l | c | c | } \hline \text { Activity Pool } & \text { Activity Base } & \text { Budgeted Amount } \\\hline \text { Setups } & 20,000 & \$ 60,000 \\\hline \text { Inspections } & 24,000 & 120,000 \\\hline \text { Assembly dlh) } & 28,000 & 420,000 \\\hline\end{array}$ -Calculate the total factory overhead to be charged to Nooks.

When a plantwide factory overhead rate is used, the total overhead costs allocated to all products are the same.

Which of the following does not rely on managerial decisions involving accurate product costing?

Bob's Biscuit Corporation budgeted $1,200,000 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. Bob's plantwide factory overhead rate is $12.00 per machine hour.

Adirondak 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. -Calculate the overhead rate per unit for Product A in the painting department of Adirondack Marketing Inc.

The Beauty Beyond Words Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: $\begin{array} { | l | c | } \hline \text { Activity } & \text { Activity Rate } \\\hline \text { Hair washing } & \$ 4.00 \\\hline \text { Conditioning } & \$ 3.50 \\\hline \text { Chemical treatment } & \$ 25.00 \\\hline \text { Styling } & \$ 10.00 \\\hline\end{array}$ $\begin{array} { | l | c | c | c | c | } \hline & \begin{array} { c } \text { Hair } \\\text { Washing }\end{array} & \text { Conditioning } & \begin{array} { c } \text { Chemical } \\\text { Treatment }\end{array} & \text { Styling } \\\hline \text { Haircut } & 1 & 1 & 0 & 0 \\\hline \text { Complete style } & 1 & 1 & 0 & 1 \\\hline \text { Perm } & 2 & 3 & 1 & 1 \\\hline \text { Highlights } & 3 & 4 & 2 & 1 \\\hline\end{array}$ -Calculate the cost of services for a highlight.

The Botosan Factory has determined that its budgeted factory overhead budget for the year is $13,500,000 and budgeted direct labor hours are 10,000,000. If the actual direct labor hours for the period are 350,000, how much overhead would be allocated to the period?

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 production per machine hour.