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Exam 26: Cost Allocation and Activity-Based Costing

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Question 61

True/False

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Multiple production department factory overhead rates are most useful when production departments significantly differ in their manufacturing processes.

A) True
B) False

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Question 62

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The Roget Factory has determined that its budgeted factory overhead budget for the year is $15,500,000. They plan to produce 2,000,000 units. Budgeted direct labor hours are 1,050,000 and budgeted machine hours are 750,000. Using the single plantwide factory overhead rate based on direct labor hours, calculate the factory overhead rate for the year.

A) $14.76
B) $20.67
C) $7.75
D) $77.50

E) None of the above
F) A) and B)

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Question 63

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Given the following information, determine the activity rate for setups. $\begin{array} { | l | c | c | } \hline \text { Activity Pool } & \text { Activity Base } & \text { Budgeted Amount } \\\hline \text { Setups } & 10,000 & \$ 180,000 \\\hline \text { Inspections } & 24,000 & \$ 120,000 \\\hline \text { Assembly DLH) } & 80,000 & \$ 400,000 \\\hline\end{array}$

Service companies can effectively use multiple department overhead rate costing to compute product service) costs.

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 Painting Department for each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system.

Tulip Company produces two products, T and U. The indirect labor costs include the following two items: $\begin{array}{lr}\text { Plant supervision } & \$ 700,000 \\\text { Setup labor indirect) } & \$ 300,000 \\\text { Total indirect labor } & \$ 1,000,000\end{array}$ The following activity-base usage and unit production information is available for the two products: $\begin{array}{cccc}&\text { Number of}&\text { Direct Labor }\\&\text { Setups } & \text { Hours } & \text { Units }\\\text { Product T } & 200 & \overline{20,000} & 900 \\\text { Froduct U } & \underline{200} & \underline{30,000} & \underline{1,100} \\\text { Total } & \underline{400} & \underline{50,000} & \underline{2,000}\end{array}$ a) Determine the single plantwide factory overhead rate, using direct labor hours as the activity base. b) Determine the factory overhead cost per unit for Products T and U, using the single plantwide factory overhead rate. c) Determine the activity rate for plant supervision and setup labor, assuming that the activity base for supervision is direct labor hours and the activity base for setup labor is number of setups. d) Determine the factory overhead cost per unit for Products T and U, using activity-based costing. e) Why is the factory overhead cost per unit different for the two products under the two methods?

Which of the following is not a reason for banks to use activity-based costing?

All of the following can be used as an allocation base for calculating factory overhead rates except:

If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, what is the total amount of factory overhead the Kaumajet Factory will allocate to desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 26,000 units are produced?

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