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54) Activity rates from Hilliard Corporation's activity-based costing system are listed below. The
company uses the activity rates to assign overhead costs to products:
Activity Cost Pools Activity Rate
Processing customer orders $ 92.86 per customer order
Assembling products $ 1.78 per assembly hour
Setting up batches $ 52.09 per batch
Last year, Product XL91 involved 2 customer orders, 434 assembly hours, and 20 batches. How
much overhead cost would be assigned to Product XL91 using the activity-based costing system?
A) $1,041.80
B) $772.52
C) $2,000.04
D) $66,908.88
E) $146.73
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55) Naples Corporation has provided the following data from its activity-based costing accounting
system:
Indirect factory wages $ 520,000
Factory equipment depreciation $ 260,000
Distribution of resource consumption across activity cost pools:
Customer
Orders
Product
Processing Other Total
Indirect factory wages 40 % 50 % 10 % 100 %
Factory equipment depreciation 15 % 65 % 20 % 100 %
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs
that are not assigned to products. How much indirect factory wages and factory equipment
depreciation cost would be assigned to the Customer Orders activity cost pool?
A) $214,500 B) $247,000 C) $208,000 D) $780,000 E) $390,000
56) Naples Corporation has provided the following data from its activity-based costing accounting
system:
Indirect factory wages $ 520,000
Factory equipment depreciation $ 260,000
Distribution of resource consumption across activity cost pools:
Customer
Orders
Product
Processing Other Total
Indirect factory wages 40 % 50 % 10 % 100 %
Factory equipment depreciation 15 % 65 % 20 % 100 %
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs
that are not assigned to products. How much indirect factory wages and factory equipment
depreciation cost would be assigned to the Product Processing activity cost pool?
A) $780,000 B) $260,000 C) $169,000 D) $351,000 E) $429,000
ESSAY QUESTIONS
57) Briefly describe the process of activity-based costing.
58) Why would a firm use activity-based costing (ABC) rather than traditional methods of cost
allocation for overhead?
81
59) Superior Fasteners, Co. is considering switching from traditional allocation of overhead based on
direct labor hours to an activity-based costing system. The manager has accumulated the following
information on engineering changes for two of the company's major products:
Automotive
Fasteners
Computer
Fasteners
Total units produced
5,000
2,500
Cost per engineering change
$400
$ 400
Number of engineering changes
5
25
Direct labor hours per unit
4
4
Compute the cost per unit using:
(1) The traditional allocation of the costs of engineering changes based on direct labor hours.
(2) The activity-based cost allocation of the costs of engineering changes.
60) Winterland, Inc., produces two types of skis, downhill skis and cross country skis. Product and
production information about the two items is shown below:
Downhill skis
Cross country skis
Number of sets sold.............
75,000
125,000
Number of setups................
200
50
Total direct labor hours.......
150,000 hours
250,000 hours
Direct labor hours per unit..
2 hours
2 hours
Total machine hours............
25,000 hours
100,000 hours
Machine hours per unit........
0.333 hours
0.08 hours
Indirect costs consist of the following:
Depreciation of factory equipment..............
$2,000,000
Setup costs...................................................
1,500,000
Miscellaneous indirect costs........................
1,000,000
Total............................................................
$4,500,000
Required:
1. If Winterland uses the traditional method of allocating overhead costs based on direct labor hours,
what is the amount of indirect costs per set of skis for each of the two types of skis?
2. If Winterland uses activity based costing, what is the total amount of indirect costs per set of skis
for each of the two types of skis? Assume that depreciation is allocated based on machine hours,
setup costs based on the number of setups, and miscellaneous costs based on the number of direct
labor hours.
61) Rockaway Company produces two types of product, flat and round, on the same production line.
For the current period, the company reports the following data.
Flat
Round
Total
Direct materials
$12,000
$24,000
$36,000
Direct labor
6,000
18,000
24,000
Overhead (250 % of direct labor cost)
15,000
45,000
60,000
Total cost
$33,000
$87,000
$120,000
Units produced
10,000
15,000
Average cost per unit
$3.30
$5.80
Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of
overhead costs incurred by the two product lines to see whether cost per unit would change
markedly from that reported above. She has collected the following information.
Overhead Cost Category (Activity Cost Pool)
Cost
Supervision
$
12,600
Depreciation of machinery
30,600
Assembly line preparation
16,800
Total overhead
$
60,000
She has also collected the following information about the cost drivers for each category (cost pool)
and the amount of each driver used by the two product lines.
Usage
Overhead Cost Category
(Activity Cost Pool)
Driver
Flat
Round
Total
Supervision
Direct labor cost ($)
$6,000
$18,000
$24,000
Depreciation of machinery
Machine hours
400 hours
500 hours
900 hours
Assembly line preparation
Setups (number)
40 times
80 times
120 times
Assign these three overhead cost pools to each of the two products using ABC. Show each overhead
cost allocation by product and the total overhead allocated to each product. Determine average cost
per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which
overhead cost allocation method would you recommend to the controller?
84
62) Rockaway Company produces two types of product, flat and round, on the same production line.
For the current period, the company reports the following data.
Flat
Round
Total
Direct materials
$12,000
$24,000
$36,000
Direct labor
6,000
18,000
24,000
Overhead (250 % of direct labor cost)
15,000
45,000
60,000
Total cost
$33,000
$87,000
$120,000
Units produced
10,000
15,000
Average cost per unit
$3.30
$5.80
Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of
overhead costs incurred by the two product lines to see whether cost per unit would change
markedly from that reported above. She has collected the following information.
Overhead Cost Category (Activity Cost Pool)
Cost
Supervision
$
12,600
Depreciation of machinery
30,600
Assembly line preparation
16,800
Total overhead
$
60,000
She has also collected the following information about the cost drivers for each category (cost pool)
and the amount of each driver used by the two product lines.
Usage
Overhead Cost Category
(Activity Cost Pool)
Driver
Flat
Round
Total
Supervision
Direct labor cost ($)
$6,000
$18,000
$24,000
Depreciation of machinery
Machine hours
400 hours
500 hours
900 hours
Assembly line preparation
Setups (number)
40 times
80 times
120 times
Assign these three overhead cost pools to flat using ABC and determine average cost per unit for the
product. (Round your answer to 2 decimal places.)
63) Stormer Corporation has provided the following data from its activity-based costing accounting
system:
Indirect factory wages $27,000
Factory equipment depreciation $243,000
Distribution of resource consumption across Activity Cost Pools:
Customer
Product
Orders
Processing
Other
Total
Indirect factor wages
27%
68%
5%
100%
Factory equipment depreciation
20%
67%
13%
100%
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs
that are not assigned to products.
Required:
a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that
would be allocated to the Product Processing activity cost pool. Show your work!
b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that
would NOT be assigned to products. Show your work!
64) Dover Company manufactures two products, Product J-9 and Product M-6. Product M-6 is of fairly
recent origin, having been developed as an attempt to enter a market closely related to that of
Product J-9. Product M-6 is the more complex of the two products, requiring 2.0 hours of direct
labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product J-9.
Product M-6 is produced on an automated production line.
Overhead currently is applied to the products on the basis of direct labor-hours. The company
estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of
Product M-6 and 40,000 units of Product J-9 during the current year.
Unit costs for materials and labor are:
Product J-9
Product M-6
Direct material
$11
$24
Direct labor
$6
$12
Required:
a. Compute the predetermined overhead rate under the current method, and determine the unit
product cost of each product for the current year.
b. The company is considering the use of activity-based costing as an alternative to its traditional
costing method for manufacturing overhead. Data relating to the company's activity cost pools for the
current year are given below:
Activity cost pool
Total cost
Product J-9
Product M-6
Total
Machine setups required
$204,000
800
1,600
2,400
Purchase orders issued
43,500
500
100
600
Machine-hours required
105,000
7,000
10,500
17,500
Maintenance requests issued
157,500
650
850
1,500
Total
$510,000
Using the data above, determine the unit product cost of each product for the current year.
c. What items of overhead cost make Product M-6 so costly to produce according to the
activity-based costing system? What influence might the activity-based costing data have on
management's opinions regarding the profitability of Product M-6?
65) Cleveland Company manufactures two products, Product A-33 and Product C-17. Product C-17 is
the more complex of the two products, requiring 1.5 hours of direct labor per unit to manufacture
compared to 1.0 hour of direct labor time for Product A-33. Product C-17 is produced on an
automated production line.
The company estimated it would incur $510,000 in manufacturing overhead costs and produce
10,000 units of Product C-17 and 40,000 units of Product A-33 during the current year.
Unit costs for materials and labor are:
Product A-33
Product C-17
Direct material
$13
$21
Direct labor
$6
$9
Required:
The company is considering the use of activity-based costing as an alternative to its current
traditional costing method for manufacturing overhead. Data relating to the company's activity cost
pools for the current year are given below:
Activity cost pool
Total cost
Product A-33
Product C-17
Total
Machine setups required
$253,000
800
1,600
2,400
Purchase orders issued
72,500
500
100
600
Machine-hours required
184,500
7,000
10,500
17,500
Total
$510,000
Using the data above, determine the unit product cost of Product A-33 for the current year.
66) Bangor Company manufactures two products, Product F and Product G. The company expects to
produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. The
company uses activity-based costing to compute unit product costs for external reports. Data
relating to the company's three activity cost pools are given below for the current year:
Total Activity
Activity Cost PoolTotal Cost Product F Product G Total
Machine setups
$10,800
80 setups 100 setups 180 setups
Purchases orders
$77,520
510 orders 1,010 orders 1,520 orders
General Factory
$75,920
2,240 hours 3,600 hours 5,840 hours
Required: Using the activity-based costing approach, determine the overhead cost per unit for each
product.
67) Melbourne Resources provides the following data to enable you to calculate overhead rates:
Machining Department Overhead is $15,000, which is to be allocated on estimated machine hours
of 25,000. The rate per Machine Hour would be ________. If Machining cost is to be allocated to
three jobs which consumed A = 3,000 hours, B = 4,000 hours, and C = 1,000 hours respectively;
then Job A should be charged $ ________ Job B should be charged $ ________; and Job C $
________.
SHORT ANSWER QUESTIONS
68) A ________ is a factor that causes the cost of an activity to go up and down.
69) An activity ________ is a temporary account accumulating the costs a company incurs to support
an identified set of activities.
70) Under traditional cost allocation methods, low-volume complex products are often ________ and
high-volume simpler products are likely to be ________.
