Deck 5: Activity-Based Costing

Question 1

In a labor-intensive manufacturing company, overhead costs are usually assumed to be closely related to the level of direct labor hours.

Answer 1

True

Question 2

In a high-tech company, where production is highly automated, overhead costs are assumed to be closely related to the level of direct labor hours.

Answer 2

False

Question 3

Understanding the sources of overhead costs is necessary for a company to effectively compete in today's marketplace.

Answer 3

True

Question 4

Activity-Based Costing assumes that most overhead costs can be easily allocated based on one or two drivers.

Question 5

Activity-Based Costing presumes that all costs are static regardless of the level of activity or production, and seeks to fairly allocate those costs.

Question 6

Activity-Based Costing is based on a deep understanding of the activities that a company engages in while pursuing economic objectives.

Question 7

Under Activity-Based Costing, it is important for there to be a high correlation between the change in the level of costs and the change in the use of the driver on which those costs are allocated.

Question 8

It is not necessary for a cost driver to be closely related to the cost pool under Activity-Based Costing: the nature of the costing system permits the use of any driver, as long as it is consistently applied.

Question 9

It is better to base a predetermined overhead rate on the practical capacity of production rather than actual production.

Question 10

Production department overhead costs are those costs directly related to production, such as direct materials and direct labor.

Question 11

Support department costs come from departments that are not directly associated with production.

Question 12

Using Activity-Based Costing results in a different total amount of overhead allocated than that allocated under traditional costing models.

Question 13

An Activity-Based Costing system must be complex in order to be effective.

Question 14

Often a company will maintain their financial records using a traditional costing method, even if Activity-Based Costing is used to make management decisions.

Question 15

Increasing the number of cost pools in an Activity-Based Costing system will almost always result in cost savings.

Question 16

Most companies will initially switch all their financial records to an Activity-Based Costing method, because it facilitates auditing and tax preparation.

Question 17

A high-sales-volume customer may not necessarily be a profitable customer.

Question 18

Even if a company provides a standardized product or service, they may still have customers that are unprofitable.

Question 19

Dropping an unprofitable customer will always result in immediate improvements in company profits.

Question 20

A company should always drop an unprofitable customer.

Question 21

Activity-based management is an activity that is similar to Activity-Based Costing but requires a very different set of information.

Question 22

The information needed for activity-based management is a direct byproduct of Activity-Based Costing.

Question 23

Activity-based management is designed to help management know which activities add the most value to goods and services.

Question 24

While useful, activity-based management and Activity-Based Costing information is not always cost efficient to obtain.

Question 25

Which of following statements are true regarding early 20th-century manufacturing companies?

A) Most companies produced only a limited variation of products in one facility.
B) Materials and wages constituted the largest portions of the per-unit costs.
C) Production was labor intensive.
D) All of the above.

Question 26

Which of the following statements is true regarding current manufacturing companies?

A) Production processes are simpler than before.
B) Most companies produce only a limited variation of products in one facility.
C) Materials and wages constitute the largest portions of the per-unit costs.
D) None of the above.

Question 27

Which of the following statements is true regarding current manufacturing companies?

A) Most production labor time is spent running production equipment rather than actually physically working on a product.
B) Production processes are highly automated and complex.
C) Manufacturing Overhead constitutes a significant portion of per-unit costs.
D) All of the above

Question 28

Which of the following statements is not true regarding current manufacturing companies?

A) Materials and wages constitute the largest portions of the per-unit costs.
B) Most production labor time is spent running production equipment rather than actually physically working on a product.
C) Production processes are highly automated.
D) Production processes are more complex.

Question 29

Activity-Based Costing is best explained by which of the following statements?

A) Ordering all costs alphabetically for easier cataloging in a database.
B) Accumulating and allocating overhead costs based on a variety of activity drivers.
C) Calculating costs sequentially by the order that they affect the production process.
D) More accurately tracking materials and labor costs for each product.

Question 30

Which of the following activities would incur costs that could be tracked and allocated using Activity-Based Costing?

A) Machine set-ups
B) Customer billing process
C) Payroll preparation
D) Equipment maintenance and routine cleaning
E) All of the above

Question 31

Which of the following steps are part of the Activity-Based Costing model?

A) Identify key activities that drive overhead costs
B) Assign overhead costs to activity cost pools
C) Allocate costs evenly to products or units
D) Allocate costs to products or units based on driver usage
E) A, B, and D

Question 32

Which of the following statements regarding Activity-Based Costing is correct?

A) Cost drivers and cost objects are essential parts of Activity-Based Costing.
B) Overhead costs are allocated based on actual costs incurred in a period.
C) Direct costs (materials and labor) are accumulated in cost pools and assigned based on driver usage.
D) Increases in information technology have made Activity-Based Costing less useful.
E) All of the above are correct.

Question 33

Using a company-wide overhead rate rather than Activity-Based Costing might lead to which of the following problems?

A) Overpricing products
B) Over-application of overhead to services
C) Discontinuing unprofitable operations
D) Continuing profitable operations
E) All of the above

Question 34

Which of the following statements most accurately describes Activity-Based Costing?

A) Costs are accumulated in departments and allocated based on a single driver for each department.
B) Costs are accumulated in departments and allocated based a variety of drivers for each department.
C) Costs are accumulated in cost pools and allocated based on a variety of drivers for each pool.
D) Costs are accumulated in cost pools and allocated based on a single driver for each pool.
E) None of the above

Question 35

Which of the following statements are false regarding Activity-Based Costing?

A) Non-manufacturing costs are not necessary to include when calculating the profitability of each product.
B) Costs are allocated based on a pre-determined overhead rate.
C) Transitioning from traditional costing methods to Activity-Based Costing can be complicated and costly.
D) Activity-Based Costing follows the same basic calculation methods as traditional costing approaches.
E) None of the above

Question 36

Which of the following statements are true regarding Activity-Based Costing?

A) Non-manufacturing costs are not important to include when calculating the profitability of each product.
B) Transitioning from traditional costing methods to Activity-Based Costing is a relatively simple process that most companies complete quickly.
C) Costs are allocated based on a pre-determined overhead rate for each cost pool.
D) Activity-Based Costing results in a different amount of total overhead applied than under traditional costing methods.
E) None of the above

Question 37

Which of the following problems of traditional costing approaches are typically revealed by switching to Activity-Based Costing?

A) Over-producing unprofitable products
B) Under-producing profitable products
C) Over-costing of low-volume, high-complexity products
D) Under-costing of high-volume, low-complexity products
E) A and B only
F) C and D only

Question 38

Which of the following are typical problems of traditional costing approaches (as compared to Activity-Based Costing)?

A) Under-costing of low-volume, high-complexity products
B) Under-costing of high-volume, low-complexity products
C) Under-producing unprofitable products
D) Over-producing profitable products
E) None of the above

Question 39

Which of the following departments could not benefit from Activity-Based Costing analysis?

A) Human Resources
B) Finance and Accounting
C) Production
D) Marketing
E) All of the above could benefit

Question 40

Which of the following functions would not be considered an appropriate cost pool for an Activity-Based Costing analysis?

A) Payroll Processing
B) Processing Accounts Receivable
C) Equipment Maintenance
D) Product Development
E) All of the above are appropriate cost pools

Question 41

Which of the following are viable options for dealing with an unprofitable customer?

A) Drop the customer
B) Continue to serve the customer
C) Work more closely with the customer
D) Renegotiate the contract terms with the customer
E) All of the above

Question 42

Which of the following might be reasons to continue serving an unprofitable customer?

A) The customer is new and requires significant support costs in the early stages of the business relationship.
B) The company is trying to enter a new market or region.
C) The business relationship facilitates other, more profitable, business contracts.
D) None of the above
E) All of the above

Question 43

Which of the following might result from dropping an unprofitable customer?

A) Sales levels would increase.
B) Future business relations could suffer.
C) Costs could increase.
D) All of the above

Question 44

Which of the following is not a likely result of dropping an unprofitable customer?

A) Increase in sales levels
B) Loss of future business
C) Decline in costs
D) Costs could remain unchanged
E) All of the above are potential outcomes.

Question 45

Activity-based management seeks to maximize ________ while minimizing ______ of activities.

A) profit, loss
B) efficiency, waste
C) value, costs
D) output, costs
E) None of the above

Question 46

Activity-based management is focused on creating value as seen from the perspective of _________.

A) management
B) stockholders
C) employees
D) consumers
E) All of the above

Question 47

Metal Works Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
The expected activity for the year for various cost drivers is:
The company is considering accepting a significant production contract. Estimates for the contract are as follows:
NOTE: Round all per-unit costs to nearest cent.
How much overhead should be allocated to the contract based on Activity-Based Costing?

A) $2,380
B) $4,800
C) $5,300
D) $8,200
E) None of the above

Question 48

SCS Co. uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. SCS has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
What is the expected overhead allocated per unit of product ABC? NOTE: Round all per-unit costs to nearest cent.

A) $10.30
B) $30.77
C) $84.00
D) $200.00
E) None of the above

Question 49

SCS Co. uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. SCS has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
What is the total expected overhead allocated to product XYZ? NOTE: Round all per-unit costs to nearest cent.

A) $22,646.20
B) $27,353.90
C) $28,200.00
D) $30,353.90
E) None of the above

Question 50

Advanced Coding is a software development company that sells specialized practice management software to large professional services firms. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $200,000 of overhead costs related to the corporate jet should be assigned to individual customers.
Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $1,000 per hour for trips to customers as follows:
Customer #1: 50 hours
Customer #2: 43 hours
Customer #3: 15 hours
Customer #4: 8 hours
Customer #5: 10 hours
Gross profit per customer is as follows:
Customer #1: $360,000
Customer #2: $260,000
Customer #3: $80,000
Customer #4: $100,000
Customer #5: $80,000
(NOTE: Do not round amounts until final calculation of customer profitability, then round to the nearest dollar).
Which customer is the most profitable?

A) Customer #1
B) Customer #2
C) Customer #3
D) Customer #4
E) Customer #5

Question 51

Advanced Coding is a software development company that sells specialized practice management software to large professional services firms. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $200,000 of overhead costs related to the corporate jet should be assigned to individual customers.
Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $1,000 per hour for trips to customers as follows:
Customer #1: 50 hours
Customer #2: 43 hours
Customer #3: 15 hours
Customer #4: 8 hours
Customer #5: 10 hours
Gross profit per customer is as follows:
Customer #1: $340,000
Customer #2: $240,000
Customer #3: $60,000
Customer #4: $80,000
Customer #5: $60,000
(NOTE: Do not round amounts until final calculation of customer profitability, then round to the nearest dollar).
Which customer is the least profitable?

A) Customer #1
B) Customer #2
C) Customer #3
D) Customer #4
E) Customer #5

Question 52

Creative Canopies (CC) is a manufacturer of flexible canopies for athletic facilities. CC has contracts with 3 universities to install and maintain the canopies on their baseball field bleachers. The fields are essentially identical, so CC management has assumed that all costs would be equal for each customer. However, after missing budget predictions this year, the CFO decided to use ABC costing principles to evaluate the profitability of their customers. The cost accounting team has put together the following estimates regarding specific cost activities related to maintenance of the canopies:
The universities are all out-of-state but relatively equidistant from the manufacturing plant, so per-trip travel costs are not considered to be significantly different. However, each university has different expectations regarding maintenance of the canopy, and CC has collected the following data for each customer:
(Assume that each of the three customers produces gross profits of $10,000).
Which customer is the most profitable?

A) USD
B) USC
C) UCLA

Question 53

Creative Canopies (CC) is a manufacturer of flexible canopies for athletic facilities. CC has contracts with 3 universities to install and maintain the canopies on their baseball field bleachers. The fields are essentially identical, so CC management has assumed that all costs would be equal for each customer. However, after missing budget predictions this year, the CFO decided to use ABC costing principles to evaluate the profitability of their customers. The cost accounting team has put together the following estimates regarding specific cost activities related to maintenance of the canopies:
The universities are all out-of-state but relatively equidistant from the manufacturing plant, so per-trip travel costs are not considered to be significantly different. However, each university has different expectations regarding maintenance of the canopy, and CC has collected the following data for each customer:
(Assume that each of the three customers produces gross profits of $10,000).
Which customer is the least profitable?

A) USD
B) USC
C) UCLA

Question 54

Activity-based management seeks to maximize ______________ while minimizing _________ of activities.

A) value, costs
B) profit, loss
C) efficiency, waste
D) output, costs
E) None of the above

Question 55

Activity-based management is focused on creating value as seen from the perspective of _________.

A) management
B) the final consumer
C) stockholders
D) employees
E) All of the above
F) None of the above

Question 56

Use the following information to complete Exercises below:
Integrated Chip Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
The expected activity for the year for various cost drivers is:
The company is considering accepting a significant production contract. Estimates for the contract are as follows:
NOTE: Round all per-unit costs to nearest cent.
-What amount of overhead would be allocated to the contract if a company-wide rate based on direct labor hours were used?

Question 57

Use the following information to complete Exercises below:
Integrated Chip Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
The expected activity for the year for various cost drivers is:
The company is considering accepting a significant production contract. Estimates for the contract are as follows:
NOTE: Round all per-unit costs to nearest cent.
-How much overhead should be allocated to the contract based on Activity-Based Costing?

Question 58

Use the following information to complete Exercises below:
Integrated Chip Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
The expected activity for the year for various cost drivers is:
The company is considering accepting a significant production contract. Estimates for the contract are as follows:
NOTE: Round all per-unit costs to nearest cent.
-What is the total cost of the proposed contract under Activity-Based Costing?

Question 59

Use the following information to complete Exercises below:
Integrated Chip Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
The expected activity for the year for various cost drivers is:
The company is considering accepting a significant production contract. Estimates for the contract are as follows:
NOTE: Round all per-unit costs to nearest cent.
-Is the company more likely to accept the contract under Activity-Based Costing or using a company-wide rate?

Question 60

Use the following information to complete Exercises below:
4H Friends Co. (4HF) uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. 4HF has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
NOTE: Round all per-unit costs to nearest cent.
-What is the rate that will be used to apply Labor-related overhead costs?

Question 61

Use the following information to complete Exercises below:
4H Friends Co. (4HF) uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. 4HF has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
NOTE: Round all per-unit costs to nearest cent.
-What is the expected overhead per unit allocated of product ABC?

Question 62

Use the following information to complete Exercises below:
4H Friends Co. (4HF) uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. 4HF has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
NOTE: Round all per-unit costs to nearest cent.
-What is the total expected overhead per unit allocated to product XYZ?

Question 63

Use the following information to complete Exercises below:
4H Friends Co. (4HF) uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. 4HF has provided their costing department the following information from this year's budget relating to the production of these two products:
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
NOTE: Round all per-unit costs to nearest cent.
-If the company were to use a plant-wide rate based on machine hours, which product would be overpriced? (Assume that activity-based costing is more accurate).

Question 64

Use the following information to complete Exercises below:
Hijinx Company projected the following overhead costs and cost drivers for past year (assume that actual overhead and budgeted overhead were the same):
Hijinx contracted for 2 jobs, both of which were completed during the year. Production managers reported the following data in relation to these jobs:
NOTE: Round per-cost-driver costs in intermediate calculations to two decimal places
-What rate was used to apply Power costs?

Question 65

Use the following information to complete Exercises below:
Hijinx Company projected the following overhead costs and cost drivers for past year (assume that actual overhead and budgeted overhead were the same):
Hijinx contracted for 2 jobs, both of which were completed during the year. Production managers reported the following data in relation to these jobs:
NOTE: Round per-cost-driver costs in intermediate calculations to two decimal places
-What is the total cost of Job 2?

Question 66

Use the following information to complete Exercises below:
Hijinx Company projected the following overhead costs and cost drivers for past year (assume that actual overhead and budgeted overhead were the same):
Hijinx contracted for 2 jobs, both of which were completed during the year. Production managers reported the following data in relation to these jobs:
NOTE: Round per-cost-driver costs in intermediate calculations to two decimal places
-What is the amount of under- or over-applied overhead for the year?

Question 67

Use the following information to complete Exercises below:
Hijinx Company projected the following overhead costs and cost drivers for past year (assume that actual overhead and budgeted overhead were the same):
Hijinx contracted for 2 jobs, both of which were completed during the year. Production managers reported the following data in relation to these jobs:
NOTE: Round per-cost-driver costs in intermediate calculations to two decimal places
-What would have been the amount of under- or over-applied overhead if Hijinx had used a company-wide rate based on direct labor hours?

Question 68

Use the following information to complete Exercises below:
TopChef, a manufacturer of commercial-grade kitchen appliances, determined at the beginning of the year that $100,000 of budgeted selling and administrative overhead cost should be allocated to individual customers, to better facilitate the company's understanding of per-customer profitability.
The accounting staff determined that selling and customer support expenses related to the following four activity cost pools should be allocated to each customer:
The following financial and activity data was accumulated on five customers over the course of the year:

-Which customer requires the most overhead to be allocated?

Question 69

Use the following information to complete Exercises below:
TopChef, a manufacturer of commercial-grade kitchen appliances, determined at the beginning of the year that $100,000 of budgeted selling and administrative overhead cost should be allocated to individual customers, to better facilitate the company's understanding of per-customer profitability.
The accounting staff determined that selling and customer support expenses related to the following four activity cost pools should be allocated to each customer:
The following financial and activity data was accumulated on five customers over the course of the year:

-Which customer is the most profitable?

Question 70

Use the following information to complete Exercises below:
TopChef, a manufacturer of commercial-grade kitchen appliances, determined at the beginning of the year that $100,000 of budgeted selling and administrative overhead cost should be allocated to individual customers, to better facilitate the company's understanding of per-customer profitability.
The accounting staff determined that selling and customer support expenses related to the following four activity cost pools should be allocated to each customer:
The following financial and activity data was accumulated on five customers over the course of the year:

-Which customer is the least profitable?

Question 71

Use the following information to complete Exercises below:
TopChef, a manufacturer of commercial-grade kitchen appliances, determined at the beginning of the year that $100,000 of budgeted selling and administrative overhead cost should be allocated to individual customers, to better facilitate the company's understanding of per-customer profitability.
The accounting staff determined that selling and customer support expenses related to the following four activity cost pools should be allocated to each customer:
The following financial and activity data was accumulated on five customers over the course of the year:

-Assume that budgeted overhead is equal to actual overhead incurred. What is the amount of total under- or over-applied overhead?

Question 72

Use the following information to complete Exercises below:
TopChef, a manufacturer of commercial-grade kitchen appliances, determined at the beginning of the year that $100,000 of budgeted selling and administrative overhead cost should be allocated to individual customers, to better facilitate the company's understanding of per-customer profitability.
The accounting staff determined that selling and customer support expenses related to the following four activity cost pools should be allocated to each customer:
The following financial and activity data was accumulated on five customers over the course of the year:

-If overhead were allocated at a company-wide rate of number of sales visit days, which company would be considered the most profitable? (Round the cost per sales visit activity, in intermediate and final calculations, to two decimal places.)

Question 73

Use the following information to complete Exercises below:
Alpine Technology is a software development company that sells specialized accounting software to large companies. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $1,000,000 of overhead costs related to the corporate jet should be assigned to individual customers.
Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $8,000 per hour for trips to customers as follows:
Gross profit per customer is as follows:

-Which customer is the most profitable?

Question 74

Use the following information to complete Exercises below:
Alpine Technology is a software development company that sells specialized accounting software to large companies. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $1,000,000 of overhead costs related to the corporate jet should be assigned to individual customers.
Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $8,000 per hour for trips to customers as follows:
Gross profit per customer is as follows:

-Which customer is the least profitable?

Question 75

Use the following information to complete Exercises below:
Alpine Technology is a software development company that sells specialized accounting software to large companies. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $1,000,000 of overhead costs related to the corporate jet should be assigned to individual customers.
Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $8,000 per hour for trips to customers as follows:
Gross profit per customer is as follows:

-What is the amount of over- or under-applied overhead?

Question 76

Use the following information to complete Exercises below:
Terra Turf (TT) is a manufacturer of artificial turf for athletic facilities. TT has contracts with 3 universities to install and maintain the turf on the football fields. The fields are essentially identical, so TT management has assumed that all costs would be equal for each customer. However, after missing budget predictions this year, the CFO decided to use ABC costing principles to evaluate the profitability of their customers.
The cost accounting team has put together the following estimates regarding specific cost activities related to maintenance of turf fields:
The universities are all out-of-state but relatively equidistant from the manufacturing plant, so per-trip travel costs are not considered to be significantly different. However, each university has different expectations regarding maintenance of the turf, and TT has collected the following data for each customer:
Assume that each of the three customers produces gross profits of $100,000.
-What is the total support costs allocated to these three customers in the year?

Question 77

Use the following information to complete Exercises below:
Terra Turf (TT) is a manufacturer of artificial turf for athletic facilities. TT has contracts with 3 universities to install and maintain the turf on the football fields. The fields are essentially identical, so TT management has assumed that all costs would be equal for each customer. However, after missing budget predictions this year, the CFO decided to use ABC costing principles to evaluate the profitability of their customers.
The cost accounting team has put together the following estimates regarding specific cost activities related to maintenance of turf fields:
The universities are all out-of-state but relatively equidistant from the manufacturing plant, so per-trip travel costs are not considered to be significantly different. However, each university has different expectations regarding maintenance of the turf, and TT has collected the following data for each customer:
Assume that each of the three customers produces gross profits of $100,000.
-Which customer is the most profitable?

Question 78

Use the following information to complete Exercises below:
Terra Turf (TT) is a manufacturer of artificial turf for athletic facilities. TT has contracts with 3 universities to install and maintain the turf on the football fields. The fields are essentially identical, so TT management has assumed that all costs would be equal for each customer. However, after missing budget predictions this year, the CFO decided to use ABC costing principles to evaluate the profitability of their customers.
The cost accounting team has put together the following estimates regarding specific cost activities related to maintenance of turf fields:
The universities are all out-of-state but relatively equidistant from the manufacturing plant, so per-trip travel costs are not considered to be significantly different. However, each university has different expectations regarding maintenance of the turf, and TT has collected the following data for each customer:
Assume that each of the three customers produces gross profits of $100,000.
-Which customer is the least profitable?

Question 79

Use the following information to complete Exercises below:
Terra Turf (TT) is a manufacturer of artificial turf for athletic facilities. TT has contracts with 3 universities to install and maintain the turf on the football fields. The fields are essentially identical, so TT management has assumed that all costs would be equal for each customer. However, after missing budget predictions this year, the CFO decided to use ABC costing principles to evaluate the profitability of their customers.
The cost accounting team has put together the following estimates regarding specific cost activities related to maintenance of turf fields:
The universities are all out-of-state but relatively equidistant from the manufacturing plant, so per-trip travel costs are not considered to be significantly different. However, each university has different expectations regarding maintenance of the turf, and TT has collected the following data for each customer:
Assume that each of the three customers produces gross profits of $100,000.
-Assuming that there are no fixed costs involved, if the least profitable customer were dropped, what would be the change in TT's Net Income?

Question 80

Use the following information to answer Exercises below:
After preparing the budget for the next year, management at Fun4U Inc. expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
The expected activity for the year for various cost drivers is:
The company is considering accepting a significant production contract. Estimates for the contract are as follows:

-What amount of overhead would be allocated to the contract if a company-wide rate based on direct labor hours were used? (Round all per-unit costs to nearest cent.)