Financial and Managerial Accounting Study Set 1

Business

Quiz 27 :

Cost Allocation and Activity-Based Costing

Quiz 27 :

Cost Allocation and Activity-Based Costing

Question Type
search
Showing 1 - 20 of 54
arrow
Ethics and professional conduct in business The controller of Tri Con Global Systems Inc. devised a new costing system based on tracing the cost of activities to products. The controller was able to measure post-manufacturing activities, such as selling, promotional, and distribution activities, and allocate these activities to products in order to have a more complete view of the company's product costs. This effort produced better strategic information about the relative profitability of product lines. In addition, the controller used the same product cost information for inventory valuation on the financial statements. Surprisingly, the controller discovered that the company's reported net income was larger under this scheme than under the traditional costing approach. Why was the net income larger, and how would you react to the controller's action?
Free
Essay
Answer:

Answer:

• Product Costing is the mechanism adopted to determine the cost of products. It forms the basis of product pricing. When the cost incurred on a product is ascertained then the profit it yields is known and helps in the decision making process.
• The direct costs attributable to a product can be apportioned to the product directly, whereas the factory overhead includes indirect costs which cannot be apportioned to the product directly, hence require allotment.
• Factory overheads can be allocated in the following three methods:
• Single Plant wide Rate Method
• Multiple Production Department Rate Method
• Activity Based Costing Method
• In traditional costing approach the entire factory overhead is allocated to the products based on a fixed rate; for example labor hours, machine hours, the entire cost is allocated to the products based upon the machine hours and labor hours worked upon.
• In Activity Based Costing, Activities undergone during the production process of the product are recognized and the budgeted cost on the activity is ascertained; an activity rate is computed basing upon the expenditure incurred and the activity undergone.
img • Activity Based Costing system allocates cost basing upon the activities undergone, hence the cost ascertained denotes the accurate picture of the cost of production of the product, unlike the Traditional Based Costing System where the cost allocated is in excess of the actual cost incurred by the product.
• The Shifting from Traditional Costing System to Activity Based Costing results in better pricing of products and better results. Thus the decision of the controller is correct.
• The inventory valuation as per Activity Based Costing results in higher profits as the cost of products are allocated basing upon activities and results in apportionment of cost only to the extent of activities undergone in the production process of the product.
• Since, the controller's action is correct, it is wise enough to continue Activity Based Costing.

Tags
arrow
Why would management be concerned about the accuracy of product costs?
Free
Essay
Answer:

Answer:

Accuracy of Product Costs
Product costs comprise of (i) direct costs and (ii) indirect costs. Materials and labor are direct costs which can be readily computed. Factory overhead involves indirect costs which must be allocated to the product. The method employed for allocating costs to products affects the final product cost.
It is necessary for managers to choose a method which accurately reflects product costs.
This is because managers use product costing to make strategic decisions on
(a) Fixing competitive product prices
(b) Selecting the appropriate product mix for maximizing profits
(c) Introducing a new product
(d) Discontinuing an existing product or service.

Tags
arrow
Single plantwide factory overhead rate Nixon Machine Parts Inc.'s Fabrication Department incurred $560,000 of factory overhead cost in producing gears and sprockets. The two products consumed a total of 8,000 direct machine hours. Of that amount, sprockets consumed 5,150 direct machine hours. Determine the total amount of factory overhead that should be allocated to sprockets using machine hours as the allocation base.
Free
Essay
Answer:

Answer:

Single Plant wide overhead allocation:
Given:
• Total fabrication department's factory overheads = $560,000
• No. of machine hours consumed by sprockets = 5,150.
• Total No. of Machine Hours = 8,000.
Now to calculate the amount of factory overheads allocated to sprockets using machine hours as allocation base:
Therefore from the above calculation,
Amount allocated to sprockets is $360,500.

Tags
arrow
Single plantwide factory overhead rate The total factory overhead for Diva-nation Inc. is budgeted for the year at $180,000. Diva-nation manufactures two types of men's pants: jeans and khakis. The jeans and khakis each require 0.10 direct labor hour for manufacture. Each product is budgeted for 20,000 units of production for the year. Determine (a) the total number of budgeted direct labor hours for the year, (b) the single plantwide factory overhead rate, and (c) the factory overhead allocated per unit for each product using the single plantwide factory overhead rate. The total factory overhead for Bardot Marine Company is budgeted for the year at $600,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboat and bass boat each require 12 direct labor hours for manufacture. Each product is budgeted for 250 units of production for the year. Determine (a) the total number of budgeted direct labor hours for the year, (b) the single plantwide factory overhead rate, and (c) the factory overhead allocated per unit for each product using the single plantwide factory overhead rate.
Essay
Answer:
Tags
arrow
Single plantwide factory overhead rate Orange County Chrome Company manufactures three chrome-plated products-automobile bumpers, valve covers, and wheels. These products are manufactured in two production departments (Stamping and Plating). The factory overhead for Orange County Chrome is $220,800. The three products consume both machine hours and direct labor hours in the two production departments as follows: img Instructions 1. Determine the single plantwide factory overhead rate, using each of the following allocation bases: (a) direct labor hours and (b) machine hours. 2. Determine the product factory overhead costs, using (a) the direct labor hour plantwide factory overhead rate and (b) the machine hour plantwide factory overhead rate.
Essay
Answer:
Tags
arrow
Single plantwide factory overhead rate Spotted Cow Dairy Company manufactures three products-whole milk, skim milk, and cream-in two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $299,700. The three products consume both machine hours and direct labor hours in the two production departments as follows: img Instructions 1. Determine the single plantwide factory overhead rate, using each of the following allocation bases: (a) direct labor hours and (b) machine hours. 2. Determine the product factory overhead costs, using (a) the direct labor hour plantwide factory overhead rate and (b) the machine hour plantwide factory overhead rate.
Essay
Answer:
Tags
arrow
Identifying product cost distortion Beachside Beverages Company manufactures soft drinks. Information about two products is as follows: img It is known that both products have the same direct materials and direct labor costs per case. Beachside Beverages allocates factory overhead to products by using a single plantwide factory overhead rate, based on direct labor cost. Additional information about the two products is as follows: Storm Soda: Requires minor process preparation and sterilization prior to processing. The ingredients are acquired locally. The formulation is simple, and it is easy to maintain quality. Lastly, the product is sold in large bulk (full truckload) orders. Fizz Wiz: Requires extensive process preparation and sterilization prior to processing. The ingredients are from Jamaica, requiring complex import controls. The formulation is complex, and it is thus difficult to maintain quality. Lastly, the product is sold in small (less than full truckload) orders. Explain the product profitability report in light of the additional data.
Not Answered

There is no answer for this question

Tags
arrow
Why would a manufacturing company with multiple production departments still prefer to use a single plantwide overhead rate?
Essay
Answer:
Tags
arrow
Single plantwide factory overhead rate Matt's Music Inc. makes three musical instruments: trumpets, tubas, and trombones. The budgeted factory overhead cost is $188,000. Factory overhead is allocated to the three products on the basis of direct labor hours. The products have the following budgeted production volume and direct labor hours per unit: img a. Determine the single plantwide factory overhead rate. b. Use the factory overhead rate in (a) to determine the amount of total and per-unit factory overhead allocated to each of the three products.
Essay
Answer:
Tags
arrow
Multiple production department factory overhead rates The total factory overhead for Diva-nation is budgeted for the year at $180,000, divided into two departments: Cutting, $60,000, and Sewing, $120,000. Diva-nation manufactures two types of men's pants: jeans and khakis. The jeans require 0.04 direct labor hour in Cutting and 0.06 direct labor hour in Sewing. The khakis require 0.06 direct labor hour in Cutting and 0.04 direct labor hour in Sewing. Each product is budgeted for 20,000 units of production for the year. Determine (a) the total number of budgeted direct labor hours for the year in each department, (b) the departmental factory overhead rates for both departments, and (c) the factory overhead allocated per unit for each product using the department factory overhead allocation rates. The total factory overhead for Bardot Marine Company is budgeted for the year at $600,000 divided into two departments: Fabrication, $420,000, and Assembly, $180,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboats require 8 direct labor hours in Fabrication and 4 direct labor hours in Assembly. The bass boats require 4 direct labor hours in Fabrication and 8 direct labor hours in Assembly. Each product is budgeted for 250 units of production for the year. Determine (a) the total number of budgeted direct labor hours for the year in each department, (b) the departmental factory overhead rates for both departments, and (c) the factory overhead allocated per unit for each product using the department factory overhead allocation rates.
Essay
Answer:
Tags
arrow
Multiple production department factor overhead rates The management of Orange County Chrome Company, described in Problem 26-1A, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: img Instructions 1. Determine the multiple production department factory overhead rates, using direct labor hours for the Stamping Department and machine hours for the Plating Department. 2. Determine the product factory overhead costs, using the multiple production department rates in (1).
Essay
Answer:
Tags
arrow
Multiple production department factory overhead rates The management of Spotted Cow Dairy Company, described in Problem 26-1B, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: img Instructions 1. Determine the multiple production department factory overhead rates, using machine hours for the Blending Department and direct labor hours for the Packing Department. 2. Determine the product factory overhead costs, using the multiple production department rates in (1).
Essay
Answer:
Tags
arrow
Activity-based costing for a service company Wells Fargo Insurance Services (WFIS) is an insurance brokerage company that classified insurance products as either "easy" or "difficult." Easy and difficult products were defined as follows: Easy: Electronic claims, few inquiries, mature product Difficult: Paper claims, complex claims to process, many inquiries, a new product with complex options The company originally allocated processing and service expenses on the basis of revenue. Under this traditional allocation approach, the product profitability report revealed the following: img WFIS decided to use activity-based costing to allocate the processing and service expenses. The following activity-based costing analysis of the same data illustrates a much different profit picture for the two types of products: img Explain why the activity-based profitability report reveals different information from the traditional sales allocation report.
Essay
Answer:
Tags
arrow
How do the multiple production department and the single plantwide factory overhead rate methods differ?
Essay
Answer:
Tags
arrow
Single plantwide factory overhead rate Salty Sensations Snacks Company manufactures three types of snack foods: tortilla chips, potato chips, and pretzels. The company has budgeted the following costs for the upcoming period: img Factory overhead is allocated to the three products on the basis of processing hours. The products had the following production budget and processing hours per case: img a. Determine the single plantwide factory overhead rate. b. Use the factory overhead rate in (a) to determine the amount of total and per-case factory overhead allocated to each of the three products under generally accepted accounting principles.
Essay
Answer:
Tags
arrow
Activity-based costing: factory overhead costs The total factory overhead for Diva-nation is budgeted for the year at $180,000, divided into four activities: cutting, $18,000; sewing, $36,000; setup, $96,000; and inspection, $30,000. Diva-nation manufactures two types of men's pants: jeans and khakis. The activity-base usage quantities for each product by each activity are as follows: img Each product is budgeted for 20,000 units of production for the year. Determine (a) the activity rates for each activity and (b) the activity-based factory overhead per unit for each product. The total factory overhead for Bardot Marine Company is budgeted for the year at $600,000, divided into four activities: fabrication, $204,000; assembly, $105,000; setup, $156,000; and inspection, $135,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The activity-base usage quantities for each product by each activity are as follows: img Each product is budgeted for 250 units of production for the year. Determine (a) the activity rates for each activity and (b) the activity-based factory overhead per unit for each product.
Essay
Answer:
Tags
arrow
Activity-based and department rate product costing and product cost distortions Black and Blue Sports Inc. manufactures two products: snowboards and skis. The factory overhead incurred is as follows: img The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: img The activity-base usage quantities and units produced for the two products follow: Number of img Instructions 1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $315,000 and $540,000 for the Cutting and Finishing departments, respectively. 2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). 3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. 4. Determine the total and per-unit cost assigned to each product under activity-based costing. 5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.
Essay
Answer:
Tags
arrow
Activity-based department rate product costing and product cost distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: img The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: img The activity-base usage quantities and units produced for the two products follow: img Instructions 1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively. 2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). 3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. 4. Determine the total and per-unit cost assigned to each product under activity-based costing. 5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.
Essay
Answer:
Tags
arrow
Using a product profitability report to guide strategic decisions The controller of Boom Box Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. In addition, the controller interviewed the vice president of marketing, who indicated that the floor loudspeakers were an older product that was highly recognized in the marketplace. The ribbon loudspeakers were a new product that was recently launched. The ribbon loudspeakers are a new technology that have no competition in the marketplace, and it is hoped that they will become an important future addition to the company's product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. img 1. Calculate the gross profit and income from operations to sales ratios for each product. 2. Write a memo using the product profitability report and the calculations in (1) to make recommendations to management with respect to strategies for the three products.
Essay
Answer:
Tags
arrow
Under what two conditions would the multiple production department factory overhead rate method provide more accurate product costs than the single plantwide factory overhead rate method?
Essay
Answer:
Tags
Showing 1 - 20 of 54