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Exam 4: Activity-Based Costing and Analysis

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Question 51

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Explain cost flows for the departmental overhead rate method.

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The departmental overhead rate method us...

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Question 52

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The use of a plantwide overhead rate is not acceptable for external reporting under GAAP.

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Question 53

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[The following information applies to the questions displayed below.] Aztec Industries produces bread which goes through two operations, mixing and baking, before it is ready to be packaged. Next year's expected costs and activities are shown below. -Compute Aztec's departmental overhead rate for the baking department based on machine hours.

Which of the following is a disadvantage of the departmental overhead rate method?

A company produces heating elements that go through two operations, casting and assembling, before they are complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for the assembling department based on direct labor hours is $5 per direct labor hour.

The cost object(s) of the activity-based costing method is(are) :

Which of the following would not be considered a product cost?

Kamper Company sells two products Big Z and Little Z. Current direct material and direct labor costs are detailed below. Next year, the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $475,000. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $20 per hour and the company expects to manufacture 32,000 units of Big Z and 9,000 units of Little Z next year. What are total estimated direct labor hours for this next year?

Which of the following is a disadvantage of the departmental overhead rate method?

What are the main advantages of volume-based allocation methods compared to activity-based costing?

________ is an outgrowth of ABC that draws on the link between activities and cost incurrence for better management.

Rising Sun, Inc. produces granola that requires two processes, mixing and baking, to complete. The best-selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown in the following table: Rising Sun's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department. Determine the total product cost of this product line and each unit of cherry almond delight.

A company produces computer chips that go through two departments, department A1 and department B2, before they are complete. Expected costs and activities for the two departments are shown below. Departmental overhead rates are based on machine hours in department A1 and direct labor hours in department B2. Therefore, the overhead rates for department A1 and department B2 are $3.62 per machine hour and $5.73 per direct labor hour, respectively.

The ________ overhead rate method uses a single rate for allocating overhead costs to products.

When calculating the departmental overhead rate, the numerator should be?

Assume New Belgium Brewing Company manufactures and distributes three types of beer and that estimated per unit product costs and related information for the next year are shown in the following table: $\begin{array} { | l | l | l | l | } \hline & \text { Blue Paddle } & \text { Somersault } & \text { Cocoa Mole Ale } \\\hline \text { Cost data per unit: } & & & \\\hline \text { Direct materials } & \$ 100,000 & \$ 500,000 & \$ 750,000 \\\hline \text { Direct labor } & \$ 3,600 & \$ 4,800 & \$ 6,000 \\\hline \text { Overhead } & \$ 12,000 & \$ 16,000 & \$ 20,000 \\\hline \text { Total product cost per unit } & \$ 115,600 & \$ 520,800 & \$ 776,000 \\\hline & & & \\\hline \text { Machine hours per unit } & 30 \mathrm { MH } & 40 \mathrm { MH } & 50 \mathrm { MH } \\\hline \text { Number of units produced per year } & 30 \text { units } & 20 \text { units } & 10 \text { units } \\\hline\end{array}$ a. If New Belgium Brewing Company uses a plantwide overhead rate based on machine hours, what is the total product cost per unit of Cocoa Mole Ale? b. Blue Paddle is a traditional brew made in large quantities with long production runs. Somersault is a seasonal beer made in small batches. Cocoa Mole Ale is a specialty beer also made in small batches. Which of the overhead allocation methods studied in this chapter would you recommend that New Belgium Brewing Company use and why?

The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1) the overhead cost is correlated with the allocation base; and (2) all products use overhead cost in similar proportions.

Cleveland Choppers manufactures two types of motorcycles, a Base and a Loaded model. The following activity and costs have been gathered: The number of components and number of setups are chosen as activity-cost drivers for overhead. Assuming an ABC costing system is being used, what is the total overhead cost assigned to the Loaded model?

A single cost pool is used when allocating overhead using the activity-based costing method.

Product costs consist of direct labor, direct materials, and overhead (indirect) costs.