Question 1

Restoration,Inc.,a leading manufacturer of antique car parts,divided its manufacturing process into two Departments - Production and Packing.The estimated overhead costs for the Production and Packing departments amounted to $14,000,000 and $20,000,000,respectively.The company produces two types of parts - Part 1 and Part 2.The total estimated labor hours for the year were 40,000,and estimated machine hours were 35,000.The Production department is mechanized,whereas the Packing department is labor oriented.Calculate departmental predetermined overhead allocation rates.
 $$\begin{array} { | l | r | r | } 
\hline & \text { Production } & \text { Packing } \
\hline & \text { Machine hours } & \text { Labor hours } \
\hline \text { Part 1 } & 10,000 & 30,000 \
\hline \text { Part 2 } & \underline { 25,000 } & \underline { 10,000 } \
\hline & \underline { 35,000 } & \underline { 40,000 } \
\hline
\end{array}$$

Accepted Answer

The answer of Restoration,Inc.,a leading manufacturer of antique car parts,divided...

Question 2

The costs most easily traced to each product manufactured are ________.

Accepted Answer

Direct materials and direct labor are costs that can be easily traced to each product, as they are incurred specifically for the production of that product. Other costs, such as manufacturing overhead, may be indirect costs that are allocated to products based on some allocation method, making them less easily traced to individual products. Indirect materials and indirect labor are also indirect costs that may be allocated to products.

Question 3

Stealth,Inc.produces two types of drones,rotary and fixed wing.Stealth estimated $850,000 of manufacturing overhead,and 62,500 machine hours for the year.The allocation base for overhead costs is machine hours.The rotary model actually consumed 28,000 machine hours,and the fixed wing type consumed 34,500 machine hours.How much overhead is allocated to the fixed wing model? (Round intermediary calculations to the nearest cent.)

Accepted Answer

Predetermined overhead rate = $850,000 / 62,500 = $13.60
Overhead allocated = 34,500 hours × $13.60 = $469,200

Question 4

Why is using a single plantwide predetermined overhead allocation rate not always accurate?

Accepted Answer

The answer of Why is using a single plantwide predetermined...

Question 5

Allen Manufacturing has three departments that differ significantly in their manufacturing processes.A single plantwide rate will give the company the best estimate of overhead costs.

Accepted Answer

Since the three departments have significantly different manufacturing processes, it is not appropriate to use a single plantwide rate to estimate overhead costs accurately. Instead, the company should use departmental rates or activity-based costing to allocate overhead costs correctly.

Question 6

Which of the following would most likely be treated as an activity in an activity-based costing system?

Accepted Answer

An activity-based costing system focuses on identifying and measuring the costs of individual activities that consume resources to produce products or services. Machine processing is an example of an activity that consumes resources (such as electricity, maintenance, and repair) and therefore would be treated as an activity in an activity-based costing system. Direct labor and direct materials would typically be traced directly to the products or services they help produce, while sales revenues are not a cost and would not be relevant in this context.

Question 7

Why is activity-based-costing used? What is an activity? Give an example of an activity.

Accepted Answer

The answer of Why is activity-based-costing used? What is an...

Question 8

Stealth,Inc.produces two types of drones,rotary and fixed wing.Stealth estimated $850,000 of manufacturing overhead,and 62,500 machine hours for the year.The allocation base for overhead costs is machine hours.The rotary model actually consumed 18,000 machine hours,and the fixed wing type consumed 44,500 machine hours.How much overhead is allocated to the rotary model? (Round intermediary calculations to the nearest cent.)

Accepted Answer

Predetermined overhead rate = $850,000 / 62,500 = $13.60
Overhead allocated = 18,000 hours × $13.60 = $244,800

Question 9

Made Well Tool,Inc.,a manufacturer of cutting tools,divided its manufacturing process into two
Departments - Machining and Finishing.The estimated overhead costs for the Machining and Finishing
departments amounted to $400,000 and $1,000,000,respectively.The company produces two types of tools - Standard and Deluxe.The total estimated labor hours for the year were 4,000,and total estimated machine hours were 2,000.The Machining department is mechanized,whereas the Finishing department is labor oriented.Calculate departmental predetermined overhead allocation rates.
 $$\begin{array} { | l | r | l | } 
\hline &  { \text { Machining } } & \text { Finishing } \
\hline & \text { Machine hours } & \text { Labor hours } \
\hline \text { Standard } & 500 & 1,800 \
\hline \text { Deluxe } & \underline { 1,500 } & \underline { 2,200 } \
\hline & \underline { 2,000 } & \underline { 4,000 } \
\hline
\end{array}$$

Accepted Answer

The answer of Made Well Tool,Inc.,a manufacturer of cutting tools,divided...

Question 10

An activity-based costing system is developed in four steps: 
a.Compute the predetermined overhead allocation rate for each activity.
B.Identify activities and estimate their total indirect costs.
C.Identify the allocation base for each activity and estimate the total quantity of each allocation base.
D.Allocate indirect costs to the cost object.
Which of the following is the correct order for performing these steps?

Accepted Answer

The correct order for developing an activity-based costing system is: Identify activities and estimate their total indirect costs (b), identify the allocation base for each activity and estimate the total quantity of each allocation base (c), compute the predetermined overhead allocation rate for each activity (a), and finally allocate indirect costs to the cost object (d).

Question 11

In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the product and period costs.

Accepted Answer

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Question 12

For each of the following activities,indicate an appropriate allocation base:
 $$\begin{array} { | l | l | } 
\hline \text { Activity } & \text { Allocation Base } \
\hline \text { Warranty Services - Providing service } & \
\text { for defective products } & \
\hline \text { Setup - Setting up machines for } & \
\text { production } & \
\hline \text { Shipping-Shipping finished products } & \
\text { to customers } & \
\hline \text { Machining-Machine usage } & \
\hline \text { Purchasing - Purchasing raw materials } & \
\hline
\end{array}$$

Accepted Answer

The answer of For each of the following activities,indicate an...

Question 13

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

Accepted Answer

Activity-based costing provides more detailed information on costs of activities and the drivers of these costs than traditional costing.

Question 14

In the first step in developing an activity-based costing system,the management team must think about how each activity for a product or service might be improved or whether is it necessary at all.

Accepted Answer

The first step in developing an activity-based costing system is to identify all the activities involved in providing a product or service, and then evaluate each activity to determine whether it adds value, could be improved, or is necessary at all.

Question 15

What is activity-based management? How is it different from activity-based costing?

Accepted Answer

The answer of What is activity-based management? How is it...

Question 16

Managers are able to set an accurate selling price without knowing product cost information.

Accepted Answer

Managers need to know the product cost information to accurately determine the selling price. Without this information, setting a profitable selling price becomes difficult as the cost implications of various price points cannot be assessed.

Question 17

Activity-based costing uses a common allocation base for all activities.

Accepted Answer

Activity-based costing uses different allocation bases for different activities based on their usage and cost drivers.

Question 18

In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Accepted Answer

This statement is true as identifying the activities that incur the majority of manufacturing overhead costs is the first step in developing an activity-based costing system. This allows for a more accurate allocation of costs to products or services.

Question 19

Use of a single plantwide overhead rate assumes that there is a direct relationship between the allocation base and overhead costs in all plant activities.

Accepted Answer

A single plantwide overhead rate assumes that all overhead costs are caused by a single allocation base (such as direct labor hours or machine hours) and that there is a direct relationship between the allocation base and overhead costs in all plant activities.

Question 20

Reliable Car Parts,a manufacturer of spare parts,has two production departments-Assembling and Packaging.The Assembling Department is mechanized,while the Packaging Department is labor oriented.Estimated manufacturing overhead costs for the year were $15,100,000 for Assembling and $10,500,000 for Packaging.Calculate the department predetermined overhead allocation rates for the Assembling and Packaging Departments,respectively,if the total estimated machine hours were 45,000 and labor hours were 22,000 for the year.(Round your answer to the nearest cent.)

Accepted Answer

Calculation of department wide allocation rates: 11ea8873_d53f_6698_bb89_e7ea683625af_TB5026_00

Quiz 24: Cost Allocation and Responsibility Accounting