Question 1

Indeed Company makes a product using two departments: Department 1 and Department 2.Information on these departments is as follows:  
A.	Calculate the department overhead rate for each department. Use machine hours as the base in Department 1 and direct labour hours as the base in Department 2.
B.	A job has prime cost of $270. It uses 10 machine hours in Department 1 and 15 direct labour hours in Department 2. Calculate the total product cost for the job.
C.	Recalculate the department overhead rate for each department. Use direct labour hours as the base in Department 1 and machine hours as the base in Department 2.
D.	A job has prime cost of $270. It uses 10 direct labour hours in Department 1 and 15 machine hours in Department 2. Using the rates calculated in part C, calculate the total product cost for the job.

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Question 2

Assume that the accounts payable department of a company has 10 clerks; each one is paid $25,000 per year ($250,000 total clerical salaries).Six of the clerks spend the following percentages of time on the three activities:
20% of time on processing payments
30% of time matching invoices,receiving documents,and billing statement
50% of time correcting errors in the various documents
One clerk,the head clerk,spends 50% of her time on administrative duties and the remainder on error correction.The remaining three clerks spend 30% of their time on processing payments and the remaining 70% of their time on matching documents.
Long distance telephone costs of $1,700 are directly traced to the activity "correcting errors." 
A.	Assign the clerical salary cost to each of the three activities and to administration.
B.	What is the total cost of the "correcting errors" activity?

Accepted Answer

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Question 3

Develop a set of at least five interview questions that could be used in the construction of an activity dictionary.Also explain why you would ask each question; i.e.,what information you hope to acquire and how it would apply to the activity dictionary.

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Question 4

SarahLou Company had sales of $2,500,000 for last year.Data on quality-related costs for last year are as follows: $\begin{array}{lr}
\text { Inspection } & 80,000 \
\text { Scrap } & 10,000 \
\text { Rework } & 45,000 \
\text { Quality training } & 20,000 \
\text { Warranty work } & 100,000 \
\text { Customer complaints } & 30,000
\end{array}$ A.	Classify each of the quality-related costs as control (prevention and appraisal), internal failure, or external failure.
B.	What percentage of sales is accounted for by quality-related costs?
C.	If quality-related costs could be reduced to 2% of sales, by how much would SarahLou’s profit increase?

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Question 5

Lauren's Volleyball Company produces two types of volleyballs: Volleylite and Official Game.Both products pass through two producing departments.The Official Game production is much more labour-intensive than the Volleylite.The Volleylite is also more popular.The following data have been gathered for the two products:  Lauren's Volleyball has decided to used activity-based costing and has developed two types of activities,machine related (based on machine hours),and other overhead (based on packing orders).Machine-related costs equal $160,000.Other overhead costs equal $240,000. 
A.	Calculate the activity rate for machine-related costs based on machine hours.
B.	Calculate the activity rate for other overhead costs based on packing orders.
C.	Using the two activity rates, calculate the overhead cost per unit for Official Game.
D.	Using the two activity rates, calculate the overhead cost per unit for Volleylite.

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Question 6

Refer to StrongLive Company. 
A.	Calculate the activity rate for machining.
B.	Calculate the activity rate for engineering.
C.	Calculate the activity rate for packing.

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A.	Calculate the activity...

Question 7

Refer to StrongLive Company.StrongLive Company uses activity-based costing to calculate product costs. 
A.	Calculate the per unit product cost for a Hybrid bike.
B.	Calculate the per unit product cost for a Road bike.
C.	Assume StrongLive Company adds 43% to the cost of a Hybrid bike and 38% to the cost of a Road bike obtain the selling prices. Calculate the selling prices for a Hybrid bike and a Road bike.

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Question 8

Refer to Netplay Company.

Accepted Answer

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Question 9

Consider the following information on activities: $$\begin{array} { l r r r } 
& \begin{array} { r } 
\text { Amount of } \
\text { Driver That }
\end{array} & \text { Actual } & \text { Cost per Unit } \
\text { Activity (driver) } & \text { Should be Used } & \text { Amount Used } & \text { of Driver } \
\text { Purchasing (purchase orders) } & 48,000 & 53,000 & \$ 40 \
\text { Inspection (inspection hours) } & 0 & 22,000 & \$ 30 \
\text { Rework (labour hours) } & 0 & 13,000 & \$ 20
\end{array}$$ 
A.	Which of the three activities, if any, is value-added?
B.	What is the non-value-added cost of each activity?
C.	What is the total value-added cost of the activities?

Accepted Answer

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Question 10

A company has developed a list of quality-related costs as follows: $\begin{array}{lrr}& \text { Year 1 } &  \text { Year 2 } \
\text { Supplier evaluation } & \$  0 & \$  70,000 \
\text { Quality training } & 10,000 & 50,000 \
\text { Inspection of finished product } & 75,000 & 60,000 \
\text { Rework } & 50,000 & 40,000 \
\text { Warranty work } & 120,000 & 80,000 \
\text { Sales } & \$ 2,000,000 & \$ 2,000,000
\end{array}$ The company's controller is pleased with the Year 2 results and commented that the company is now on its way toward total quality.Is the controller right? Explain.

Accepted Answer

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Question 11

What is the activity based costing hierarchy? Give an example for each.

Accepted Answer

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Question 12

Refer to First Choice Credit Union. 
A.	Calculate the total number of chequing accounts.
B.	Calculate the yearly overall cost per chequing account.
C.	Calculate the monthly overall cost per chequing account.

Accepted Answer

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A.	Calculate...

Question 13

A company was evaluating the activity-based environmental cost of two different products: Product ABC and Product XYZ.Information on two environmental activities is as follows: $$\begin{array} { l l r } 
\text { Activity } & \text { Driver } & \text { Cost } \
\text { Maintaining pollution equipment } & \text { Maintenance hours } & \$ 120,000 \
\text { Toxic waste disposal } & \text { Kilograms of waste } & 80,000
\end{array}$$ Data on Product X and Product Y follows: $\begin{array}{lrr}&\text { Product } \mathrm{ABC}& \text { Product } \mathrm{XYZ}\
\text { Production costs (non-environmental) } & \$ 400,000 & \$ 500,000 \
\text { Units produced } & 100,000 & 200,000 \
\text { Maintenance hours for pollution equipment } & 1,000 & 4,000 \
\text { Pounds of toxic waste } & 10,000 & 30,000
\end{array}$ A. Assign the environmental activity costs to Froduct $ \mathrm{ABC} $ and to Froduct $ \mathrm{XYZ} $.
B. Calculate the unit environmental cost of Froduct $ A B C $.
C. Calculate the unit environmental cost of Froduct XYZ.
D. Calculate the overall unit cost of Product ABC.
E. Calculate the overall unit cost of Product XYZ.

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Question 14

Randy Candy Company produces candy sticks (hooked and straight).Both products pass through two producing departments.The hooked stick's production is much more labour-intensive than the straight stick.The straight stick is also more popular.The following data have been gathered for the two products:  Total overhead costs equal $400,000.Randy Candy applies overhead based on direct labour hours.

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Question 15

Gleen Company has a JIT system in place.Each manufacturing cell is dedicated to the production of a single product or major subassembly.One cell,dedicated to the production of guitar pickups,has four operations: machining,finishing,assembly,and qualifying (testing).
For the coming year,the pickup cell has the following budgeted costs and cell time (both at theoretical capacity): $\begin{array}{l}
\text { Cell time: } &8,000 \text { hours }\
\text { Theoretical output: }&60,000 \text { pickups }
\end{array}$ 
During the year,the following actual results were obtained: 
$\begin{array}{lr}
\text { Actual cell time: } & 8,000 \text { hours } \
\text { Actual output: } & 50,000 \text { pickups }
\end{array}$ 
A.	Compute the theoretical velocity for the cell per hour.
B.	Compute the theoretical cycle time in minutes.
C.	Compute the actual velocity for the cell per hour.
D.	Compute the actual cycle time in minutes.

Accepted Answer

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Question 16

Refer to Netplay Company. A. What is the plantwide overhead rate based on machine hours?
B. Assuming a plantwide overhead rate, what is the unit cost of the basic model?
C. Assuming a plantwide overhead rate, what is the unit cost of the premium model?

Accepted Answer

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Question 17

Refer to First Choice Credit Union.First Choice Credit Union uses an activity-based costing system.The activity rate for opening and closing statements is based on the number of accounts opened and closed.The activity rate for issuing monthly statements is based on the number of statements issued.The activity rate for processing transactions is based on the number of transactions processed.The activity rate for customer inquiries is based on the number of telephone minutes.The rate for ATM services is based on the number of ATM transactions. 
A.	Calculate the activity rate for opening and closing accounts.
B.	Calculate the activity rate for issuing monthly statements.
C.	Calculate the activity rate for processing transactions.
D.	Calculate the activity rate for customer inquiries.
E.	Calculate the activity rate for providing ATM services.
F.	Calculate the cost per account by customer category using the five activity rates.
G.	First Choice Credit Union offers free chequing to all its customers. Overall, the interest revenues average $105 per account; however, the interest revenues earned per account by category are $95, $115, and $180 from the low, medium, and high balance accounts, respectively. Calculate the average profit per account for each of the three customer categories.

Accepted Answer

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Question 18

Assume that the accounts payable department of a company has five clerks; each one is paid $25,000 per year ($125,000 total clerical salaries).On average,the clerks spend:
20% of time on processing payments
30% of time matching invoices,receiving documents,and billing statement
50% of time correcting errors in the various documents
In addition,long distance telephone costs of $1,700 are directly traced to the activity "correcting errors." 
A.	Assign the clerical salary cost to each of the three activities.
B.	What is the total cost of the "correcting errors" activity?

Accepted Answer

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Question 19

Blackie Manufacturing Company uses activity-based costing.The overhead budget for the coming period is $1,053,000,consisting of the following: $\begin{array}{lr}&\text { Budgeted }\\text { Cost Pool }&\text { Amount }\
\text { Supervision } & \$ 320,000 \
\text { Machine usage } & 420,000 \
\text { Machine setups } & 187,000 \
\text { Design changes } & 126,000 \
\text { Totals } & \$ 1,053,000 \
\hline
\end{array}$ The potential allocation bases and their estimated amounts were as follows: $\begin{array}{lr}\text { Allocation } & \text { Budgeted } \
\text { Base } & \text { Amount }\
\text { Number of design changes } & 35 \
\text { Number of setups } & 110 \
\text { Machine hours } & 6,000 \
\text { Direct labour hours } & 10,000
\end{array}$ A. Determine the overhead rate for each cost pool, using the most appropriate allocation base for each pool.
Job 80130 required $\$ 45,000$ for direct materials, $\$ 20,000$ for direct labour, 2,000 direct
B. labour hours, 800 machine hours, five setups, and four design changes. Determine the cost of Job 80130.

Accepted Answer

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Question 20

Lindsay Company uses activity-based costing to figure product cost.Three activities have been determined and rate calculated. 
$\begin{array}{ll}
\text { Setting up equipment } & =\$ 500 \text { per setup } \
\text { Moving goods } & =\$ 20 \text { per move } \
\text { Machining } & =\$ 4 \text { per machine hour }
\end{array}$
$\text { Lindsay provided the following data from the job order cost sheet for Job } \# 550 \text {. }$

$\begin{array}{lr}
\text { Direct materials } & \$ 2,000 \
\text { Direct labour } & 1,800 \
\text { Setups } & 1 \
\text { Moves } & 30 \
\text { Machine hours } & 900
\end{array}$
A.	Calculate the overhead applied to Job #550.
B.	Calculate the total cost of Job #550.
C.	If price is calculated by applying a 30% markup on cost, what is the price for Job #550?
D.	Assume Job #550 required 2 setups, 15 moves, and 700 machine hours. Calculate the overhead applied to Job #550.
E.	Assuming a 50% markup on cost, what is the price of Job #550 using the overhead rate calculated in part D?

Accepted Answer

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Quiz 7: Activity-Based Costing and Management

Develop a set of at least five interview questions that could be used in the construction of an activity dictionary.Also explain why you would ask each question; i.e.,what information you hope to acquire and how it would apply to the activity dictionary.

Refer to StrongLive Company. A. Calculate the activity rate for machining. B. Calculate the activity rate for engineering. C. Calculate the activity rate for packing.

Refer to Netplay Company.

What is the activity based costing hierarchy? Give an example for each.

Refer to First Choice Credit Union. A. Calculate the total number of chequing accounts. B. Calculate the yearly overall cost per chequing account. C. Calculate the monthly overall cost per chequing account.

Refer to Netplay Company. A. What is the plantwide overhead rate based on machine hours? B. Assuming a plantwide overhead rate, what is the unit cost of the basic model? C. Assuming a plantwide overhead rate, what is the unit cost of the premium model?