Question 1

Match each of the following resources with the most likely resource level at a potato chip manufacturer. Identify the resource levels as: U = Unit; B = Batch; P = Product; C = Customer; F =
  Facility

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Question 2

Arlington Marketing Research is a local market research firm, which provides on site interviews at local malls and retail outlets. The basic unit of service is a completed marketing research survey. All telemarketing personnel, mostly college students, are paid by the hour. Supervisory labor is salaried
  Required: For each cost listed, indicate whether the activity should be classified as Unit-level, Product-level, Batch- level, Customer-level or Facility-level. Indicate an appropriate cost driver to be used to allocate the cost to products. Justify your answers, if necessary.

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The answer of Arlington Marketing Research is a local market...

Question 3

Hutchings Company manufactures and distributes two products, A and K. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has changing to an activity-based costing ABC. system. She has collected the following information:
  
Required
A. What is the overhead cost per unit under the current system? 
B. What is the total overhead allocated to each product using the current system? 
C. What would be the total overhead allocated to each product under ABC costing? 
D. What would be the overhead cost per unit under ABC costing? 
E. Explain how traditional cost systems can lead to inaccurate product information and poor management decisions.

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The answer of Hutchings Company manufactures and distributes two products,...

Question 4

The Bridgewater Company recently switched to activity based costing ABC. The prior method allocated overhead costs at the rate of $200 per machine hour. The manager of Department J has estimated the following cost drivers and rates:
  During May, Bridgewater purchased and used $400,000 of direct materials at $40 per ton. There were 32 production runs using a total of 48,000 machine hours in May. The manager of Department J needed 48 inspections
Required:
(a) Calculate the total overhead costs that would have been allocated to production using the prior method
(b) Calculate the total overhead costs that would be allocated using Activity-Based Costing
(c) Why is activity-based information useful for making business decisions?

Accepted Answer

The answer of The Bridgewater Company recently switched to activity...

Question 5

Lucy Cook, CPA, J.D., provides accounting and tax and legal services to her clients. In 2007, she charged $175 per hour for accounting and $200 per hour for tax and legal services. Erin estimates the following
  costs for the year 2008.
Operating profits declined last year and Ms. Cook has decided to use activity based costing ABC. procedures to evaluate her hourly fees. She has gathered the following information from last year's
  records:
Required:
(a) What is the total cost allocated to Accounting services using Activity-Based costing ABC.?
(b) Lucy wants her hourly fees for the tax and legal services to be 200% of their activity-based costs. What is the fee per hour for each type of service Lucy offers?
(c) A major client has requested accounting services. However, Lucy is already billing 100% of her capacity (2,000 hours per year) and is reluctant to shift 200 hours away from her tax and legal services to meet this client's request. What is the minimum fee per hour that Lucy could charge this client for accounting services and be no worse off than last year? Assume that Activity-Based Costing ABC. is used.
(d) Without regard to your answer in requirement c, assume that Lucy must charge $300 per hour to shift the client's work from tax and legal services to accounting services. What would you advise Lucy to do?

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The answer of Lucy Cook, CPA, J.D., provides accounting and...

Question 6

A medical equipment manufacturer produces two major products. One is a plastic disposable syringe with two parts per unit. The other is a high tech pump used for hospital procedures involving heart patients. The device has 250 parts. Both products require direct labor, which is split 50/50 between the two products. The company has identified various cost pools, including one that is material handling costs. The costs in this pool include wages and employee benefits of the workers receiving materials, inspecting materials, storing materials and moving materials to workstations, depreciation and maintenance of forklift trucks, and the cost of supplies and other related costs. Cost information related to the production
  process appears below:
Required:
a) Determine the total material handling cost and cost per unit that would be assigned to Syringes and Pumps if material handling costs are allocated based on direct labor hours.
b) Determine the total material handling cost and cost per unit that would be assigned to Syringes and Pumps if material handling costs are allocated based on the number of parts using Activity-Based Costing ABC.
c) Which method of cost allocation is more appropriate? Explain your answer.

Accepted Answer

The answer of A medical equipment manufacturer produces two major...

Question 7

Consider the following information for Basin Head Door Company for the production of two types of doors: Standard and Superior:
Material costs used and supplied for 2,000 Standard Doors, $400,000; 800 Superior Doors, $200,000. Labor supplied for production of both products, $125,000; each door is physically cut and assembled by an individual employee.
Facility-level saws and sanding equipment used on a per unit basis for both products, $20,000.
Special packaging and shipping provided on a per-unit basis to customers: $56,000 shipping, $14,000 for material, $28,000 for labor.
Custodial and security service for the manufacturing area, allocated based on number of doors manufactured: $10,000.
Electrical cost, allocated based on the number of doors manufactured, $20,000. Special designs and alterations for Superior Doors, $10,000.
Required: Compute the unit-level and full ABC costs per unit for the Standard and Superior Doors.

Accepted Answer

The answer of Consider the following information for Basin Head...

Question 8

Consider the following ABC Full Costing Report by the Sacks Toy Company, which manufactures
  specialty dolls:
Management is considering adding a third product line, the Riana doll. Assume the company obtains sufficient additional capacity to offer this product line that has the following characteristics:
? Uses 50% more materials than the Alissa doll
? Is made on a new, dedicated molding machine
? A week's production would be 12,000 dolls in three batches
? Customers would place two orders per week and there would be no warehousing
? Sales and forecasting costs would be the same as other products
? A team of five employees would produce the product
Required:
a) Estimate the unit-level and full ABC cost of this product.
b) What additional information would you like to have before deciding whether to recommend this product?

Accepted Answer

The answer of Consider the following ABC Full Costing Report...

Question 9

Refer to the following information concerning products Alpha and Beta for Bayside Manufacturing Corporation:
Material costs used and supplied for 5,000 units of Alpha, $80,000; 10,000 units of Beta, $80,000 Batch setup labor cost used for 20 batches of Alpha, $6,000, 8 batches of product Beta, $5,200 Batch setup materials used and supplied for 28 batches, $15,600
Labor supplied for production of both products, $48,000; usage based on number of manually assembled parts per unit: 16 for Alpha; 32 for Beta Facility-level equipment used on a per-unit basis for both products, $50,000
Special packaging and shipping provided on a per unit basis to customers: $25,000 shipping, $7,000 for material, $14,000 for labor
Custodial and security service for the manufacturing area, $12,000
Required: Compute the Unit-level and ABC full costs per unit for Products Alpha and Beta

Accepted Answer

The answer of Refer to the following information concerning products...

Question 10

Badger Boards, Inc. BBI) is a manufacturer of circuit boards for a handful of computer manufacturers. The following data pertains to the month of February for the assembly of circuit boards for two of BBI's major customers: MBI, Inc. and CAM, Inc.
● Material costs used and supplied for 14,000 boards for MBI, $80,000; 8,000 boards for CAM $80,000
● Batch setup labor cost used for 20 batches of boards for MBI, $4,000; 8 batches of boards for CAM, $2,400
● Batch setup materials used and supplied for 28 batches, $11,200
● Labor supplied for production of boards for both customers, $56,000; usage based on number of manually assembled parts: 8 for each of the boards for MBI and 16 for each of the boards for CAM
● Facility-level equipment used on a per unit basis for both products, $50,000
● Special packaging and shipping provided on a per unit basis to customers, $21,000 shipping, $14,000 for materials, and $28,000 for labor
● Custodial and security service for the manufacturing area, $1,500
(a) Prepare an activity matrix as follows: In column 1, list all the activities according to their level of usage (i.e., unit-level, batch-level, etc.). In column 2, list the cost driver base for each activity listed in the previous column. In the remaining columns (3 through 10), fill in the appropriate numbers.
Note that columns 3 through 10 are to be labeled as follows: unit-level resources, batch resources, product resources, customer resources, facility resources, total resources supplied, driver base level and cost driver rate.
(b) Does the cost driver rate for unit-level resources have the same meaning as the cost driver rate for a facility level resource? Explain.
(c) Is resource used the same as resource supplied? What is the significance of any difference between the two?

Accepted Answer

The answer of Badger Boards, Inc. BBI) is a manufacturer...

Question 11

Badger Boards, Inc.(BBI) is a manufacturer of circuit boards for a handful of computer manufacturers. The following data pertains to the month of February for the assembly of circuit boards for two of BBI's major customers: MBI, Inc. and CAM, Inc.
● Material costs used and supplied for 14,000 boards for MBI, $80,000; 8,000 boards for CAM $80,000
● Batch setup labor cost used for 20 batches of boards for MBI, $4,000; 8 batches of boards for CAM, $2,400
● Batch setup materials used and supplied for 28 batches, $11,200
● Labor supplied for production of boards for both customers, $56,000; usage based on number of manually assembled parts: 8 for each of the boards for MBI and 16 for each of the boards for CAM
● Facility-level equipment used on a per unit basis for both products, $50,000
● Special packaging and shipping provided on a per unit basis to customers, $21,000 shipping, $14,000 for materials, and $28,000 for labor
● Custodial and security service for the manufacturing area, $1,500
a) Prepare an activity matrix as follows: In column 1, list all the activities according to their level of usage (i.e., unit-level, batch-level, etc.). In column 2, list the cost driver base for each activity listed in the previous column. In the remaining columns (3 through 10), fill in the appropriate numbers.
Note that columns 3 through 10 are to be labeled as follows: unit-level resources, batch resources, product resources, customer resources, facility resources, total resources supplied, driver base level and cost driver rate.
b) Compute the unit-level and full-ABC costs per unit for the boards produced for the two different customers.
c) Brenda Baker, the production supervisor at BBI, suggests that doubling the batch size will reduce the costs driven by the number of batches by 50%. Do you agree? Explain.

Accepted Answer

The answer of Badger Boards, Inc.(BBI) is a manufacturer of...

Question 12

Badger Boards, Inc.(BBI) is a manufacturer of circuit boards for a handful of computer manufacturers. The following data pertains to the month of February for the assembly of circuit boards for two of BBI's major customers: MBI, Inc. and CAM, Inc.
? Material costs used and supplied for 14,000 boards for MBI, $80,000; 8,000 boards for CAM $80,000
? Batch setup labor cost used for 20 batches of boards for MBI, $4,000; 8 batches of boards for CAM, $2,400
? Batch setup materials used and supplied for 28 batches, $11,200
? Labor supplied for production of boards for both customers, $56,000; usage based on number of manually assembled parts: 8 for each of the boards for MBI and 16 for each of the boards for CAM
? Facility-level equipment used on a per unit basis for both products, $50,000
? Special packaging and shipping provided on a per unit basis to customers, $21,000 shipping, $14,000 for materials, and $28,000 for labor
? Custodial and security service for the manufacturing area, $1,500
Required
(a) Prepare an activity matrix as follows: In column 1, list all the activities according to their level of usage (i.e., unit-level, batch-level, etc.). In column 2, list the cost driver base for each activity listed in the previous column. In the remaining columns (3 through 10), fill in the appropriate numbers.
Note that columns 3 through 10 are to be labeled as follows: unit-level resources, batch resources, product resources, customer resources, facility resources, total resources supplied, driver base level and cost driver rate.
(b) Assume that the boards for MBI and CAM are priced at $11 and $23 per unit respectively. Prepare unit-level and full-ABC profitability reports.
(c) Do you think BBI should drop either board? Explain.

Accepted Answer

The answer of Badger Boards, Inc.(BBI) is a manufacturer of...

Question 13

Fun and Games, Inc. (FGI), headquartered in Boston, is a software consulting company specializing in games. It has been growing at an alarming pace. Mr. Furst, president of the company is considering expanding his operations by opening his seventh office in Portsmouth. FGI recently completed an ABC analysis of its Boston office to better understand the supply and use of facility-level resources. Mr. Furst does not expect the Portsmouth office to be different from the one in Boston in terms of resource requirement and consumption. For example, he expects to hire as many employees as in the Portsmouth office and also exert as much sales effort. However, he expects that business ( of projects) and sales revenue will be only 75% of that in Boston during the first year. Miss Bridges tracked the following information to assist in the decision.
  Required
(a) Using the information given above, estimate the cost of supporting the new office in Portsmouth. Assume that the resources used is the same as resources supplied.
(b) Should the level of resources used always be equal to the level of resources supplied? Why or why not?
(c) Is activity-based information always better than average-cost information? Explain.

Accepted Answer

The answer of Fun and Games, Inc. (FGI), headquartered in...

Question 14

Richmond Research Institute (RRI) is a private research organization specializing in medical research. It specializes in performing research about the awareness of the general public with respect to common ailments Colds, flu, etc.). Various health organizations contract with RRI to conduct research on their behalf. It carries out this research through phone surveys. The results of such research are then provided to health organizations that use the information to develop pamphlets about these common ailments.
In order to better understand its costs, RRI has decided to implement an activity-based information system. It collected the following data for the month of January:
● 60 tele-researchers (labor) to complete 24,000 surveys and 115,000 calls, $110,000. Each survey takes
9 minutes to complete and each call takes 4 minutes.
● Long-distance phone charges for the surveys, $22,000.
● Preparation of scripts for surveys (2), $7,000, and sales pitches (4), $5,000
● Training of tele-research labor by the training department of RRI to conduct surveys for specific customers, $14,200
● Automated dialing equipment, $23,000
● Occupancy costs, $20,000
● Three supervisors, $30,000
● Human resources, $11,000
(a) Prepare an activity matrix as follows: In column 1, list all the activities according to their level of usage (i.e., unit-level, batch-level, etc.). In column 2, list the cost driver base for each activity listed in the previous column. In the remaining columns (3 through 10), fill in the appropriate numbers
Note that columns 3 through 10 are to be labeled as follows: unit-level resources, batch resources, product resources, customer resources, facility resources, total resources supplied, total driver base level and cost driver rate
(b) Does the cost driver rate for unit-level resources have the same meaning as the cost driver rate for a facility level resource? Explain
(c) Compute the unit-level and full-ABC costs per unit for the surveys and sales calls

Accepted Answer

The answer of Richmond Research Institute (RRI) is a private...

Question 15

In its advertising, Ford Motor Company says "Quality is Job One."
Ford is indicating that good quality is the most important consideration for its customers. This would include customer satisfaction on delivery dates and specific areas of car performance, including properly closing doors, defect rates on parts.
Explain how Activity Based Costing ABC. can help supply this information to Ford's management

Accepted Answer

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Question 16

Dayton Extruded Plastics is a manufacturer of injection-molded extrusions. Scrapped or defective extrusions were ground into powder and fed back into the extruders as raw materials. Defective extrusions were inspected out during line work and in handling returns from customers; they were then ground up in special grinding machines and mixed with new raw material and reused in manually controlled injection-molding machines. The molding machines use utilities provided for the main manufacturing facility. After grinding, maintenance and cleanup of the facilities were performed
by general maintenance personnel. Because all scrapped extruders were reused in this way, company management felt that the cost of scrap was "free."
The company's traditional cost accounting system did not associate any cost with the cost of processing scrap
Required:
(a) Identify the activities in bold as unit-level, batch-level, product-level, customer-level or facility-level.
(b) Explain why the company's traditional cost accounting system is giving misleading results related to Dayton Extruded Plastics processing of scrap

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The answer of Dayton Extruded Plastics is a manufacturer of...

Question 17

Activity based costing identifies five different levels of activities and costs that are used in business and production processes.
a) Identify the five activity levels an provide a brief definition of each.
b) For each activity level, give and example of an activity that would fall into that category

Accepted Answer

The answer of Activity based costing identifies five different levels...

Question 18

Activity-Based Accounting information can provide unit level costs or full ABC costs. Explain why operating profits may differ depending upon which cost is used in management's analysis. Explain when each can be useful to management

Accepted Answer

The answer of Activity-Based Accounting information can provide unit level...

Question 19

Briefly distinguish between the top down approach, the interview approach and the recycling approach of identifying activities. Identify any major advantages or deficiencies of each approach.

Accepted Answer

The answer of Briefly distinguish between the top down approach,...

Question 20

Assume the role of one of the top, well-regarded CMAs. Identify the crucial issues in the case and address the problem. What can be done?
Tubes of All Sizes (TAS) manufactures a variety of tubes for many different customers. These pipes are different with respect to size (length, thickness and diameter), material, finish Coarse versus fine) and even color (green, red, yellow, black and navy blue). The typical manufacturing process consists of cutting the materials to desired lengths, grinding the cut pieces, forming (shaping) them, finishing the formed pipes, spray painting the finished pipes and packaging them in bundles of 25 pipes each. The pipes range from 2 feet to 6 feet in length, ½ an inch to 3 inches in thickness, and 6 to 18 inches in diameter TAS caters to three different types of customers: large, medium and small. The large customers buy only three times during a year in large quantities. The delivery is also made three times as per the order quantities. On the other hand, the smaller customers order many times and in smaller quantities. Besides, the smaller customers buy a greater variety of tubes (i.e., each order is likely to be different from the previous one). Consequently, TAS cannot anticipate the needs of the smaller customers
TAS's cost accounting system is tailored for the large customers in terms of how the data are captured. The activity cost driver rates are set based on the large customer's use of resources extrapolated for all customers. Prices are also set based on the large customers' consumption of resources. Karen Kent, the marketing manager, has not been very happy about the accounting system because the actual marketing costs have turned out to be much greater than what the accounting system has been suggesting. Similarly, Norman Neusom, the operations manager has also been troubled by the cost numbers. Both Kent and Neusom decided to meet with the controller Janet Hines, to discuss their concerns Hines: Karen and Norman, in my office together? I'm surprised!
Neusom: You shouldn't be, Janet. Didn't you guys tell us that we should all work together as a team? I have stopped fighting with my colleagues in marketing.
Kent: Let's just say that we are beginning to behave like reasonable adults
Hines: Isn't it nice to work as a team? However, it looks like we have a serious problem given that the two of you have come to my office together. Am I under attack?
Neusom: No attacks, no blame. We have a problem and we don't quite know where and how to begin Kent: Both Norman and I are getting messages that conflict with our wisdom regarding our individual functions (or processes, as we should say these days). It looks like our costing system is designed to handle the big guys (I mean our large customers) but does not estimate the marketing and sales related costs for the smaller customers. Consequently, I am unable to determine which customers are profitable and which are not. I would love it if our costing system could provide finer information
Neusom: Added to that, Janet, is the fact that these smaller customers seem to be upsetting my people too. There is something about these small customers' orders that throw my people off guard. They would love it if we got rid of all our small customers and take one or two more big guys. I am sure that would make Karen's life easy too
Kent: You are right, Norman. It would make my life easier but I do not know if I want to make that conclusion before I can better assess the situation
Hines:Let me see what I can do. I will also talk to a couple of my old buddies who are top CMAs and well regarded for their knowledge in cost management
Required:

Accepted Answer

The answer of Assume the role of one of the...

Quiz 4: Activity-Based Costing Systems

Match each of the following resources with the most likely resource level at a potato chip manufacturer. Identify the resource levels as: U = Unit; B = Batch; P = Product; C = Customer; F = Facility

Activity-Based Accounting information can provide unit level costs or full ABC costs. Explain why operating profits may differ depending upon which cost is used in management's analysis. Explain when each can be useful to management

Briefly distinguish between the top down approach, the interview approach and the recycling approach of identifying activities. Identify any major advantages or deficiencies of each approach.