Question 1

Use the information below to answer the following question(s).
Bill Cobb Corporation had the following activities, pooled costs, and physical flow of driver units. The company uses activity-based costing.
  The above activities are used by departments X and Y as follows:
 
-How much of the correspondence cost will be assigned to Department X?

Accepted Answer

The answer of Use the information below to answer the...

Question 2

It may be appropriate to use a departmental costing system when costs are incurred on different activities within a department but each activity has the same cost allocation base.

Accepted Answer

Departmental costing systems are useful when costs are incurred on different activities within a department but each activity has the same cost allocation base, making it easier to allocate costs to each activity.

Question 3

Use the information below to answer the following question(s).
A transportation company provides bussing, limo and taxi service. The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service. Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement. Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion. Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses.
The company's costing system has tracked the following activities for the month:
 
-The previous controller at the transportation company had always estimated the indirect costs at 25% of billings. What indirect costs were accumulated for each major client for the month under this assumption?

Accepted Answer

To calculate the indirect costs for each major client, we need to first calculate the total billings for each client.

For the school board: 
- Bussing service: $350 per day x 20 days = $7,000 
- Taxi service: Let's assume the school board used the taxi service 5 times for individual student transportation, at an average of 10 km per ride. That would be 5 rides x 10 km x $2.00/km = $100. 
- Limo service: Let's assume the school board used the limo service for a total of 500 km. That's a cost of 500 km x $3.50/km = $1,750. 
- Total billings for school board: $7,000 + $100 + $1,750 = $8,850

For the city government offices: 
- Limo service: Let's assume the city government used the limo service for a total of 1,000 km. That's a cost of 1,000 km x $3.50/km = $3,500. 
- Total billings for city government: $3,500

Now we can calculate the indirect costs for each client, using the 25% estimate from the previous controller:

For the school board: 
- Total billings: $8,850 
- Indirect costs: $8,850 x 25% = $2,212.50 
- Indirect costs per km for limo service: $1.50/km 
- Indirect costs per km for taxi service: $1.00/km 
- Indirect costs for limo service: 500 km x $1.50/km = $750 
- Indirect costs for taxi service: 5 rides x 10 km x $1.00/km = $50 
- Total indirect costs for school board: $2,212.50 + $750 + $50 = $3,012.50

For the city government offices: 
- Total billings: $3,500 
- Indirect costs: $3,500 x 25% = $875 
- Indirect costs per km for limo service: $1.50/km 
- Indirect costs for limo service: 1,000 km x $1.50/km = $1,500 
- Total indirect costs for city government: $875 + $1,500 = $2,375

Therefore, the answer is C: School Board, $33,610.00; City Gov't, $1,762.63.

Question 4

Many companies use multiple cost pools and multiple cost-allocation bases but do not emphasize individual activities.

Accepted Answer

This statement is true. Many companies may use multiple cost pools and allocation bases, but they may not focus on individual activities, which can lead to less accurate cost allocation.

Question 5

Use the information below to answer the following question(s).
Fran Ferry Company had the following activities, pooled costs, and physical flow of driver units. The company uses activity-based costing.
  The above activities are used by departments A and B as follows:
 
-How much of the account billing cost will be assigned to Department B?

Accepted Answer

The answer of Use the information below to answer the...

Question 6

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match.
  Required:
Match each business function with its representative cost driver.

Accepted Answer

The answer of The list of representative cost drivers in...

Question 7

Use the information below to answer the following question(s).
A transportation company provides bussing, limo and taxi service. The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service. Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement. Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion. Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses.
The company's costing system has tracked the following activities for the month:
 
-What indirect costs were accumulated for each major client for the month?

Accepted Answer

The answer of Use the information below to answer the...

Question 8

The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools.

Accepted Answer

The answer of The estimated total manufacturing overhead costs that...

Question 9

Inaccurate product costs can expose a company to the risk of losing market share to competitors.

Accepted Answer

If a company's product costs are inaccurate, they may end up pricing their products too high, making them less competitive compared to other companies that are selling similar products at lower prices. This can result in a loss of market share as customers may choose to buy from competitors instead.

Question 10

If a company uses departmental overhead allocation rates, then the amount of manufacturing overhead allocated to the job is equal to the plant-wide overhead rate multiplied by the actual use of the cost allocation base.

Accepted Answer

If a company uses departmental overhead allocation rates, then each department has its own unique overhead rate based on the specific cost allocation base used by that department. The amount of manufacturing overhead allocated to a job in this case is equal to the departmental overhead rate for each department through which the job passes, multiplied by the actual use of the cost allocation base in each department.

Question 11

Using a department indirect cost rate to allocate costs to products will result in the same product costs as an ABC system if which of the following is true?

Accepted Answer

If each activity within a department has the same cost allocation base, and the different products use resources from different activity areas in the same proportion, then using a department indirect cost rate will yield the same product costs as an ABC system.

Question 12

Babcock Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $20 per machine hour, while the Sanding Department uses a departmental overhead rate of $15 per direct labour hour. Job 396 used the following direct labour hours and machine hours in the two departments:  The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 396 is $1,200.
What was the total cost of Job 396 if Babcock Industries used the departmental overhead rates to allocate manufacturing overhead?

Accepted Answer

The answer of Babcock Industries uses departmental overhead rates to...

Question 13

Answer the following question(s) using the information below.
Ernsting Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2012, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.
For 2012 Ernsting Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
  During 2012, two customers, Wealth Managers and Health Systems, are expected to use the following printing services:
 
-What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?

Accepted Answer

To calculate the cost driver rate, we need to divide the total manufacturing overhead cost estimate of $420,000 by the annual production capacity of 12 million pages. This gives us a cost driver rate of $0.035 per page.

Question 14

Use the information below to answer the following question(s).
Fran Ferry Company had the following activities, pooled costs, and physical flow of driver units. The company uses activity-based costing.
  The above activities are used by departments A and B as follows:
 
-How much of the account inquiry cost will be assigned to Department A?

Accepted Answer

The answer of Use the information below to answer the...

Question 15

Leonard Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Building and Inspection. The Building Department uses a departmental overhead rate of $18 per machine hour, while the Inspection Department uses a departmental overhead rate of $15 per direct labour hour. Job 611 used the following direct labour hours and machine hours in the two departments:  The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 611 is $1,500.
What was the total cost of Job 611 if Leonard Industries used the departmental overhead rates to allocate manufacturing overhead?

Accepted Answer

The answer of Leonard Industries uses departmental overhead rates to...

Question 16

Answer the following question(s) using the information below.
Ernsting Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2012, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.
For 2012 Ernsting Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
  During 2012, two customers, Wealth Managers and Health Systems, are expected to use the following printing services:
 
-Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Wealth Managers during 2012?

Accepted Answer

The answer of Answer the following question(s) using the information...

Question 17

Answer the following question(s) using the information below.
Ernsting Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2012, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.
For 2012 Ernsting Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
  During 2012, two customers, Wealth Managers and Health Systems, are expected to use the following printing services:
 
-Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?

Accepted Answer

The answer of Answer the following question(s) using the information...

Question 18

When calculating the total amount of manufacturing overhead to allocate to a particular job, the company would multiply each departmental overhead rate by ________ and then ________ together the allocated amounts from each department.

Accepted Answer

The company multiplies each departmental overhead rate by the actual amount of the departmental allocation base used by the job and then adds together the allocated amounts from each department to get the total manufacturing overhead for the job.

Question 19

Use the information below to answer the following question(s).
Bill Cobb Corporation had the following activities, pooled costs, and physical flow of driver units. The company uses activity-based costing.
  The above activities are used by departments X and Y as follows:
 
-How much of the account verification cost will be assigned to Department Y?

Accepted Answer

The total account verification cost is $150,000. The cost is assigned to departments X and Y based on their respective usage of the activity. Department Y uses 10% (500/5,000) of the total driver units, so it will be assigned 10% of the account verification cost, which is $15,000. However, department Y also incurs a direct cost of $7,500 for account verification, which means the total cost assigned to department Y is $22,500. Therefore, the correct answer is B, $7,500.

Question 20

Use the information below to answer the following question(s).
A transportation company provides bussing, limo and taxi service. The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service. Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement. Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion. Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses.
The company's costing system has tracked the following activities for the month:
 
-Compute the billing to each major client for the month.

Accepted Answer

To compute the billing for each major client, we need to determine the total cost for each type of service and allocate the indirect costs based on the activity levels.

For bussing service, the school board is the only client, and they used 20 buses for the month. Therefore, the total cost for bussing service is:
$350 x 20 = $7,000

For taxi service, the general public is the primary user, but the school board also used it on occasion. The total distance travelled by taxi is 7,000 km (5,000 km by the general public and 2,000 km by the school board). Therefore, the total cost for taxi service is:
$2 x 7,000 + $1 x 7,000 = $21,000

For limo service, the school board and city government offices are the primary users. The total distance travelled by limo for the month is 6,000 km (4,000 km by the school board and 2,000 km by the city government offices). Therefore, the total cost for limo service is:
$3.5 x 6,000 + $1.5 x 6,000 = $30,000

Now, we need to allocate the indirect costs based on the activity levels. For limo service, the school board and city government offices are the only users. Therefore, they will bear the entire indirect cost of $1.50 per km. The indirect cost for limo service is:
$1.5 x 6,000 = $9,000
The cost for limo service for each major client is:
School board: $30,000 + $9,000 = $39,000
City government: $9,000

For taxi service, the school board and general public are the users. Therefore, we need to allocate the indirect cost based on the distance travelled by each group. The indirect cost for taxi service is:
$1 x 5,000/7,000 + $1 x 2,000/7,000 = $0.5714 per km
The cost for taxi service for each major client is:
School board: $0.5714 x 2,000 + $14,000 = $15,142.80
City government: $0.5714 x 5,000 = $2,857.20

For bussing service, the indirect cost is a fixed amount of $195 per day per bus, and the school board used all 20 buses for the month. Therefore, the total indirect cost for bussing service is:
$195 x 20 = $3,900
The cost for bussing service for the school board is:
$7,000 + $3,900 = $10,900

Finally, we can compute the total billing for each major client by adding up the costs for each type of service:
School board: $10,900 + $15,142.80 + $39,000 = $64,042.80
City government: $9,000 + $2,857.20 = $11,857.20

Therefore, the best answer is A) School Board, $134,440.00; City Gov't, $7,050.50.

Quiz 5: Activity-Based Costing and Management

It may be appropriate to use a departmental costing system when costs are incurred on different activities within a department but each activity has the same cost allocation base.

Many companies use multiple cost pools and multiple cost-allocation bases but do not emphasize individual activities.

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match. Required: Match each business function with its representative cost driver.

The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools.

Inaccurate product costs can expose a company to the risk of losing market share to competitors.

If a company uses departmental overhead allocation rates, then the amount of manufacturing overhead allocated to the job is equal to the plant-wide overhead rate multiplied by the actual use of the cost allocation base.

Using a department indirect cost rate to allocate costs to products will result in the same product costs as an ABC system if which of the following is true?

When calculating the total amount of manufacturing overhead to allocate to a particular job, the company would multiply each departmental overhead rate by and then together the allocated amounts from each department.