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Exam 4: Activity Based Costing and Analysis

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Question 41

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Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 140,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

A) $0.02 per machine hour.
B) $50.50 per machine hour.
C) $45.75 per machine hour.
D) $3.93 per machine hour.
E) $0.25 per machine hour.

F) B) and D)
G) A) and B)

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Question 42

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Gold Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product RST.

A) 21 MH per unit of RST.
B) 2 MH per unit of RST.
C) 20 MH per unit of RST.
D) 37.5 MH per unit of RST.
E) 38 MH per unit of RST.

F) A) and B)
G) C) and E)

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Question 43

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Aurora Corporation produces outdoor security lighting products. All products go through three processes before completion. Use the expected overhead costs and related data shown below to compute departmental overhead rates based on machine hours in Department A1A; based on direct labor hours in Department B2B; and machine hours in Department C3C.

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

A company expects next year's overhead costs to be $400,000. During this time, the company also expects to produce 1,000,000 units, have 200,000 direct labor hours, and 800,000 machine hours. Make the following independent calculations. a. Compute a plantwide overhead rate using units of production as the allocation base. b. Compute a plantwide overhead rate using direct labor hours as the allocation base. c. Compute a plantwide overhead rate using machine hours as the allocation base.

A company estimates that overhead costs for the next year will be $7,200,000 for indirect labor, $400,000 for factory utilities, and $43,000 for depreciation on factory machinery. The company uses direct labor hours as its overhead allocation base. If 955,375 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

West Company estimates that overhead costs for the next year will be $5,240,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 150,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?

Put the following ABC implementation steps in order ________. A Use the activity overhead rates to assign overhead costs to cost objects. B Compute the allocation rates. C Trace overhead costs to cost pools. D Identify the activities and the overhead costs they cause.

Explain some of the disadvantages of the departmental overhead rate method.

Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for indirect labor and $400,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 50,000 direct labor hours are planned for this next year, then the plantwide overhead rate is $.025 per direct labor hour.

All of the following are examples of Facility-level costs except:

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools: Annual production and sales level of Product A1 is 8,480 units, and the annual production and sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of Product B2 under activity-based costing?

Activity-based costing eliminates the need for overhead allocation rates.

The unit of product is the cost object when the plantwide overhead rate method is used.

Freeze Frame, Inc. produces cameras that require three processes, A, B, and C, to complete. Digital camera model #789 is the best-selling of all the many types of cameras produced. Information related to the 550,000 units of digital camera model #789 produced annually is shown below: Freeze Frame's total expected overhead costs and related overhead data are shown in the following table: a. Compute a departmental overhead rate for department A based on machine hours. b. How much overhead is associated with model 789 from department A? c. Compute a departmental overhead rate for department B based on direct labor hours. d. How much overhead is associated with model 789 from department B? e. Compute a departmental overhead rate for department C based on machine hours. f. How much overhead is associated with model 789 from department C? g. What is the per unit cost of the 550,000 units of model 789?

Product-level costs do not vary with the number of units or batches produced.

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

Compute Aztec's departmental overhead rate for the mixing department based on direct labor hours.

A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table: Which of the following statements is true regarding this company's activity rates?

Why is overhead allocation under ABC usually more accurate than either the plantwide overhead allocation method or the departmental overhead allocation method?