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Exam 26: Cost Allocation and Activity-Based Costing

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Question 31

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Which of the following are the two most common allocation bases for factory overhead?

A) Total overhead dollars and machine hours
B) Direct labor hours and machine hours
C) Direct labor hours and factory expenses
D) Machine hours and factory expenses

E) C) and D)
F) B) and D)

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Question 32

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The Camper's Edge Factory produces two products - canopies and tents. It has two separate departments - cutting and sewing. The budget is $350,000 for the cutting department and $400,000 for the sewing department. Each canopy requires 2 hours of cutting and 1 hour of sewing. Each tent requires 1 hour of cutting and 6 hours of sewing. The budget estimates that 20,000 canopies and 10,000 tents will be manufactured during the year. Determine (a) the total number of budgeted direct labor hours for the year in each department, (b) the departmental factory overhead rates for both departments, and (c) the factory overhead allocated per unit each product using the department factory overhead allocation rates using direct labor hours as the base.

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(a)
Cutting: (20,000 canopies ´ 2 dlh) +...

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Question 33

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Use of a plantwide factory overhead rate distorts product costs when there are differences in the factory overhead rates across different production departments and when products require different ratios of allocation-base usage in each production department.

Challenger Factory produces two similar products - regular widgets and deluxe widgets. The total plant overhead budget is $675,000 with 300,000 estimated direct labor hours. It is further estimated that deluxe widget production will need 3 direct labor hours for each unit and regular widget production will require 2 direct labor hours for each unit. Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will be allocated to the regular widget production if budgeted production for the period is 75,000 units and actual production for the period is 72,000 units?

Determine the activity-based cost for each tape drive unit.

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. Determine the activity rate for product development per change.

A plantwide factory overhead rate assumes that all overhead is directly related to one activity representing the entire plant.

The Beauty Beyond Words Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: Calculate the cost of services for a perm.

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-fabrication and assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $105,000. The Aleutian Company uses a departmental overhead rates. The fabrication department uses machine hours for an allocation base, and the assembly department uses labor hours. What is the assembly department overhead rate per labor hour?

Activity rates are computed by dividing the cost budgeted for each activity pool by the estimated activity base for that pool.

The Beauty Beyond Words Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: Calculate the cost of services for a Hi-light.

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-fabrication and assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $105,000. The Aleutian Company uses a departmental overhead rates. The fabrication department uses machine hours for an allocation base, and the assembly department uses labor hours. What is the overhead cost per unit for Rings?

Activity cost pools are cost accumulations associated with a given activity.

Using a plantwide factory overhead rate distorts product costs when:

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the amount of factory overhead to be allocated is $38,525 (if the allocation is based on direct labor hours).

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. Determine the overhead from both production departments allocated to each unit of Product A if the company uses a multiple department rate system.

When a plantwide factory overhead rate is used, overhead costs are applied to all products by a single rate.

The Kaumajet Factory produces two products - table lamps and desk lamps. It has two separate departments - finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, how much factory overhead will be allocated to each unit of desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours?

Kettle Factory produces two similar products - gloves and mittens. The total plant budget is $1,050,000 with 600,000 estimated direct labor hours. It is further estimated that glove production will require 375,000 direct labor hours and mitten production will require 225,000 direct labor hours.

The Transformations Hair Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: