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Exam 5: Activity-Based Costing

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Question 51

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Use the following information to complete Exercises below: Terra Turf (TT) is a manufacturer of artificial turf for athletic facilities. TT has contracts with 3 universities to install and maintain the turf on the football fields. The fields are essentially identical, so TT management has assumed that all costs would be equal for each customer. However, after missing budget predictions this year, the CFO decided to use ABC costing principles to evaluate the profitability of their customers. The cost accounting team has put together the following estimates regarding specific cost activities related to maintenance of turf fields: The universities are all out-of-state but relatively equidistant from the manufacturing plant, so per-trip travel costs are not considered to be significantly different. However, each university has different expectations regarding maintenance of the turf, and TT has collected the following data for each customer: Assume that each of the three customers produces gross profits of $100,000. -Assuming that there are no fixed costs involved, if the least profitable customer were dropped, what would be the change in TT's Net Income?

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Net Income would In...

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Question 52

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Metal Works Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown) : The expected activity for the year for various cost drivers is: The company is considering accepting a significant production contract. Estimates for the contract are as follows: NOTE: Round all per-unit costs to nearest cent. How much overhead should be allocated to the contract based on Activity-Based Costing?

A) $2,380
B) $4,800
C) $5,300
D) $8,200
E) None of the above

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

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Question 53

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Which of the following are viable options for dealing with an unprofitable customer?

Is increasing the number of cost pools under ABC costing always effective? Why or why not?

The information needed for activity-based management is a direct byproduct of Activity-Based Costing.

Use the following information to answer Exercises below: After preparing the budget for the next year, management at Fun4U Inc. expects the following overhead costs (the cost driver for each overhead cost pool is also shown): The expected activity for the year for various cost drivers is: The company is considering accepting a significant production contract. Estimates for the contract are as follows: -Is the company more likely to accept the contract under Activity-Based Costing or using a company-wide rate? (Round all per-unit costs to nearest cent.)

Most companies will initially switch all their financial records to an Activity-Based Costing method, because it facilitates auditing and tax preparation.

Use the following information to complete Exercises below: Hijinx Company projected the following overhead costs and cost drivers for past year (assume that actual overhead and budgeted overhead were the same): Hijinx contracted for 2 jobs, both of which were completed during the year. Production managers reported the following data in relation to these jobs: NOTE: Round per-cost-driver costs in intermediate calculations to two decimal places -What rate was used to apply Power costs?

How have production processes changed over the last century?

Why would a company continue to maintain their traditional costing systems even after implementing ABC costing?

Which of the following problems of traditional costing approaches are typically revealed by switching to Activity-Based Costing?

Use the following information to answer Exercises below: Automated Productions Co. projected the following overhead costs and cost drivers for the coming year: The company contracted for 2 jobs, both of which were started and completed during the year. Production reported the following data in relation to these jobs: -What is the total cost of each Job? (Round per-cost-driver costs in intermediate calculations to 2 decimal places.)

Understanding the sources of overhead costs is necessary for a company to effectively compete in today's marketplace.

How does the information needed for activity-based costing relate to that needed for activity-based management?

Use the following information to complete Exercises below: 4H Friends Co. (4HF) uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. 4HF has provided their costing department the following information from this year's budget relating to the production of these two products: The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured: NOTE: Round all per-unit costs to nearest cent. -What is the total expected overhead per unit allocated to product XYZ?

Use the following information to answer Exercises below: Tobler Co. uses activity-based costing in their manufacturing process. The company produces two products, MC50 and SD90. Tobler has provided the costing department the following information from this year's budget relating to the production of these two products: The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured: -If the company were to use a plant-wide rate based on machine hours, which product would be overpriced? (Assume that activity-based costing is more accurate). (Round all per unit costs to nearest cent.)

Use the following information to complete Exercises below: TopChef, a manufacturer of commercial-grade kitchen appliances, determined at the beginning of the year that $100,000 of budgeted selling and administrative overhead cost should be allocated to individual customers, to better facilitate the company's understanding of per-customer profitability. The accounting staff determined that selling and customer support expenses related to the following four activity cost pools should be allocated to each customer: The following financial and activity data was accumulated on five customers over the course of the year: -Which customer is the least profitable?

In a "low-tech" manufacturing environment, what is the primary driver of manufacturing overhead?

Use the following information to answer Problems below: Timpanogas Cycling produces two versions of a mountain bike: a standard and deluxe model. The standard model has an aluminum frame and entry-level components. The deluxe model has a carbon frame and upgraded components. At the beginning of the year, the following data were prepared for Timpanogas Cycling: Additionally, the following overhead activity costs were provided: -Using the activity rates determined in the previous question, determine the total cost per unit using activity-based costing. (Round final answers, for each unit, to the nearest cent.)

Often a company will maintain their financial records using a traditional costing method, even if Activity-Based Costing is used to make management decisions.