Professional Documents
Culture Documents
CH 17 Wiley Kimmel Homework Quiz
CH 17 Wiley Kimmel Homework Quiz
inspections. Estimated annual overhead cost for each activity is $180,000, $325,000, and $87,500, respectively. The
cost driver for each activity and the expected annual usage are: number of setups 2,500, machine hours 25,000, and
number of inspections 1,750. Compute the overhead rate for each activity.
Quick Pix is a large film developing and processing center that serves 130 outlets in grocery stores, service stations,
camera and photo shops, and drug stores in 16 nearby towns. Quick Pix operates 24 hours a day, 6 days a week.
Classify each of the following activity costs of Quick Pix as either unit-level, batch-level, product-level, or
facility-level.
Elle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide
overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see
how the results would differ if this system were used. Two activity cost pools were developed: machining
and machine setup. Presented below is information related to the company's operations.
Standard Custom
$100,0
Direct labor costs $50,000
00
Total estimated overhead costs are $300,000. Overhead cost allocated to the machining activity cost pool is
$200,000, and $100,000 is allocated to the machine setup activity cost pool.
Correct.
Correct.
Traditional Costing
Standard
$ 100000
Custom
$ 200000
Standard
$ 120000
Custom $ 180000
Estimated overhead
$200,000 $100,000
= $100 per machine hour = $200 per setup hour
$100,000 $200,000
Activity-based costing
Machining:
Machine setup:
$120,000 $180,000
Perdon Inc. has conducted the following analysis related to its product lines, using a traditional costing
system (volume-based) and an activity-based costing system. Both the traditional and the activity-based
costing systems include direct materials and direct labor costs.
Total Costs
Traditiona
Product Sales Revenue ABC
l
$50,0
Product 540X $200,000 $55,000
00
35,00
Product 137Y 160,000 50,000
0
35,00
Product 249S 80,000 15,000
0
Correct.
For each product line, compute operating income using the traditional costing system.
Product 540X
$ 145000
Product 137Y
$ 110000
Product 249S
$ 65000
Correct.
For each product line, compute operating income using the activity-based costing system.
Product 540X
$ 150000
Product 137Y
$ 125000
Product 249S
$ 45000
Correct.
Using the following formula, compute the percentage difference in operating income for each of the product
lines of Perdon. (Round the percentage to 2 decimal places, e.g. 2.35. For negative numbers use either a
negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)
Operating Income (ABC) - Operating Income (traditional cost) ÷ Operating Income (traditional cost).
Product 540X
3.45 %
Product 137Y
13.64 %
Product 249S
-30.77 %
Wilkins Corporation manufactures safes—large mobile safes, and large walk-in stationary bank safes. As
part of its annual budgeting process, Wilkins is analyzing the profitability of its two products. Part of this
analysis involves estimating the amount of overhead to be allocated to each product line. The following
information relates to overhead.
Mobile
Walk-in Safes
Safes
1,70
Direct labor hours per product line 800
0
Correct.
The total estimated manufacturing overhead was $235,000. Under traditional costing (which assigns
overhead on the basis of direct-labor hours), what amount of manufacturing overhead costs are assigned to:
The total estimated manufacturing overhead of $235,000 was comprised of $150,000 for material-handling
costs and $85,000 for purchasing activity costs. Under activity-based costing (ABC):
What amount of purchasing activity costs are assigned to: (Round answers to 2 decimal places, e.g.
195.25.)
Correct.
Compare the amount of overhead allocated to one mobile safe and to one walk-in safe under the traditional
costing approach versus under ABC.
Total overhead allocated under traditional costing. (Round answers to 2 decimal places, e.g. 250.00)
Total overhead allocated under ABC. (Round answers to 2 decimal places, e.g. 250.00.)
Activity-based costing:
The total amount of overhead allocated to each unit of the two products under the two allocation approaches is:
*$450 + $239.06
**$1,200 + $743.75
The first step in activity-based costing is to assign overhead costs to products, using cost drivers.
False
True
False
True
Vinnie Morelli Corporation has the following overhead costs and cost drivers. Direct labor hours are estimated at
100,000 for the year.
Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity
Ordering and Receiving Orders $120,000 500 orders
Machine Setup Setups 297,000 450 setups
Machining Machine hours 1,500,000 125,000 MH
Assembly Parts 1,200,000 1,000,000 parts
Inspection Inspections 300,000 500 inspections
If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is
$9.60.
$34.17.
$12.00.
$15.00.
multiplies the rate of cost drivers per estimated cost for the cost pool by the estimated cost for each cost pool.
multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used
per product.
multiplies the overhead rate by the number of direct labor hours used on each product.
Calvin Co. produces 3 products: A1, B2, and C3. A1 requires 400 purchase orders, B2 requires 600 purchase orders,
and C3 requires 1,000 purchase orders. Calvin has identified an ordering and receiving activity cost pool with
allocated overhead of $120,000 for which the cost driver is purchase orders. Direct labor hours used on each product
are 50,000 for A1, 40,000 for B2, and 110,000 for C3. How much ordering and receiving overhead is assigned to
each product?
A1 B2 C3
A company incurs $1,350,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and
Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per
year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available:
Mixing 20,000
Testing 500
$675,000
$337,500
$430,000
$527,382
Top of Form
Bottom of Form
E17-5 (a,b)
Shady Lady sells window coverings to both commercial and residential customers. The following
information relates to its budgeted operations for the current year.
Commercial Residential
$300,00 $480,
Revenues
0 000
50,00
Direct material costs 30,000
0
300,0
Direct labor costs 100,000
00
150,0 500,0
Overhead costs 50,000 180,000
00 00
($
$120,00
20,00
Operating income (loss) 0
0)
The controller, Wanda Lewis, is concerned about the residential product line. She cannot understand why
this line is not more profitable given that the installations of window coverings are less complex to install
for residential customers. In addition, the residential client base resides in close proximity to the company
office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she
has decided to take a closer look at the overhead costs assigned to the two product lines to determine
whether a more accurate product costing model can be developed. Below are the three activity cost pools
and related information she developed:
Estimated
Activity Cost Pools Cost Drivers
Overhead
Commercia
Residential
l
Scheduling and travel 1,000 500
Setup time 450 250
Correct.
Compute the activity-based overhead rates for each of the three cost pools, and determine the overhead cost
assigned to each product line. (Round overhead rates to 2 decimal places, e.g. 20.00. Round overhead
assigned to 0 decimal places, e.g. 15,000.)
Setup time
$ 100.00
Supervision
$ .10
Setup time
$ 45000
Supervision
$ 10000
Total
$ 115000
Setup time
$ 25000
Supervision
$ 30000
Total
$ 85000
E17-5 (a,b)
Expected use
Estimated of Cost ABC
Activity Cost Pools Overhead ÷ Drivers = Overhead Rates
*$100,000 + $300,000
Commercial
$115
Total assigned costs ,000
Residential
ABC
Expected use of Cost Overhead
Activity Cost Pools Drivers per Product × Rates = Cost Assigned
$30,
Scheduling and travel 500 $60.00
000
25,0
Setup time 250 $100.00
00
30,0
Supervision $300,000 $0.10 00
$85,
Total assigned costs 000
Compute the operating income for the each product line, using the activity-based overhead rates.
Commercial $55,000
Residential $45,000
E17-5 (a,b)
Commercial Residential
$480,
Revenues $300,000
000
300,00
Direct labor costs 100,000
0
435,0
Overhead costs 115,000 245,000 85,000
00
$45,0
$55,000
Operating income (loss) 00