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Exam 26: Cost Allocation and Activity-Based Costing

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Question 51

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The Valhalla Company manufactures small lamps and desk lamps. The following shows the activities per product: Using the following information prepared by the Valhalla Company, determine (a) the activity rates for each activity and (b) the activity-based factory overhead per unit for each product.

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(a) Setups: $160,000 / 40,000 = $4 per s...

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Question 52

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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 rate in the Painting Department for each unit of Product B if the company uses a multiple department rate system.

A) $12.40 per dlh
B) $24.80 per dlh
C) $7.20 per dlh
D) $16.00 per dlh

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

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Question 53

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Which of the following is not a factory overhead allocation method?

Activity-based costing for selling and administrative expenses can also be beneficial in allocating expenses to various products. Which of the following is the best allocation base for help desk costs?

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 Dings?

Activity rates are determined by

The Dawson Company manufactures small lamps and desk lamps. The following shows the activities per product and the total overhead information: Calculate the overhead per unit to be charged to small lamps.

When a plantwide factory overhead rate is used, the total overhead costs allocated to all products is the same.

Multiple production department factory overhead rates are most useful when production departments are very similar in their manufacturing processes.

The selection of the factory overhead allocation method is important because the method selected determines the accuracy of the product cost.

If the activities causing overhead costs are different across different departments and products, use of a plantwide factory overhead rate will cause distorted product costs.

ABC is used to allocate selling and administrative expenses to each product based on the product's individual differences in consuming these activities.

A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plantwide allocation base.

Service companies can effectively use activity-based costing to compute product (service) costs.

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 deluxe widget production if the budgeted production for the period is 50,000 units and actual production for the period is 58,000 units?

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 hair cut.

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. Using a single plantwide rate, determine the overhead rate per unit for Product B:

The Cunningham Factory has determined that its budgeted factory overhead budget for the year is $6,750,000 and budgeted direct labor hours are 5,000,000. If the actual direct labors for the period are 175,000 how much overhead would be allocated to the period?

The Ramapo Company produces two products, Blinks and Dinks. 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 $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000. The Ramapo Company uses a single overhead rate to apply all overhead costs. What would the single plantwide rate be if it was based on machine hours instead of labor hours?

Activity-based costing is much easier to apply than single plantwide factory overhead allocation.