Lanen Chapter 9 Activity-Based Costing Exam Questions

Fundamentals of Cost Accounting, 6e (Lanen)

Chapter 9 Activity-Based Costing

1) The death spiral can occur even in firms with increasing demand.

2) The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.

3) The basic approach in product costing is to allocate costs in the cost pools to the individual cost objects, which are the products or services of interest.

4) The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.

5) Predetermined overhead rates are not used in first-stage cost allocations but are used in second-stage cost allocations.

6) The plantwide allocation concept cannot be used in nonmanufacturing organizations.

7) The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.

8) The department cost allocation method provides more accurate product cost information for managerial decision-making than the plantwide cost allocation method.

9) Companies that manufacture products that are similar and use the same resources should use the plantwide cost allocation method. 

10) Using the department allocation method, a company establishes a separate overhead allocation rate for each department.

11) If a company manufactures diverse products using different sets of resources in a plant, it is best to use a plantwide allocation rate.

12) Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities.

13) The basic difference between the department cost allocation method and activity-based costing (ABC) is the number of stages involved in allocating costs to products.

14) Direct labor cost (DLC) and direct labor hours (DLH) are examples of volume-related cost drivers in the cost hierarchy.

15) Any discrete task that an organization undertakes to make or deliver a product or service is known as a stage.

16) Activity-based costing is based on the concept that products produce activities and activities produce resources.

17) The number of products produced is an example of a facility-related cost driver in the cost hierarchy.

18) A cost hierarchy classifies cost drivers by general dimensions or levels of activity.

19) If a company has identified three major activities as setting up, handling material, and assembling, possible cost drivers would most likely be set-up hours, production runs, and number of shipments, respectively.

20) When applying activity-based costing, the first step would be to compute the cost driver rates. 

21) Activity-based costing (ABC) provides more detailed measures of costs than do plantwide or department allocation methods.

22) Activity-based costing is so beneficial because it provides more information about product costs but requires less recordkeeping.

23) Installing activity-based costing requires teamwork among employees and departments within an organization.

24) Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.

25) In general, traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).

26) Using direct labor costs to allocate overhead costs in an activity-based costing (ABC) system will encourage management to reduce labor costs.

27) In general, low-volume products (and services) have a lower degree of complexity associated with them.

28) When overhead is applied based on the volume of output, high-volume products tend to "subsidize" low-volume products.

29) The flow of activity-based costs through the ledger is the same as their flow using traditional methods except that the accounts are based on activities, not departments.

30) Activity-based costs are a function of both volume and complexity.

31) Activity-based costing (ABC) can be applied to administrative activities (e.g., purchasing) but not to marketing activities.

32) Within a purchasing department, a cost driver of the potential number of vendors could best cost the activity of placing orders. 

33) Individual ABC systems do not vary because there is one ABC method.

34) It is possible to apply activity-based costing (ABC) to segments of an organization without applying it to the entire organization.

35) Time-driven activity-based costing (TDABC) is more costly to implement than an unmodified activity-based costing system. 

36) Time equations can be used in extended time-driven activity-based costing (TDABC) systems to allow managers to adjust the times for orders with different characteristics. 

37) When product costs are used for decision-making, what assumption is most likely to distort the decisions?

A) There is a proportionality of overhead costs and output, regardless of whether a product is dropped or not.

B) Some overhead estimates can decrease when a product is dropped.

C) Some overhead costs could be fixed when a product is dropped.

D) The cost accounting system treats all overheads as if it were variable with respect to the allocation base.

38) When a department or product line is dropped, the common fixed costs which had been allocated to that department:

A) are eliminated.

B) become variable costs.

C) are allocated to the remaining departments or product lines.

D) become sunk costs.

39) Traditional product costing systems (e.g., job and process costing) are designed primarily:

A) To derive an allocation base.

B) To ensure that a single cost driver allocation base leads to appropriate managerial decisions.

C) To accumulate cost information for financial reporting.

D) To accumulate cost information for managerial decisions.

40) A two-stage system first allocates costs to:

A) Products or services and then allocates costs to departments or activities.

B) The cost driver and then allocates costs to the cost hierarchy.

C) A product line and then allocates costs to the department.

D) Departments or activities and then allocates costs to products or services.

41) First stage cost objects do not include:

A) Supplies

B) Depreciation

C) Maintenance and Repair Costs

D) Direct materials

42) The basic difference between a first-stage cost allocation and a second-stage cost allocation is that:

A) cost pools are not used in first-stage cost allocations.

B) predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.

C) the first stage prohibits firms from aligning the allocation of costs with the use of resources.

D) when used in an ABC system, the first stage assigns costs to activities.

43) Activity-based costing (ABC) is a costing technique that uses a two-stage allocation process. Which of the following statements best describes these two stages?  

A) The costs are assigned to activities, and then to the products based upon their use of the activities.

B) The costs are assigned to departments, and then to the products based upon their use of activity resources.

C) Service department costs are allocated to the production departments, and then to the products based upon their use of the activities.

D) Indirect costs are assigned to activities, and then to the products based upon the direct cost resources used by the activities.

44) Cost pools are used with:

A) Option A

B) Option B

C) Option C

D) Option D

45) Which of the following should not be used as the allocation base in a company that appropriately uses a single plantwide rate?

A) Sales volume.

B) Machine hours.

C) Material costs.

D) Direct labor cost.

46) Which of the following would be least likely to be used as an allocation base in a company that applies a single plantwide rate?

A) Machine hours.

B) Direct material costs.

C) Direct labor cost.

D) Direct labor hours.

47) Multiple (departmental) manufacturing overhead rates are considered preferable to a single (plantwide) overhead rate when: (CMA adapted)

A) Manufacturing is limited to a single product flowing through identical departments in a fixed sequence.

B) Various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.

C) Individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships.

D) The single or plantwide rate is related to several identified cost drivers.

48) The classification of cost drivers into general levels of activity, volume, batch, product, and so on is known as:

A) Cost allocation.

B) Value-added costing.

C) A cost hierarchy.

D) Cost driver management.

49) Which of the following statements is true?

A) One of the lessons learned from activity-based costing (ABC) is that all costs are really a function of volume.

B) The primary purpose of the plantwide and department allocation methods is allocating direct costs to specific products.

C) A problem with activity-based costing (ABC) is that it requires more recordkeeping than other methods.

D) Direct cost allocations are required for the plantwide and department allocation methods.

50) The electricity used for production machinery would be classified as a:

A) Volume-related activity.

B) Batch-related activity.

C) Product-related activity.

D) Facility-related activity.

51) The number of services provided by an accounting firm would be classified as an:  

A) Volume-related activity.

B) Batch-related activity.

C) Product-related activity.

D) Facility-related activity.

52) Which of the following costs is not related to a batch-related activity?

A) Material handling.

B) Machine setups.

C) Shipping costs.

D) Compliance costs.

53) Which of the following would not be a batch-related activity?

A) Setting up a machine for a new production run.

B) Performing 100% inspection.

C) Purchasing materials.

D) Processing a customer order.

54) Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced?

A) Volume-related activities.

B) Batch-related activities.

C) Product-related activities.

D) Facility-related activities.

55) Which of the following measures is not used by activity-based costing (ABC) systems as an allocation base for allocating overhead costs to the units produced? 

A) Volume-related activities.

B) Batch-related activities.

C) Product-related activities.

D) Need-related activities.

56) What is the typical effect on the numbers of cost pools and cost assignment bases when an activity-based costing (ABC) system replaces a traditional costing system? (CPA adapted)

A) Option A

B) Option B

C) Option C

D) Option D

57) Plant administration is an example of a: 

A) Volume-related activity.

B) Batch-related activity.

C) Product-related activity.

D) Facility-related activity.

58) Which of the following activities would be classified as a batch-level activity?

A) Setting up equipment.

B) Designing a new product.

C) Training employees.

D) Milling a part required for the final product.

59) Would the following activities at a manufacturer of canned soup be best classified as volume-related, batch-related, or product-related activities?

A) Option A

B) Option B

C) Option C

D) Option D

60) Plant property taxes are an example of a cost that would be considered to be:  

A) Volume-related.

B) Batch-related.

C) Product-related.

D) Facility-related.

61) Product costs are computed by:

A) Dividing the cost driver rate by the number of units of the cost driver in each product.

B) Multiplying the cost driver rate by the number of units of the cost driver in each product.

C) Adding the cost driver rates of all products.

D) Averaging the plantwide cost driver rate with the cost driver for each product.

62) Which of the following is not a step involved in activity-based costing?

A) Identify the activities that consume resources and assign costs to those activities.

B) Determine how to reduce the costs of making products by cutting activities.

C) Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product.

D) Compute a cost rate per cost driver unit or transaction.

63) Which of the following statements is true?  

A) Activity-based costs per unit are always greater than volume-based costs per unit.

B) Volume-based costing has typically resulted in lower gross margins for high-volume products and higher gross margins for low-volume products.

C) Different cost allocation methods are constructed so that they typically result in the same or similar estimates of how much it costs to make a product.

D) Activity-based costing typically provides less information about product costs while requiring more recordkeeping.

64) Volume-based costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of direct material used in the production process. Activity-based costing (ABC) has consistently shown that volume-based costing ________ the cost of high-volume products and ________ the cost of low-volume products.

A) Option A

B) Option B

C) Option C

D) Option D

65) Companies using activity-based costing (ABC) have learned that costs are a function of:

A) Volume and activities.

B) Time and complexity.

C) Volume and time.

D) Resources and time.

66) Activity-based costing provides:

A) More detailed measures of costs than do plantwide or department allocation methods.

B) Less detailed measures of costs than do plantwide or department allocation methods.

C) More detailed measures of costs than do plantwide allocations but less than department allocation methods.

D) Less detailed measures of costs than do plantwide allocations but more than department allocation methods.

67) Which one of the following accounts is not used in an activity-based costing (ABC) system?

A) Materials Inventory.

B) Work-in-Process Inventory.

C) Finished Goods Inventory.

D) Allocations Incurred.

68) Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC) system?

A) Number of production runs per year.

B) Number of components per completed unit.

C) Amount of time required to produce one unit.

D) Amount of overhead applied to each completed unit.

69) Which of the following statements is true regarding activity-based costing in administration? 

A) The principles of ABC are different when applied to administrative services.

B) ABC in administration involves five steps.

C) All cost drivers in an administrative system will be time-related.

D) Activity-based costing for administrative services follows the same four-step procedure described for manufacturing.

70) Which of the following would be the most appropriate activity and cost drivers pairing for a Purchasing Department?

A) Activity: Placing orders - Possible Cost Driver: Number of orders.

B) Activity: Placing orders - Possible Cost Driver: Number of new hires.

C) Activity: Placing orders - Possible Cost Driver: Frequency of audits.

D) Activity: Placing orders - Possible Cost Driver: Employee turnover rate.

71) Which of the following statements is true regarding time-driven activity-based costs? 

A) A manager needs to determine the cost of resources for each individual item produced.

B) This approach requires interviews and surveys from multiple managers and employees.

C) It is more costly than the unmodified ABC system.

D) It uses the cost of the resources supplied to a department and the time it takes to complete the various activities of the department.

72) Which of the following statements is true regarding time equations used in time-driven activity-based costing? 

A) Time equations cannot adjust extra time for new vendors.

B) Time equations allow managers to adjust the times for orders with different characteristics.

C) Time equations cannot be used where there is a maximum size of an order that can be inspected or transported to the warehouse.

D) Time equations are only used as part of unmodified ABC systems.

73) Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour. Loren is the department manager of the Makeup Department that produces Products - Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Product - Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows:

Based on this information, if Flawless changes its allocation basis to machine hours, what is the overhead rate per machine hour?

A) $3.00

B) $2.00

C) $21.00

D) $6.825

74) Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour. Loren is the department manager of the Makeup Department that produces Products - Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Product - Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows:

If Flawless changes its allocation basis to machine hours, what is the total product cost per case for Product GC?

A) $163.50

B) $144.00

C) $138.15

D) $117.15

75) Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour. Loren is the department manager of the Makeup Department that produces Products - Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Product - Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows:

If Flawless changes its allocation basis to machine hours, what is the total product cost per case for Product C?

A) $161.50.

B) $169.30.

C) $182.44.

D) $183.36.

76) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

If Banc Corp. Trust uses a bankwide rate based on direct labor hours, what would be the indirect costs allocated to the Consumer Department?

A) $49,000.

B) $252,000.

C) $198,000.

D) $396,000.

77) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

If Banc Corp. Trust uses a bankwide rate based on direct labor hours, what would be the indirect costs allocated to the Commercial Department?

A) $144,000.

B) $138,000.

C) $180,000.

D) $148,500.

78) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

If Banc Corp. Trust uses a bankwide rate based on the number of loans processed, what would be the total costs for the Commercial Department?

A) $118,800.

B) $180,000.

C) $298,800.

D) $318,000.

79) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

If Banc Corp. Trust uses a bankwide rate based on the number of loans processed, what would be the total costs for the Consumer Department?

A) $280,000.

B) $256,800.

C) $576,000.

D) $557,200.

80) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

Banc Corp. Trust estimates that it costs $500 to analyze and close a commercial loan. This amount has been included in the $396,000 of indirect costs. How much of the $396,000 indirect costs should be allocated to the Commercial Department, if Banc Corp. Trust uses a bankwide rate based on the number of loans processed?

A) $396,000.

B) $246,000.

C) $223,800.

D) $216,000.

81) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

Banc Corp. Trust estimates that it costs $500 to analyze and close a commercial loan. This amount has been included in the $396,000 of indirect costs. How much of the $396,000 indirect costs should be allocated to the Commercial Department, if Banc Corp. Trust uses a bankwide rate based on the number of loans processed?

A) $246,000.

B) $280,000.

C) $172,200.

D) $116,000.

82) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

Banc Corp. Trust estimates that it costs $400 to analyze and close a commercial loan. What is the overhead rate if Banc Corp. Trust allocates the remaining indirect costs using direct labor hours?

A) $12.55 per hour.

B) $18.00 per hour.

C) $1,000 per loan.

D) $800 per loan.

83) Vanguard Corporation has provided the following data from its activity-based costing system:

The company makes 430 units of product O37W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit.

According to the activity-based costing system, the average cost of product O37W is closest to:

A) $94.11 per unit.

B) $89.72 per unit.

C) $65.18 per unit.

D) $92.49 per unit.

84) Pinnocle Corporation has provided the following data from its activity-based costing system:

The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit.

According to the activity-based costing system, the product margin for product S78N is:

A) $4,116.50.

B) $29,132.50.

C) $6,180.50.

D) $5,161.30.

85) Donnati Corporation has provided the following data from its activity-based costing system:

Data concerning one of the company's products, Product A43V, appear below:

According to the activity-based costing system, the product margin for Product A43V is:  

A) $2,891.90.

B) $5,931.30.

C) $11,917.50.

D) $2,236.90.

86) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

What is the total overhead allocated to Product M using the current system?

A) $113,600.

B) $130,000.

C) $146,400.

D) $160,000.

87) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

What is the total overhead per unit allocated to Product M using activity-based costing (ABC)?

A) $2.60.

B) $2.27.

C) $2.00.

D) $1.83.

88) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

What is the total overhead allocated to Product XY using the current system?

A) $113,600.

B) $100,000.

C) $146,400.

D) $160,000.

89) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

What is the total overhead per unit allocated to Product XY using activity-based costing (ABC)?

A) $2.60.

B) $2.27.

C) $2.00.

D) $1.83.

90) The Mega Construction Company recently switched to activity-based costing (ABC) from the department allocation method. The department method allocated overhead costs at a rate of $60 per machine hour. The cost accountant for the Finishing Department has gathered the following data:

During April, Mega purchased and used $100,000 of direct materials at $20 per ton. There were 8 production runs using a total of 12,000 machine hours in April. The manager of the Finishing Department needed 12 inspections. Actual overhead costs totaled $820,000 for the month.

How much overhead costs were applied to the Work-in-Process Inventory during April using activity-based costing?

A) $536,000.

B) $720,000.

C) $736,000.

D) $820,000.

91) The Mega Construction Company recently switched to activity-based costing (ABC) from the department allocation method. The department method allocated overhead costs at a rate of $60 per machine hour. The cost accountant for the Finishing Department has gathered the following data:

During April, Mega purchased and used $100,000 of direct materials at $20 per ton. There were 8 production runs using a total of 12,000 machine hours in April. The manager of the Finishing Department needed 12 inspections. Actual overhead costs totaled $820,000 for the month.

How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing?

A) $536,000.

B) $720,000.

C) $736,000.

D) $820,000.

92) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:

(Note: The General Factory costs are allocated on the basis of direct labor hours.)

The predetermined overhead rate under the traditional costing system is closest to:

A) $9.15.

B) $43.48.

C) $84.43.

D) $19.08.

93) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:

The overhead cost per unit of Deluxe Product under the traditional costing system is closest to:

A) $50.66.

B) $5.49.

C) $26.09.

D) $11.45.

94) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:

(Note: The General Factory costs are allocated on the basis of direct labor hours.)

The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:

A) $9.15.

B) $51.99.

C) $86.93.

D) $10.23.

95) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:

(Note: The General Factory costs are allocated on the basis of direct labor hours.)

The overhead cost per unit of Deluxe Product under the activity-based costing system is closest to:

A) $50.66.

B) $26.09.

C) $35.28.

D) $38.16.

96) Chang Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Plain and Fancy, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $985,440 and the company's estimated total direct labor-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

The manufacturing overhead that would be applied to a unit of Plain under the company's traditional costing system is closest to:

A) $8.21.

B) $3.20.

C) $11.73.

D) $19.94.

97) Chang Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Plain and Fancy, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $985,440 and the company's estimated total direct labor-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

The manufacturing overhead that would be applied to a unit of product Fancy under the activity-based costing system is closest to:

A) $71.57.

B) $41.06.

C) $8.11.

D) $30.51.

98) Russell Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Slow and Fast, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $1,526,700 and the company's estimated total direct labor-hours for the year is 30,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

The manufacturing overhead that would be applied to a unit of product Slow under the company's traditional costing system is closest to:

A) $18.38.

B) $28.56.

C) $10.18.

D) $4.80.

99) Russell Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Slow and Fast, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $1,526,700 and the company's estimated total direct labor-hours for the year is 30,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

The manufacturing overhead that would be applied to a unit of product Fast under the activity-based costing system is closest to:

A) $81.42.

B) $65.02.

C) $146.44.

D) $12.22.

100) Upton Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Long and Short, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $3,170,400 and the company's estimated total direct labor-hours for the year is 60,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

The unit product cost of Product Long under the company's traditional costing system is closest to:  

A) $54.20.

B) $73.27.

C) $64.25.

D) $31.00.

101) Upton Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Long and Short, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $3,170,400 and the company's estimated total direct labor-hours for the year is 60,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Unit overhead cost of Product Short under the activity-based costing system is closest to: 

A) $266.10.

B) $98.70.

C) $167.40.

D) $225.52.

102) Cassidy Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, VIP and Kommander, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $2,449,440 and the company's estimated total direct labor-hours for the year is 54,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

The unit product cost of Product VIP under the company's traditional costing system is closest to:

A) $53.30.

B) $70.32.

C) $43.10.

D) $78.57.

103) Cassidy Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, VIP and Kommander, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $2,449,440 and the company's estimated total direct labor-hours for the year is 54,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Unit overhead cost of Product Kommander under the activity-based costing system is closest to:

A) $204.82.

B) $68.70.

C) $182.80.

D) $114.10.

104) Miracle Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Two of the company's activity cost pools are General Service and Research Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows:

Estimated branch data for next year is as follows:

How much of the headquarters cost allocation should the Dallas office expect to receive next year?

A) $280,000.

B) $409,500.

C) $472,500.

D) $504,000.

105) A basic assumption of activity-based costing (ABC) is that:  

A) All manufacturing costs vary directly with units of production.

B) Products or services require the performance of activities and activities consume resources.

C) Only costs that respond to unit-level drivers are product costs.

D) Only variable costs are included in the activity cost pools.

106) In an activity-based costing (ABC) system, what should be used to assign departmental manufacturing overhead costs to products produced in varying lot sizes? 

A) A product's ability to bear cost allocations.

B) A single cause-and-effect relationship.

C) Multiple cause-and-effect relationships.

D) Relative net sales values of the products.

107) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based)

Under a traditional costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of Wall Mirrors would be:  

A) $1,000.

B) $500.

C) $2,000.

D) $5,000.

108) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based)

Under a traditional costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of Specialty Windows would be:  

A) $1,500.

B) $500.

C) $2,000.

D) $5,000.

109) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based)

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Wall Mirrors would be:  

A) $625.00.

B) $312.50.

C) $833.33.

D) $1,000.00.

110) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based)

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Specialty Windows would be:  

A) $1,875.00.

B) $937.50.

C) $312.50.

D) $1,500.00.

111) Falcon Company manufactures and sells two models of a computer tablets. The Basic Model has limited networking capability while the Explorer Model has significantly more features. The tablets are produced to order and the company has no inventories at the end of the year.

The cost accounting system at Falcon allocates overhead to products based on direct-labor cost. Overhead in year 1, which just ended, was $3,412,500. Other data for year 1 for the two products follow:

Required:

a. Compute product line profits for the Basic Model and the Explorer Model for year 1.

b. A study of overhead shows that without the Basic Model, overhead would fall to $2,750,000. Assume all other revenues and costs would remain the same for the Explorer Model in year 2. Compute product line profits for the Explorer Model in year 2 assuming the Basic Model was not produced or sold.

112) Brenda's Big Burgers, a small hamburger restaurant and take-out drive-through, has identified the following resources that it uses in its business:

Required:

Fill in the chart below indicating the cost hierarchy that each of these costs is related:

113) Conway Mountain Analysis offers agriculture and environmental assays. Its Soil Division performs testing on soil (S), as well as examines for the presence of pesticide residue (PR). Aggregated operating costs for the division are $1,050,000 based on a single overhead pool at a rate of $70 per testing hour. S testing uses 5,000 hours and PR uses 10,000 hours. The company is trying to determine whether a better costing structure can be established.  The controller has identified the following costs:

(1) Salaries and wages of laboratory techs are $600,000 based on 45% to S testing and 55% to PR testing.

(2) Equipment related overhead like maintenance and utilities amounts to $150,000, with a cost driver of number of test hours.

(3) Setup costs are $120,000 assigned based on 10,000 total setup hours. S testing requires 4,200 setup hours and PR testing requires 5,800 setup hours.

(4) Costs of test designs amount to $180,000, based on the time required to design the tests. S testing requires 3,250 hours and P testing requires 1,750 hours.

Required:

Classify (1) through (4) above as volume-, batch-, product-, or facility-related costs.  

114) Conform Foam Products produces different kinds of industrial packing materials, all in one manufacturing facility. They have identified four activities for their costing system:

Materials management—allocated by number of purchase orders

Chemical processing—allocated on metric tons

Molding—allocated on direct labor hours

Packaging—allocated by number of units produced 

The activity rates are as follows:

Engineering design shows that the order will require direct materials of $775, direct labor cost of $125, 5 purchase orders, 6 metric tons of chemical base, and 12 direct labor hours. The size of the order to produce is 5,000 units of product.

Required:

(1) Calculate the overhead cost of the order.

(2) Calculate total cost of the order.  

115) Blalock Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $10 per direct labor hour. Department A produces Products #101X and #102Y. Department A has $262,000 in traceable overhead. Department B manufactures Product #103Z. Department B has $128,000 in traceable overhead. The product costs (per unit) and other information are as follows:

Required:

a. If Blalock changes its allocation basis to machine hours, what is the total overhead cost per unit for Product 101X, 102Y, and 103Z?

b. If Blalock changes its overhead allocation to departmental rates, what is the overhead cost per unit for Product 101X, 102Y, and 103Z, assuming Departments A and B use direct labor hours and machine hours as their respective allocation bases?

116) Conway Mountain Analysis offers agriculture and environmental assays. Its Soil Division performs testing on soil (S), as well as examines for the presence of pesticide residue (PR). Aggregated operating costs for the division are $1,050,000 based on a single overhead pool at a rate of $70 per testing hour. S testing uses 5,000 hours and PR uses 10,000 hours. The company is trying to determine whether a better costing structure can be established. The controller has identified the following costs:

(1) Salaries and wages of laboratory techs are $600,000 (based on 45% for S and 55% for PR testing).

(2) Equipment related overhead like depreciation, maintenance, utilities, and insurance amounts to $150,000, with a cost driver of number of test hours.

(3) Setup costs are $120,000 assigned based on 10,000 total setup hours. S testing requires 4,200 setup hours and PR testing requires 5,800 setup hours.

(4) Costs of test designs amount to $180,000, based on the time required to design the tests. S testing requires 3,250 hours and P testing requires 1,750 hours.

Required:

(a) Calculate the cost per test hour for S and PR using an improved costing system.

(b) Explain briefly the reasons why these costs are different from the $70 per test-hour under the current costing system.  

117) Pretty Dog Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:

Assume a traditional costing system applies the overhead costs based on direct labor hours.

Required:

a. What is the total amount of overhead costs assigned to the standard model?

b. What is the total amount of overhead costs assigned to the deluxe model?

Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.

c. What is the total amount of overhead costs assigned to the standard model?

d. What is the total amount of overhead costs assigned to the deluxe model?

118) JennerMaid Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $20 per direct labor hour. Department 1 produces Product X and has $256,000 in traceable overhead. Department 2 manufactures Products Y and Z and has $524,000 in traceable overhead. The product costs (per unit) and other information are as follows:

Required:

a. If JennerMaid changes its allocation basis to machine hours, what is the overhead cost per unit for Product X, Y, and Z?

b. If JennerMaid changes its overhead allocation to departmental rates, what is the overhead cost per unit for Product X, Y, and Z, assuming Department 1 uses direct labor hours and Department 2 uses machine hours as their respective allocation bases? (round to four decimal places)  

119) Cameron Company has two major segments with the following information:

The business also has overhead costs as follows:

NOTE: overhead does not include salesperson salaries.

Required:

a. Determine the income of each segment if overhead costs are allocated based on sales revenue.

b. Determine the income of each segment if overhead costs are allocated using activity-based cost drivers.

120) The Sparkle Cleaning Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

One particular client, the Smith family, requested 32 jobs during the year that required a total of 192 hours of housecleaning. For this service, the client was charged $2,200.

Required:

a. Using an activity-based costing system, compute the client margin for the Smith family. (Round all calculations to the nearest whole cent.)

b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to clients on the basis of cleaning hours. Compute the margin for the Smith family. (Round all calculations to the nearest whole cent.)  

121) Cooke Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Below are current year data for the company's three activity cost pools:

Required:

Using the activity-based costing approach, determine the overhead cost per unit for each product.

122) Barnard Corporation has provided the following data from its activity-based costing accounting system:

Required:

Compute the activity rates for each of the three cost pools. Show your work.  

123) Data concerning three of Parkeman Corporation's activity cost pools appear below:

Required:

Compute the activity rates for each of the three cost pools. Show your work.

124) Safety Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Data concerning two products appear below:

Required:

How much overhead cost would be assigned to each of the products using the company's activity-based costing system?  

125) Work Horse Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Data concerning two products appear below:

Required:

a. How much overhead cost would be assigned to Product J using the company's activity-based costing system? Show your work.

b. How much overhead cost would be assigned to Product S using the company's activity-based costing system? Show your work!

126) Maxim Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Last year, Product P involved 33 batches, 1 customer order, and 368 assembly hours.

Required:

How much overhead cost would be assigned to Product P using the company's activity-based costing system? Show your work.

127) Sarno Corporation has an activity-based costing system with three activity cost pools-Processing, Batch Setup, and Other. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the company's two products appear below:

Required:

a. Calculate activity rates for each activity cost pool using activity-based costing.

b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

c. Determine the product margins for each product using activity-based costing.

128) Market Corporation has an activity-based costing system with three activity cost pools-Processing, Batch Setup, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Data concerning the company's costs and activity-based costing system appear below:

Required:

Assign overhead costs to activity cost pools using activity-based costing.

129) Vargus Corporation has an activity-based costing system with three activity cost pools-Processing, Batch Setup, and Other. The company's overhead costs consist of equipment depreciation and indirect labor and are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Equipment depreciation totals $72,000 and indirect labor totals $8,000. Data concerning the distribution of resource consumption across activity cost pools appear below:

Required:

Assign overhead costs to activity cost pools using activity-based costing.

130) Yang Corporation has an activity-based costing system with three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the company's two products and the company's costs appear below:

Required:

a. Calculate activity rates for each activity cost pool using activity-based costing.

b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

c. Determine the product margins for each product using activity-based costing.

131) Air Dream Products has contracted with you to analyze and update its costing and pricing practices. The company's product line has changed over time from general air conditioning units to customizable mini-split units. Although some large orders are received, the majority of business is now generated from products designed and produced in small lots in order to meet specific detailed environmental and technical standards. 

The company has experienced increased overhead growth, including costs in customer service, production scheduling, inventory control and laboratory work. Overhead has doubled since the shift in product lines and management believes that the larger orders are being penalized, while smaller orders are receiving favorable cost and selling price treatment.

Required:

1. Why would the shift in product lines have caused such major increases in overhead?

2. Is it possible that management is correct in its belief about the costs of the large and small orders and, if so, why?

3. Write a memo to management suggesting how it might change the cost accounting system to reflect the changes in the business.

132) How can activity-based systems help managers in a global marketplace?

133) Brenda's Big Burgers, a small hamburger restaurant and take-out drive-through, has identified the following resources that it uses in its business:

Required:

Suggest a proper cost driver for each of the following items:

134) Required:

For each of the following costs in manufacturing companies, identify a cost driver and explain why it is appropriate.

135) Why is a plantwide allocation method often considered to be a single-stage allocation approach? Explain.  

136) Describe the four steps involved in activity-based costing.

137) Describe four classifications of cost drivers.

138) Last year, Jasmine Taylor opened a gift store in a busy shopping center. She spent a lot on advertising and attracted many customers into the store, but very few customers made purchases and sales were declining. Jasmine paid attention to questions and requests made by customers and determined that they often requested items that were within the scope of her business but that she did not carry. When she offered to order items for her customers, delivery was usually too late and, again, sales were lost. What measures should Jasmine take to improve her business?

139) "Activity-based costing is just a more precise form of product costing and is only usable in a production setting." Do you agree or disagree? Explain why. 

140) Explain how activity-based costing provides a more detailed measure of costs than do plantwide or department allocation methods.

141) In recent years, why has labor become such a small part of product costs and how can its use in overhead allocation perpetrate errors in decision-making?

142) Lamar Company manufactures two products, Product K9 and Product L43. Product L43 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product K9. Product L43 is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product K9. Product L43 is produced on an automated production line.

Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product L43 and 40,000 units of Product K9 during the current year.

Unit costs for materials and labor are:

Required:

a. Compute the predetermined overhead rate under the current method and determine the unit product cost of each product for the current year.

b. The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:

Using the data above, determine the unit product cost of each product for the current year.

c. What items of overhead cost make Product L43 so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product L43?

143) Sylvia's Housecleaning Service provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

One particular client, the Layton family, requested 49 jobs during the year that required a total of 245 hours of housecleaning. For this service, the client was charged $2,500.

Required:

a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round all calculations to the nearest whole cent.

b. Using the activity-based costing system, compute the customer margin for the Layton family. Round all calculations to the nearest whole cent.

c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Layton family. Round all calculations to the nearest whole cent.  

144) Harrison Industries has an activity-based costing system with three activity cost pools-Processing, Batch Setup, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products appear below:

Required:

a. Assign overhead costs to activity cost pools using activity-based costing.

b. Calculate activity rates for each activity cost pool using activity-based costing.

c. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

d. Determine the product margins for each product using activity-based costing.

145) Excel Manufacturing has an activity-based costing system with three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs have already been allocated to the cost pools and total $28,000 for the Machining cost pool, $13,800 for the Batch Setup cost pool, and $27,200 for the Other cost pool.

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the company's two products and the company's costs appear below:

Required:

a. Calculate activity rates for each activity cost pool using activity-based costing.

b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

c. Determine the product margins for each product using activity-based costing.

146) Sebastian Corporation's activity-based costing system has three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources.

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products.

Additional data concerning the company's products appears below:

Required:

a. Assign overhead costs to activity cost pools using activity-based costing.

b. Calculate activity rates for each activity cost pool using activity-based costing.

c. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

d. Determine the product margins for each product using activity-based costing.

147) Farris Corporation's activity-based costing system has three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs have already been allocated to these cost pools as follows:

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. The following table shows the machine-hours and number of batches associated with each of the company's two products:

Additional data concerning the company's products appears below:

Required:

a. Calculate activity rates for each activity cost pool using activity-based costing.

b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

c. Determine the product margins for each product using activity-based costing.

148) Swannee Company manufactures two products, Product A and Product B. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current period's operations appear below:

Required:

a. Compute the predetermined overhead rate under the current method and determine the unit product cost of each product for the current year.

b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

Determine the unit product cost of each product for the current period using the activity-based costing approach.

149) Merkel Industries has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Large and Small, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $1,793,790 and the company's estimated total direct labor-hours for the year is 57,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Required:

a. Determine the unit product cost of each of the company's two products under the traditional costing system.

b. Determine the unit product cost of each of the company's two products under activity-based costing system.

150) JamMaster Audio Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Boom and Wow, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $1,809,600 and the company's estimated total direct labor-hours for the year is 26,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Required:

a. Determine the unit product cost of each of the company's two products under the traditional costing system.

b. Determine the unit product cost of each of the company's two products under activity-based costing system.

151) Smithville Industries has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Manual and Power, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $2,675,460 and the company's estimated total direct labor-hours for the year is 51,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Required:

a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.

b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

152) Matchbox Manufacturing has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Utility and Super, about which it has provided the following data: