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Exam 4: Activity Based Costing and Analysis

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Question 31

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Allocating overhead involves the following four steps: 1) Assign overhead costs to departmental cost pools. 2) Select an allocation base for each department. 3) Compute overhead allocation rates for each department and 4) Use departmental overhead rates to assign overhead costs to products.

A) True
B) False

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Question 32

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A company uses activity-based costing to determine the costs of its three products: A, B and C. The activity rates and activity levels for each of the company's three activity cost pools are shown in the following table: Compute the company's budgeted overhead cost for each of the three products under activity-based costing.

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Question 33

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The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1) the overhead cost is correlated with the allocation base; and (2) all products use overhead cost in similar proportions.

Which of the following is a disadvantage of the departmental overhead rate method?

The plantwide overhead rate is total plantwide allocation base divided by total budgeted plantwide overhead cost.

A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's overhead rates for each of the three activities and (b) the amount of overhead allocated to Product A.

The more activities tracked by activity-based costing, the more accurately overhead costs are assigned.

Product costs consist of direct labor, direct materials, and overhead (indirect) costs.

Compute Aztec's departmental overhead rate for the baking department based on machine hours.

Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for indirect labor and $400,000 for factory utilities. The company uses direct labor hours as its overhead allocation base, and plans to use 50,000 direct labor hours for this next year. If a product uses 5 direct labor hours, then it will be assigned $200 in overhead costs.

A company produces paint that goes through two operations, operation A and operation B, before it is complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for Department B based on machine hours is $4 per machine hour.

Which of the following statements is true with regard to the plantwide overhead rate method?

When products differ in batch size and complexity, they usually consume different amounts of ________.

Activities are the cost objects of the second stage of ABC.

The premise of ABC is that it takes activities to make products and provide services and these activities drive costs.

Which of the following statements is true with regard to the departmental overhead rate method?

A company's total expected overhead costs and related overhead data are shown in the following table: a. Compute estimated manufacturing overhead costs for Department A. b. Compute estimated manufacturing overhead costs for Department B. c. Compute the departmental overhead rate based on direct labor hours for Department A. d. Compute the departmental overhead rate based on machine hours for Department B.

Fischer Company identified the following activities, costs, and activity drivers: a. Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals). b. Compute separate rates for each of the four activities using the activity-based costing.

The ________ overhead rate method uses a single rate for allocating overhead costs to products.

A company estimates that overhead costs for the next year will be $8,320,000 for indirect labor and $155,500 for factory utilities. The company uses machine hours as its overhead allocation base. If 400,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)