plementing an activity-based costing system activity Delivery, pools: Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization- sustaining activity. The following costs will be assigned using the activity-based costing system: Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses Total cost $ 960,000 390,000 270,000 300,000 160,000 460,000 $ 2,540,000 The distribution of resource consumption across the activity cost pools is as follows: Pickup and Customer Travel Delivery Service Other Totals Driver and guard wages 50% 35% 10% 5% 100% Vehicle operating expense 70% 5% 0% 25% 100% Vehicle depreciation 60% 15% 0% 25% 100% Customer representative salaries and expenses 0% 0% 90% 10% 100% Office expenses 0% 20% 30% 50% 100% Administrative expenses 0% 5% 60% 35% 100% Required

plementing an activity-based costing system activity Delivery, pools: Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization- sustaining activity. The following costs will be assigned using the activity-based costing system: Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses Total cost $ 960,000 390,000 270,000 300,000 160,000 460,000 $ 2,540,000 The distribution of resource consumption across the activity cost pools is as follows: Pickup and Customer Travel Delivery Service Other Totals Driver and guard wages 50% 35% 10% 5% 100% Vehicle operating expense 70% 5% 0% 25% 100% Vehicle depreciation 60% 15% 0% 25% 100% Customer representative salaries and expenses 0% 0% 90% 10% 100% Office expenses 0% 20% 30% 50% 100% Administrative expenses 0% 5% 60% 35% 100% Required

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The information provided by an activity-based costing system can help with what type of decisions by an automobile manufacturer? O A. Cost cutting OB. Evaluating manager performance OC. Pricing OD. All of the listed choices are correct
Contrast activity-based costing (ABC) with activity-based management (ABM). Question content area bottom Part 1 A. Activity-based management is using a traditional costing system to improve the operations of an organization, while activity-based costing provides information regarding customer costs to improve the financial position of an organization. B. Activity-based cost information is using activity-based management to improve the operations of an organization. Managers use ABM information for decision making, planning, and control purposes. Appropriate activity-based management is vital for each of these purposes. C. Activity-based management is using activity-based cost information to improve the operations of an organization. Managers use ABC information for decision making, planning, and control purposes. Cost information is vital for each of these purposes. D. None of the above.
Identifying Cost Drivers. Palisades Company identified the activities listed in the following as being most important (step 1 and step 2 of activity-based costing), and it formed cost pools for each activity: 1. Purchasing raw materials 2. Inspecting raw materials 3. Storing raw materials 4. Maintaining production equipment 5. Setting up machines to produce batches of product 6. Testing finished products Required: Perform step 3 of the activity-based costing process by identifying a possible cost driver for each activity.
MTI makes three types of lawn tractors: M3100, M4100, and M6100. In the past, it allocated overhead to products using machine-hours. Last year, the company produced 8,000 units of M3100, 17,500 units of M4100, and 10,000 units of M6100 and had the following revenues and costs: Sales revenue Direct costs Direct materials Direct labor Variable overhead Setting up machines Processing sales orders Warehousing Operating machines Shipping Contribution margin Plant administration Gross profit MTI Activity Setting up machines Processing sales orders Warehousing Operating machines. Income Statement M3100 $ 9,400,000 3,300,000 610,000 M4100 $ 15,700,000 Cost Driver Production runs 4, 800, 800 860, 000 M6100 $ 14,200,000 Sales orders received Units held in inventory Machine-hours 3,100,000 1,730, 000 MTI's controller has heard about activity-based costing and puts together an employee team to recommend cost allocation bases. The employee team recommends the following. M3100 9 170 90 6, 200 Total…
A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table: Budgeted Activity Activity Cost PoolBudgeted Cost Product AProduct BProduct Activity 1 7,500 10,500 21,500 Activity 2 8,500 16,500 9,500 Activity 3 4,000 2,500 3,125 How much overhead will be assigned to Product B using activity-based costing? 85,000 60,000 112,000
Companies can choose from different costing methods: process/product costing and activity-based costing. Think about a company, What are some ABC cost drivers the company might use?
Cost Classification Match each cost to the appropriate cost behavior pattern shown in graphs (a) through (l). Any graph can fit two or more patterns. The cost of lumber used to manufacture wooden kitchen tables. The cost of order fillers in a warehouse. When demand increases significantly, the number of order fillers is increased, and when demand falls off significantly, the number is decreased. The salary of the plant’s quality control inspector, who inspects each batch of products. The cost of water and sewer service to the manufacturing plant. The local municipality charges a fixed rate per gallon for usage up to 10,000 gallons and a higher charge per gallon for usage above that point. The cost of an internet connection of $23 per month. The cost of an internet connection of $10 per month plus $2 per hour of usage above 10 hours. The cost to make copies of a given document at a printing shop, where the per-copy charge is reduced for customers who make more than…
implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system Driver and guard wages Vehicle operating expense Vehicle depreciation. Customer representative salaries and i expenses office expenses Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses office expenses Administrative expenses Administrative expenses Total cost The distribution of resource consumption across the activity cost pools is as follows. Pickup and Delivery 35% 5% $1,000,000 510,000 390,000 Driver and guard wages Vehicle…
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Activity-based costing can be used to allocate period costs to various products that the company sells. False True
Checklist of evidence required Finally, you should reflect on the results of your activity-based costing exercise, by: a) explaining how costs are categorised. b) identifying those cost areas that have the greatest impact on the profitability of the product that you have investigated. c) evaluating the reasons for producing an activity-based cost model. d) explain how ABC model used to improve profitability. A research and problem solving project to explore the costs associated with engineering activities and to complete an activity-based cost model for a product.
Companies can choose from different costing methods: process/product costing and activity-based costing. Think about a company, what are the differences between the two costing methods, and how do these apply to your company?