Shalom Company uses traditional costing method in allocating overhead. When you presented the idea of activity-based costing, the manager became interested and showed you details of its current costing method: Overhead using Products Traditional Allocation Peace Piss Piece 460,000 540,000 920,000 Cost drivers 40,000 30,000 90,000 1,920,000 The manager wants a report that shows comparison of the two costing methods. You began your analysis and applied activity-based costing. What product line/s had an overstated overhead cost?

Shalom Company uses traditional costing method in allocating overhead. When you presented the idea of activity-based costing, the manager became interested and showed you details of its current costing method: Overhead using Products Traditional Allocation Peace Piss Piece 460,000 540,000 920,000 Cost drivers 40,000 30,000 90,000 1,920,000 The manager wants a report that shows comparison of the two costing methods. You began your analysis and applied activity-based costing. What product line/s had an overstated overhead cost?

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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3 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea, and it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities follow: 5 ints 00:40:40 Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) Activity Cost Pool Purchase orders Rework requests Product testing Machine related Estimated Overhead Cost $ 170,000 374,400 350,000 1,150,000 $2,044,400 Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools. Activity Rate per order per request per test per MH Deluxe 1,000 600 5,000 18,000 Activity Regular 1,500 1,200 12,500 28,000 Total 2,500 1,800 17,500 46,000 3. Assume that actual activity is as expected for the year. Using activity-based costing, do the following: a. Determine the…
LockTite Company produces two products, Pretty Safe (PS) and Virtually Impenetrable (VI). The following two tables give pertinent information about these products. Solve, a. What is the cost per unit of Pretty Safe if LockTite uses traditional overhead allocation based on number of units produced? b. What is the cost per unit of Pretty Safe if LockTite uses activity-based costing to allocate overhead?
Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,800 units of T500 at a price of $39 per unit. The company's traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below: Direct materials Direct labor Manufacturing overhead Cost of goods sold $ 1,767,600 1,212,922 554,678 610,000 $ (55,322) 8300 T500 $ 400,300 $ 162,400 $ 120,100. $ 42,400 Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other…
Shubelik Company is changing to an activity-based costing method. They have determined that they will use three cost pools: setups, inspections, and assembly. Which of the following would not be used as the activity base for any of these three activities? a.number of inspections b.number of setups c.number of direct labor hours d.number of units to be produced
Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools--Processing, Supervising, and Other. The costs in those activity cost pools appear below: Processing Supervising Other Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the other activity cost pool are not assigned to products. Activity data appear below: Product MO Product M5 Total $ 3,800 $ 23,800 $ 10,400 MHs (Processing) 9,700 300 10,000 Sales (total) Direct materials (total) Direct labor (total) Batches (Supervising) 500 500 1,000 Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins. Product Mº $ 74,100 $ 28,500 $ 27,800 Product M5 $ 89,900 $ 31,400 $ 41,700
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Oriole Stairs Co. designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, hand rails) permit installation of stairways of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2025 are as follows. Overhead Cost Pools Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities Total budgeted overhead costs Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines For the last 4 years, Oriole Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2025, 100,000 machine hours are budgeted. Activity Cost Pools Inspecting Inventory control (raw materials and finished goods) Utilities Jeremy Nolan, owner-manager of Oriole Stairs Co., recently directed his accountant, Bill Seagren, to…
How does activity-based costing differ from traditional costing systems? Can you please create a brief outline by identifying 1 or 2 examples of a restaurant using an ABC system at a customer level, group level, service level, and facility level? PLEASE BE ORIGINAL IN YOUR ANSWER.
Activity-based costing can be beneficial in allocating selling and administrative expenses to various products for managerial decision making. Which of the following would be the best allocation base for help desk costs? a. number of sales employees Ob. number of products sold c. number of calls Od. square footage of the help desk office
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? Multiple Choice Direct costs are allocated to the production departments based on a predetermined overhead rate. The costs are assigned to departments, and then to the products based upon their use of activity resources. The costs are assigned to activities, and then to the products based upon their use of the activities. Indirect costs are assigned to activities, and then to the products based upon the direct cost resources used by the activities.