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Exam 4: Activity-Based Costing and Analysis

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Question 91

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K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 80,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

A) $0.02 per direct labor hour.
B) $46.25 per direct labor hour.
C) $36.25 per direct labor hour.
D) $10 per direct labor hour.
E) $0.10 per direct labor hour.

F) A) and C)
G) A) and B)

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Question 92

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Unit-level costs vary with the number of units produced.

A) True
B) False

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Question 93

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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. If 50,000 direct labor hours are planned for this next year, then the plantwide overhead rate is $.025 per direct labor hour.

The departmental overhead rate method 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.

The following data relates to Spurrier Company's estimated amounts for next year. What is the company's plantwide overhead rate if direct labor hours are the allocation base? (Round your answer to two decimal places.)

The cost to heat a manufacturing facility can be directly linked to the number of units produced.

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: How much overhead will be assigned to Product B using activity-based costing?

Management's pricing and cost decisions for a product are influenced by that product's cost assignments.

The departmental overhead rate method traces costs to each department and then determines an allocation base for each department.

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 dissimilar proportions.

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

[The following information applies to the questions displayed below.] Tarnish Industries produces miniature models of farm equipment. These collectibles are in great demand. It takes two operations, molding and finishing, to complete the miniatures. Next year's expected activities are shown in the following table: -Tarnish Industries uses departmental overhead rates and is planning on a $1.80 per direct labor hour overhead rate for the finishing department. Compute the estimated manufacturing overhead cost for the finishing department given the information shown in the table.

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

The departmental overhead rate method allows each department to have its own overhead rate and its own ________.

Which of the following statements is true with regard to activity-based costing rates?

The ________ stage of ABC is to compute an activity rate for each cost pool and then use this rate to allocate overhead costs to products.

Which of the following is true?

A quality-inspection cost is an example of unit-level costs.

Overhead costs cannot be ________ in the same way that direct materials and direct labor can.

Put the following ABC implementation steps in order ________. A Use the activity overhead rates to assign overhead costs to cost objects. B Compute the allocation rates. C Trace overhead costs to cost pools. D Identify the activities and the overhead costs they cause.