Accounting ACCT 2620 Lecture 4: Chapter Five Cost Allocation

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oliveleopard31

7 Feb 2017

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All manufacturing overhead is applied based on a single, volume based cost driver. Some resources will not be consumed in proportion to the activity of the cost driver. Activity based costing (abc): a method of assigning overhead costs based on the amount of overhead each product consumes or causes. Use different allocation basis (cost-driver) for each cost pool. Unit level: done for each level of production. Identify cost drivers for each cost pool. Allocated oh from cost pools to products based on their consumption of activity. Identification of products that were overcosted or undercosted by traditional methods. Cross-subsidization: overcosted products are subsidizing the undercosted products undercosted products. Requires a significant amount of time and cost of implement. Some oh allocation is still arbitrary: cost driver: a characteristic of an event or activity that results in the incurrence of a cost.

Related Questions

PA4-1 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3, 4-4, 4-6]

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $160,188 in overhead.

The company has identified the following information about its overhead activity cost pools and the two product lines:

Activity Cost Pools	Cost Driver	Cost Assigned to Pool			Quantity/Amount Consumed by Basic	Quantity/Amount Consumed by Luxury
Materials handling	Number of moves		$	4,108	18 moves	61 moves
Quality control	Number of inspections		$	31,280	240 inspections	100 inspections
Machine maintenance	Number of machine hours		$	124,800	5,400 machine hours	4,200 machine hours

Required:
1. Suppose Hazelnut used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)


Basic Model		Overhead Assigned
Luxury Model		Overhead Assigned

2. Calculate the activity rates for each cost pool in Hazelnutâs ABC system.

3. Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system.

4. Determine the amount of overhead Hazelnut will assign to the luxury line if it uses an ABC system.

apricothippopotamus60

Murri Corporation has an activity-based costing system withthree activity cost pools-Processing, Setting Up, and Other. Thecompany's overhead costs, which consist of factory utilities andindirect labor, are allocated to the cost pools in proportion tothe activity cost pools' consumption of resources. Costs in theProcessing cost pool are assigned to products based onmachine-hours (MHs) and costs in the Setting Up cost pool areassigned to products based on the number of batches. Costs in theOther cost pool are not assigned to products. Data concerning thetwo products and the company's costs and activity-based costingsystem appear below:


Factory utilities (total)	$	36,500
Indirect labor (total)	$	11,000

Distribution of Resources Consumption Across ActivityCost Pools
	Processing	Settingup	Other
Factoryutilities	0.30	0.20	0.50
Indirect labor	0.50	0.30	0.20

	MHs	Batches
Product X7	3,600	1,500
Product L4	7,600	900

Total	11,200	2,400

	Product X7		Product L4
Sales (total)	$	70,900	$	100,100
Direct materials(total)	$	25,400	$	37,500
Direct labor(total)	$	32,400	$	44,000

Required:
a.	Assign overhead costs to activity cost pools usingactivity-based costing. (Omit the "$" sign in yourresponse.)

	Activity Cost Pools
	Processing		Settingup		Other		Total
Factoryutilities		$		$		$		$
Indirect labor

Total		$		$		$		$

b.	Calculate activity rates for each activity cost pool usingactivity-based costing. (Round youranswers to 2 decimal places. Omitthe "$" sign in your response.)

	ActivityRate
Processing	$	per MH
Setting up	$	per batch

c.	Determine the amount of overhead cost that would be assigned toeach product using activity-based costing. (Omit the "$"sign in your response.)

	Product X7	Product L4
Processing	$	$
Setting up

Total	$	$

d.	Determine the product margins for each product usingactivity-based costing. (Omit the "$" sign in yourresponse.)

	Product Margin
Product X7	$
Product L4	$

whitemacaw500


Factory utilities (total)	$	34,200
Indirect labor (total)	$	12,800

Distribution of Resources Consumption Across ActivityCost Pools
	Processing	Settingup	Other
Factoryutilities	0.40	0.30	0.30
Indirect labor	0.20	0.10	0.70

	MHs	Batches
Product X7	3,700	1,300
Product L4	7,700	700

Total	11,400	2,000

	Product X7		Product L4
Sales (total)	$	78,100	$	101,700
Direct materials(total)	$	22,800	$	38,700
Direct labor(total)	$	35,200	$	41,300

Required:
a.	Assign overhead costs to activity cost pools usingactivity-based costing. (Omit the "$" sign in yourresponse.)

	Activity Cost Pools
	Processing		Settingup		Other		Total
Factoryutilities		$		$		$		$
Indirect labor

Total		$		$		$		$

b.	Calculate activity rates for each activity cost pool usingactivity-based costing. (Round youranswers to 2 decimal places. Omitthe "$" sign in your response.)

	ActivityRate
Processing	$	per MH
Setting up	$	per batch

c.	Determine the amount of overhead cost that would be assigned toeach product using activity-based costing. (Omit the "$"sign in your response.)

	Product X7	Product L4
Processing	$	$
Setting up

Total	$	$

d.	Determine the product margins for each product usingactivity-based costing. (Omit the "$" sign in yourresponse.)

	Product Margin
Product X7	$
Product L4	$

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Accounting ACCT 2620 Lecture 4: Chapter Five Cost Allocation

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