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Pete's PCs, Inc. budgeted manufacturing overhead costs for theyear are:

Type of Cost

Cost Pools
Electric Power

$2,500,000
Inspection

$1,500,000
Budgeted overhead costs

$4,000,000


Under a traditional cost system, the company estimated the budgetedcapacity for machine hours to be 40,000 hours. Bill is consideringchanging to an activity-based cost system. Thus, the followingestimates were provided:

Type of Cost

Activity-based cost drivers
Electric power

50,000 kilowatt hours
Inspection

10,000 inspections


The following information was provided concerning the production of1,000 units of model #1040:

Direct materials cost

$50,000
Direct labor costs

$75,000
Machine hours

10,000
Direct labor hours

5,000
Electric power - kilowatt hours

20,000
No. of inspections

1,000


REQUIRED:

a. What are the manufacturing costs per PC under the traditionalcost system that applies manufacturing overhead costs based onmachine hours?
b. What are the manufacturing costs per PC if the activity-basedcosting system is implemented?
c. Explain the difference between activity-based costing andconventional costing methods, and how ABC might enhance thefinancial reporting of Pete's PCs, Inc.

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Nelly Stracke
Nelly StrackeLv2
28 Sep 2019
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Related questions

Foster Company has determined a raw materials cost of $0.10 perpound; their loaded labor rate is $15 per hour. The Controller forFoster Company has established the following overhead cost poolsand cost drivers:

Overhead Cost Pool

Budgeted

Overhead Cost

Cost Driver

Machine setups

$150,000

Number of setups

Material handling

52,500

Pounds of raw material

Quality control inspection

37,500

Number of inspections

Other overhead costs

90,000

Machine hours

Total

$330,000

Overhead Cost Pool

Budgeted Level

for Cost Driver

Compute ABC Overhead Rate

Machine setups

100 setups

Material handling

50,000 pounds

Quality control

1,000 inspections

Other overhead

15,000 machine hours

Order no. 610 has been received for 1,000 units of product. Ithas the following production requirements:

Direct Labor

20 hours

Machine setups

5 setups

Raw material

10,000 pounds

Inspections

12 inspections

Machine hours

600 machine hours

Required:

A. Compute the activity-based costing (ABC) rates for each ofthe four cost drivers; write answers in the table above. (4points)

B. Compute the total overhead that should be assigned to orderno. 610 by using activity-based costing. (4 points)

C. Suppose that Foster were to use a single, predeterminedoverhead rate based on machine hours. Compute the rate per hour andthe total overhead assigned to order no. 610. (4 points)

D. Compute the total product cost of one unitfor order no. 610, using activity-based costing rates. (4points

Winter Manufacturing has four categories of overhead: Maintenance £275,000; Materials handling 125,000; Setups 30,000 and Inspection 105,000. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent. Estimates for the proposed job are as follows: Direct materials £15,000; Direct labour (8,000 hours) £12,000; Number of material moves 100; Number of inspections 120; Number of setups 24; Number of machine hours 4,000. The plant manager has heard of a new way of applying overhead that uses cost pools and activity cost drivers. Expected activity for the four activity drivers that would be used are: Machine hours 60,000; Material moves 20,000; Setups 3,000; Quality inspections 26,750 and Direct labor hours 50,000. If Winter Manufacturing uses Quality inspections as its only activity driver, the total cost of the proposed job is

2. Sphere Company produces two products, Alpha and Beta. Alpha is ahigh-volume item totaling 20,000 units annually. Beta is alow-volume item totaling only 6,000 units per year. Alpha requiresone hour of direct labor for completion, while each unit of Betarequires 2 hours. Therefore, total annual direct labor hours are32,000 (20,000 + 12,000). Expected annual manufacturing overheadcosts are $640,000. Sphere uses a traditional costing system andassigns overhead based on direct labor hours. Each unit of Betawould be assigned overhead of
A) $20.00.
B) $24.61.
C) $40.00.
D) need more information to compute.
3. Racquet King Corporation manufactures titanium and aluminumtennis racquets. Racquet King's total overhead costs consist ofassembly costs and inspection costs. The following information isavailable: Cost Titanium Aluminum Total Cost
Assembly 500 mach. hours 500 mach. hours $30,000
Inspections 350 150 $50,000
2,100 labor hours 1,900 labor hours


Racquet King is considering switching from one overhead rate basedon labor hours to activity-based costing.
Total overhead costs assigned to titanium racquets, using a singleoverhead rate, are
A) $40,000.
B) $42,000.
C) $50,000.
D) $56,000.
4. Racquet King Corporation manufactures titanium and aluminumtennis racquets. Racquet King's total overhead costs consist ofassembly costs and inspection costs. The following information isavailable: Cost Titanium Aluminum Total Cost
Assembly 500 mach. hours 500 mach. hours $30,000
Inspections 350 150 $50,000
2,100 labor hours 1,900 labor hours


Racquet King is considering switching from one overhead rate basedon labor hours to activity-based costing.
Using activity-based costing, how much assembly cost is assigned totitanium racquets?
A) $10,500.
B) $15,000.
C) $15,750.
D) $21,000.
5. Racquet King Corporation manufactures titanium and aluminumtennis racquets. Racquet King's total overhead costs consist ofassembly costs and inspection costs. The following information isavailable: Cost Titanium Aluminum Total Cost
Assembly 500 mach. hours 500 mach. hours $30,000
Inspections 350 150 $50,000
2,100 labor hours 1,900 labor hours


Racquet King is considering switching from one overhead rate basedon labor hours to activity-based costing.
Using activity-based costing, how much inspections cost is assignedto titanium racquets?
A) $15,000.
B) $23,750.
C) $25,000.
D) $35,000.
6. Minnie Moore Corporation has the following overhead costs andcost drivers. Direct labor hours are estimated at 100,000 for theyear.
Activity Cost Pool Cost Driver Est. Overhead Cost DriverActivity
Ordering and Receiving Orders $ 120,000 500 orders
Machine Setup Setups 297,000 450 setups
Machining Machine hours 1,500,000 125,000 MH
Assembly Parts 1,200,000 1,000,000 parts
Inspection Inspections 300,000 500 inspections


If overhead is applied using traditional costing based on directlabor hours, the overhead application rate is
A) $9.60.
B) $12.00.
C) $15.00.
D) $34.17.
7. Minnie Moore Corporation has the following overhead costs andcost drivers. Direct labor hours are estimated at 100,000 for theyear.
Activity Cost Pool Cost Driver Est. Overhead Cost DriverActivity
Ordering and Receiving Orders $ 120,000 500 orders
Machine Setup Setups 297,000 450 setups
Machining Machine hours 1,500,000 125,000 MH
Assembly Parts 1,200,000 1,000,000 parts
Inspection Inspections 300,000 500 inspections


If overhead is applied using activity-based costing, the overheadapplication rate for ordering and receiving is
A) $1.20 per direct labor hour.
B) $240 per order.
C) $0.12 per part.
D) $6,834 per order.
8. An example of a cost which would not be assigned to an overheadcost pool is
A) salaries.
B) freight-out.
C) depreciation.
D) supplies.
9. One of Melman Company's activity cost pools is inspecting, withestimated overhead of $100,000. Melman produces throw rugs (700inspections) and area rugs (1,300 inspections). How much of theinspecting cost pool should be assigned to throw rugs?
A) $35,000.
B) $50,000.
C) $53,846.
D) $100,000.
10. For its inspecting cost pool, Sosa Company expected overheadcost of $200,000 and 4,000 inspections. The actual overhead costfor that cost pool was $240,000 for 5,000 inspections. Theactivity-based overhead rate used to assign the costs of theinspecting cost pool to products is
A) $40 per inspection.
B) $48 per inspection.
C) $50 per inspection.
D) $60 per inspection.
11. Buren Company manufactures two products, Regular and Supreme.Buren's overhead costs consist of machining, $2,000,000; andassembling, $1,000,000. Information on the two products is: RegularSupreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000

Overhead applied to Regular using traditional costing using directlabor hours is
A) $860,000.
B) $1,200,000.
C) $1,800,000.
D) $2,140,000.
12. Buren Company manufactures two products, Regular and Supreme.Buren's overhead costs consist of machining, $2,000,000; andassembling, $1,000,000. Information on the two products is: RegularSupreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000

Overhead applied to Supreme using traditional costing using directlabor hours is
A) $860,000.
B) $1,200,000.
C) $1,800,000.
D) $2,140,000.
13. Buren Company manufactures two products, Regular and Supreme.Buren's overhead costs consist of machining, $2,000,000; andassembling, $1,000,000. Information on the two products is: RegularSupreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000

Overhead applied to Regular using activity-based costing is
A) $860,000.
B) $1,200,000.
C) $1,800,000.
D) $2,140,000.
14. Buren Company manufactures two products, Regular and Supreme.Buren's overhead costs consist of machining, $2,000,000; andassembling, $1,000,000. Information on the two products is: RegularSupreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000

Overhead applied to Supreme using activity-based costing is
A) $860,000.
B) $1,200,000.
C) $1,800,000.
D) $2,140,000.
15. Cooledge Co. produces 3 products: P1, Q2, and R3. P1 requires400 purchase orders, Q2 requires 600 purchase orders, and R3requires 1,000 purchase orders. Cooledge has identified an orderingand receiving activity cost pool with allocated overhead of$120,000 for which the cost driver is purchase orders. Direct laborhours used on each product are 50,000 for P1, 40,000 for Q2, and110,000 for R3. How much ordering and receiving overhead isassigned to each product?P1 Q2 R3


A) $40,000 $40,000 $40,000



B) $30,000 24,000 $66,000



C) 24,000 $36,000 $60,000



D) $27,000 $30,000 $63,000


16. NulyMade Inc. computed an overhead rate for machining costs($1,000,000) of $10 per machine hour. Machining costs are driven bymachine hours. If computed based on direct labor hours, theoverhead rate for machining costs would be $20 per direct laborhour. The company produces two products, Grit and Grind. Gritrequires 60,000 machine hours and 20,000 direct labor hours, whileGrind requires 40,000 machine hours and 30,000 direct labor hours.Using activity-based costing, machining costs assigned to eachproduct isGrit Grind


A) $400,000 $600,000
B) $500,000 $500,000
C) $533,333 $466,667
D) $600,000 $400,000
17. Lasse Inc. manufactures 2 products, hammers and screwdrivers.The company has estimated its overhead in the assembling departmentto be $165,000. The company produces 300,000 hammers and 600,000screwdrivers each year. Each hammer uses 2 parts, and eachscrewdriver uses 3 parts. How much of the assembly overhead shouldbe allocated to hammers?
A) $41,250.
B) $55,000.
C) $66,000
D) $70,714.
18. Banes Co. incurs $350,000 of overhead costs each year in itsthree main departments, machining ($200,000), inspections($100,000) and packing ($50,000). The machining department works4,000 hours per year, there are 500 inspections per year, and thepacking department packs 500 orders per year. Information aboutBanes's two products is as follows: Product X Product Y
Machining hours 1,000 3,000
Inspections 100 500
Orders packed 350 650
Direct labor hours 1,700 1,800


If traditional costing based on direct labor hours is used, howmuch overhead is assigned to Product X this year?
A) $84,167
B) $121,154
C) $170,000
D) $175,000
19. Banes Co. incurs $350,000 of overhead costs each year in itsthree main departments, machining ($200,000), inspections($100,000) and packing ($50,000). The machining department works4,000 hours per year, there are 500 inspections per year, and thepacking department packs 500 orders per year. Information aboutBanes's two products is as follows: Product X Product Y
Machining hours 1,000 3,000
Inspections 100 500
Orders packed 350 650
Direct labor hours 1,700 1,800


Using ABC, how much overhead is assigned to Product X thisyear?
A) $84,167
B) $121,154
C) $170,000
D) $175,000
20. One of Stellar Company's activity cost pools is machine setups,with estimated overhead of $180,000. Stellar produces sparklers(400 setups) and lighters (600 setups). How much of the machinesetup cost pool should be assigned to sparklers?
A) $180,000
B) $72,000
C) $90,000
D) $108,000
21. Bichon Company manufactures two products, Tini A and Tall B.Bichon's overhead costs consist of setting up machines, $1,200,000;machining, $2,700,000; and inspecting, $900,000. Information on thetwo products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700


Overhead applied to Tini A using traditional costing using directlabor hours is
A) $1,800,000.
B) $2,304,000.
C) $2,505,000.
D) $2,880,000.
22. Bichon Company manufactures two products, Tini A and Tall B.Bichon's overhead costs consist of setting up machines, $1,200,000;machining, $2,700,000; and inspecting, $900,000. Information on thetwo products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700


Overhead applied to Tall B using traditional costing using directlabor hours is
A) $1,920,000.
B) $2,304,000.
C) $2,505,000.
D) $3,000,000.
23. Bichon Company manufactures two products, Tini A and Tall B.Bichon's overhead costs consist of setting up machines, $1,200,000;machining, $2,700,000; and inspecting, $900,000. Information on thetwo products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700


Overhead applied to Tini A using activity-based costing is
A) $1,800,000.
B) $2,304,000.
C) $2,496,000.
D) $2,880,000.
24. Bichon Company manufactures two products, Tini A and Tall B.Bichon's overhead costs consist of setting up machines, $1,200,000;machining, $2,700,000; and inspecting, $900,000. Information on thetwo products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700


Overhead applied to Tall B using activity-based costing is
A) $1,920,000.
B) $2,304,000.
C) $2,496,000.
D) $3,000,000.
25. Simpson Co. produces three products: Earth, Wind, and Fire.Earth requires 80 machine setups, Wind requires 60 setups, and Firerequires 180 setups. Simpson has identified an activity cost poolwith allocated overhead of $480,000 for which the cost driver ismachine setups. How much overhead is assigned to each product?EarthWind Fire


A) $160,000 $160,000 $160,000



B) $100,000 $75,000 $225,000



C) $120,000 $90,000 $270,000



D) $90,000 $160,000 $230,000


26. Tierra Co, incurs $240,000 overhead costs each year in itsthree main departments, setup ($15,000), machining ($165,000), andpacking ($60,000). The setup department performs 40 setups peryear, the machining department works 5,000 hours per year, and thepacking department packs 500 orders per year. Information aboutTierra's two products is as follows: Product A1 Product B1
Number of setups 20 20
Machining hours 1,000 4,000
Orders packed 150 350
Number of products manufactured 600 400


If machining hours are used as a base, how much overhead isassigned to Product A1 each year?
A) $48,000
B) $120,000
C) $82,500
D) $72,000
27. Tierra Co, incurs $240,000 overhead costs each year in itsthree main departments, setup ($15,000), machining ($165,000), andpacking ($60,000). The setup department performs 40 setups peryear, the machining department works 5,000 hours per year, and thepacking department packs 500 orders per year. Information aboutTierra's two products is as follows: Product A1 Product B1
Number of setups 20 20
Machining hours 1,000 4,000
Orders packed 150 350
Number of products manufactured 600 400


Using ABC, how much overhead is assigned to Product A1 eachyear?
A) $120,000
B) $181,500
C) $48,000
D) $58,500
28. Tierra Co, incurs $240,000 overhead costs each year in itsthree main departments, setup ($15,000), machining ($165,000), andpacking ($60,000). The setup department performs 40 setups peryear, the machining department works 5,000 hours per year, and thepacking department packs 500 orders per year. Information aboutTierra's two products is as follows: Product A1 Product B1
Number of setups 20 20
Machining hours 1,000 4,000
Orders packed 150 350
Number of products manufactured 600 400


Using ABC, how much overhead is assigned to Product B1 eachyear?
A) $120,000
B) $96,000
C) $181,500
D) $192,000
29. AJ Accounting performs two types of services, Audit and Tax.AJ's overhead costs consist of computer support, $200,000; andlegal support, $100,000. Information on the two services is: AuditTax
Direct labor cost $50,000 $100,000
CPU minutes 40,000 10,000
Legal hours used 200 800


Overhead applied to audit services using traditional costingis
A) $100,000.
B) $120,000.
C) $180,000.
D) $200,000.
30. AJ Accounting performs two types of services, Audit and Tax.AJ's overhead costs consist of computer support, $200,000; andlegal support, $100,000. Information on the two services is: AuditTax
Direct labor cost $50,000 $100,000
CPU minutes 40,000 10,000
Legal hours used 200 800


Overhead applied to tax services using traditional costing is
A) $100,000.
B) $120,000.
C) $180,000.
D) $200,000.
31. AJ Accounting performs two types of services, Audit and Tax.AJ's overhead costs consist of computer support, $200,000; andlegal support, $100,000. Information on the two services is: AuditTax
Direct labor cost $50,000 $100,000
CPU minutes 40,000 10,000
Legal hours used 200 800


Overhead applied to audit services using activity-based costingis
A) $100,000.
B) $120,000.
C) $180,000.
D) $200,000.
32. AJ Accounting performs two types of services, Audit and Tax.AJ's overhead costs consist of computer support, $200,000; andlegal support, $100,000. Information on the two services is: AuditTax
Direct labor cost $50,000 $100,000
CPU minutes 40,000 10,000
Legal hours used 200 800


Overhead applied to tax services using activity-based costingis
A) $100,000.
B) $120,000.
C) $180,000.
D) $200,000.
33. AJ Accounting performs two types of services, Audit and Tax.AJ's overhead costs consist of computer support, $200,000; andlegal support, $100,000. Information on the two services is: AuditTax
Direct labor cost $50,000 $100,000
CPU minutes 40,000 10,000
Legal hours used 200 800


AJ Accounting performs tax services for Dan Morris. Direct laborcost is $1,200; 600 CPU minutes were used; and 1 legal hour wasused. What is the total cost of the Morris job using activity-basedcosting?
A) $2,400
B) $2,500
C) $3,600
D) $3,700

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