ACC2200 Study Guide - Final Guide: Activity-Based Costing, Cost Driver, Management Accounting

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goldcrocodile909

8 Aug 2018

School

Monash University

Department

Business - Accounting

Course

ACC2200

Professor

Prabanga Thoradeniya

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Document Summary

Week 7 - activity based costing ch 8, inc app. Problems with traditional product costing systems: difficult to adapt to the changing business environment (increasing levels of non-volume-driven manufacturing oh costs & increasing proportions of non-manufacturing costs, changes in cost structures such as; Less labour so dl can"t be used as an accurate cost driver. Now, there"s more dep, maintenance, etc = significant amount of the cost is oh. Now a large range of products are offered. Mass produced & repetitive vs customised products (don"t use the same oh costs) Increased emphasis on upstream and downstream areas of the value chain. Thus, not allocating them would leave out a large portion of costs. Indicators of problems with a product costing system: How do you know your current costing system isn"t working: profit margins are difficult to explain, products that are difficult to make have high profit margins, managers develop their own private" systems for estimating product costs.

Related Questions

1.If there is a change in the level of the number of unitsproduced:
a.fixed costs per unit will be the same and variable costs per unitwill change.
b.fixed and variable costs per unit will change.
c.fixed and variable costs per unit will remain the same.
d.fixed costs per unit will change and variable costs per unit willbe the same.

2.Which of the following will decrease a companyâs breakevenpoint?
A) Decreasing the contribution margin per unit.
B) Increasing the variable cost per unit.
C) Increasing the total fixed costs.
D) Increasing the selling price per unit.

	3.In generating cost information fordetermining whether or not to delete a product line, the mostimportant distinction to identify is:
	A)	direct versus indirect costs
	B)	fixed versus variable costs
	C)	manufacturing versus non-manufacturing costs
	D)	avoidable versus unavoidable costs

4.Which of the following is the proper sequence in anactivity-based costing system?
A) Identification of cost drivers, identification ofcost pools, calculation of cost application rates, assignment ofcost to products.
B) Identification of cost pools, identification of costdrivers, calculation of cost application rates, assignment of costto products.
C) Assignment of cost to products, identification ofcost pools, identification of cost drivers, calculation of costapplication rates,.
D) Calculation of cost application rates,identification of cost drivers, identification of cost pools,assignment of cost to products.

5.Which of the following statements is true?
A) A traditional volume-based system based on directlabor generally undercosts high volume product lines.
B) In a traditional volume-based costing system basedon direct labor, low volume products generally subsidize highvolume products.
C) An activity-based costing system generallyundercosts low-volume, complex product lines.
D) A traditional volume-based costing system based ondirect labor generally undercosts low-volume, complex productlines.

6.Hamilton Company applies overhead based on direct labor hours.At the beginning of 2005, the company estimated that manufacturingoverhead would be $700,000, and direct labor hours would be 10,000.Actual overhead by the conclusion of 2005 amounted to $800,000 andactual direct labor hours were 14,000. On the basis of thisinformation, Horton's 2005 predetermined overhead rate is:
A) $50.00
B) $70.00
C) $80.00
D) $57.14

pearpig306

Tommy Lyons Company manufactures and sells two products: Product S3 and Product S2. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce the output appear below:

Product Info

Product S3: 800 units @ 8.0 DLH/unit = 6,400 hours

Product K2: 900 units @6.0 DLH/unit = 5,400 hours

Direct Material Cost/Unit

The direct labor rate is $18.00 per DLH. The direct materials cost per unit for each product is given below:

Product S3: $280.70

Product K2: $157.90

Activity Cost Pools

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, total overhead costs and expected activity for each product.

Labor Related

Direct labor hours, total OH $523,094

S3 = 6,400

K2 = 5,400

Total = 11,800 DLHs

Machine Set-ups

Number of tests, total OH = $135,478

S3 = 600

K2 = 800

Total = 1,400 Tests

General Factory

Machine hours, total OH = $392,327

S3 = 5,000

K2 = 5,300

Total = 10,300 MHs

Total Overhead Costs

Including: DLHs, machine set-ups, machine hours = $1,050,899

Required:

The company currently uses a traditional costing methodin which overhead is applied to products based solely on direct labor-hours. Compute the company's predetermined overhead rate under this costing method.

How much overhead would be applied to each product under the company's traditional costing method?

Determine the unit product cost of each product under the company's traditional costing method.

Compute the activity rates under the activity-based costing system.

Determine how much overhead would be assigned to each product under the activity-based costing system.

Determine the unit product cost of each product under the activity-based costing method.

What is the difference between the overhead per unit under the traditional costing method and the activity-based costing system for each of the two products?

jadewater-buffalo856

Claire Company produces Tablets and Books. Total overhead coststraditionally have been allocated on the basis of direct laborhours. After implementing activity-based costing, managersdetermined the following cost pools and cost drivers. They alsodecided that general costs should no longer be allocated toproducts. Activity Pool Department Costs Cost Driver Binding$255,816 Number of units Printing 831,402 Machine hours Productdesign 193,116 Change orders General 619,894 None Total overheadcosts $1,900,228 Other information is as follows: Tablets BooksUnits 62,600 20,100 Direct materials cost per unit $3.11 $10.44Direct labor cost per unit $4.17 $7.85 Direct labor hours 25,30016,500 Machine hours 126,000 122,000 Change orders 1,400 2,900Calculate predetermined OH rate. (Round answer to 2 decimal places,e.g. 15.25.) Determine the unit product cost for Tablets and Booksusing the traditional costing system. (Round overhead rate andfinal answers to 2 decmial places, e.g. 15.25.) Calculate ABCrates. (Round answers to 2 decimal places, e.g. 15.25.) Determinethe unit product cost for Tablets and Books using theactivity-based costing system. (Round all rates and final answersto 2 decmial places, e.g. 15.25.) Show that General cost is thedifference between the total overhead costs allocated to productsunder the traditional system and the total cost allocated toproducts under the activity-based costing system. (Round answers to0 decmial places, e.g. 1,525.)

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ACC2200 Study Guide - Final Guide: Activity-Based Costing, Cost Driver, Management Accounting

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