AC 212 Study Guide - Quiz Guide: Sony Music Entertainment, Cost Driver

53 views3 pages

erincamel819

1 Nov 2016

School

Quinnipiac University

Department

Accounting

Course

AC 212

Professor

Katherine Simione

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Activity-based costing, lena operations and costs of quality. Departmental overhead rates to allocate indirect costs. Develop and use activity-based costing (abc) to allocate indirect costs. Used to allocate manufacturing overhead to jobs or products based on the extend to which each problem uses the different manufacturing departments. When to use: when departments incur different amounts and types of manufacturing overhead, different jobs or products use the department resources to a different extent. Indirect product costs must be allocated to cost objects. Pmohr= estimates moh / estimated allocation base. Pmohr x actual allocation base = allocated moh. If you allocate the same way you will over allocate one of the departments and underestimate the other which can cause a skew in the managerial decision making. Focus on activities and costs of activities. Each activity has its own cost driver and uses a separate allocation rate. Use a classification to establish activity cost pools: unit-level activities.

Related Questions

Jordan Company currently is using a plant-wide factory overheadrate based on machine hours. The budgeted factory overhead costs is$405,000. Company has two departments, X and Y. Company isconsidering use of departmental overhead rates for the allocationof each departmentsâ overhead costs to jobs. Overhead would beapplied based on direct labor cost in Department X andmachine-hours in Department Y. The following additional informationis available:

BudgetedAmounts DepartmentX Department Y

Direct laborcost $180,000 $165,000

Factoryoverhead $225,000 $180,000

Machine-hours 51,000mh 40,000 mh

Actual data for Job#10 DepartmentX Department Y

Direct materialsrequisitioned $10,000 $16,000

Direct laborcost $11,000 $14,000

Machine-hours 5,000mh 3,000 mh

1. Compute total costof manufacturing Job 10 under current system (using plant-widerate).

2. Compute total costof manufacturing Job 10 using departmental overhead rates.

greycheetah389

AirComp Corporation produces component parts for the aircraftindustry. In prior years, they maintained a job-costing systemconsisting of direct materials and direct labor cost andmanufacturing overhead. Manufacturing overhead was allocated toproduction jobs using a single-indirect cost allocation rate, whichwas $115 per direct labor hour.

For 20x1, the Company decided to change the method of allocatingmanufacturing overhead to production jobs from the single-indirectcost allocation approach to the activity-based costing (âABCâ)indirect cost allocation approach. For purposes of developing theABC allocation rates, AirCompâs cost accounting team prepared thefollowing analysis:

Activity	Cost Driver	Allocation Rate
Material handling	Parts handled	$0.40
Lathe work	No. of lathe turns	$0.20
Milling	Machine hours	$20.00
Grinding	No. of parts ground	$0.80
Testing	No. of units tested	$15.00

For 20x1, AirCompâs cost accountant team prepared the followinganalysis of the direct costs and indirect cost activities for Job100 and Job 200, the only production jobs in process for theperiod:

	Job 100	Job 200
Direct materials cost	$9,700	$59,900
Direct labor cost	$750	$11,250
No. of direct manufacturing labor hours	25	375
No. of parts ground	500	2,000
No. of lathe turns	20,000	60,000
Machine hours	150	1,050
No. of units produced during period (all are tested)	10	200

Required

1.For each job, determine total per unit cost using direct laborhours to allocate manufacturing overhead to each job.

2.For each job, determine total per unit cost using anactivity-based costing approach to allocate manufacturing overheadcost to job.

3.Compare the per unit cost figures for each job computed instep a. and step b., above. Why do the new ABC approach differ fromthe single-indirect cost allocation systems differ in the amount ofthe per unit indirect cost allocated to each job (i.e. what was theimplications of the cost allocation method change on the amount ofper unit cost allocated to each job and what factors caused theobserved changes).

4.How might AirComp Corporation use the information from ABCallocation approach to better manage its business, i.e. what arethe advantages of using an activity-based costing approach?

oliveleopard246

ZHOU CORPORATION

The ZHOU CORPORATION manufactures two types of chairs, Alpha and Beta. Alpha has a complex design. Beta is simpler to manufacture. Last year ZHOU had the following revenues and costs:

	Alpha	Beta	Total
Revenue	$195,000	$184,000	$379,000
Direct materials	55,000	50,000	105,000
Direct labor	40,000	20,000	60,000
Indirect costs
Administration			$19,500
Production setup			45,000
Quality control			30,000
Sales and marketing			60,000

ZHOU currently uses direct labor costs to allocate all indirect costs, but management is considering implementing an ABC system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct labor costs but to use the following bases to allocate the remaining costs:

Activity	Cost Driver	Alpha	Beta
Production setup	Number of production runs	10	20
Quality control	Number of inspections	40	40
Sales and marketing	Number of advertisements	12	48

REQUIRED:

Develop a complete income statement using ABC and the given cost drivers.

Write a report indicating how management could use activity based management (ABM) to reduce costs.

Restate the income statement for ZHOU using direct labor costs as the only indirect cost allocation base.

Write a report to management stating why product line profits differ using ABC costing compared to the traditional approach. Indicate whether ABC provides more helpful information and why. Indicate in your report how the use of labor based overhead allocation could result in ZHOU management making suboptimal decisions.

AC 212 Study Guide - Quiz Guide: Sony Music Entertainment, Cost Driver

Document Summary

Get access

Related Documents

AC 212 Quiz: Test 2 Review

AC 212 Study Guide - Quiz Guide: Direct Labor Cost, Contribution Margin, Operating Leverage

AC 212 Lecture Notes - Lecture 2: Contribution Margin, Fixed Cost, Variable Cost

Related Questions