Concept explainers
a)
Activity Based Costing: Activity Based Costing refers to the allocation of the factory
Overhead: Overhead refers to the costs, which are utilized in business activities, however cannot be related to a specific activity or product.
To Compute: The overhead rate for each activity.
b)
Activity cost pool: Activity cost pool refers to the overhead cost related to an activity. This is often calculated to get an accurate estimate of the production cost.
To Classify: The given cost pool on the basis of the level of activities.
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Managerial Accounting: Tools for Business Decision Making
- XYZ Motors Corporation has identified activity centers to which overhead costs are assigned. The cost pool amounts for these centers and their selected cost drivers for 2018 are as follows: Activity Center - Utilities: Cost - P600,000 Cost Driver - 30,000 machine hours Activity Center - Scheduling sand setups Cost - P546,000 Cost Driver - 390 setups Activity Center - Material handling Cost - P1,280,000 Cost Driver - 800,000 kilos of materials The company's products and other operating statistics are as follows: Product A: Direct costs - P40,000 Machine hours - 15,000 Number of setups - 65 Kilos of material - 250,000 Number of units produced - 20,000 Direct labor hours - 16,000 Product B: Direct costs - P40,000 Machine hours - 5,000 Number of setups - 190 Kilos of material - 150,000 Number of units produced - 10,000 Direct labor hours - 9,000 Product C: Direct costs - P45,000 Machine hours - 10,000 Number of setups - 135 Kilos of material - 400,000 Number of units produced -…arrow_forwardActivity-Based Costing Slack Corporation has the following predicted indirect costs and cost drivers for the year for the given activity cost pools: Maintenance Materials handling Machine setups Inspections Machine hours Material moves Machine setups Inspection hours Fabrication Department Finishing Department Cost Driver Machine hours Material moves Direct materials cost Direct labor cost Machine hours (Fabrication) Machine hours (Finishing) Materials moves Machine setups Inspection hours $150,000 The following activity predictions were also made for the year: Fabrication Department Finishing Department Direct materials Direct labor $50,000 30,000 70,000 It is assumed that the cost per unit of activity for a given activity does not vary between departments. Slack's president, Charles Slack, is trying to evaluate the company's product mix strategy regarding two of its five product models, ZX300 and SL500. The company has been using a company- wide overhead rate based on machine hours…arrow_forwardTroglodyte University uses activity-based costing to assign indirect costs to academic departments, using three activities. The activity base, budgeted activity cost, and estimated activity-base usage for each activity are identified as follows: Budgeted Activity-Base Activity Activity Base Activity Cost Usage Facilities Square feet $800,000 80,000 square feet Instruction Number of course sections 1,200,000 600 sections Student services Number of students 290,000 2,500 students The activity-base usage associated with the Archaeology and Geology departments is as follows: Department Facilities Instruction Student Services Archaeology 8,000 square feet 8 sections 150 students Geology 5,200 square feet 15 sections 200 students a. Determine the activity rate for each activity. Activity Activity Rate Facilities per sq. ft. Instruction per section Student services per student b. Determine the total activity cost for the Archaeology Department. Total activity cost Nextarrow_forward
- Troglodyte University uses activity-based costing to assign indirect costs to academic departments, using three activities. The activity base, budgeted activity cost, and estimated activity-base usage for each activity are identified as follows: Activity Activity Base BudgetedActivity Cost Activity-BaseUsage Facilities Square feet $800,000 80,000 square feet Instruction Number of course sections 1,200,000 600 sections Student services Number of students 290,000 2,500 students The activity-base usage associated with the Archaeology and Geology departments is as follows: Department Facilities Instruction Student Services Archaeology 8,000 square feet 8 sections 150 students Geology 5,200 square feet 15 sections 200 students Determine the activity rate for each activity. Activity Activity Rate Facilities per sq. ft. Instruction per section Student services per…arrow_forwardTroglodyte University uses activity-based costing to assign indirect costs to academic departments, using three activities. The activity base, budgeted activity cost, and estimated activity-base usage for each activity are identified as follows: Activity Activity Base BudgetedActivity Cost Activity-BaseUsage Facilities Square feet $800,000 80,000 square feet Instruction Number of course sections 1,200,000 600 sections Student services Number of students 290,000 2,500 students The activity-base usage associated with the Archaeology and Geology departments is as follows: Department Facilities Instruction Student Services Archaeology 8,000 square feet 8 sections 150 students Geology 5,200 square feet 15 sections 200 students a. Determine the activity rate for each activity. Activity Activity Rate Facilities $fill in the blank 1 per sq. ft. Instruction $fill in the blank 2 per section Student services $fill in the blank 3 per student b. Determine the…arrow_forwardA 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: BUDGETED ACTIVITY Budgeted Cost Product A $70,000 $45,000 $82,000 Activity Cost Pool Activity 1 Activity 2 Activity 3 How much overhead will be assigned to Product B using activity-based costing? Product B 9,000 15,000 1,000 6,000 7,000 2,500 Product C 20,000 8,000 1,625arrow_forward
- Lutz, Inc. produces three products: Quality, Superior, and Superb. The Lutz cost accounting system applied Conversion Costs using a Plant-Wide Application Rate using Direct Labor Hours as the Cost Driver. Lutz is thinking of employing an ABC system for Conversion Costs. Lutz concluded that its plant had six activities with the following Cost Drivers and costs budgeted for the upcoming year: Activity Area Budgeted Costs Cost Driver Material Handeling $258,400 Number of Parts Production Scheduling $114,000 Number of Orders Setups $160,000 Number of Setups Machinery Cost and Maint $3,510,000 Machine Hours Finishing $1,092,000 Direct Labor Hours Packaging/Shipping $190,000 Number orders Shipped TOTAL $5,324,400 It is estimated that there will be 54,600 Direct Labor Hours in the upcoming year…arrow_forwardLutz, Inc. produces three products: Quality, Superior, and Superb. The Lutz cost accounting system applied Conversion Costs using a Plant-Wide Application Rate using Direct Labor Hours as the Cost Driver. Lutz is thinking of employing an ABC system for Conversion Costs. Lutz concluded that its plant had six activities with the following Cost Drivers and costs budgeted for the upcoming year: Activity Area Budgeted Costs Cost Driver Material Handeling $258,400 Number of Parts Production Scheduling $114,000 Number of Orders Setups $160,000 Number of Setups Machinery Cost and Maint $3,510,000 Machine Hours Finishing $1,092,000 Direct Labor Hours Packaging/Shipping $190,000 Number orders Shipped TOTAL $5,324,400 It is estimated that there will be 54,600 Direct Labor Hours in the upcoming year…arrow_forwardShalom Company uses three activity pools to apply overhead to its products. Each activity has a cost driver used to allocate the overhead costs to the product. The activities and related overhead costs are as follows: product design P40,000; machining P300,000; and material handling P100,000. The cost drivers and estimated use are as follows: Activity Cost Pools Activities Product design Number of product changes Machining Machine hours Material handling Number of set-ups X Estimated Use of Cost Driver Per Activity Amounts must be in whole numbers. Example: 88,000 or (88,000) Unit costs be in whole numbers. Example: 88 Format of percentages: 88% Words must be in capital letters. 10 150,000 100 What is the activity-based overhead rate for material handling? Jarrow_forward
- Troglodyte University uses activity-based costing to assign indirect costs to academic departments, using three activities. The activity base, budgeted activity cost, and estimated activity-base usage for each activity are identified as follows: Activity Activity Base BudgetedActivity Cost Activity-BaseUsageFacilities Square feet $800,000 80,000 square feetInstruction Number of course sections 1,200,000 600 sectionsStudent services Number of students 290,000 2,500 studentsThe activity-base usage associated with the Archaeology and Geology departments is as follows:Department Facilities Instruction Student ServicesArchaeology 8,000 square feet 8 sections 150 studentsGeology 5,200 square feet 15 sections 200 studentsa. Determine the activity rate for each activity.Activity Activity RateFacilities $ per sq. ft.Instruction $ per sectionarrow_forwardCasey Company has five activity cost pools and two products. It expects to produce 200,000 units of its automobile scissors jack and 80,000 units of its truck hydraulic jack. Having identified its activity cost pools and the cost drivers for each cost pool, Casey Company accumulated the following data relative to those activity cost pools and cost drivers. Expected Use of Cost Drivers per Product Hydraulic Jacks Annual Overhead Data Expected Use of Cost Drivers per Activity Estimated Scissors Activity Cost Pools Ordering and receiving Machine setup Machining Assembling Inspecting and testing Cost Drivers Overhead Jacks $ 200,000 600,000 2,000,000 1,800,000 700,000 2,500 orders 1,200 setups 800,000 hours 1,500 700 500,000 1,200,000 15,000 Purchase orders 1,000 Setups Machine hours 500 Parts Tests 3,000,000 parts 35,000 tests 300,000 1,800,000 20,000 $5,300,000 Required: Using ABC Calculate Per Unit and Total cost of Both Products also Comment?arrow_forwardWrite a linear cost function equation for each of the following conditions. Use y for estimated costsand X for activity of the cost driver. Machine operating costs include $1,000 of maintenance per month, and $15.00 of coolant usagecosts for each day the machinery is in operation.arrow_forward
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