ACC 2080 Exam 1

Manufacturing overhead includes

all manufacturing costs except direct labor and direct materials

Which of the following is not a period cost?

depreciation of factory maintenance equipment

Which of the following statements about product costs is true?

Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets

Which costs will change with a decrease in activity within the relevant range?

Unit fixed costs and total variable costs

Activity Cost Pool

A "cost bucket" in which costs related to a single activity measure are accumulated.

Activity Measure

Expresses how much of the activity is carried out and it is used as the allocation base for assigning overhead costs to products and services.

Activity Rate

a predetermined overhead rate for each activity cost pool.

ABC system challenge

To select a reasonably small number of activities that explain the bulk of the variation in overhead costs.

How are activities chosen?

By interviewing a broad range of managers to find out what activities they think consume most of the organization's resources.

Combining Activities

to reduce the amount of detail and record-keeping costs.

activity dictionary

defines each of the activities that will be included in the activity-based costing system and how the activities will be measured

Unit-level activities

-processing units on machines
-processing units by hand
-consuming factory supplies

Batch-level activities

-processing purchase orders -processing production orders
-setting up equipment
-handling materials

Product-level activities

-testing new products
-administering parts inventories
-maintaining inventories of parts

Facility-level activities

-general factory administration
-plant building and grounds

unit level activity measure

-machine hours
-direct labor hours
-units produced

batch level activity measure

-purchase orders processed
-production orders processed
-number of setups
-pounds of material handled

product level activity measure

-hours of testing time
-number of part types
-hours of design time

facility level activity measure

-direct labor hours

Predetermined Overhead Rate

estimated total manufacturing overhead cost/estimated total amount of the allocation base

When a company implements ABC

overhead cost shifts from high volume to low volume products with a higher unit product cost resulting for the low volume products

What does ABC identify

areas where the company can benefit from improving its current processes

activity based management

Focuses on managing activities to eliminate waste and reduce delays and defects

activity rates

used to target areas where costs seem excessively high

Benchmarking

used to compare activity cost info with world class standards of performance achieved by other orgs

How to find contribution margin

Sales - All Variable Costs

Calculate overhead applied

= predetermined overhead rate x actual allocated

Prepare summary journal entry for the overhead applied to WIP for the year

work in process 172,000
manufacturing overhead 172,000

The amount of under-or-over applied overhead at the end of the year?

actual manufacturing overhead-overhead applied

Prepare journal entry to assign under-or-over applied overhead for the year to cost of goods sold.

cost of goods sold $18,000
manufacturing overhead $18,000

Assembling a product is an example of a:

Unit-level activity

What would be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department?

number of orders processed

In activity-based costing, unit product costs computed for external financial reports include

direct materials, direct labor and manufacturing overhead

Overhead allocation based solely on a measure of volume such as direct labor hours

will systematically overcoat high volume products and undercost low volume products

activity rate formula

overhead cost/ total activity

What is an example of overhead in a factory?

wages of factory maintenance personnell