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Connect Managerial Accounting Chapter 4

Q1. Huffington Company uses a plantwide overhead rate to apply overhead. The predetermined overhead rate is based on machine hours. At the beginning of the year, the company made the following estimates: direct labor hours of 16,000, direct labor cost of $200,000, machine hours of 5,000, and total overhead costs of $25,000. On a per machine hour basis, the company’s plantwide overhead rate is:

• $8
• $50
• $5
• $100

Q2. Benson, Inc., manufactures a single product. The company’s plantwide overhead rate is $25 per machine-hour (MH). Each unit of product requires 0.6 machine hours. The direct material cost per unit of product is estimated at $10.96 and direct labor cost is estimated at $3.84 per unit. The overhead cost per unit is expected to be:

• $15.00
• $16.30
• $25.00
• $41.67

Q3. Benson, Inc., manufactures a single product. The company’s plantwide overhead rate is $25 per machine-hour (MH). Each unit of product requires 0.6 machine hours. The direct material cost per unit of product is estimated at $10.96 and direct labor cost is estimated at $3.84 per unit. The total unit cost of its product is estimated to be:

• $1.50
• $16.30
• $25.00
• $29.80

Q4. Assuming that overhead in the machining department is allocated on the basis of machine hours, and overhead in the assembly department is allocated on the basis of direct labor cost, the departmental overhead rates per unit of the related allocation bases in the Machining and Assembly Departments respectively will be:

• 110% and $15.00
• $5.00 and 50%
• $5.00 and 200%
• $8.00 and 50%

Q5. Laval produces lamps and home lighting fixtures. Its most popular product is a brushed aluminum desk lamp. This lamp is made from components shaped in the fabricating department and assembled in the assembly department. Information related to the 22,000 desk lamps produced annually follows.

Direct materials	$280,000
Direct labor
Fabricating department (8,000 DLH × $24 per DLH)	$192,000
Assembly department (16,600 DLH × $26 per DLH)	$431,600
Machine hours
Fabricating department	$15,200MH
Assembly department	$20,850MH

Expected overhead cost and related data for the two production departments follow.

	Fabricating	Assembly
Direct labor hours	150,000DLH	295,000DLH
Machine hours	161,000MH	128,000MH
Overhead cost	$400,000	430,000

Required
1. Determine the plantwide overhead rate for Laval using direct labor hours as a base.
2. Determine the total manufacturing cost per unit for the aluminum desk lamp using the plantwide overhead rate.
3. Compute departmental overhead rates based on machine hours in the fabricating department and direct labor hours in the assembly department.
4. Use departmental overhead rates from requirement 3 to determine the total manufacturing cost per unit for the aluminum desk lamps.

1. Determine the plantwide overhead rate for Laval using direct labor hours as a base.

2. Determine the total manufacturing cost per unit for the aluminum desk lamp using the plantwide overhead rate.

3. Compute departmental overhead rates based on machine hours in the fabricating department and direct labor hours in the assembly department.

4. Use departmental overhead rates from requirement 3 to determine the total manufacturing cost per unit for the aluminum desk lamps.

Q6. Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their components department. The mechanical systems are combined with the housing assembly in its finishing department. The activities, costs, and drivers associated with these two manufacturing processes and the production support process follow. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and round “Cost per unit and OH rate” answers to 2 decimal places.)

Process	Activity	Overhead Cost	Driver	Quantity
Components	Changeover	$459,000	Number of batches	910
	Machining	301,200	Machine hours	7,470
	Setups	228,500	Number of setups	180
		$988,700
Finishing	Welding	$180,400	Welding hours	3,700
	Inspecting	222,000	Number of inspections	755
	Rework	60,450	Rework orders	250
		$462,850
Support	Purchasing	$134,500	Purchase orders	548
	Providing space	30,150	Number of units	6,300
	Providing utilities	60,020	Number of units	6,300
		$224,670

Additional production information concerning its two product lines follows.

	Model 145	Model 212
Units produced	2,100	4,200
Welding hours	1,000	2,700
Batches	455	455
Number of inspections	470	285
Machine hours	2,270	5,200
Setups	90	90
Rework orders	140	110
Purchase orders	365	183

Q7. Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their components department. The mechanical systems are combined with the housing assembly in its finishing department. The activities, costs, and drivers associated with these two manufacturing processes and the production support process follow.

Process	Activity	Overhead Cost	Driver	Quantity
Components	Changeover	$474,000	Number of batches	870
	Machining	307,000	Machine hours	8,670
	Setups	232,000	Number of setups	180
		$1,013,000
Finishing	Welding	$184,000	Welding hours	5,700
	Inspecting	234,000	Number of inspections	805
	Rework	62,000	Rework orders	250
		$480,000
Support	Purchasing	$147,000	Purchase orders	471
	Providing space	38,000	Number of units	5,020
	Providing utilities	64,000	Number of units	5,020
		$249,000

Additional production information concerning its two product lines follows.

	Model 145	Model 212
Units produced	2,000	3020
Welding hours	2400	3300
Batches	435	435
Number of inspections	475	330
Machine hours	3350	5320
Setups	90	90
Rework orders	140	110
Purchase orders	314	157

Required:
1. Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhead assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders.
2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $300 for Model 145 and $170 for Model 212.
3. If the market price for Model 145 is $1,850 and the market price for Model 212 is $270, determine the profit or loss per unit for each model.

1. Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhead assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders.

2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $300 for Model 145 and $170 for Model 212.

3. If the market price for Model 145 is $1,850 and the market price for Model 212 is $270, determine the profit or loss per unit for each model.

Q8. Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their components department. The mechanical systems are combined with the housing assembly in its finishing department. The activities, costs, and drivers associated with these two manufacturing processes and the production support process follow.

Process	Activity	Overhead Cost	Driver	Quantity
Components	Changeover	$453,750	Number of batches	750
	Machining	371,790	Machine hours	8,100
	Setups	361,000	Number of setups	200
		$1,186,540
	Finishing	Welding	$256,800	4,800
	Inspecting	323,025	Number of inspections	885
	Rework	63,000	Rework orders	210
		$642,825
Support	Purchasing	$205,205	Purchase orders	533
	Providing space	30,600	Number of units	5,700
	Providing utilities	75,990	Number of units	5,700
		$311,795

Connect Managerial Accounting Chapter 4 Quiz

Q1. ABC assumes all costs are ________ because over the long run the company can adjust the amount of assets utilized.

• variable
• fixed
• direct
• committed
• nondiscritionary

Q2. Put the following ABC implementation steps in order ________.

• D Identify the activities and the overhead costs they cause.
• C Trace overhead costs to cost pools.
• B Compute the allocation rates.
• A Use the activity overhead rates to assign overhead costs to cost objects.

Q3. Which types of overhead allocation methods result in the use of more than one overhead rate during the same time period?

• Plantwide overhead rate method and departmental overhead rate method.
• Cost pool overhead rate method and plantwide overhead rate method.
• Departmental overhead rate method and activity-based costing.
• Activity-based costing and plantwide overhead rate method.
• Departmental overhead rate method and cost pool overhead rate method.

Q4. What are three advantages of activity-based costing over traditional volume-based allocation methods?

• Ease of use, more accurate product costing, and more effective cost control.
• Fewer allocation bases, ease of use, and a direct correlation to production volume.
• More accurate product costing, more effective cost control, and better focus on the relevant factors for decision making.
• More accurate product costing, fewer cost objects, and a direct correlation to production volume.
• More accurate product costing, ease of use, less costly to implement.

Q5. Which of the following is a disadvantage of the departmental overhead rate method?

• The departmental overhead rate method assigns overhead on the basis of volume-related measures.
• The departmental overhead rate method is more refined than the plantwide overhead rate method.
• The departmental overhead rate method does not assign overhead on the basis of volume-related measures.
• The departmental overhead rate method is simpler and less costly to implement than the plantwide rate method.
• There are no disadvantages of the departmental overhead rate method.

Q6. ABC costing might lead to:

• increasing the sales price of low-volume products.
• increasing the sales price of high-volume products.
• increasing low-volume products that appear to be profitable.
• decreasing high-volume products that appear to be unprofitable.

Q7.The cost object(s) of the activity-based costing method is(are):

• The unit of product.
• The production departments of the company.
• The production activities of the company.
• The production activities in the first stage and the unit of product in the second stage.
• The unit of product in the first stage and the production activities in the second stage.

Q8. What are the main advantages of volume-based allocation methods compared to activity-based costing?

• Volume-based methods are easier to use and less costly to implement and maintain.
• Volume-based methods are more accurate and allowed by GAAP
• Volume-based methods are less accurate and easier to use.
• Volume-based methods are harder to use and more costly to implement and maintain.
• There are no advantages to using volume-based methods.

Q9. Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 140,000 machine hours are planned for this next year, what is the company’s plantwide overhead rate? (Round your answer to two decimal places.)

• $0.02 per machine hour.
• $50.50 per machine hour.
• $45.75 per machine hour.
• $3.93 per machine hour.
• $0.25 per machine hour.

Q10. Which of the following statements is true with regard to the departmental overhead rate method?

• It is logical to use this method when overhead resources are consumed by various products in substantially the same way throughout multiple departments.
• It is logical to use this method when overhead resources are consumed by various products in substantially different ways throughout multiple departments.
• Each department has the same rate for the same activity pool.
• It requires one overhead cost pool and one rate.
• It is synonymous with activity-based costing.

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