Activity Based Costing-final Exam

Explanation
The overhead allocated to the regular product using traditional costing is $300,000, while the overhead allocated to the large product is $1,200,000. This is because traditional costing allocates overhead based on direct labor hours, and the regular product has 10,000 direct labor hours while the large product has 40,000 direct labor hours. Therefore, the regular product, with fewer direct labor hours, is allocated less overhead compared to the large product.

Explanation
Based on the information provided, the total overhead cost is $1,500,000. The study revealed that significant amounts of costs are related to the number of setups, and the total number of setups is 103. Therefore, the overhead cost related to setups is allocated based on the number of setups.

To calculate the allocation for each product, we need to determine the proportion of setups for each product.

For the regular product, there were 10,000 units produced and 51 setups. So, the proportion of setups for the regular product is 51/10,000 = 0.0051.

For the large product, there were also 10,000 units produced and 52 setups. So, the proportion of setups for the large product is 52/10,000 = 0.0052.

Now, we can calculate the overhead allocation for each product by multiplying the proportion of setups by the total overhead cost related to setups.

For the regular product: 0.0051 * $1,500,000 = $7,650

For the large product: 0.0052 * $1,500,000 = $7,800

Therefore, the overhead allocation for the regular product is $7,650 and for the large product is $7,800.

Explanation
Based on the information provided, the cost per unit for the regular product when calculated using the Activity Based Costing (ABC) method is $58.2. This is determined by allocating the total overhead cost of $1,500,000 based on the number of setups. Since there were 51 setups for the regular product, the allocated overhead cost for the regular product is $515,000. Adding this to the direct material cost of $10,000 and the direct labor cost of $120,000, the total cost for the regular product is $645,000. Dividing this by the number of units produced (10,000), we get the cost per unit of $58.2.

Explanation
The total overhead for the Fancy product using the traditional method can be calculated by allocating the total overhead based on direct labor hours. The total direct labor hours for Fancy is 2,800. To find the overhead cost per direct labor hour, we divide the total overhead ($1,200,000) by the total direct labor hours (30,000).

Overhead cost per direct labor hour = $1,200,000 / 30,000 = $40

Then, we multiply the overhead cost per direct labor hour by the direct labor hours for Fancy:

Overhead for Fancy = $40 * 2,800 = $112,000

Therefore, the total overhead for the Fancy product using the traditional method is $112,000.

Explanation
The total overhead allocated to the Fancy product is $234,500 and the total overhead allocated to the Plain product is $965,500. This is determined by using the ABC costing system, which allocates overhead based on activity drivers. In this case, the activity drivers are the number of setups and the number of design hours. The overhead costs related to setups are allocated based on the number of setups, and the overhead costs related to design activity are allocated based on the number of design hours. The remaining overhead costs are allocated based on direct labor hours.

Explanation
The unit cost for the Plain product using the Activity Based Costing (ABC) method can be calculated by allocating the overhead costs based on the activity drivers. The total setup related overhead cost is $135,000 and the total design related overhead cost is $240,000. The total overhead cost is $1,200,000.

To calculate the unit cost for Plain, we need to allocate the setup related overhead cost and design related overhead cost based on the activity drivers. The number of setups for Plain is 45 and the number of design hours is 5,000.

The allocation rate for setup related overhead cost is $135,000 / 90 setups = $1,500 per setup.
The allocation rate for design related overhead cost is $240,000 / 8,000 design hours = $30 per design hour.

For Plain, the allocated setup related overhead cost is $1,500 x 45 setups = $67,500.
The allocated design related overhead cost is $30 x 5,000 design hours = $150,000.

The total allocated overhead cost for Plain is $67,500 + $150,000 = $217,500.

The unit cost for Plain is calculated by adding the direct material cost, direct labor cost, and allocated overhead cost, and dividing by the number of units produced.

Unit cost for Plain = ($10 + $272,000 + $217,500) / 16,000 units = $87.343.

Therefore, the correct answer is $87.343.

Explanation
The statement suggests that the allocation of direct material cost and direct labor cost to each product differs when calculated using traditional costing method and activity-based costing method. This means that the two methods yield different results in terms of allocating costs to products.

Explanation
The correct answer is Facility level, Unit level, Product level, Batch level. These are the different levels of cost drivers that can be used to allocate costs in an organization. Facility level costs are incurred to maintain the overall infrastructure and include expenses such as rent and utilities. Unit level costs are associated with producing a single unit of a product or service, such as direct labor and materials. Product level costs are specific to a particular product or service line, such as advertising and marketing expenses. Batch level costs are incurred for a group of units produced or a specific batch, such as setup costs and quality control.

Explanation
The activities of setting up, blending, moving, and scheduling can be considered as batch level activities. These activities are typically performed in batches or groups rather than individually. For example, setting up equipment or machinery for a batch of products, blending ingredients for a batch of recipes, moving batches of materials or products between different stages of production, and scheduling batches of tasks or activities to be completed within a specific timeframe. These activities are often repetitive and require coordination and planning to ensure efficient and effective production processes.

Explanation
This statement is incorrect. Activity Based Costing (ABC) can be applied in small companies, although it may be challenging to implement. ABC is a costing method that allocates costs based on the activities that drive them, providing a more accurate and detailed understanding of the costs associated with each activity. While it may require more effort and resources to implement in smaller companies, it can still be beneficial in improving cost allocation and decision-making processes.