Apply Activity-Based Costing
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CPA Business Analysis and Reporting (BAR) › Apply Activity-Based Costing
Clearwater Manufacturing has a machine setup cost pool of $240,000 with 800 expected setups during the period. What is the ABC cost driver rate for machine setups?
$150 per setup
$300 per setup
$200 per setup
$480 per setup
Explanation
Cost driver rate = Total pool cost / Total cost driver units = $240,000 / 800 setups = $300 per setup. Option A uses an incorrect denominator of 1,200. Option C divides the pool cost by 500 setups instead of 800. Option D divides by 1,600, doubling the actual driver quantity.
Clearwater Manufacturing has a quality inspection cost pool of $150,000 with 500 expected inspections. What is the ABC cost driver rate for quality inspections?
$300 per inspection
$750 per inspection
$150 per inspection
$500 per inspection
Explanation
Cost driver rate = $150,000 / 500 inspections = $300 per inspection. Option A divides the pool cost by 300 instead of 500. Option B divides by 1,000, which doubles the driver quantity. Option D divides by 200, significantly understating the driver base.
Clearwater Manufacturing's ABC rates are: machine setups $300 per setup, quality inspections $300 per inspection, materials handling $300 per move. Product Alpha requires 5 setups, 8 inspections, and 4 material moves. Direct materials cost $1,200 and direct labor costs $800. What is the total ABC manufacturing cost for one batch of Product Alpha?
$8,300
$7,100
$5,100
$3,900
Explanation
ABC overhead = (5 x $300) + (8 x $300) + (4 x $300) = $1,500 + $2,400 + $1,200 = $5,100. Total cost = Direct materials + Direct labor + Overhead = $1,200 + $800 + $5,100 = $7,100. Option B reports only the overhead component without adding direct materials and labor. Option C omits some overhead pools from the calculation. Option D applies incorrect driver quantities.
In activity-based costing, a batch-level activity is best described as which of the following?
An activity performed once for each individual unit produced or sold
An activity performed to sustain the overall production facility regardless of which specific products are manufactured
An activity performed to support the continued existence of a specific product line in the product portfolio
An activity performed once per production run, with the cost independent of the number of units in the batch
Explanation
A batch-level activity occurs each time a batch or production run is processed, and its total cost depends on the number of batches, not the number of units within each batch. Machine setups, purchase orders, and first-article inspections are classic batch-level activities. Option A describes a unit-level activity. Option C describes a product-sustaining activity. Option D describes a facility-sustaining activity.
Ridgemont Co. uses ABC with two pools: machine setups ($360,000 total, 600 setups) and engineering support ($180,000 total, 600 engineering hours). The Standard product uses 200 setups and 400 engineering hours. What is the total ABC overhead allocated to the Standard product?
$240,000
$360,000
$300,000
$180,000
Explanation
Setup rate = $360,000 / 600 = $600 per setup. Engineering rate = $180,000 / 600 = $300 per hour. Standard overhead = (200 x $600) + (400 x $300) = $120,000 + $120,000 = $240,000. Option A is the full setup pool cost, not Standard's share. Option B is the overhead allocated to the Deluxe product. Option D is the full engineering pool cost.
Ridgemont Co. produces 1,000 units of Standard (ABC overhead $240,000) and 500 units of Deluxe (ABC overhead $300,000). What is the ABC overhead cost per unit for each product?
Standard $200 per unit; Deluxe $500 per unit
Standard $300 per unit; Deluxe $360 per unit
Standard $480 per unit; Deluxe $360 per unit
Standard $240 per unit; Deluxe $600 per unit
Explanation
Standard overhead per unit = $240,000 / 1,000 = $240. Deluxe overhead per unit = $300,000 / 500 = $600. Option B divides total overhead equally across units regardless of product. Option C reverses the division logic for Standard. Option D uses incorrect denominator amounts.
Sunrise Products has total manufacturing overhead of $480,000 and budgeted direct labor hours of 6,000. What is the predetermined overhead rate under traditional costing?
$60 per DLH
$48 per DLH
$80 per DLH
$100 per DLH
Explanation
Predetermined overhead rate = Total overhead / Total cost driver = $480,000 / 6,000 DLH = $80 per DLH. Option A divides by 8,000 DLH. Option C divides by 4,800 DLH. Option D divides by 10,000 DLH.
Sunrise Products uses a traditional overhead rate of $80 per direct labor hour. Product X requires 3 DLH per unit. What is the traditional overhead cost per unit for Product X?
$240 per unit
$120 per unit
$80 per unit
$160 per unit
Explanation
Traditional overhead per unit = Rate x DLH per unit = $80 x 3 = $240. Option A applies the rate to 1.5 DLH instead of 3. Option B applies the rate to 1 DLH. Option D applies the rate to 2 DLH.
A company has an order processing cost pool of $280,000 and expects 4,000 customer orders for the period. Customer A places 15 orders during the year. What is the total order processing cost assigned to Customer A under ABC?
$875
$1,400
$1,050
$700
Explanation
Cost driver rate = $280,000 / 4,000 orders = $70 per order. Customer A cost = 15 orders x $70 = $1,050. Option A applies the rate to 10 orders rather than 15. Option C applies the rate to 20 orders. Option D applies the rate to 12.5 orders using an incorrect order count.
A manufacturer uses ABC with three pools: machine maintenance ($180,000, 9,000 machine hours), product design ($120,000, 400 design changes), and packaging ($60,000, 500 shipments). Product Omega uses 600 machine hours, 20 design changes, and 30 shipments. What is the total ABC overhead assigned to Product Omega?
$24,000
$21,600
$18,000
$15,600
Explanation
Rates: Maintenance = $180,000 / 9,000 = $20 per machine hour; Design = $120,000 / 400 = $300 per change; Packaging = $60,000 / 500 = $120 per shipment. Product Omega overhead = (600 x $20) + (20 x $300) + (30 x $120) = $12,000 + $6,000 + $3,600 = $21,600. Option A uses only the maintenance pool. Option B applies incorrect rates to the driver quantities. Option D omits the design cost pool from the calculation.