Activities:Unit Batch Product Facility

Chapter 6 Problems

1.Benjamin Tools produces a variety of cutting instruments at its Amarillo manufacturing plant. The plant is highly automated and uses an ABC system to allocate overhead costs to its various product lines. The company expects to produce 48,000 total units during the current period. The costs and cost drivers associated with the four activity cost pools are given below:

Activities:Unit Batch Product Facility

LevelLevelLevelLevel

Cost$100,000$12,000$20,000$240,000

Cost Driver8,000 DLH100 set ups% of use48,000 units

Production of 3,000 units of a pipe-cutting tool required 800 labor hours, 25 setups, and consumed 20% of the product sustaining activities. What amount of totaloverhead was allocated to the pipe-cutting tool?

2.Jones Company allocates overhead on the basis of direct labor hours. It allocates overhead costs of $12,800 to two different jobs as follows:

Job 1: (10 hours) = $6,400Job 2: (10 hours) = $6,400

The production process for Job 1 is automated. Now Job 1 only requires 5 hours of direct labor but 4 hours of mechanical processing. As a result, total overhead increases to $15,000. How much overhead will be assigned to Job 1 and Job 2 after automation if the company continues to use direct labor hours as its cost driver?

3.Teed Off makes steel and graphite shafts for golf clubs. It requires approximately 2 hours of labor to make one shaft of either kind. During the year, the company made 12,000 graphite shafts and 8,000 steel shafts. Setup costs amounted to $62,000 for 36 total batches (20 for graphite and 16 for steel). What is the amount of setup cost assigned to the graphite shafts if activity-based costing is used?

1. Smith Company makes golf balls and baseballs. Making golf balls requires 5,000 hours of labor and making baseballs requires 8,000 hours of labor. Smith undertakes an automation process that reduces the consumption of labor required for baseballs to only 2,000 hours of labor. Overhead cost prior to the automation totaled $15,000. After automation, overhead cost amounted to $25,000. Assuming Smith uses direct labor as a company-wide allocate base before and after automation, what is the amount of overhead cost allocated to each product?

5.The Carolina Furniture Company manufactures kitchen cabinets. The company has always used direct labor cost to allocate overhead to its two cabinet lines, Heritage and Contemporary. The manufacture of both lines has been labor intensive. Recently, the company automated production of its Contemporary line of cabinets. It continues to use labor dollars as the overhead allocation base for both lines. This practice will likely result in which of the following?

a.Overhead cost will be allocated accurately between the two lines.

b.Too much overhead cost will be allocated to the Heritage line.

c.Too much overhead cost will be allocated to the Contemporary line.

d.b and c.

6.Pacific Northwest Ski Company makes both traditional skis and new parabola-shaped skis that are less stable but turn more easily. During 2003 the company produced 10,000 pairs of traditional skis and 7,000 pairs of new skis. Materials handling costs to transfer material to different workstations amounted to $20,000. The traditional skis used 150 hours of materials handling time and the new skis used 170 hours. Both types of skis required 3 hours of direct labor per pair of skis. Assuming that all overhead cost is allocated using an activity-based cost system, the amount of materials handling overhead cost assigned to the new skis would be

7.Setup costs for XYZ’s two products amounted to $2,000. The company used 1,200 direct labor hours to produce product A and 2,000 direct labor hours to produce product B. Both products required the same number of setups. XYZ uses a company-wide overhead rate to allocate overhead based on direct labor hours. Based on this information

a.Product A is undercosted by $750.

b.Product A is overcosted by $1,250.

c.Product B is overcosted by $250.

d.Product B is undercosted by $500.