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In: Accounting
When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to...
When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products?
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Expert Solution
- In what fundamental ways does activity-based costing differ from traditional costing methods such as:
Activity-based costing differs from traditional costing methods
in 3 ways:
· Non-manufacturing as well as
manufacturing costs may be assigned to products, but only on a
cause-and-effect basis.
· Some manufacturing costs may
be excluded from product costs.
· Numerous overhead costs pools
are used, each of which is allocated to products and other cost
objects using it’s own unique measure of activity.
- Why are there two stages of allocation in activity-based costing?
There are two stages of allocation in activity-based costing because costs must first be allocated to activity cost pools and then they are allocated from the activity cost pools to products, customers, and other cost objects.
- When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products?
When activity-based costing is used, manufacturing overhead costs shift from high-volume products to low-volume products because in traditional cost systems, product-level costs are spread across all products using direct labor-hours or some other allocation base related to volume. As a consequence, high-volume products are assigned the bulk of such costs. In an activity-based costing system, batch-level and product-level costs are assigned more appropriately. This results in shifting product-level costs back to the products that cause them and away from the high-volume products.
- What types of costs should not be assigned to products in an activity-based costing system?
The types of costs that should not be assigned to products in an activity-based costing system are: organization-sustaining costs and customer level costs. Costs of idle capacity should not be assigned to products, these costs represent resources that are not consumed by the products. Activity based costing treats these types of costs as period expenses rather than product costs
ekkarill92 answered 1 year agoRelated Solutions
Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been...
Wedd Corporation uses activity-based costing to assign overhead
costs to products. Overhead costs have already been allocated to
the company's three activity cost pools as follows: Processing,
$46,700; Supervising, $33,600; and Other, $24,200. Processing costs
are assigned to products using machine-hours (MHs) and Supervising
costs are assigned to products using the number of batches. The
costs in the Other activity cost pool are not assigned to products.
Activity data appear below:
MHs (Processing)
Batches (Supervising)
Product O6
18,400
1,250
Product...
Umanzor Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been...
Umanzor Corporation uses activity-based costing to assign
overhead costs to products. Overhead costs have already been
allocated to the company's three activity cost pools as follows:
Processing, $50,500; Supervising, $28,600; and Other, $24,700.
Processing costs are assigned to products using machine-hours (MHs)
and Supervising costs are assigned to products using the number of
batches. The costs in the Other activity cost pool are not assigned
to products. Activity data appear below:
MHs
(Processing)
Batches
(supervising)
Product S5
10,900
1,420
Product...
Lysiak Corporation uses an activity based costing system to assign overhead costs to products. In the...
Lysiak Corporation uses an activity based costing system to
assign overhead costs to products. In the first stage, two overhead
costs--equipment depreciation and supervisory expense-are allocated
to three activity cost pools--Machining, Order Filling, and
Other--based on resource consumption. Data to perform these
allocations appear below:
Overhead costs:
Equipment depreciation
$
47,000
Supervisory expense
$
6,000
Distribution of Resource Consumption Across Activity Cost
Pools:
Activity Cost Pools
Machining
Order Filling
Other
Equipment depreciation
0.60
0.10
0.30
Supervisory expense
0.60
0.20
0.20...
An activity based costing system is being considered at Evelia, nv to assign products overhead costs;...
An activity based costing system is being considered at Evelia,
nv to assign products overhead costs; these overhead costs are
currently assigned strictly by number of units produced. First, the
two overhead costs of Rent expense and Insurance expense would be
allocated to three activity cost pools - Finishing, Sanding, and
Other - based on resource consumption. The information used to
perform these allocations is below:
Overhead Costs:
Rent expense: $2,000,000
Insurance expense: $1,650,000
Distribution of Resource Consumption across Activity...
ECO Plc Ltd. uses an activity based costing system to assign overhead costs to products. In...
ECO Plc Ltd. uses an activity based costing system to assign
overhead costs to products. In the first stage, two overhead costs
- Electricity expense and Water expense - are allocated to three
activity cost pools - Grinding, Painting, and Other - based on
resource consumption. Data to perform these allocations appear
below:
Overhead Costs:
Electricity expense: $195,000
Water expense: $185,000
Distribution of Resource Consumption across Activity Cost
Pools:
Overhead Cost
Activity Cost Pools
Grinding
Painting
Other
Electricity expense
0.40...
Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to...
Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:Information is given as Activity Cost Pool; Amount; Activity RateSetting up batches; $59.06; per batchProcessing customer orders; $72.66; per customer orderAssembling products; $3.75; per assembly hourData concerning the two products is below:Product K91B:Number of batches = 84; number of customer orders = 32; number of assembly hours = 483Product F650:Number of batches = 50; number of customer orders = 43; number of assembly hours...
Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to...
Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:
Activity Cost Pools Activity Rate Assembling products $8.90 per assembly hour
Processing customer orders $31.23 per customer order
Setting up batches $43.72 per batch
Data for one of the company's products follow:
Product U94W
Number of assembly hours 389
Number of customer orders 53
Number of batches 61
How much overhead cost would be assigned to Product U94W using the activity-based costing system?
Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to...
Gould Corporation uses the following activity rates from its
activity-based costing to assign overhead costs to products:
Activity Cost Pool
Activity Rate
Setting up batches
$
59.31
per batch
Processing customer orders
$
72.81
per customer order
Assembling products
$
4.00
per assembly hour
Data concerning two products appear below:
Product K91B
Product F65O
Number of batches
84
55
Number of customer orders
34
48
Number of assembly hours
488
895
How much overhead cost would be assigned to Product...
Bera Corporation uses the following activity rates from its activity-based costing to assign overhead costs to...
Bera Corporation uses the following activity rates from its
activity-based costing to assign overhead costs to
products:
Activity Cost Pools
Activity Rate
Assembling products
$
4.26
per assembly hour
Processing customer orders
$
49.63
per customer order
Setting up batches
$
77.63
per batch
Data for one of the company's products follow:
Product Q79P
Number of assembly hours’
266
Number of customer orders
56
Number of batches
82
How much overhead cost would be assigned to Product Q79P using
the...
Doles Corporation uses the following activity rates from its activity-based costing to assign overhead costs to...
Doles Corporation uses the following activity rates from its
activity-based costing to assign overhead costs to products.
Activity Cost Pools Activity Rate Setting up batches $ 69.22 per
batch
Processing customer orders $ 26.28 per customer order
Assembling products $ 12.11 per assembly hour
Data concerning two products appear below:
Product K52W Product X94T
Number of batches 65 52
Number of customer orders 45 30
Number of assembly hours 418 161
How much overhead cost would be assigned to each...
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