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Q-1 Lehner Corporation has provided the following data from its activity-based costing accounting system: Indirect factory wages $552,000 Factory equipment depreciation $332,000 Distribution of Resource Consumption across Activity Cost Pools: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system?
Q-2 For years, Worley believed that the 6% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown below: Activity Cost Pool (Activity Measure) Customer deliveries (Number of deliveries) Manual order processing (Number of manual orders) Electronic order processing (Number of electronic orders) Line item picking (Number of line items picked) Other organization sustaining costs (None) Total selling and administrative expenses Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $36,000 to buy from its manufacturers):
Q-3 SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization sustaining activity. The following costs will be assigned using the activity based Costing system: Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses Total cost
Q-4 Reasons a company may decide not to use ABC include ABC tends to be more expensive to implement and maintain than the traditional method. ABC does not conform to external reporting requirements. Some arbitrary allocations will still occur and managers who are not knowledgeable in the limitations of an ABC system may make mistakes in pricing and other critical decisions. When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity based costing system with batch-level and product-level costs, the unit product costs of low volume products typically decrease whereas the unit product costs of high volume products typically increase. in traditional costing some manufacturing cost may be excluded from product cost
Q-5 Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's Machine-hours Direct labor-hours Number of orders processed Cost of materials purchased