Denominator Activity Level Of Time: Discussion Questions
Commerce 458 Midterm Examination of Feb. 4, 2013 50 marks; Time available 50 minutes
Suggested Solution
QUESTION 1 Multiple Choice Answer the multiple choice questions selecting the BEST answer only. Where more than one answer is possible, it is noted, and you may select more than one answer if it is appropriate. 1. Consider a single hard copy of this study guide as a cost object. What would be the best three labels to classify the relation between this cost object and the following two costs of producing the cost object respectively: (1) the paper and (2) the one-time fee paid to the authors (i.e. not royalties)? (1 mark) a. Direct cost; (2) Variable cost b. Variable cost; (2) Unavoidable cost c. Fixed cost; (2) Variable cost d. Direct …show more content…
Pepper Company uses a single plant wide rate to allocate manufacturing overhead to jobs. The rate is computed by dividing expected manufacturing overhead by the expected denominator activity level. Expected manufacturing cost was $6,000,000 and the expected denominator activity level was 15,000. The actual manufacturing overhead was $5,600,000 and the actual denominator activity level was 14,000. Which of the following is the manufacturing overhead result for this period? (2 marks) a. $200,000 over-applied b. $0 c. $400,000 under-applied d. None of the above 5. Which of the following statements is/are true about the high low method of estimating cost behaviour? (may be > 1 answer) (2 marks) a. Uses all the historical data available b. Can be affected by extreme points c. Requires a good knowledge of the production process d. Requires a good knowledge of product specifications 6. Which one of the following is not one of the ABC cost hierarchy? (1 mark) a. Customer sustaining b. Facility sustaining c. Fixed costs d. Batch level costs
7. Which of the following would not be a cost that would be allocated using ABC? (1 mark) a. The cost of wood used in a factory making furniture. b. Costs associated with handling customer complaints c. The costs of heating a batch of steel d. Product advertising 8. Which of the following would not be an appropriate cost driver for assigning batch related costs to a product? (1 mark) a. The number of hours spent moving a batch around the factory …show more content…
Using the specific information provided, develop a cost function (z = a + bx ) to estimate the manufacturing overhead. (4 marks) Item Amount Cost Classification Fixed Fixed Fixed Variable Variable Variable
Factory property taxes $37,456 Machine depreciation Supervisory salaries Indirect labour Indirect supplies Power $94,568 $67,845 $22,665 $16,167 $24,805 $263,506
Total variable costs $63,637 Cost driver activity level 1,415 $63,637/ 1,415 Variable cost per LH $44.97 Total fixed costs $199,869 (37,456+94,568+67,845) Therefore, the estimated manufacturing overhead equation using the account analysis method is: Manufacturing overhead = 199,869 + 44.97*number of labour hours
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c) Would regression analysis be appropriate in this case? Explain. (4
Suggested Solution
QUESTION 1 Multiple Choice Answer the multiple choice questions selecting the BEST answer only. Where more than one answer is possible, it is noted, and you may select more than one answer if it is appropriate. 1. Consider a single hard copy of this study guide as a cost object. What would be the best three labels to classify the relation between this cost object and the following two costs of producing the cost object respectively: (1) the paper and (2) the one-time fee paid to the authors (i.e. not royalties)? (1 mark) a. Direct cost; (2) Variable cost b. Variable cost; (2) Unavoidable cost c. Fixed cost; (2) Variable cost d. Direct …show more content…
Pepper Company uses a single plant wide rate to allocate manufacturing overhead to jobs. The rate is computed by dividing expected manufacturing overhead by the expected denominator activity level. Expected manufacturing cost was $6,000,000 and the expected denominator activity level was 15,000. The actual manufacturing overhead was $5,600,000 and the actual denominator activity level was 14,000. Which of the following is the manufacturing overhead result for this period? (2 marks) a. $200,000 over-applied b. $0 c. $400,000 under-applied d. None of the above 5. Which of the following statements is/are true about the high low method of estimating cost behaviour? (may be > 1 answer) (2 marks) a. Uses all the historical data available b. Can be affected by extreme points c. Requires a good knowledge of the production process d. Requires a good knowledge of product specifications 6. Which one of the following is not one of the ABC cost hierarchy? (1 mark) a. Customer sustaining b. Facility sustaining c. Fixed costs d. Batch level costs
7. Which of the following would not be a cost that would be allocated using ABC? (1 mark) a. The cost of wood used in a factory making furniture. b. Costs associated with handling customer complaints c. The costs of heating a batch of steel d. Product advertising 8. Which of the following would not be an appropriate cost driver for assigning batch related costs to a product? (1 mark) a. The number of hours spent moving a batch around the factory …show more content…
Using the specific information provided, develop a cost function (z = a + bx ) to estimate the manufacturing overhead. (4 marks) Item Amount Cost Classification Fixed Fixed Fixed Variable Variable Variable
Factory property taxes $37,456 Machine depreciation Supervisory salaries Indirect labour Indirect supplies Power $94,568 $67,845 $22,665 $16,167 $24,805 $263,506
Total variable costs $63,637 Cost driver activity level 1,415 $63,637/ 1,415 Variable cost per LH $44.97 Total fixed costs $199,869 (37,456+94,568+67,845) Therefore, the estimated manufacturing overhead equation using the account analysis method is: Manufacturing overhead = 199,869 + 44.97*number of labour hours
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c) Would regression analysis be appropriate in this case? Explain. (4