Chapter 17: Q14DQ (page 787)
Apple’s production requires activities. What are value-added activities?
Value-added activity is any action that generates positive results and raises the perceived value of a certain object.
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Following are activities in providing medical services at Healthsmart Clinic.
A. Registering patients E. Ordering medical equipment
B. Cleaning beds F. Heating the clinic
C. Stocking examination rooms G. Providing security services
D. Washing linens H. Filling prescriptions
Required
1. Classify each activity as unit level (U), batch level (B), product level (P), or facility level (F).
2. Identify an activity driver that might be used to measure these activities at the clinic.
What is the first step in applying activity-based costing?
A company has two products: standard and deluxe. The company expects to produce 36,375 standard units and 62,240 deluxe units. It uses activity-based costing and has prepared the following analysis showing budgeted cost and cost driver activity for each of its three activity cost pools.
Budgeted Activity of
Cost Driver
Activity Cost Pool Budgeted Cost Standard Deluxe
Activity 1 …………………… \(93,000 2,500 5,250
Activity 2 …………………… \)92,000 4,500 5,500
Activity 3 …………………… $87,000 3,000 2,800
Required
1. Compute overhead rates for each of the three activities.
2. What is the expected overhead cost per unit for the standard units?
3. What is the expected overhead cost per unit for the deluxe units?
Refer to the information in Exercise 17-1. Compute the activity rate for each activity, assuming the company uses activity-based costing.
Activity | Expected Costs | Expected Activity |
Handling materials | $625,000 | 100,000 parts |
Inspecting product | 900,000 | 1,500 batches |
Processing purchase orders | 105,000 | 700 orders |
Paying suppliers | 175,000 | 500 invoices |
Insuring the factory | 300,000 | 40,000 square feet |
Designing packaging | 75,000 | 2 models |
1. If management wants the most accurate product cost, which of the following costing methods should be used?
2. Which costing method tends to overstate the cost of high-volume products?
3. Disadvantages of activity-based costing include
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