[nishvik]

CPA-06661

This one is from Becker. I am having hard time with Activity based costing MCQ. I am able to solve the conceptual/theory MCQ’s on Activity Based costing.

Somehow dont know how to work calculative Activity based costing MCQ.

Boyle, Inc. makes two products, X and Y that require allocation of indirect manufacturing costs. The following data was

compiled by the accountant before making any allocations:

Product X Product Y

Quantity produced 10,000 20,000

Direct manufacturing labor hours 15,000 5,000

Setup hours 500 1,500

The total cost of setting up manufacturing processes and equipment is $400,000. The company uses a job-costing system

with a single indirect cost rate. Under this system, allocated costs were $300,000 and $100,000 for X and Y, respectively. If an activity-based system is used, what would be the allocated costs for each product?

Product X Product Y

a. $100,000 $300,000

b. $150,000 $250,000

c. $200,000 $200,000

d. $250,000 $150,000

Explanation

Choice “a” is correct. The setup hours are used because neither quantity produced nor direct manufacturing hours are

activities.

The calculation is as follows:

Setup Hours % of Setup Hours Allocation

Product X 500 500/2000 = 25%*400,000 $100,000

Product Y 1500 1500/2000 =75% *400000 $300,000

Total 2000 100% $400,000

Choices “b”, “c”, and “d” are incorrect, based on the above explanation.

I dint understand why we take set up hours percentages??

Please Explain

FAR- 79 -->Becker self study, Final review & Flashcards
REG -72-->Becker ,76-->Becker plus Wiley test bank
AUD- 73 Becker,72-->Becker+Wiley,69-->Added ninja notes,89 --> Added Gleim review
BEC- 84 Becker plus Wiley Test bank

I am Done !!!!

[redox1100]

This question sucks. i made the following assumptions in answering the question so try to stick with me. Becker claims the answer is A because “The setup hours are used because neither quantity produced nor direct manufacturing hours are activities.” So i made the following assumption if overhead is not broken up into activities, ABC = traditional. Therefore as the question states, “The company uses a job-costing system with a single indirect cost rate (i.e setup hours).” My reasoning can be completely wrong but that's my best guess.

[mmp3]

Think of it this way. The benefit of ABC costing is that it allows for a better internal analysis of how profitable a product line is. I like to think of it in terms of producing ice cream and you have 2 flavors – plain vanilla and a super duper gourmet kind with candy pieces. You don't produce a lot of the gourmet kind because it requires more time and effort to make (you have to set up the mixing machine a certain way and clean it out each time etc…) If you allocated the indirect factory costs based on a traditional rate like direct labor hours worked in the factory you may over-allocate expenses to vanilla because you make more of it. Super duper flavor looks more profitable in this scenario because it didn't get it's true share of the activity expense that was really driving up the costs (in this case machine set up time). So in this question you can see that if you allocate based on the machine set up time you are going to see the cost split up a much different way. Is that helpful?

FAR 92 (2/27/13)
AUD 99 (4/18/13)
REG 93 (7/5/13)
BEC 92 (8/12/13)

Becker Self Study

[nishvik]

thank you guys for replyig and explaining out to me.

In Bec1 Operations Managmt i am not able to understand ABC costing at all.

I am fine with other areas.I am stuck at it.

How to identify what is a cost driver for a particular condition?

FAR- 79 -->Becker self study, Final review & Flashcards
REG -72-->Becker ,76-->Becker plus Wiley test bank
AUD- 73 Becker,72-->Becker+Wiley,69-->Added ninja notes,89 --> Added Gleim review
BEC- 84 Becker plus Wiley Test bank

I am Done !!!!

[Author]

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