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UA ACCT 210 - Clicker Question Preparation Guide Ch. 4

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Clicker Question Preparation Guide: Ch. 4 Clicker questions will be asked in class based on your completion of this preparation guide. Example in class question: What is the answer to Question 3) b.? You will not have time to complete this guide in class! 1. Milton Manufacturing has three departments (or activities) in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $80,000, $162,500, and $28,000, respectively. The expected annual use for each activity is 1,000 setups, 12,500 machine hours, and 875 inspections. Compute the overhead rate for each activity. Machine Setups Machining Inspections 2. Wilson Bradley & Associates, a law firm, uses Activity Based Costing for assigning overhead costs. The following budgeted data for each of the activity cost pools is provided for the year 2016. Estimated Expected Use of Activity Cost Pools Overhead Cost Drivers per Activity ABC Rate per Activity Researching legal issues $ 36,800 800 research hours Meeting with clients $ 1,797,600 8,400 professional hours Preparing legal documents $ 448,000 28,000 pages $2,282,400 During 2017 the firm experienced actual cost driver use as follows: 820 research hours, 8,550 professional hours, and prepared 27,600 document pages. a. Compute the total overhead applied during 2017 using ABC. b. If actual overhead costs incurred during 2017 were $2,300,000 was overhead under- or overapplied during the year?3. Kustom Kar Parts expects to incur $480,000 in overhead costs in its three main production departments this year: setup costs ($30,000), machining costs ($330,000), and packing costs ($120,000) to make two models of their exhaust systems. The setup department expects to perform 40 setups per year, the machining department expects to work 5,000 hours per year, and the packing department expects to pack 500 orders per year. Manufacturing information about Kustom’s two exhaust system models follows: EX-1 EX-2 Total Expected Use of Cost Drivers Number of setups 20 20 40 Machining hours 1,000 4,000 5,000 Orders packed 150 350 500 Number of products manufactured 600 400 1,000 a. If Kustom Kar Parts use a traditional costing method for applying overhead costs to production, how much overhead would be assigned to Product EX-1 each year assuming the use of machining hours as an application base? b. Using Activity Based Costing, how much overhead would be assigned to Product EX-1 each year, assuming the expected use of cost drivers for


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UA ACCT 210 - Clicker Question Preparation Guide Ch. 4

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