CHAPTER 4 Activity Based Costing ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Exercises Do It Exercises Problems Problems A B Brief 1 2 1 2 3 4 5 6 12 13 1A 3A 4A 5A 1B 3B 4B 5B 1 1 3 3 7 8 6 10 11 12 3 4 5 6 7 12 2 1 3 4 5 6 8 9 10 11 12 13 1A 2A 3A 4A 5A 1B 2B 3B 4B 5B 13 14 15 11 8 16 17 8 9 12 13 14 1A 5A 1B 5B 10 11 12 4 15 16 9 10 14 5A 5B 1 2 3 4 5 6 7 8 9 Recognize the difference between traditional costing and activity based costing 1 2 3 4 5 Identify the steps in the development of an activity based costing system 7 9 19 18 20 Know how companies identify the activity cost pools used in activity based costing Know how companies identify and use cost drivers in activity based costing Understand the bene fits and limitations of activity based costing Differentiate between value added and non value added activities Understand the value of using activity levels in activity based costing Apply activity based costing to service industries Explain just in time JIT processing chapter Note All asterisked Questions Exercises and Problems relate to material contained in the appendix to the Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only 4 1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Assign overhead using traditional costing and ABC compute unit costs classify activities as value or non value added Difficulty Level Moderate Time Allotted min 35 45 1A 2A 3A 4A 5A 1B 2B 3B 4B 5B Assign overhead to products using ABC and evaluate decision Moderate 25 35 Assign overhead costs using traditional costing and ABC compare results Moderate 35 45 Assign overhead costs using traditional costing and ABC compare results Moderate 40 50 Assign overhead costs to services using traditional costing and ABC compute overhead rates and unit costs compare results Moderate 35 45 Assign overhead using traditional costing and ABC compute unit costs classify activities as value or non value added Moderate 35 45 Assign overhead to products using ABC and evaluate decision Moderate 25 35 Assign overhead costs using traditional costing and ABC compare results Moderate 35 45 Assign overhead costs using traditional costing and ABC compare results Moderate 40 50 Assign overhead costs to services using traditional costing and ABC compute overhead rates and unit costs compare results Moderate 35 45 4 2 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only B L O O M S T A X O N O M Y T A B L E Correlation Chart between Bloom s Taxonomy Learning Objectives and End of Chapter Exercises and Problems Synthesis Evaluation Application P4 5A P4 1B P4 4B P4 5B E4 12 E4 13 P4 1A P4 4A BE4 1 BE4 2 E4 1 E4 2 Knowledge Comprehension Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 DI4 1 Q4 7 DI4 1 Learning Objective 1 Recognize the difference between traditional costing and activity based costing 2 Identify the steps in the development of an activity based costing system 3 Know how companies identify the activity cost pools used in activity based costing 4 Know how companies identify and use cost drivers in activity based costing Q4 9 Q4 6 Q4 10 Q4 11 Q4 12 Q4 13 Q4 14 Q4 15 Q4 8 Q4 16 Q4 17 Q4 19 5 Understand the benefits and limitations of activity based costing 6 Differentiate between value added and non value added activities DI4 4 7 Understand the value of using activity levels in activity based costing 8 Apply activity based costing to Q4 18 service industries 9 Explain just in time JIT Q4 20 processing Broadening Your Perspective E4 7 BE4 3 BE4 4 BE4 5 BE4 6 BE4 7 BE4 12 DI4 2 E4 11 BE4 8 BE4 9 DI4 3 BE4 10 BE4 11 BE4 12 BE4 9 BE4 10 BYP4 1 BYP4 3 E4 12 E4 13 P4 1A P4 1B BE4 8 BE4 9 E4 14 DI4 3 P4 5A P4 5B Analysis P4 3A P4 4A P4 5A P4 3B P4 4B P4 5B E4 1 E4 2 E4 3 E4 4 E4 5 E4 6 E4 8 DI4 2 E4 1 E4 3 E4 4 E4 5 E4 6 E4 8 E4 9 E4 10 P4 3A P4 4A P4 5A P4 3B P4 4B P4 5B E4 15 E4 16 P4 5A P4 5B P4 5B BE4 10 E4 17 E4 18 P4 5A BYP4 4 BYP4 7 E4 1 E4 4 E4 5 E4 11 E4 12 E4 13 P4 1A P4 2A P4 4A P4 5A P4 1B P4 2B P4 3B P4 4B P4 5B P4 4B BYP4 2 BYP4 5 BYP4 8 BYP4 3 BYP4 6 C o p y r i g h t 2 0 1 2 i l J o h n W e y S o n s I n c W e y g a n d t M a n a g e r i a l A c c o u n t i n g 6 e l S o u t i o n s M a n u a l F o r I n s t r u c t o r U s e O n y l 4 3 ANSWERS TO QUESTIONS 1 Direct labor is a valid basis for allocating overhead when a direct labor constitutes a significant part of total product cost and b there is a high correlation between direct labor and changes in the amount of overhead costs 2 The amount of direct labor in many industries has greatly decreased due to advances in computerized systems technological innovation global competition and automation Total overhead costs resulting from depreciation on expensive equipment and machinery utilities repairs and maintenance have significantly increased Many companies now use machine hours as the basis on which to allocate overhead in an automated manufacturing environment 3 In many automated manufacturing environments machine hours is a more relevant basis on which to allocate overhead 4 Under a traditional volume based costing system where overhead cost is allocated on the basis of units of output the high volume product will undoubtedly absorb more overhead than the low volume product 5 The principal differences are Primary focus Activities performed in making Units of production Activity Based Costing Traditional Costing Bases of allocation Multiple cost drivers Single unit level base products 1 2 6 Activity based overhead rates are computed using the following formula Estimated Overhead per Activity Expected Use of Cost Drivers per Activity 7 8 9 10 The four steps involved in developing an ABC system are 1 Identify and classify the major activities involved in the manufacture of specific products and allocate manufacturing overhead costs to appropriate cost pools Identify the cost driver that has a strong correlation to the costs accumulated in the cost pool 2 …