The controller of Sensor Co., implementing the ABC system in the assembly department, identifies the following three cost pools and cost drivers: Cost pool Costs Cost driver Product A Product B Setup of machines 10,000 Number of setups 40 60 Parts assembly 20,000 Number of parts 150 250 Receiving and handling of materials 20,000 Pounds of materials 5 5 Total overhead 50,000 What is the cost of machine setups for product A? Choose a. 7,500 b. 6,000 c. 10,000

The controller of Sensor Co., implementing the ABC system in the assembly department, identifies the following three cost pools and cost drivers: Cost pool Costs Cost driver Product A Product B Setup of machines 10,000 Number of setups 40 60 Parts assembly 20,000 Number of parts 150 250 Receiving and handling of materials 20,000 Pounds of materials 5 5 Total overhead 50,000 What is the cost of machine setups for product A? Choose a. 7,500 b. 6,000 c. 10,000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 26E: Nonunit-level drivers are prominent in activity-based coting systems. Which of the following is a...

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Cost pool	Costs	Cost driver	Product A	Product B
Setup of machines	10,000	Number of setups	40	60
Parts assembly	20,000	Number of parts	150	250
Receiving and handling of materials	20,000	Pounds of materials	5	5
Total overhead	50,000

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The following items are associated with a traditional cost accounting information system, an activity-based cost accounting information system, or both (that is, some elements are common to the two systems): a. Usage of direct materials b. Direct materials cost assigned to products using direct tracing c. Direct labor cost incurrence d. Direct labor cost assigned to products using direct tracing e. Setup cost incurrence f. Setup cost assigned using number of setups as the activity driver g. Setup cost assigned using direct labor hours as the activity driver h. Cost accounting personnel i. Submission of a bid, using product cost plus 25 percent j. Purchasing cost incurrence k. Purchasing cost assigned to products using direct labor hours as the activity driver l. Purchasing cost assigned to products using number of orders as the activity driver m. Materials handling cost incurrence n. Materials handling cost assigned using the number of moves as the activity driver o. Materials handling cost assigned using direct labor hours as the activity driver p. Computer q. Costing out of products r. Decision to continue making a part rather than buying it s. Printer t. Customer service cost incurred u. Customer service cost assigned to products using number of complaints as the activity driver v. Report detailing individual product costs w. Commission cost x. Commission cost assigned to products using units sold as the activity driver y. Plant depreciation z. Plant depreciation assigned to products using direct labor hours Required: 1. For each cost system, classify the relevant items into one of the following categories: a. Interrelated parts b. Processes c. Objectives d. Inputs e. Outputs f. User actions 2. Explain the choices that differ between the two systems. Which system will provide the best support for the user actions? Explain. 3. Draw an operational model that illustrates each cost accounting systemwith the items that belong to the system used as examples for each component of the model. 4. Based on the operational models, comment on the relative costs and benefits of the two systems. Which system should be chosen?
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