Questions 1 through 4

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BRIEF EXERCISES 1. Cost Classifications LOI Hendee Cable Systems manufactures a variety of products for the fiber optic industry in its facility in San Bernardino, California. The following are examples of the activities performed by various personnel at Hendee. a. Purchase orders are generated for raw materi- als purchases from suppliers. Hendee orders raw materials as needed to fill customer orders and maintains a very small amount of raw materials inventory. b. Engineers conduct research and development activities aimed at identifying new technologies for data transmission C. Hendee conducts continuous quality inspec. tions during the production process. All cable is 100 percent guaranteed to be free of defects. d. Machine operators must calibrate production equipment whenever production is started on a new order. e. Maintenance personnel regularly inspect the manufacturing facility's heating and cooling systems to ensure adequate conditions within the manufacturing environment. f. Hendee recently hired several new engineers to begin work on the development of a new product line. 9. Accounting personnel were billed for, and paid, property taxes on the rufacturing facility. 84 Chapron Hierdie bune launched a website to auction excess able to interested parties city was built to house all design engi A new in one central location. This new facility will be depreciated over 20 years. Required y each of the activities as a unit-level, batch el product-level or facility-level activity, LO, ABC Activities and Cost Drivers bakubielski and Martin, CA, is a full-service CPA for that provides accounting, tax, and consulting services to its clients. The firm is considering chang- ing to an activity-based costing system and has asked for your input regarding the design of the sustem. The firm has identified certain activities that are integral to the practice, and it would like your suggestions regarding potential cost drivers Activity Cost Driver 1. Professional staff hours Tax return preparation 2. Transactions clax retum review 3. Number of pages Data input 4. Number of employees e Report assembly 5. Machine hours Research 5. Clerical staff hours g. Report writing Site visits Required Match each of the activities with a potential cost driver. Note that you may not use all drivers and some may be used more than once. 3. ABC Overhead Calculation LO3 Timeless Timepieces produces and sells watches. The following data are available for various activi- ties within the company Number of Overhead Activity Allocation Base Activities Cost Unpacking Number of 10,000 $40,000 boxes unpacked Inspecting Number of batches 1,800 36,000 inspected Packing Number of watches 56,000 28,000 packed Required Calculate the overhead rates for each of the three activities. Benefits and Limitations of ABC LO4 Activity-based costing an aid companies in under- standing their Overhead costs. The following state- ments describe some of the benefits and limitations of ABC a. ABC is useful for understanding overhead costs, but it is not very useful for identifying opportuni- ties for continuous improvement b. One significant advantage of ABC is the increased accuracy of cost information that it provides. C. Traditional costing methods allow managers to better see what causes costs to be incurred than does ABC. d. One of the biggest disadvantages of implement- ing an ABC system is the cost. e. Companies that produce a limited number of prod- ucts, most of which have similar features, would likely benefit more from implementing an ABC system than would companies that produce a large number of products with many different features. Required Indicate whether each of the preceding statements is true or false. BRIEF EXERCISES 1. Cost Classifications LOI Hendee Cable Systems manufactures a variety of products for the fiber optic industry in its facility in San Bernardino, California. The following are examples of the activities performed by various personnel at Hendee. a. Purchase orders are generated for raw materi- als purchases from suppliers. Hendee orders raw materials as needed to fill customer orders and maintains a very small amount of raw materials inventory. b. Engineers conduct research and development activities aimed at identifying new technologies for data transmission C. Hendee conducts continuous quality inspec. tions during the production process. All cable is 100 percent guaranteed to be free of defects. d. Machine operators must calibrate production equipment whenever production is started on a new order. e. Maintenance personnel regularly inspect the manufacturing facility's heating and cooling systems to ensure adequate conditions within the manufacturing environment. f. Hendee recently hired several new engineers to begin work on the development of a new product line. 9. Accounting personnel were billed for, and paid, property taxes on the rufacturing facility. 84 Chapron Hierdie bune launched a website to auction excess able to interested parties city was built to house all design engi A new in one central location. This new facility will be depreciated over 20 years. Required y each of the activities as a unit-level, batch el product-level or facility-level activity, LO, ABC Activities and Cost Drivers bakubielski and Martin, CA, is a full-service CPA for that provides accounting, tax, and consulting services to its clients. The firm is considering chang- ing to an activity-based costing system and has asked for your input regarding the design of the sustem. The firm has identified certain activities that are integral to the practice, and it would like your suggestions regarding potential cost drivers Activity Cost Driver 1. Professional staff hours Tax return preparation 2. Transactions clax retum review 3. Number of pages Data input 4. Number of employees e Report assembly 5. Machine hours Research 5. Clerical staff hours g. Report writing Site visits Required Match each of the activities with a potential cost driver. Note that you may not use all drivers and some may be used more than once. 3. ABC Overhead Calculation LO3 Timeless Timepieces produces and sells watches. The following data are available for various activi- ties within the company Number of Overhead Activity Allocation Base Activities Cost Unpacking Number of 10,000 $40,000 boxes unpacked Inspecting Number of batches 1,800 36,000 inspected Packing Number of watches 56,000 28,000 packed Required Calculate the overhead rates for each of the three activities. Benefits and Limitations of ABC LO4 Activity-based costing an aid companies in under- standing their Overhead costs. The following state- ments describe some of the benefits and limitations of ABC a. ABC is useful for understanding overhead costs, but it is not very useful for identifying opportuni- ties for continuous improvement b. One significant advantage of ABC is the increased accuracy of cost information that it provides. C. Traditional costing methods allow managers to better see what causes costs to be incurred than does ABC. d. One of the biggest disadvantages of implement- ing an ABC system is the cost. e. Companies that produce a limited number of prod- ucts, most of which have similar features, would likely benefit more from implementing an ABC system than would companies that produce a large number of products with many different features. Required Indicate whether each of the preceding statements is true or false