Question 1

When target costing is used, the target cost is determined by:

Accepted Answer

A)  finding the difference between the market price and the amount of profit needed to satisfy stakeholders. 
B)  adding the cost of direct materials, direct labor, and activity costs of a product. 
C)  subtracting all nonvalue-added costs from total manufacturing costs of a product. 
D)  adding the manufacturing and nonmanufacturing costs of the product. 
A)  finding the difference between the market price and the amount of profit needed to satisfy stakeholders. 
B)  adding the cost of direct materials, direct labor, and activity costs of a product. 
C)  subtracting all nonvalue-added costs from total manufacturing costs of a product. 
D)  adding the manufacturing and nonmanufacturing costs of the product. A

Question 2

Which of the following best defines a product-level activity?

Accepted Answer

A)  An activity that is performed for a specific customer 
B)  An activity that is performed to support a specific product line 
C)  An activity that is performed for each individual unit 
D)  An activity that is performed for a group of units all at once 
A)  An activity that is performed for a specific customer 
B)  An activity that is performed to support a specific product line 
C)  An activity that is performed for each individual unit 
D)  An activity that is performed for a group of units all at once B

Question 3

The gross margin does not take into account:

Accepted Answer

A)  sales price. 
B)  nonmanufacturing cost. 
C)  manufacturing overhead. 
D)  direct materials and direct labor. 
A)  sales price. 
B)  nonmanufacturing cost. 
C)  manufacturing overhead. 
D)  direct materials and direct labor. B

Question 4

Harwell, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell produces two different products: Product A, which uses 40,000 direct labor hours, and Product B, which uses 60,000 direct labor hours. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $400,000 across three activities: Setup, Production, and Finishing. Under the traditional volume-based costing system, the predetermined overhead rate is $4.00/direct labor hour. Under the ABC system, the cost of each activity and proportion of the activity drivers used by each product are as follows:   Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Accepted Answer

a. $160,000 = $4.00 × 40,000
b. $240,000

Question 5

An activity that is performed for a group of units all at once is a(n):

Accepted Answer

A)  batch-level activity. 
B)  product-level activity. 
C)  facility-level activity. 
D)  unit-level activity. 
A)  batch-level activity. 
B)  product-level activity. 
C)  facility-level activity. 
D)  unit-level activity.

Question 6

Activity Based Costing divides activities into two categories: unit-level activities and facility level activities

Accepted Answer

A) True 
 B)False

Question 7

Target costing involves determining what the product price must be in order to meet the target cost and still provide a profit for the company's shareholders

Accepted Answer

A) True 
 B)False

Question 8

Chipman Inc. produces water pumps. Overhead costs have been identified as follows:   Chipman makes 3 models of pumps with the following details:   Required:
a. Calculate the activity rate for each activity.
b. Determine the amount of indirect costs assigned to each of the products.

Accepted Answer

The answer of Chipman Inc. produces water pumps. Overhead costs...

Question 9

Hayden, Inc. produces two different products, Product A and Product
B. Hayden uses a traditional volume-based costing system in which direct labor hours are the allocation base. Hayden is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,600,000 across three activities: Engineering, Manufacturing, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.00/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows:
   Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Accepted Answer

a. $800,000 = $2.00 × 400,000
b. $800,00

Question 10

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows:   What is the amount of Machining cost assigned to Product A?

Accepted Answer

A)  $7,500 
B)  $125,000 
C)  $375,000 
D)  $500,000 
A)  $7,500 
B)  $125,000 
C)  $375,000 
D)  $500,000

Question 11

An activity that is performed for a specific customer is a(n):

Accepted Answer

A)  batch-level activity. 
B)  product-level activity. 
C)  facility-level activity. 
D)  unit-level activity. 
A)  batch-level activity. 
B)  product-level activity. 
C)  facility-level activity. 
D)  unit-level activity.

Question 12

Internal failure costs result from defects that are caught during the inspection process

Accepted Answer

A) True 
 B)False

Question 13

An activity cost driver is:

Accepted Answer

A)  a measure of the underlying activity that occurs in each activity cost pool. 
B)  a measure of the volume of units produced or customers sold. 
C)  a number of activities combined into one cost pool. 
D)  the cost assigned to an activity. 
A)  a measure of the underlying activity that occurs in each activity cost pool. 
B)  a measure of the volume of units produced or customers sold. 
C)  a number of activities combined into one cost pool. 
D)  the cost assigned to an activity.

Question 14

Carter, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter produces two different products: Product A, which uses 100,000 direct labor hours, and Product B, which uses 300,000 direct labor hours. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design, Production, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.50/direct labor hour. Under the ABC system, the cost of each activity and proportion of the activity drivers used by each product are as follows:   Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Accepted Answer

a. $250,000 = $2.50 × 100,000
b. $750,00

Question 15

Which of the following sets just-in-time systems apart from traditional manufacturing systems?

Accepted Answer

A)  Cost of goods sold includes all manufacturing cost. 
B)  Materials are purchased only as they are needed to manufacture goods. 
C)  Cost of goods sold is not calculated. 
D)  It can be used in conjunction with activity based costing. 
A)  Cost of goods sold includes all manufacturing cost. 
B)  Materials are purchased only as they are needed to manufacture goods. 
C)  Cost of goods sold is not calculated. 
D)  It can be used in conjunction with activity based costing.

Question 16

Which of the following involves analyzing the market and estimating what consumers will be willing to pay for a product with specific features?

Accepted Answer

A)  Just-in-time inventory 
B)  Target costing 
C)  Total quality management 
D)  Value engineering 
A)  Just-in-time inventory 
B)  Target costing 
C)  Total quality management 
D)  Value engineering

Question 17

Magnolia Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the amount of activity driver used for each of Magnolia's two products, the activity rate, and the activity cost assigned to each product. Fill in the blanks below:
Activity
Cost
Activity Driver
Driver Usage
Activity Rate
Activity Cost: Prod. 1
Activity Cost: Prod. 2
Prod. 1
Prod. 2
Design
$60,000
Design time
800 hours
1,200 hours
a.
b.
c.
Preparation
$18,000
Labor hours
3,000 hours
d.
e.
$9,000
f.
Machining
$90,000
Machine hours
g.
h.
$18.00/hour
$27,000
i.
Finishing
j.
Batches
200
300
$50/batch
k.
l.
Inspection
m.
Units
n.
o.
$6/unit
$3,000
$6,000
Packaging
p.
Orders
q.
50
$300/order
$13,500
r.
Shipping
$17,000
Packages
70
s.
t.
u.
$3,000

Accepted Answer

a. $30.00 = $60,000/(800 + 1,200)
b. $24

Question 18

A just-in-time (JIT) system is a demand-push system

Accepted Answer

A) True 
 B)False

Question 19

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows:   What is the amount of Inspection cost assigned to Product A?

Accepted Answer

A)  $7,500 
B)  $22,500 
C)  $30,000 
D)  $125,000 
A)  $7,500 
B)  $22,500 
C)  $30,000 
D)  $125,000

Question 20

Yallow, Inc. manufactures teddy bears and dolls. Currently, Yallow makes 2,000 teddy bears each month. Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor. Yallow uses two activities in manufacturing the teddy bears: Sewing and Processing. The cost associated with Sewing is $15,000 a month, allocated on the basis of direct labor hours. The cost associated with Processing is $10,000 a month, allocated on the basis of batches. The activity drivers are used as follows: Teddy Bears
Dolls
Direct labor hours
200
200
Batches
35
65
What is the total manufacturing cost for one teddy bear?

Accepted Answer

A)  $2.50 
B)  $4.50 
C)  $7.00 
D)  $8.00 
A)  $2.50 
B)  $4.50 
C)  $7.00 
D)  $8.00

When target costing is used, the target cost is determined by:

Which of the following best defines a product-level activity?

The gross margin does not take into account:

An activity that is performed for a group of units all at once is a(n):

Activity Based Costing divides activities into two categories: unit-level activities and facility level activities

Target costing involves determining what the product price must be in order to meet the target cost and still provide a profit for the company's shareholders

Chipman Inc. produces water pumps. Overhead costs have been identified as follows: Chipman makes 3 models of pumps with the following details: Required: a. Calculate the activity rate for each activity. b. Determine the amount of indirect costs assigned to each of the products.

An activity that is performed for a specific customer is a(n):

Internal failure costs result from defects that are caught during the inspection process

An activity cost driver is:

Which of the following sets just-in-time systems apart from traditional manufacturing systems?

Which of the following involves analyzing the market and estimating what consumers will be willing to pay for a product with specific features?

A just-in-time (JIT) system is a demand-push system

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Cost Behavior and Estimation

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Decentralized Performance Evaluation

Capital Budgeting

Statement of Cash Flows

Financial Statement Analysis

Filters

Exam 4: Activity-Based Cost Management

When target costing is used, the target cost is determined by:

Which of the following best defines a product-level activity?

The gross margin does not take into account:

An activity that is performed for a group of units all at once is a(n):

Activity Based Costing divides activities into two categories: unit-level activities and facility level activities

Target costing involves determining what the product price must be in order to meet the target cost and still provide a profit for the company's shareholders

Chipman Inc. produces water pumps. Overhead costs have been identified as follows: Chipman makes 3 models of pumps with the following details: Required: a. Calculate the activity rate for each activity. b. Determine the amount of indirect costs assigned to each of the products.

An activity that is performed for a specific customer is a(n):

Internal failure costs result from defects that are caught during the inspection process

An activity cost driver is:

Which of the following sets just-in-time systems apart from traditional manufacturing systems?

Which of the following involves analyzing the market and estimating what consumers will be willing to pay for a product with specific features?

A just-in-time (JIT) system is a demand-push system

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Cost Behavior and Estimation

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Decentralized Performance Evaluation

Capital Budgeting

Statement of Cash Flows

Financial Statement Analysis

Filters