Exam 4: Activity-Based Cost Management

Which of the following statements is not correct about how an ABC system might be adapted to provide managers with sustainability-related information that would affect the triple bottom line?

When is a volume-based cost system appropriate for a service company?

Calverton, Inc. produces two different products (Standard and Luxury) 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 cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Inspection activity is used by Standard?

Culver, Inc. produces two different products (Product V3 and Product G8) 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 drivers are used as follows: The activity rate for Inspection is $750 per batch. What is the total cost of Inspection?

Activity-based costing is not appropriate for service providers since they do not have manufacturing overhead that needs to be assigned to products

The first step in ABC is:

Garfield Personal Training Services is owned by Gina Garfield. Gina provides personal training and coaching to individuals or small groups using the local fitness facility and pool. Gina rents the group training room at the local fitness facility or the pool for scheduled classes. For one-on-one training, she meets clients at the fitness facility where she is a member. Gina is currently learning Zumba and plans to offer a Zumba class in the group training room on Wednesday mornings starting next month. The first scheduled Zumba class is considered a ___________ activity for Garfield.

Pima, Inc. manufactures calculators that sell for $40 each. Each calculator uses $15 in direct materials and $5 in direct labor per unit. Pima has two activities: Machining, which is applied at the rate of $4 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Pima made 400 calculators, using 1,000 machine hours in 40 batches. What is the total manufacturing cost for one calculator?

GG's Personal Training Services is owned by Gina Garfield. Gina provides personal training and coaching to individuals or small groups using the local fitness facility and pool. Gina rents the group training room at the local fitness facility or the pool for scheduled classes. For one-on-one training, she meets clients at the fitness facility where she is a member. Gina is currently learning Zumba and plans to offer a Zumba class in the group training room on Wednesday mornings starting next month. To advertise this class and all her other services, Gina developed a company Facebook page. The development of the Facebook page is considered a ___________ activity for GG's.

Appraisal or inspection costs are costs that:

How is activity-based management related to activity-based costing?

Volume-based cost systems tend to:

A volume-based cost system is likely to assign more manufacturing overhead costs to products:

Linden, Inc. uses a 5,000 square foot factory space that it rents for $2,500 a month for all its manufacturing activities. Linden has decided to switch to an activity-based costing system, and has identified its activities as follows: Preparation and Setup, Machining, Finishing, and Quality Control. 500 square feet of the factory are used for machining, while 2,000 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 500 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool?

Sonora, Inc. is launching a new product that it estimates will sell for $25 per unit. Annual demand is estimated to be 70,000 units. Sonora estimates that using its current manufacturing technology, it can manufacture the units for $23 per unit, but if it purchases a new machine, the units can be manufactured for $22 per unit. Sonora has a target profit of 20% return on sales. Under target costing, what is the target cost for the new product?

External failure costs occur _________ a defective product makes its way to the customer, while internal failure costs occur ______ a defective product makes its way to the customer.

An activity that is performed to support a specific product line is a(n):

Washington, Inc. produces two different products (Product C and Product 2) 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 cost of Machining is $750,000, while the cost of Inspection is $90,000. The activity drivers are used as follows: What is the activity rate for Machining?

Cricket 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 proportion of activity driver used for each of Cricket's two products, and the activity cost assigned to each product. Fill in the blanks below: Activity Cost Activity Driver Proportion used by Activity Cost: Prod. 1 Activity Cost: Prod. 2 Prod. 1 Prod. 2 Design $20,000 Design time 40% 60% a. b. Preparation $12,000 Labor hours 30% c. $3,600 d. Machining $45,000 Machine hours e. f. $27,000 g. Finishing h. Batches 40% i. $10,000 j. Inspection k. Units l. m. $9,000 $6,000 Packaging n. Orders o. 25% $13,500 p. Shipping $5,000 Packages 70% q. r. $1,500

Using the activity-proportion method results in: