Question 1

Prevention costs are incurred to prevent quality problems from occurring in the first place.

Accepted Answer

A) True 
 B)False

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

Question 3

Which of the following is the correct formula to compute an activity rate?

Accepted Answer

A) Divide the total activity cost by the total activity driver 
B) Divide the total activity driver by the total activity cost 
C) Multiply the total activity cost by the total activity driver 
D) Add the total activity driver to the total activity cost 
A) Divide the total activity cost by the total activity driver 
B) Divide the total activity driver by the total activity cost 
C) Multiply the total activity cost by the total activity driver 
D) Add the total activity driver to the total activity cost

Question 4

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:

Accepted Answer

a.$8,000 = $20,000 × 40%
b.$12,000 = $20

Question 5

Harwell,Inc.produces two different products,Product A and Product B.Harwell uses a traditional volume-based costing system in which direct labor hours are the allocation base.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 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.$160,000 = $4.00 × 40,000
b.$240,000 =

Question 6

Magenta 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 Magenta's two products,and the activity cost assigned to each product.Fill in the blanks below:

Accepted Answer

a.$24,000 = $60,000 × 40%
b.$36,000 = $6

Question 7

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.

Accepted Answer

A) facility-level 
B) service-level 
C) group-level 
D) customer-level 
A) facility-level 
B) service-level 
C) group-level 
D) customer-level

Question 8

Which type of quality cost would a firm most want to eliminate or reduce as much as possible?

Accepted Answer

A) Prevention costs 
B) Appraisal or inspection costs 
C) Internal failure costs 
D) External failure costs 
A) Prevention costs 
B) Appraisal or inspection costs 
C) Internal failure costs 
D) External failure costs

Question 9

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:   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

Question 10

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 Machining activity is used by Standard?

Accepted Answer

A) 30% 
B) 33% 
C) 67% 
D) 75% 
A) 30% 
B) 33% 
C) 67% 
D) 75%

Question 11

The first step in ABC is:

Accepted Answer

A) to calculate a manufacturing overhead rate. 
B) to form activity cost pools. 
C) to select a cost driver for each activity cost pool. 
D) to identify and classify activities. 
A) to calculate a manufacturing overhead rate. 
B) to form activity cost pools. 
C) to select a cost driver for each activity cost pool. 
D) to identify and classify activities.

Question 12

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.

Question 13

Lincoln,Inc. ,which uses a volume-based cost system,produces cat condos that sell for $90 each.Direct materials cost $15 per unit,and direct labor costs $10 per unit.Manufacturing overhead is applied at a rate of 200% of direct labor cost.Nonmanufacturing costs are $27 per unit.What is the gross profit margin for the cat condos?

Accepted Answer

A) 20.0% 
B) 50.0% 
C) 62.5% 
D) 80.0% 
A) 20.0% 
B) 50.0% 
C) 62.5% 
D) 80.0%

Question 14

Prevention costs are costs that:

Accepted Answer

A) are incurred to prevent quality problems from occurring in the first place. 
B) are incurred to identify defective products before products are shipped to the customer. 
C) result from defects that are caught before the product is shipped to the customer. 
D) occur when a defective product makes its way into the hands of the customer. 
A) are incurred to prevent quality problems from occurring in the first place. 
B) are incurred to identify defective products before products are shipped to the customer. 
C) result from defects that are caught before the product is shipped to the customer. 
D) occur when a defective product makes its way into the hands of the customer.

Question 15

Cottonwood,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 uses 30% of total machine hours and 70% of total batches.What is the total activity cost assigned to Standard?

Accepted Answer

A) $22,500 
B) $125,000 
C) $171,000 
D) $359,000 
A) $22,500 
B) $125,000 
C) $171,000 
D) $359,000

Question 16

Carter,Inc.produces two different products,Product A and Product B.Carter uses a traditional volume-based costing system in which direct labor hours are the allocation base.Carter is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Design,Production,and Inspection.The cost of each activity and usage of the activity drivers are as follows:
   Carter manufactures 10,000 units of Product A and 7,500 units of Product B per month.
Required:
a.Calculate the predetermined overhead rate under the traditional costing system.
b.Calculate the activity rate for Design.
c.Calculate the activity rate for Machining.
d.Calculate the activity rate for Inspection.
e.Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system.
f.Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system.
g.Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system.
h.Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system.
i.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Accepted Answer

a.$2.50 = ($300,000 + $500,000 + $200,00

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:

Accepted Answer

a.$30.00 = $60,000/(800 + 1,200)
b.$24,0

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Activity-based costing systems include non-volume-based cost drivers.

Accepted Answer

A) True 
 B)False

Question 20

Jefferson,Inc.produces two different products (Product 5 and Product Z)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.The activity drivers are used as follows:   What proportion of Machining activity is used by Product 5?

Accepted Answer

A) 20% 
B) 33% 
C) 67% 
D) 75% 
A) 20% 
B) 33% 
C) 67% 
D) 75%

Prevention costs are incurred to prevent quality problems from occurring in the first place.

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

Which of the following is the correct formula to compute an activity rate?

Which type of quality cost would a firm most want to eliminate or reduce as much as possible?

The first step in ABC is:

The gross margin does not take into account:

Prevention costs are costs that:

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

Activity-based costing systems include non-volume-based cost drivers.

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgetary Planning

Standard Costing and Variance Analysis

Decentralized Performance Evaluation

Capital Budgeting

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

Exam 4: Activity-Based Costing and Cost Management

Prevention costs are incurred to prevent quality problems from occurring in the first place.

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

Which of the following is the correct formula to compute an activity rate?

Which type of quality cost would a firm most want to eliminate or reduce as much as possible?

The first step in ABC is:

The gross margin does not take into account:

Prevention costs are costs that:

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

Activity-based costing systems include non-volume-based cost drivers.

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgetary Planning

Standard Costing and Variance Analysis

Decentralized Performance Evaluation

Capital Budgeting

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters