Question 1

Which of the following would be least likely to be used as an allocation base in a company that applies a single plantwide rate?

Accepted Answer

A)  Machine hours. 
B)  Direct material costs. 
C)  Direct labor cost. 
D)  Direct labor hours. 
A)  Machine hours. 
B)  Direct material costs. 
C)  Direct labor cost. 
D)  Direct labor hours.

Question 2

The manager of the Personnel Department at King Enterprises has been reading about time-driven ABC and wants to apply it to her department. She has identified four basic activities where her employees spend the most time: Interviewing; Hiring, Assessment, and Separation Processing. The Department employs five staff who perform these activities. The manager provides the following estimates for the amount of time it takes to complete each of these activities:
? Interviewing: 40 minutes;
? Hiring: 60 minutes;
? Assessment: 85 minutes;
? Separation processing: 95 minutes.
Employees in Personnel work 35-hour weeks with four weeks for vacation. Of the 35 hours, five are reserved for administrative tasks, training, and so on. The costs of the personnel department, including any allocated costs from other staff functions is $1,404,000. During the year, Personnel conducted 1,200 interviews, made 405 hires, made 2,850 assessments, and had 235 separations.
Required:
a. What is the cost per minute for activities in Personnel?
b. What is the cost of interviewing and hiring one employee?
c. How many minutes of unused capacity did Personnel have for the year?
d. What was the cost of the unused capacity in Personnel?

Accepted Answer

a. $3.25
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Question 3

In recent years, why has labor become such a small part of product costs and how can its use in overhead allocation perpetrate errors in decision-making?

Accepted Answer

When cost systems were first being devel

Question 4

The death spiral can occur even in firms with increasing demand.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true regarding time-driven activity-based costs?

Accepted Answer

A)  A manager needs to determine the cost of resources for each individual item produced. 
B)  This approach requires interviews and surveys from multiple managers and employees. 
C)  It is more costly than the unmodified ABC system. 
D)  It uses the cost of the resources supplied to a department and the time it takes to complete the various activities of the department. 
A)  A manager needs to determine the cost of resources for each individual item produced. 
B)  This approach requires interviews and surveys from multiple managers and employees. 
C)  It is more costly than the unmodified ABC system. 
D)  It uses the cost of the resources supplied to a department and the time it takes to complete the various activities of the department.

Question 6

Which of the following statements is true regarding time equations used in time-driven activity-based costing?

Accepted Answer

A)  Time equations cannot adjust extra time for new vendors. 
B)  Time equations allow managers to adjust the times for orders with different characteristics. 
C)  Time equations cannot be used where there is a maximum size of an order that can be inspected or transported to the warehouse. 
D)  Time equations are only used as part of unmodified ABC systems. 
A)  Time equations cannot adjust extra time for new vendors. 
B)  Time equations allow managers to adjust the times for orders with different characteristics. 
C)  Time equations cannot be used where there is a maximum size of an order that can be inspected or transported to the warehouse. 
D)  Time equations are only used as part of unmodified ABC systems.

Question 7

First stage cost objects do not include:

Accepted Answer

A)  Supplies 
B)  Depreciation 
C)  Maintenance and Repair Costs 
D)  Direct materials 
A)  Supplies 
B)  Depreciation 
C)  Maintenance and Repair Costs 
D)  Direct materials

Question 8

Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.

Accepted Answer

A) True 
 B)False

Question 9

The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.

Accepted Answer

A) True 
 B)False

Question 10

A two-stage system first allocates costs to:

Accepted Answer

A)  Products or services and then allocates costs to departments or activities. 
B)  The cost driver and then allocates costs to the cost hierarchy. 
C)  A product line and then allocates costs to the department. 
D)  Departments or activities and then allocates costs to products or services. 
A)  Products or services and then allocates costs to departments or activities. 
B)  The cost driver and then allocates costs to the cost hierarchy. 
C)  A product line and then allocates costs to the department. 
D)  Departments or activities and then allocates costs to products or services.

Question 11

Market Corporation has an activity-based costing system with three activity cost pools-Processing, Batch Setup, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Data concerning the company's costs and activity-based costing system appear below:
 $\begin{array}{ll}
\text { Factory utilities } & \$ 39,000 \
\text { Indirect labor } & \$ 3,000
\end{array}$
 
 $$\begin{array}{l}
\text { Distributim of Resaure Cmsumption Acrass Activity Cast Paols }\
\begin{array} { | l | c | c | c | } 
\hline & \text { Processing } & \text { Batch Setup } & \text { Other } \
\hline \text { Factary utilities } & 0.10 & 0.60 & 0.30 \
\hline \text { Indirect labor } & 0.30 & 0.10 & 0.60 \
\hline
\end{array}
\end{array}$$ 
Required:
Assign overhead costs to activity cost pools using activity-based costing.

Accepted Answer

Assign overhead costs to activity cost p

Question 12

Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities.

Accepted Answer

A) True 
 B)False

Question 13

A basic assumption of activity-based costing (ABC) is that:

Accepted Answer

A)  All manufacturing costs vary directly with units of production. 
B)  Products or services require the performance of activities and activities consume resources. 
C)  Only costs that respond to unit-level drivers are product costs. 
D)  Only variable costs are included in the activity cost pools. 
A)  All manufacturing costs vary directly with units of production. 
B)  Products or services require the performance of activities and activities consume resources. 
C)  Only costs that respond to unit-level drivers are product costs. 
D)  Only variable costs are included in the activity cost pools.

Question 14

Which one of the following accounts is not used in an activity-based costing (ABC) system?

Accepted Answer

A)  Materials Inventory. 
B)  Work-in-Process Inventory. 
C)  Finished Goods Inventory. 
D)  Allocations Incurred. 
A)  Materials Inventory. 
B)  Work-in-Process Inventory. 
C)  Finished Goods Inventory. 
D)  Allocations Incurred.

Question 15

Predetermined overhead rates are not used in first-stage cost allocations but are used in second-stage cost allocations.

Accepted Answer

A) True 
 B)False

Question 16

In an activity-based costing (ABC) system, what should be used to assign departmental manufacturing overhead costs to products produced in varying lot sizes?

Accepted Answer

A)  A product's ability to bear cost allocations. 
B)  A single cause-and-effect relationship. 
C)  Multiple cause-and-effect relationships. 
D)  Relative net sales values of the products. 
A)  A product's ability to bear cost allocations. 
B)  A single cause-and-effect relationship. 
C)  Multiple cause-and-effect relationships. 
D)  Relative net sales values of the products.

Question 17

Maxim Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.
 $$\begin{array} { l c c } 
\text { Activity Cost Pools } &  { \text { Activity Rate } } \
\text { Batch Setup } & \$ 74.76 \text { per batch } \
\text { Processing customer orders } & \$ 55.40 \text { per customer order } \
\text { Assembling products } & \$ 1.36 \text { per assembly hour }
\end{array}$$ 
Last year, Product P involved 33 batches, 1 customer order, and 368 assembly hours.
Required:
How much overhead cost would be assigned to Product P using the company's activity-based costing system? Show your work.

Accepted Answer

The answer of Maxim Corporation uses the following activity rates...

Question 18

Companies that manufacture products that are similar and use the same resources should use the plantwide cost allocation method.

Accepted Answer

A) True 
 B)False

Question 19

Direct labor cost (DLC) and direct labor hours (DLH) are examples of volume-related cost drivers in the cost hierarchy.

Accepted Answer

A) True 
 B)False

Question 20

Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785.
The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools-Activity 1, Activity 2, and General Factory-with estimated overhead costs and expected activity as follows:
$$\begin{array} { l c c c c } 
& \text { Estimated } &  { \text { Expected Activity } } \
 & & \text { Basic } & & \
\text { Activity Cost Pool } & \text { Overhead Costs } & \text { Product } & \text { Deluxe Product } & \text { Total } \
\text { Activity 1 } & \$ 30,528 & 1,000 & 600 & 1,600 \
\text { Activity 2 } & 17,385 & 1,700 & 200 & 1,900 \
\text { General Factory } & 50,872 & 510 & 660 & 1,170 \
\text { Total } & \$ 98,785 & & &
\end{array}$$
-
The overhead cost per unit of Deluxe Product under the traditional costing system is closest to:

Accepted Answer

A)  $50.66. 
B)  $5.49. 
C)  $26.09. 
D)  $11.45. 
A)  $50.66. 
B)  $5.49. 
C)  $26.09. 
D)  $11.45.

Which of the following would be least likely to be used as an allocation base in a company that applies a single plantwide rate?

In recent years, why has labor become such a small part of product costs and how can its use in overhead allocation perpetrate errors in decision-making?

The death spiral can occur even in firms with increasing demand.

Which of the following statements is true regarding time-driven activity-based costs?

Which of the following statements is true regarding time equations used in time-driven activity-based costing?

First stage cost objects do not include:

Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.

The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.

A two-stage system first allocates costs to:

Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities.

A basic assumption of activity-based costing (ABC) is that:

Which one of the following accounts is not used in an activity-based costing (ABC) system?

Predetermined overhead rates are not used in first-stage cost allocations but are used in second-stage cost allocations.

In an activity-based costing (ABC) system, what should be used to assign departmental manufacturing overhead costs to products produced in varying lot sizes?

Companies that manufacture products that are similar and use the same resources should use the plantwide cost allocation method.

Direct labor cost (DLC) and direct labor hours (DLH) are examples of volume-related cost drivers in the cost hierarchy.

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

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Exam 9: Activity-Based Costing

Which of the following would be least likely to be used as an allocation base in a company that applies a single plantwide rate?

In recent years, why has labor become such a small part of product costs and how can its use in overhead allocation perpetrate errors in decision-making?

The death spiral can occur even in firms with increasing demand.

Which of the following statements is true regarding time-driven activity-based costs?

Which of the following statements is true regarding time equations used in time-driven activity-based costing?

First stage cost objects do not include:

Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.

The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.

A two-stage system first allocates costs to:

Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities.

A basic assumption of activity-based costing (ABC) is that:

Which one of the following accounts is not used in an activity-based costing (ABC) system?

Predetermined overhead rates are not used in first-stage cost allocations but are used in second-stage cost allocations.

In an activity-based costing (ABC) system, what should be used to assign departmental manufacturing overhead costs to products produced in varying lot sizes?

Companies that manufacture products that are similar and use the same resources should use the plantwide cost allocation method.

Direct labor cost (DLC) and direct labor hours (DLH) are examples of volume-related cost drivers in the cost hierarchy.

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters