Question 1

In general, traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).

Accepted Answer

A) True 
 B)False

Question 2

Pretty Dog Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:
   
Assume a traditional costing system applies the overhead costs based on direct labor hours.
Required:
a. What is the total amount of overhead costs assigned to the standard model?
b. What is the total amount of overhead costs assigned to the deluxe model?
Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.
c. What is the total amount of overhead costs assigned to the standard model?
d. What is the total amount of overhead costs assigned to the deluxe model?

Accepted Answer

a. Overhead rate: ($30,000 + 50,000)/(65

Question 3

Yang Corporation has an activity-based costing system with three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.   
Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the company's two products and the company's costs appear below:
 $$\begin{array} { l c r } 
& \text { MHs } & \text { Batches } \
\text { Product Z } & 4,400 & 400 \
\text { Product Q } & 5,600 & 1,600 \
\text { Total } & 10,000 & 2,000
\end{array}$$ 
 $$\begin{array} { l l l } 
& \text { ProductZ } & \text { ProductQ } \
\text { Sales } & \$ 137,900 & \$ 173,300 \
\text { Direct materials } & \$ 59,700 & \$ 43,400 \
\text { Direct labor } & \$ 57,500 & \$ 96,000
\end{array}$$ 
Required:
a. Calculate activity rates for each activity cost pool using activity-based costing.
b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
c. Determine the product margins for each product using activity-based costing.

Accepted Answer

a. Computation of activity rates:
 \[\be

Question 4

Describe four classifications of cost drivers.

Accepted Answer

Volume related drivers are proportional

Question 5

Activity-based costing provides:

Accepted Answer

A)  More detailed measures of costs than do plantwide or department allocation methods. 
B)  Less detailed measures of costs than do plantwide or department allocation methods. 
C)  More detailed measures of costs than do plantwide allocations but less than department allocation methods. 
D)  Less detailed measures of costs than do plantwide allocations but more than department allocation methods. 
A)  More detailed measures of costs than do plantwide or department allocation methods. 
B)  Less detailed measures of costs than do plantwide or department allocation methods. 
C)  More detailed measures of costs than do plantwide allocations but less than department allocation methods. 
D)  Less detailed measures of costs than do plantwide allocations but more than department allocation methods.

Question 6

Russell Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Slow and Fast, about which it has provided the following data:
$\begin{array}{lrrrr}
&\text { Slow}&\text {  Fast }\
\text { Direct materials per unit } & \$  14.10 & \$ 43.40 \
\text { Direct labor per unit } & \$  3.20 & \$  25.60 \
\text { Direct labor-hours per unit } & 0.20 & 1.60 \
\text { Annual production } &  30,000 & 15,000
\end{array}$

The company's estimated total manufacturing overhead for the year is $1,526,700 and the company's estimated total direct labor-hours for the year is 30,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
$$\begin{array} { l r } 
& \text { Estirnated Overhead } \
\text { Activities and Activity Measures }  & \text { Cost }\
\text { Assembling products (DLHs) } & 720,000 \
\text { Preparing batches (batches) } & 362,700\
\text { Product support (product variations) } &444,000 \
\text{Total}&\$1,526,700
\end{array}$$
$$\begin{array} { l r r r } 
&  { \text { Expected Activity } } \
 & \text { Slow } & \text { Fast } & \text { Total } \
\text { DLHs } & 6,000 & 24,000 & 30,000 \
 \text { Batches }& 1,380 & 1,410 &2,790 \
\text { Product variations }& 570& 540 & 1,110
\end{array}$$

-
The manufacturing overhead that would be applied to a unit of product Fast under the activity-based costing system is closest to:

Accepted Answer

A)  $81.42. 
B)  $65.02. 
C)  $146.44. 
D)  $12.22. 
A)  $81.42. 
B)  $65.02. 
C)  $146.44. 
D)  $12.22.

Question 7

Matchbox Manufacturing has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Utility and Super, about which it has provided the following data:
 $\begin{array}{lrr}
 &\text {  Utility} &\text { Super } \
  \text { Direct materials per unit } &\$34.10&52.70\
 \text {Direct labor per unit  } &\$16.10&\$39.10\
 \text {  Direct labor-hours per unit} &0.70&1.70\
 \text { Annual production } &30,000&10,000\

\end{array}$
 
The company's estimated total manufacturing overhead for the year is $1,527,600 and the company's estimated total direct labor-hours for the year is 38,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
 $$\begin{array} { l c } 
\text { Activities and Activity Meas.ires } & \text { Estimated Overhead Cost } \
\text { Assembling products (DLHs) } & \$ 608,000 \
\text { Preparing batches (batches) } & 197,600 \
\text { Axial milling (MHs) } &  \underline{722,000} \
\text { Total } & \underline{ \$ 1,527,600}
\end{array}$$ 
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Utility } & { \text { Super } } & { \text { Total } } \
\hline \text { Assernbling products } & 21,000 & 17,000 & 38,000 \
\hline \text { Preparing batches } & 456 & 1,520 & 1,976 \
\hline \text { Axial milling } & 570 & 874 & 1,444 \
\hline
\end{array}$$ 
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

Accepted Answer

a. Traditional Manufacturing Overhead Co

Question 8

Would the following activities at a manufacturer of canned soup be best classified as volume-related, batch-related, or product-related activities?
$\begin{array} { cc } 
 & \text { Researching new recipes } & \text { Shipping orders to grocery stores } \\end{array}$
A.$\begin{array} { cc }  &&&& \text { Volume } &&&&&&&& \text { Volume } \\end{array}$
B.$\begin{array} { cc } &&&& \text { Batch }&&&&&&&&& \text { Batch } \\end{array}$
C.$\begin{array} { cc }  &&&& \text { Product } &&&&&&&& \text { Volume } \\end{array}$
D.$\begin{array} { cc }  &&&& \text { Product } &&&&&&&&& \text { Batch } \
\end{array}$

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 9

Cameron Company has two major segments with the following information:
 $$\begin{array} { l r r r } 
&{ \text { East } } & \text { West } & \text { Total } \
\text { Annual revenue } & \$ 400,000 & \$ 1,200,000 & \$ 1,600,000 \
\text { Annual salesperson salaries } & 300,000 & 450,000 & 750,000 \
\text { Number of customers } & 60 & 90 & 150 \
\text { Miles driven } & 180,000 & 120,000 & 300,000
\end{array}$$ 
The business also has overhead costs as follows:
 $$\begin{array} { l r l } 
{ \text { Cost Pool } } & \text { Cost in Pool } & \text { Cost driver } \
\text { Travel } & \$ 72,000 & \text { Number of miles driven } \
\text { Entertainment } & 288,000 & \text { Number of customers } \
\text { Administrative } & 289,000 & \text { Salaries } \
\text { Total } & \$ 649,000 &
\end{array}$$ 
NOTE: overhead does not include salesperson salaries.
Required:
a. Determine the income of each segment if overhead costs are allocated based on sales revenue.
b. Determine the income of each segment if overhead costs are allocated using activity-based cost drivers.

Accepted Answer

a. East: ($62,250); West: $263,250.
b. E

Question 10

Plant property taxes are an example of a cost that would be considered to be:

Accepted Answer

A)  Volume-related. 
B)  Batch-related. 
C)  Product-related. 
D)  Facility-related. 
A)  Volume-related. 
B)  Batch-related. 
C)  Product-related. 
D)  Facility-related.

Question 11

The flow of activity-based costs through the ledger is the same as their flow using traditional methods except that the accounts are based on activities, not departments.

Accepted Answer

A) True 
 B)False

Question 12

Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:
$$\begin{array} { l c c r } 
\text { Department } & \text { DLH } & \text { Loans Processed } & \text { Direct Costs } \
\text { Consumer } & 14,000 & 700 & \$ 280,000 \
\text { Commercial } & 8,000 & 300 & \$ 180,000
\end{array}$$
-
Banc Corp. Trust estimates that it costs $400 to analyze and close a commercial loan. What is the overhead rate if Banc Corp. Trust allocates the remaining indirect costs using direct labor hours?

Accepted Answer

A)  $12.55 per hour. 
B)  $18.00 per hour. 
C)  $1,000 per loan. 
D)  $800 per loan. 
A)  $12.55 per hour. 
B)  $18.00 per hour. 
C)  $1,000 per loan. 
D)  $800 per loan.

Question 13

Blalock Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $10 per direct labor hour. Department A produces Products #101X and #102Y. Department A has $262,000 in traceable overhead. Department B manufactures Product #103Z. Department B has $128,000 in traceable overhead. The product costs (per unit) and other information are as follows:
 $\begin{array}{lccc}
&&\text { Products }\
&101 \mathrm{X} & 102 \mathrm{Y} & 103 \mathrm{Z}\
 \text { Direct materials } & \$  60.00 & \$ 58.00& \$ 46.00 \
 \text { Direct labor } &  42.00 & 31.50 & 12.00 \
 \text { Overhead } &  40.00 & 30.00 & 20.00 \
& \$ 142.00 & \$ 119.50& \$ 78.00\
\text { Machine hours (per unit) } & 4 & 2 & 3 \
\text { Number of cases (per year) } & 3,000 & 5,000& 6,000
\end{array}$ 
Required:
a. If Blalock changes its allocation basis to machine hours, what is the total overhead cost per unit for Product 101X, 102Y, and 103Z?
b. If Blalock changes its overhead allocation to departmental rates, what is the overhead cost per unit for Product 101X, 102Y, and 103Z, assuming Departments A and B use direct labor hours and machine hours as their respective allocation bases?

Accepted Answer

a.Overhead rate: ($262,000 + 128,000)/[(

Question 14

In general, low-volume products (and services) have a lower degree of complexity associated with them.

Accepted Answer

A) True 
 B)False

Question 15

Pinnocle Corporation has provided the following data from its activity-based costing system:
$$\begin{array} { l c l } 
\text { Activity Cost Pool } & \text { Total Cost } & \text { Total Activity } \
\text { Assembly } & \$ 1,114,920 & 57,000 \text { machine-hours } \
\text { Processing orders } & \$ 47,016 & 1,800 \text { orders } \
\text { Inspection } & \$ 107,328 & 1,560 \text { inspection-hours }
\end{array}$$
The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit.
According to the activity-based costing system, the product margin for product S78N is:

Accepted Answer

A)  $4,116.50. 
B)  $29,132.50. 
C)  $6,180.50. 
D)  $5,161.30. 
A)  $4,116.50. 
B)  $29,132.50. 
C)  $6,180.50. 
D)  $5,161.30.

Question 16

Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based)
$$\begin{array} { | l | r | r | } 
\hline & \text { Wall Mirrors } & \text { Specialty Windows } \
\hline \text { Units Produced } & 40 & 20 \
\hline \text { Material moves per product line } & 5 & 15 \
\hline \text { Direct labor hours per product line } & 200 & 300 \
\hline \text { Budgeted material handling costs: } \$ 50,000 &  \
\hline
\end{array}$$
-
Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Wall Mirrors would be:

Accepted Answer

A)  $625.00. 
B)  $312.50. 
C)  $833.33. 
D)  $1,000.00. 
A)  $625.00. 
B)  $312.50. 
C)  $833.33. 
D)  $1,000.00.

Question 17

Which of the following should not be used as the allocation base in a company that appropriately uses a single plantwide rate?

Accepted Answer

A)  Sales volume. 
B)  Machine hours. 
C)  Material costs. 
D)  Direct labor cost. 
A)  Sales volume. 
B)  Machine hours. 
C)  Material costs. 
D)  Direct labor cost.

Question 18

Time equations can be used in extended time-driven activity-based costing (TDABC) systems to allow managers to adjust the times for orders with different characteristics.

Accepted Answer

A) True 
 B)False

Question 19

JennerMaid Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $20 per direct labor hour. Department 1 produces Product X and has $256,000 in traceable overhead. Department 2 manufactures Products Y and Z and has $524,000 in traceable overhead. The product costs (per unit) and other information are as follows:
 $\begin{array}{lccc}
&&\text { Products }\
& \mathrm{X} &  \mathrm{Y} &  \mathrm{Z}\
 \text { Direct materials } & \$  85.00 & \$ 74.00& \$ 66.00 \
 \text { Direct labor } &  42.00 & 31.50 & 22.00 \
 \text { Overhead } &  40.00 & 30.00 & 20.00 \
& \$ 167.00 & \$ 135.50& \$ 108.00\
\text { Machine hours (per unit) } & 4 & 2 & 3 \
\text { Number of cases (per year) } & 6,000 &10,000&12,000
\end{array}$
 
Required:
a. If JennerMaid changes its allocation basis to machine hours, what is the overhead cost per unit for Product X, Y, and Z?
b. If JennerMaid changes its overhead allocation to departmental rates, what is the overhead cost per unit for Product X, Y, and Z, assuming Department 1 uses direct labor hours and Department 2 uses machine hours as their respective allocation bases? (round to four decimal places)

Accepted Answer

a. X: $39.00; Y: $19.50; Z: $29.25.
b. X

Question 20

The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.

Accepted Answer

A) True 
 B)False

In general, traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).

Describe four classifications of cost drivers.

Activity-based costing provides:

Would the following activities at a manufacturer of canned soup be best classified as volume-related, batch-related, or product-related activities? Researching new recipes Shipping orders to grocery stores A. Volume Volume B. Batch Batch C. Product Volume D. Product Batch

Plant property taxes are an example of a cost that would be considered to be:

The flow of activity-based costs through the ledger is the same as their flow using traditional methods except that the accounts are based on activities, not departments.

In general, low-volume products (and services) have a lower degree of complexity associated with them.

Which of the following should not be used as the allocation base in a company that appropriately uses a single plantwide rate?

Time equations can be used in extended time-driven activity-based costing (TDABC) systems to allow managers to adjust the times for orders with different characteristics.

The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.

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

In general, traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).

Describe four classifications of cost drivers.

Activity-based costing provides:

Would the following activities at a manufacturer of canned soup be best classified as volume-related, batch-related, or product-related activities? Researching new recipes Shipping orders to grocery stores A. Volume Volume B. Batch Batch C. Product Volume D. Product Batch

Plant property taxes are an example of a cost that would be considered to be:

The flow of activity-based costs through the ledger is the same as their flow using traditional methods except that the accounts are based on activities, not departments.

In general, low-volume products (and services) have a lower degree of complexity associated with them.

Which of the following should not be used as the allocation base in a company that appropriately uses a single plantwide rate?

Time equations can be used in extended time-driven activity-based costing (TDABC) systems to allow managers to adjust the times for orders with different characteristics.

The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.

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