Question 1

Which of the following would not be a batch-related activity?

Accepted Answer

A)  Setting up a machine for a new production run. 
B)  Performing 100% inspection. 
C)  Purchasing materials. 
D)  Processing a customer order. 
A)  Setting up a machine for a new production run. 
B)  Performing 100% inspection. 
C)  Purchasing materials. 
D)  Processing a customer order.

Question 2

Cassidy 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, VIP and Kommander, about which it has provided the following data:
$\begin{array}{lcc}
 &\text {VIP}&\text {Kommander}\
 \text { Direct materials per unit } & \$  27.50 & \$62.10 \
\text { Direct labor per unit } & \$  15.60 & \$52.00\
 \text { Direct labor-hours per unit } &  0.60 & 2.00\
\text { Annual production }&40,000&15,000
\end{array}$

The company's estimated total manufacturing overhead for the year is $2,449,440 and the company's estimated total direct labor-hours for the year is 54,000.
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:
$$\begin{array} { l r } 
 & \text { Estimated Overhead } \
\text { Activities and Activity Measures }& \text { Cost } \
\text { Assembling products (DLHs) }  & \$ 918,000 \
\text { Preparing batches (batches) }& 397,440 \
\text { Product support (product variations) } & 1,134,000 \
\text { Total } & \$ 2,449,440 \
\end{array}$$
$$\begin{array} { l r r r } 
&  { \text { Expected Activity } } \
&{ \text { VIP } } & \text {Kommander } & \text { Total } \
\text { DLHs }  & 24,000 & 30,000 & 54,000 \
 \text { Batches }& 1,458 & 1,026 & 2,484 \
\text { Product variations }& 2,592 & 1,189 & 3,780
\end{array}$$
-
The unit product cost of Product VIP under the company's traditional costing system is closest to:

Accepted Answer

A)  $53.30. 
B)  $70.32. 
C)  $43.10. 
D)  $78.57. 
A)  $53.30. 
B)  $70.32. 
C)  $43.10. 
D)  $78.57.

Question 3

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:
$$\begin{array} { l c c c c } 
& \text { Estimated } & { \text { Expected Activity } } \
& & \text { Basic } & & \
\text { Activity Cost Pool } & \text { Overhead Costs } & \text { Product } & \text { Deluxe Product } & \text { Total } \
\text { Activity 1 } & \$ 30,528 & 1,000 & 600 & 1,600 \
\text { Activity 2 } & 17,385 & 1,700 & 200 & 1,900 \
\text { General Factory } & 50,872 & 510 & 660 & 1,170 \
\text { Total } & \$ 98,785 & & &
\end{array}$$
-
(Note: The General Factory costs are allocated on the basis of direct labor hours.)
The overhead cost per unit of Deluxe Product under the activity-based costing system is closest to:

Accepted Answer

A)  $50.66. 
B)  $26.09. 
C)  $35.28. 
D)  $38.16. 
A)  $50.66. 
B)  $26.09. 
C)  $35.28. 
D)  $38.16.

Question 4

If a company has identified three major activities as setting up, handling material, and assembling, possible cost drivers would most likely be set-up hours, production runs, and number of shipments, respectively.

Accepted Answer

A) True 
 B)False

Question 5

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 Specialty Windows would be:

Accepted Answer

A)  $1,875.00. 
B)  $937.50. 
C)  $312.50. 
D)  $1,500.00. 
A)  $1,875.00. 
B)  $937.50. 
C)  $312.50. 
D)  $1,500.00.

Question 6

Data concerning three of Parkeman Corporation's activity cost pools appear below:
 $$\begin{array} { l r c } 
\text { Activity Cost Pools } & \text { Total Cost } & \text { Total Activity } \
\text { Assembling products } & \$ 49,830 & 4,530 \text { assembly hours } \
\text { Designing products } & 557,220& 3,012 \text { product design hours } \
\text { Batch Setup } & 38,180& \text { 830 batch set-ups }
\end{array}$$ 
Required:
Compute the activity rates for each of the three cost pools. Show your work.

Accepted Answer

The answer of Data concerning three of Parkeman Corporation's activity...

Question 7

Brenda's Big Burgers, a small hamburger restaurant and take-out drive-through, has identified the following resources that it uses in its business:
Required:
Suggest a proper cost driver for each of the following items:
 $$\begin{array} { | l | l | l | } 
\hline & & \begin{array} { c } 
\text { Cost Driver } \
\text { Example }
\end{array} \
\hline \text { A } & \text { Bread for burger burns } & \
\hline \text { B. } & \text { Take-out bags assurning one per drive-throuph customer order } & \
\hline \text { C. } & \text { Ground sirloin } & \
\hline \text { D. } & \text { Mayonnaise, catsup, pickles, and onions } & \
\hline \text { E. } & \text { Salary of the restaurant manager } & \
\hline \text { F. } & \text { Restaurant rent } & \
\hline \text { G. } & \text { Workers hourly wages } & \
\hline \text { H. } & \text { Coupons for Brenda's Colossal Burger } & \
\hline \text { I. } & \text { Utilities } & \
\hline \text { J. } & \text { Brenda's Buy-Ary One Burger and Get one Free Burger } & \
&\text { Promotion }\
\hline
\end{array}$$

Accepted Answer

(Student e

Question 8

The Mega Construction Company recently switched to activity-based costing (ABC) from the department allocation method. The department method allocated overhead costs at a rate of $60 per machine hour. The cost accountant for the Finishing Department has gathered the following data:
$\begin{array}{ll}
\text { Activity } & \text { Cost Drivers } & \text { Rate}\
\text { Material handling } & \text { Tons of material handled }&\$80 \
\text { Machine setups } & \text { Number of production runs }&3,750 \
\text { Utilities } & \text { Machine hours }&25 \
\text { Quality control } & \text { Number of inspections }&\$500
\end{array}$

During April, Mega purchased and used $100,000 of direct materials at $20 per ton. There were 8 production runs using a total of 12,000 machine hours in April. The manager of the Finishing Department needed 12 inspections. Actual overhead costs totaled $820,000 for the month.
-
How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing?

Accepted Answer

A)  $536,000. 
B)  $720,000. 
C)  $736,000. 
D)  $820,000. 
A)  $536,000. 
B)  $720,000. 
C)  $736,000. 
D)  $820,000.

Question 9

Why is a plantwide allocation method often considered to be a single-stage allocation approach? Explain.

Accepted Answer

A plantwide allocation method

Question 10

Activity-based costs are a function of both volume and complexity.

Accepted Answer

A) True 
 B)False

Question 11

Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:
$$\begin{array} { l l r r r } 
\text { Activity } & \text { Cost Driver } & \text { Amount } & { \text { M } } & { \text { XY } } \
\text { Production setups } & \text { Number of setups } &8 2 , 0 0 0 &8  & 12 \
\text { Material hardling } & \text { Number of parts } & 48,000 & 56 & 24 \
\text { Packaging costs } & \text { Number of urits } & 130,000 & 80,000 & 50,000 \
& &\$ 2 6 0 , 0 0 0 & &
\end{array}$$
-
What is the total overhead allocated to Product XY using the current system?

Accepted Answer

A)  $113,600. 
B)  $100,000. 
C)  $146,400. 
D)  $160,000. 
A)  $113,600. 
B)  $100,000. 
C)  $146,400. 
D)  $160,000.

Question 12

Cassidy 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, VIP and Kommander, about which it has provided the following data:
$\begin{array}{lcc}
 &\text {VIP}&\text {Kommander}\
 \text { Direct materials per unit } & \$  27.50 & \$62.10 \
\text { Direct labor per unit } & \$  15.60 & \$52.00\
 \text { Direct labor-hours per unit } &  0.60 & 2.00\
\text { Annual production }&40,000&15,000
\end{array}$

The company's estimated total manufacturing overhead for the year is $2,449,440 and the company's estimated total direct labor-hours for the year is 54,000.
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:
$$\begin{array} { l r } 
& \text { Estimated Overhead } \
\text { Activities and Activity Measures }  & \text { Cost } \
\text { Assembling products (DLHs) }& \$ 918,000 \
\text { Preparing batches (batches) } & 397,440 \
 \text { Product support (product variations) } & 1,134,000 \
\text { Total }& \$ 2,449,440 \
\end{array}$$
$$\begin{array} { l r r r } 
& { \text { Expected Activity } } \
& { \text { VIP } } & \text { Kommander } & \text { Total } \
 \text { DLHs } & 24,000 & 30,000 & 54,000 \
\text { Batches } & 1,458 & 1,026 & 2,484 \
\text { Product variations } & 2,592 & 1,189 & 3,780
\end{array}$$
-
Unit overhead cost of Product Kommander under the activity-based costing system is closest to:

Accepted Answer

A)  $204.82. 
B)  $68.70. 
C)  $182.80. 
D)  $114.10. 
A)  $204.82. 
B)  $68.70. 
C)  $182.80. 
D)  $114.10.

Question 13

Activity-based costing (ABC) provides more detailed measures of costs than do plantwide or department allocation methods.

Accepted Answer

A) True 
 B)False

Which of the following would not be a batch-related activity?

If a company has identified three major activities as setting up, handling material, and assembling, possible cost drivers would most likely be set-up hours, production runs, and number of shipments, respectively.

Why is a plantwide allocation method often considered to be a single-stage allocation approach? Explain.

Activity-based costs are a function of both volume and complexity.

Activity-based costing (ABC) provides more detailed measures of costs than do plantwide or department allocation methods.

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 not be a batch-related activity?

If a company has identified three major activities as setting up, handling material, and assembling, possible cost drivers would most likely be set-up hours, production runs, and number of shipments, respectively.

Why is a plantwide allocation method often considered to be a single-stage allocation approach? Explain.

Activity-based costs are a function of both volume and complexity.

Activity-based costing (ABC) provides more detailed measures of costs than do plantwide or department allocation methods.

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