Question 1

Support department costs are accounted for in which one of the following ways?

Accepted Answer

A) They are allocated directly to units of product. 
B) They are allocated to producing departments and then allocated to units of product. 
C) They are allocated to units of product and then allocated to the producing departments. 
D) They are expensed as incurred. 
A) They are allocated directly to units of product. 
B) They are allocated to producing departments and then allocated to units of product. 
C) They are allocated to units of product and then allocated to the producing departments. 
D) They are expensed as incurred. B

Question 2

Although adding more activity cost pools to an activity-based costing system may improve the accuracy of product costing, this increase in accuracy must be judged against:

Accepted Answer

A) the cost of the product. 
B) the price of the product. 
C) the cost of developing and maintaining the additional cost pools. 
D) all of the above. 
A) the cost of the product. 
B) the price of the product. 
C) the cost of developing and maintaining the additional cost pools. 
D) all of the above. C

Question 3

Which of the following is a reason to accumulate and separately assign costs by departments?

Accepted Answer

A) The company wants to reduce the complexity of its cost accounting system. 
B) The company is comprised of multiple departments, each of which exhibit unique cost behaviour patterns. 
C) The company wishes to implement an activity based costing system. 
D) The company has a large amount of capital invested in human resource training. 
A) The company wants to reduce the complexity of its cost accounting system. 
B) The company is comprised of multiple departments, each of which exhibit unique cost behaviour patterns. 
C) The company wishes to implement an activity based costing system. 
D) The company has a large amount of capital invested in human resource training. B

Question 4

The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:

Accepted Answer

A) absorption costing. 
B) FIFO. 
C) the weighted average cost method. 
D) conversion costing. 
A) absorption costing. 
B) FIFO. 
C) the weighted average cost method. 
D) conversion costing.

Question 5

Which of the following accurately describes advantages and disadvantages of employing a system of allocation that uses a plant-wide rate?

Accepted Answer

A) The plant-wide rate approach is the simplest to apply, but it is also the most costly to implement. 
B) The plant-wide rate approach is the simplest to apply, but most likely provides the least accurate product costs. 
C) The plant-wide rate may be straightforward, but it is not appropriate for small businesses that offer a single service or product. 
D) The plant-wide rate really offers no advantage whatsoever. 
A) The plant-wide rate approach is the simplest to apply, but it is also the most costly to implement. 
B) The plant-wide rate approach is the simplest to apply, but most likely provides the least accurate product costs. 
C) The plant-wide rate may be straightforward, but it is not appropriate for small businesses that offer a single service or product. 
D) The plant-wide rate really offers no advantage whatsoever.

Question 6

More accurate product costing information is produced by assigning costs using

Accepted Answer

A) volume-based, plantwide rates. 
B) volume-based, departmental rates. 
C) activity-based pool rates. 
D) All of the above produce accurate product costing information. 
A) volume-based, plantwide rates. 
B) volume-based, departmental rates. 
C) activity-based pool rates. 
D) All of the above produce accurate product costing information.

Question 7

When applied overhead exceeds actual overhead cost,

Accepted Answer

A) over-applied(absorbed) overhead is added to cost of goods sold. 
B) overapplied overhead is deducted from cost of goods sold. 
C) underapplied overhead is added to cost of goods sold. 
D) underapplied overhead is deducted from cost of goods sold. 
A) over-applied(absorbed) overhead is added to cost of goods sold. 
B) overapplied overhead is deducted from cost of goods sold. 
C) underapplied overhead is added to cost of goods sold. 
D) underapplied overhead is deducted from cost of goods sold.

Question 8

Figure 3-7
Granite, Inc., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l r l r } 
\text { Overhead Item } & \text { Expected Cost } & { \text { Cost Driver } } & \text { Expected Quantity } \
\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \
\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \
\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \
\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000
\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lrr}&\text { Job } 500&\text { Job } 501\
\text { Direct materials } & £ 1,500 & £ 2,000 \
\text { Direct labour } & £ 1,400 & £ 2,400 \
\text { Units completed } & 100 & 160 \
\text { Direct labour hours } & 100 & 160 \
\text { Number of setups } & 2 & 8 \
\text { Number of orders } & 8 & 10 \
\text { Machine hours } & 40 & 50 \
\text { Kilowatt hours } & 60 & 100
\end{array}$ The company's normal activity is 4,000 direct labour hours.
-Refer to Figure 3-7. If Granite, Inc., used activity-based cost drivers to allocate overhead costs, the total cost of Job 500 would be

Accepted Answer

A) £5,715. 
B) £5,667. 
C) £5,415. 
D) £5,315. 
A) £5,715. 
B) £5,667. 
C) £5,415. 
D) £5,315.

Question 9

The Jewell plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{lr}
\text { Maintenance } & £ 360,000 \
\text { Inspection } & 750,000
\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 100,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus a 20 per cent markup. $\begin{array}{lr}
\text { Direct materials } & £ 2,100 \
\text { Direct labour } & £ 5,625 \
\text { Machine hours } & 450 \
\text { Number of inspections } & 4 \
\text { Direct labour hours } & 550
\end{array}$ Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000. 
a.Compute the total cost of the potential job using direct labour hours to assign overhead.Determine the bid price for the potential job.
b.Compute the total cost of the job using activity-based costing and the appropriate activity drivers.Determine the bid price if activity-based costing is used.
c.Prepare a memorandum to the plant manager recommending a bid price for the potential job. Support your recommendation by explaining which costing method best reflects the actual cost of the job.

Accepted Answer

a. 
  should be recommended.
- Support f

Question 10

Manchester Ltd. uses a job-order costing system and a predetermined overhead rate based on machine hours.
At the beginning of the year, the company estimated manufacturing overhead for the year would be £135,000 and 9,000 machine hours would be used.
The following information pertains to December of the current year: $\begin{array}{lrrrr}
&\text { Job No. } & \text { Job No. } & \text { Job No. } & \
&380 & \underline{381} & \underline{382} & \text { Totals } \
\hline\text { Work in process, December 1 } & £ 8,000 & £ 13,000 & £ 19,000 & £ 40,000 \
\text { December production activity: } & & & & \
\text { Materials requisitioned } & £ 2,000 & £ 2,400 & £ 3,600 & £ 8,000 \
\text { Direct labour costs } & £ 1,200 & £ 1,800 & £ 2,000 & £ 5,000 \
\text { Machine hours } & 400 & 700 & 900 & 2,000
\end{array}$ Actual manufacturing overhead costs incurred in December were £31,000. 
a.Compute the predetermined overhead application rate.
b.Determine the total cost associated with each job.

Accepted Answer

None

Question 11

Which of the following principles should be applied when the step method of allocating service department costs is used?

Accepted Answer

A) The sequence of allocation among departments should be randomly selected. 
B) The sequence of allocation among departments should proceed from the largest department as measured by total assets to the smallest. 
C) The sequence of allocation among departments should proceed from the largest provider of interdepartmental services to the smallest. 
D) All possible sequences of service department allocations should be computed. The sequence that provides the largest allocation of service costs should then be selected. 
A) The sequence of allocation among departments should be randomly selected. 
B) The sequence of allocation among departments should proceed from the largest department as measured by total assets to the smallest. 
C) The sequence of allocation among departments should proceed from the largest provider of interdepartmental services to the smallest. 
D) All possible sequences of service department allocations should be computed. The sequence that provides the largest allocation of service costs should then be selected.

Question 12

Traditional-based product costing uses which of the following procedures?

Accepted Answer

A) Overhead costs are traced to departments, then costs are traced to products. 
B) Overhead costs are traced to activities, then costs are traced to products. 
C) Overhead costs are traced directly to products. 
D) All overhead costs are expensed as incurred. 
A) Overhead costs are traced to departments, then costs are traced to products. 
B) Overhead costs are traced to activities, then costs are traced to products. 
C) Overhead costs are traced directly to products. 
D) All overhead costs are expensed as incurred.

Question 13

The optimal level in the trade-off between measurement and error costs is when

Accepted Answer

A) measurement costs are greater than error costs. 
B) measurement costs are less than error costs. 
C) measurement costs equal error costs. 
D) the total of measurement costs and error costs are maximized. 
A) measurement costs are greater than error costs. 
B) measurement costs are less than error costs. 
C) measurement costs equal error costs. 
D) the total of measurement costs and error costs are maximized.

Question 14

Figure 3-7
Granite, Inc., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l r l r } 
\text { Overhead Item } & \text { Expected Cost } & { \text { Cost Driver } } & \text { Expected Quantity } \
\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \
\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \
\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \
\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000
\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lrr}&\text { Job } 500&\text { Job } 501\
\text { Direct materials } & £ 1,500 & £ 2,000 \
\text { Direct labour } & £ 1,400 & £ 2,400 \
\text { Units completed } & 100 & 160 \
\text { Direct labour hours } & 100 & 160 \
\text { Number of setups } & 2 & 8 \
\text { Number of orders } & 8 & 10 \
\text { Machine hours } & 40 & 50 \
\text { Kilowatt hours } & 60 & 100
\end{array}$ The company's normal activity is 4,000 direct labour hours.
-Refer to Figure 3-7. If Granite, Inc., used activity-based cost drivers to allocate overhead costs, the unit cost for Job 500 would be

Accepted Answer

A) £53.15. 
B) £54.15. 
C) £56.67. 
D) £57.15. 
A) £53.15. 
B) £54.15. 
C) £56.67. 
D) £57.15.

Question 15

Lyons, Inc., has identified the following overhead costs and activity drivers for next year: $$\begin{array} { l c l c } 
\text { Overhead Item } & \text { Expected Cost } & \text { Activity Driver } & \text { Expected Qty. } \
\text { Setup costs } & £ 150,000 & \text { Number of setups } & 1,200 \
\text { Ordering costs } & 40,000 & \text { Number of orders } & 10,000 \
\text { Maintenance } & 200,000 & \text { Machine hours } & 16,000 \
\text { Power } & 20,000 & \text { Kilowatt hours } & 100,000
\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lrr}&\text { Job XX }&\text { Job YY }\
\text { Direct materials } & £ 2,250 & £ 2,500 \
\text { Direct labour } & 3,000 & 1,875 \
\text { Units completed } & 375 & 300 \
\text { Direct labour hours } & 90 & 110 \
\text { Number of setups } & 6 & 8 \
\text { Number of orders } & 8 & 15 \
\text { Machine hours } & 180 & 150 \
\text { Kilowatt hours } & 90 & 120
\end{array}$ The company's normal activity is 20,000 direct labour hours. 
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.)
c.Which method produces the more accurate cost assignment? Why?

Accepted Answer

The answer of Lyons, Inc., has identified the following overhead...

Question 16

Zang Manufacturing Company manufactures two products (A and B). The overhead costs (£58,000) have been divided into three cost pools that use the following activity cost drivers: $\begin{array}{cccc}
&&\text { Number of Labour }\
 \underline{\text { Product }}&\underline{\text { Number of Orders }} & \underline{\text { Transactions }} & \underline{ \text { Labour Hours }}\
\text { A } & 15 & 50 & 500 \
\text {B }& 10 & 150 & 2,000 \
& & & \
\text { Cost per pool } & £ 10,000 & £ 8,000 & £ 40,000
\end{array}$
 What is the allocation rate per order using ABC?

Accepted Answer

A) £10,000 
B) £2,320 
C) £400 
D) £58,000 
A) £10,000 
B) £2,320 
C) £400 
D) £58,000

Question 17

Figure 3-5
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{ll}
\text { Maintenance } & £ 120,000 \
\text { Inspection } & £ 200,000
\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: $\begin{array}{lr}
\text { Direct materials } & £ 1,500 \
\text { Direct labour } & £ 5,000 \
\text { Machine hours } & 400 \
\text { Number of inspections } & 6 \
\text { Direct labour hours } & 750
\end{array}$ Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.
-Refer to Figure 3-5. Using direct labour hours to assign overhead, the total cost of the potential job would be

Accepted Answer

A) £9,500. 
B) £6,000. 
C) £3,000. 
D) £1,600. 
A) £9,500. 
B) £6,000. 
C) £3,000. 
D) £1,600.

Question 18

A possible causal factor to use when allocating cafeteria costs would be

Accepted Answer

A) number of square feet. 
B) number of direct labour hours. 
C) number of employees. 
D) appraised value of square footage. 
A) number of square feet. 
B) number of direct labour hours. 
C) number of employees. 
D) appraised value of square footage.

Question 19

Parkes Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: $\begin{array}{lr}
\text { Maintenance } & £ 300,000 \
\text { Materials handling } & 150,000 \
\text { Setups } & 200,000 \
\text { Inspection } & 250,000
\end{array}$ Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 100,000 direct labour hours are budgeted.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 25 per cent.
Estimates for the proposed job are as follows: $\begin{array}{lr}
\text { Direct materials } & £ 20,000 \
\text { Direct labour (1,500 hours) } & £ 15,000 \
\text { Number of materials moves } & 20 \
\text { Number of inspections } & 25 \
\text { Number of setups } & 5 \
\text { Number of machine hours } & 750
\end{array}$ In the past, full manufacturing cost has been calculated by allocating overhead using a traditional volume-based cost driver system--direct labour hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would be used are as follows: $\begin{array}{lr}
\text { Machine hours } & 40,000 \
\text { Material moves } & 8,000 \
\text { Setups } & 10,000 \
\text { Quality inspections } & 15,625
\end{array}$ 
a.Determine the amount of overhead that would be allocated to the proposed job if direct labour hours are used as the cost driver.Determine the total cost of the proposed job.Determine the company's bid if the bid is based upon full manufacturing cost plus 25 per cent.
b.Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used.Determine the total cost of the proposed job if activity-based costing is used.Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 25 per cent.
c.Which product costing method produces the more competitive bid?

Accepted Answer

a. 
c. Activity-base

Question 20

Service departments:

Accepted Answer

A) are responsible for manufacturing the products sold to customers. 
B) work directly on the firm's products. 
C) provide services directly to customers. 
D) provide support services to the producing departments. 
A) are responsible for manufacturing the products sold to customers. 
B) work directly on the firm's products. 
C) provide services directly to customers. 
D) provide support services to the producing departments.

Support department costs are accounted for in which one of the following ways?

Although adding more activity cost pools to an activity-based costing system may improve the accuracy of product costing, this increase in accuracy must be judged against:

Which of the following is a reason to accumulate and separately assign costs by departments?

The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:

Which of the following accurately describes advantages and disadvantages of employing a system of allocation that uses a plant-wide rate?

More accurate product costing information is produced by assigning costs using

When applied overhead exceeds actual overhead cost,

Which of the following principles should be applied when the step method of allocating service department costs is used?

Traditional-based product costing uses which of the following procedures?

The optimal level in the trade-off between measurement and error costs is when

A possible causal factor to use when allocating cafeteria costs would be

Service departments:

Introduction to Management Accounting

An Introduction to Cost Terms and Concepts

Accounting Entries for a Job Costing System

Process Costing

Joint and By-Product Costing

Income Effects of Alternative Cost Accumulation Systems

Cost-Volume-Profit Analysis

Measuring Relevant Costs and Revenues for Decision-Making

Activity-Based Costing

Activity-Based Costing

Decision-Making Under Conditions of Risk and Uncertainty

Capital Investment Decisions: Appraisal Methods

Capital Investment Decisions: the Impact of Capital Rationing, Taxation, Inflation and Risk

The Budgeting Process

Management Control Systems

Standard Costing and Variance Analysis 1

Standard Costing and Variance Analysis 2: Further Aspects

Divisional Financial Performance Measures

Transfer Pricing in Divisionalized Companies

Strategic Cost Management

Strategic Performance Management

Cost Estimation and Cost Behaviour

Quantitative Models for the Planning and Control of Inventories

The Application of Linear Programming to Management Accounting

Filters

Exam 3: Cost Assignment

Support department costs are accounted for in which one of the following ways?

Although adding more activity cost pools to an activity-based costing system may improve the accuracy of product costing, this increase in accuracy must be judged against:

Which of the following is a reason to accumulate and separately assign costs by departments?

The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:

Which of the following accurately describes advantages and disadvantages of employing a system of allocation that uses a plant-wide rate?

More accurate product costing information is produced by assigning costs using

When applied overhead exceeds actual overhead cost,

Which of the following principles should be applied when the step method of allocating service department costs is used?

Traditional-based product costing uses which of the following procedures?

The optimal level in the trade-off between measurement and error costs is when

A possible causal factor to use when allocating cafeteria costs would be

Service departments:

Introduction to Management Accounting

An Introduction to Cost Terms and Concepts

Accounting Entries for a Job Costing System

Process Costing

Joint and By-Product Costing

Income Effects of Alternative Cost Accumulation Systems

Cost-Volume-Profit Analysis

Measuring Relevant Costs and Revenues for Decision-Making

Activity-Based Costing

Activity-Based Costing

Decision-Making Under Conditions of Risk and Uncertainty

Capital Investment Decisions: Appraisal Methods

Capital Investment Decisions: the Impact of Capital Rationing, Taxation, Inflation and Risk

The Budgeting Process

Management Control Systems

Standard Costing and Variance Analysis 1

Standard Costing and Variance Analysis 2: Further Aspects

Divisional Financial Performance Measures

Transfer Pricing in Divisionalized Companies

Strategic Cost Management

Strategic Performance Management

Cost Estimation and Cost Behaviour

Quantitative Models for the Planning and Control of Inventories

The Application of Linear Programming to Management Accounting

Filters