Question 1

Which of the following is not a factory overhead allocation method?

Accepted Answer

A)  single plantwide rate 
B)  multiple departmental rates 
C)  factory costing 
D)  activity-based costing 
A)  single plantwide rate 
B)  multiple departmental rates 
C)  factory costing 
D)  activity-based costing

Question 2

Managers depend on accurate factory overhead allocation to make decisions regarding product mix and product price.

Accepted Answer

A) True 
 B)False

Question 3

Activity-based costing can only be used to allocate manufacturing factory overhead.

Accepted Answer

A) True 
 B)False

Question 4

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently; the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.  
-Using a single plantwide rate, determine the overhead rate per unit for Blue Ridge Marketing Inc.'s Product B.

Accepted Answer

A)  $496.00 
B)  $144.00 
C)  $640.00 
D)  $320.00 
A)  $496.00 
B)  $144.00 
C)  $640.00 
D)  $320.00

Question 5

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below. $\begin{array}{llll}&&\text { Pabor Hours } & \text { Machine Hours } \
\text { Product } & \text { Number of Units } & \text { Per Unit } & \text { Per Unit }\
\text { Rings } & 1,000 & 4 & 6 \
\text { Dings } & 2,000 & 3 & 9
\end{array}$ All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.
-What is the Assembly Department overhead rate per labor hour?

Accepted Answer

A)  $10.50 
B)  $19.50 
C)  $3.75 
D)  $4.38 
A)  $10.50 
B)  $19.50 
C)  $3.75 
D)  $4.38

Question 6

Condelezza Co. manufactures two products, A and B, in two production departments, Assembly and Finishing. Condelezza Co. expects to produce 10,000 units of Product A and 20,000 units of Product B in the coming year. Budgeted factory overhead costs for the coming year are: $\begin{array}{ll}
\text { Assembly } & \$ 310,000 \
\text { Finishing } & \$ 240,000 \
\text { Total } & \$ 550,000
\end{array}$ The machine hours expected to be used in the coming year are as follows: $\begin{array}{crr}&\text { Assembly } & \text { Finishing } \
&\text { Dept. } & \text { Dept. }\
\text { Froduct A } & 15,100 & 9,000 \
\text { Froduct B } & \underline{4,900} & \underline{11,000} \
\text { Total } & \underline{20,000} & \underline{20,000}
\end{array}$ a) Compute the plantwide factory overhead rate.
Compute the production department factory overhead rates.
b) Compute the factory overhead per unit for each product using 1) the single plantwide rate and 2) production department factory overhead rates.
c) Which method is better plantwide or department)? Why?

Accepted Answer

a) Factory overhead rates:
Plantwide = $

Question 7

Managers depend on product costing to make decisions regarding continuing operations and product mix.

Accepted Answer

A) True 
 B)False

Question 8

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the factory overhead rate for the month is $68.65 if the allocation is based on direct labor hours).

Accepted Answer

A) True 
 B)False

Question 9

Activity cost pools are assigned to products, using factory overhead rates for each activity.

Accepted Answer

A) True 
 B)False

Question 10

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below. $\begin{array}{llll}&&\text { Pabor Hours } & \text { Machine Hours } \
\text { Product } & \text { Number of Units } & \text { Per Unit } & \text { Per Unit }\
\text { Rings } & 1,000 & 4 & 6 \
\text { Dings } & 2,000 & 3 & 9
\end{array}$ All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.
-What is the Fabrication Department overhead rate per machine hour?

Accepted Answer

A)  $10.50 
B)  $9.00 
C)  $8.12 
D)  $3.75 
A)  $10.50 
B)  $9.00 
C)  $8.12 
D)  $3.75

Question 11

Activity rates are determined by

Accepted Answer

A)  dividing the actual cost for each activity pool by the actual activity base for that pool. 
B)  dividing the cost budgeted for each activity pool by the estimated activity base for that pool. 
C)  dividing the actual cost for each activity pool by the estimated activity base for that pool. 
D)  dividing the cost budgeted for each activity pool by the actual activity base in that pool. 
A)  dividing the actual cost for each activity pool by the actual activity base for that pool. 
B)  dividing the cost budgeted for each activity pool by the estimated activity base for that pool. 
C)  dividing the actual cost for each activity pool by the estimated activity base for that pool. 
D)  dividing the cost budgeted for each activity pool by the actual activity base in that pool.

Question 12

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below. $\begin{array}{llll}&&\text { Pabor Hours } & \text { Machine Hours } \
\text { Product } & \text { Number of Units } & \text { Per Unit } & \text { Per Unit }\
\text { Rings } & 1,000 & 4 & 6 \
\text { Dings } & 2,000 & 3 & 9
\end{array}$ All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.
-What is the overhead cost per unit for Dings?

Accepted Answer

A)  $65.25 
B)  $56.75 
C)  $23.25 
D)  $64.50 
A)  $65.25 
B)  $56.75 
C)  $23.25 
D)  $64.50

Question 13

Using multiple department factory overhead rates instead of a single plantwide factory overhead rate:

Accepted Answer

A)  results in more accurate product costs 
B)  results in distorted product costs 
C)  is simpler and less expensive to compute than a plantwide rate 
D)  applies overhead costs to all departments equally 
A)  results in more accurate product costs 
B)  results in distorted product costs 
C)  is simpler and less expensive to compute than a plantwide rate 
D)  applies overhead costs to all departments equally

Question 14

The Skagit Company manufactures Hooks and Nooks. The following shows the activities per product and total activity information: $$\begin{array} { | l | c | c | c | } 
\hline & \text { Setups } & \text { Inspections } & \text { Assembly dlh) } \
\hline \text { Hooks-4,000 units } & 1 & 3 & 1 \
\hline \text { Nooks-8,000 units } & 2 & 2 & 3 \
\hline & & & \
\hline
\end{array}$$ $$\begin{array} { | l | c | c | } 
\hline \text { Activity Pool } & \text { Activity Base } & \text { Budgeted Amount } \
\hline \text { Setups } & 20,000 & \$ 60,000 \
\hline \text { Inspections } & 24,000 & 120,000 \
\hline \text { Assembly dlh) } & 28,000 & 420,000 \
\hline
\end{array}$$
-Calculate the total factory overhead to be charged to each unit of Hooks.

Accepted Answer

A)  $33 
B)  $50 
C)  $11 
D)  $61 
A)  $33 
B)  $50 
C)  $11 
D)  $61

Question 15

A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plantwide allocation base.

Accepted Answer

A) True 
 B)False

Question 16

Ratchford Clocks manufactures alarm clocks and wall clocks and allocates overhead based on direct labor hours. The production process is set up in three departments: Assembly, Finishing, and Calibrating. The following is information regarding the direct labor used to produce one unit of the two clocks: $$\begin{array} { | l | c | c | c | } 
\hline \text { Per Unit Hours } & \text { Assembly } & \text { Finishing } & \text { Calibrating } \
\hline \text { Alarm clocks } & 3 & 1 & 1 \
\hline \text { Wall clocks } & 2 & 3 & 2 \
\hline & \underline { 5 } & \underline { 4 } & \underline { 3 } \
\hline
\end{array}$$ The budget includes the following factory overhead by department: $\begin{array}{|l|c|}
\hline \text { Assembly Department } & \$ 595,000 \
\hline \text { Finishing Department } & 200,000 \
\hline \text { Calibrating Department } & 140,000 \
\hline \text { Total } & \$ 935,000 \
\hline
\end{array}$ Ratchford Clocks is planning to manufacture 50,000 alarm clocks and 10,000 wall clocks.
a) Determine the total number of hours that will be needed by department.
b) Determine the factory overhead rate by department using the multiple production department factory overhead rate method.
c) Determine the amount of factory overhead to be allocated to each unit of alarm clocks and wall clocks.
d) Determine the amount of total factory overhead to be allocated to the alarm clocks and wall clocks.

Accepted Answer

a) Assembly: 3 dlh × 50,000) + 2 dlh × 1

Question 17

Activity-based costing for selling and administrative expenses can also be beneficial in allocating expenses to various products. Which of the following is the best allocation base for help desk costs?

Accepted Answer

A)  Number of calls 
B)  Square footage of the help desk office 
C)  Number of products sold 
D)  Number of sales employees 
A)  Number of calls 
B)  Square footage of the help desk office 
C)  Number of products sold 
D)  Number of sales employees

Question 18

Adirondak Marketing Inc. manufactures two products, A and B. Presently; the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead.  
-Calculate the plantwide factory overhead rate for Adirondack Marketing Inc.

Accepted Answer

A)  $25.00 per dlh 
B)  $0.07 per dlh 
C)  $14.77 per dlh 
D)  $ 6.25 per dlh 
A)  $25.00 per dlh 
B)  $0.07 per dlh 
C)  $14.77 per dlh 
D)  $ 6.25 per dlh

Question 19

Activity cost pools are cost accumulations associated with a given activity.

Accepted Answer

A) True 
 B)False

Question 20

The Beauty Beyond Words Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: $$\begin{array} { | l | c | } 
\hline \text { Activity } & \text { Activity Rate } \
\hline \text { Hair washing } & \$ 4.00 \
\hline \text { Conditioning } & \$ 3.50 \
\hline \text { Chemical treatment } & \$ 25.00 \
\hline \text { Styling } & \$ 10.00 \
\hline
\end{array}$$ $$\begin{array} { | l | c | c | c | c | } 
\hline & \text { Hair } & \text { Conditioning } & \begin{array} { c } 
\text { Chemical } \
\text { Treatment }
\end{array} & \text { Styling } \
\hline \text { Haircut } & 1 & 1 & 0 & 0 \
\hline \text { Complete style } & 1 & 1 & 0 & 1 \
\hline \text { Perm } & 2 & 3 & 1 & 1 \
\hline \text { Highlights } & 3 & 4 & 2 & 1 \
\hline
\end{array}$$
-The total factory overhead for Big Light Company is budgeted for the year at $807,500. Big Light manufactures two different products - night lights and desk lamps. Night lights is budgeted for 60,000 units. Each night light requires 1/2 hour of direct labor. Desk lamps is budgeted for 80,000 units. Each desk lamp requires 2 hours of direct labor. Determine a) the total number of budgeted direct labor hours for year, b) the single plantwide factory overhead rate using direct labor hours as the allocation base, and c) the factory overhead allocated per unit for each product using the single plantwide factory overhead rate calculated in b).

Accepted Answer

a)60,000 × 1/2) + 80,000 × 2)

Which of the following is not a factory overhead allocation method?

Managers depend on accurate factory overhead allocation to make decisions regarding product mix and product price.

Activity-based costing can only be used to allocate manufacturing factory overhead.

Managers depend on product costing to make decisions regarding continuing operations and product mix.

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the factory overhead rate for the month is $68.65 if the allocation is based on direct labor hours).

Activity cost pools are assigned to products, using factory overhead rates for each activity.

Activity rates are determined by

Using multiple department factory overhead rates instead of a single plantwide factory overhead rate:

A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plantwide allocation base.

Activity-based costing for selling and administrative expenses can also be beneficial in allocating expenses to various products. Which of the following is the best allocation base for help desk costs?

Activity cost pools are cost accumulations associated with a given activity.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Lean Principles, Lean Accounting, and Activity Analysis

Filters

Exam 26: Cost Allocation and Activity-Based Costing

Which of the following is not a factory overhead allocation method?

Managers depend on accurate factory overhead allocation to make decisions regarding product mix and product price.

Activity-based costing can only be used to allocate manufacturing factory overhead.

Managers depend on product costing to make decisions regarding continuing operations and product mix.

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the factory overhead rate for the month is $68.65 if the allocation is based on direct labor hours).

Activity cost pools are assigned to products, using factory overhead rates for each activity.

Activity rates are determined by

Using multiple department factory overhead rates instead of a single plantwide factory overhead rate:

A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plantwide allocation base.

Activity-based costing for selling and administrative expenses can also be beneficial in allocating expenses to various products. Which of the following is the best allocation base for help desk costs?

Activity cost pools are cost accumulations associated with a given activity.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Lean Principles, Lean Accounting, and Activity Analysis

Filters