Exam 7: Activity-Based Costing and Management

Le Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs: General manager's salary Housekeeping supplies Utility costs Amortization on workout room equipment Advertising Food and beverage costs Amortization on restaurant equipment Which cost listed above is most likely to be a customer-sustaining cost?

Compared to a traditional costing system, an activity-based costing system usually involves:

Flagler Corporation 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 assigned to the individual product lines from the information given as follows: Wall Mirrors Specialty Windows Units produced 25 25 Material moves per product line 5 15 Direct labour hours per unit 200 200 Budgeted materials handling costs are \5 0,000 Under a costing system that assigns overhead on the basis of direct labour hours, the materials handling costs allocated to one unit of wall mirrors would be:

Ideally, activity costs in an ABC system are allocated to cost objects using a driver that explains changes in activity costs.

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: Number of Number of Percent of Direct Tutors Students Faculty Costs English 4 20 10\% \ 6,000 Mathematics 3 24 25 8,000 Science 5 15 50 12,000 History 2 8 15 3,000 Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: Facility rent \ 2,500 Custodial services 1,800 Utilities 600 Computer equipment amortization 800 Advertising 400 Which of the following could be a cost object for Life Lessons? I. A student II. A subject area III. A cost pool

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: Harvest apples \ 25,000 Prepare apples for processing 20,000 Extract juice from apples 18,000 Process juice into apple juice concentrate, apple juice or apple cider 30,000 Package completed products 9,000 Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month. During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively. Which of the preceding costs would most likely have "number of setups" as its cost driver?

Product advertising for a new product is an example of a customer-sustaining cost in an ABC system.

Each cost pool in an ABC system has at least one cost driver.

The availability of activity costs is inversely related to the cost of implementing an ABC system.

Which is an advantage of an ABC system?

One of the uncertainties associated with ABC and ABM systems is employee response to design and implementation.

Which of the following is not a benefit of an ABC system?

In an ABC system, an activity is best defined as a:

All organizations that use activity-based costing also use activity-based management.

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: Number of Number of Percent of Direct Tutors Students Faculty Costs English 4 20 10\% \ 6,000 Mathematics 3 24 25 8,000 Science 5 15 50 12,000 History 2 8 15 3,000 Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: Facility rent \ 2,500 Custodial services 1,800 Utilities 600 Computer equipment amortization 800 Advertising 400 If the number of tutors in each area is the cost driver for custodial services, the total custodial services cost allocated to history would be:

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: Harvest apples \ 25,000 Prepare apples for processing 20,000 Extract juice from apples 18,000 Process juice into apple juice concentrate, apple juice or apple cider 30,000 Package completed products 9,000 Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month. During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively. Preparing apples for processing involves peeling and removing seeds. The best cost driver for the cost of preparing apples for processing would be:

MNK Corporation is a large public company that employs numerous accounts receivable clerks. Their jobs involve processing invoices and keeping the accounting records updated. Which of the following is the most likely cost driver for the accounts receivable activity cost pool?

Information about potential cost drivers may be requested from employees directly involved in activities.

ABC systems differ from traditional costing systems because ABC systems use:

Both activity-based costing and traditional costing allocate overhead costs to cost objects.