Question 1

Identify appropriate cost drivers for the following activity cost pools:
1. Human resources
2. Security
3. Receiving
4. Data processing

Accepted Answer

1. Number of employees, number

Question 2

Younger, Inc. manufactures recliners for the hotel industry. It has two products, the Heater and the Massager, and total overhead is $3,160,000. The company plans to manufacture 400 Heaters and 100 Massagers this year. In manufacturing the recliners, the company must perform 600 material moves for the Heater and 400 for the Massager; it processes 900 purchase orders for the Heater and 700 for the Massager; and the company's employees work 1,400 direct labor hours on the Heater product and 3,400 on the Massager. Younger's total material handling costs are $2,000,000 and its total processing costs are $1,160,000. Using ABC, how much overhead would be assigned to the Heater product?

Accepted Answer

A)  $1,580,000 
B)  $1,852,500 
C)  $1,307,500 
D)  $2,238,332 
A)  $1,580,000 
B)  $1,852,500 
C)  $1,307,500 
D)  $2,238,332

Question 3

Which best describes the flow of overhead costs in an activity-based costing system?

Accepted Answer

A)  Overhead costs $\rightarrow$  direct labor cost or hours $\rightarrow$  products 
B)  Overhead costs $\rightarrow$ products 
C)  Overhead costs $\rightarrow$  activity cost pools $\rightarrow$  cost drivers $\rightarrow$  products 
D)  Overhead costs $\rightarrow$  machine hours $\rightarrow$  products 
A)  Overhead costs $\rightarrow$  direct labor cost or hours $\rightarrow$  products 
B)  Overhead costs $\rightarrow$ products 
C)  Overhead costs $\rightarrow$  activity cost pools $\rightarrow$  cost drivers $\rightarrow$  products 
D)  Overhead costs $\rightarrow$  machine hours $\rightarrow$  products

Question 4

Which of the following is a batch-level activity?

Accepted Answer

A)  Assembling 
B)  Product design 
C)  Engineering changes 
D)  Purchase ordering 
A)  Assembling 
B)  Product design 
C)  Engineering changes 
D)  Purchase ordering

Question 5

Label the following costs as value-adding (VA) or non-value-adding (NVA):
____ 1. Engineering design
____ 2. Machine repair
____ 3. Inventory storage
____ 4. Machining
____ 5. Assembly
____ 6. Painting
____ 7. Inspections
____ 8. Packaging

Accepted Answer

1. VA 5. VA
2. NVA 6

Question 6

In service industries

Accepted Answer

A)  activities cannot be labeled as value-added or non-value-added. 
B)  the overall objective of ABC is different than in manufacturing industries. 
C)  a larger proportion of overhead costs are company-wide costs. 
D)  activity cost pools cannot be identified. 
A)  activities cannot be labeled as value-added or non-value-added. 
B)  the overall objective of ABC is different than in manufacturing industries. 
C)  a larger proportion of overhead costs are company-wide costs. 
D)  activity cost pools cannot be identified.

Question 7

For its inspecting cost pool, Ellsworth, Inc. expected overhead cost of $400,000 and 4,000 inspections. The actual overhead cost for that cost pool was $480,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is

Accepted Answer

A)  $80 per inspection. 
B)  $96 per inspection. 
C)  $100 per inspection. 
D)  $120 per inspection. 
A)  $80 per inspection. 
B)  $96 per inspection. 
C)  $100 per inspection. 
D)  $120 per inspection.

Question 8

Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is:   Gant Accounting performs tax services for Cathy Lane. Direct labor cost is $1,200; 600 CPU minutes were used; and 1 legal hour was used. What is the total cost of the Lane job using activity-based costing?

Accepted Answer

A)  $3,600 
B)  $3,750 
C)  $5,400 
D)  $4,950 
A)  $3,600 
B)  $3,750 
C)  $5,400 
D)  $4,950

Question 9

Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is:   Overhead applied to audit services using activity-based costing is

Accepted Answer

A)  $150,000. 
B)  $180,000. 
C)  $270,000. 
D)  $300,000. 
A)  $150,000. 
B)  $180,000. 
C)  $270,000. 
D)  $300,000.

Question 10

ABC eliminates all arbitrary cost allocations.

Accepted Answer

A) True 
 B)False

Question 11

Which would be an appropriate cost driver for the ordering and receiving activity cost pool?

Accepted Answer

A)  Machine setups 
B)  Purchase orders 
C)  Machine hours 
D)  Inspections 
A)  Machine setups 
B)  Purchase orders 
C)  Machine hours 
D)  Inspections

Question 12

Activities required to support or sustain an entire production process are called

Accepted Answer

A)  unit-level activities. 
B)  batch-level activities. 
C)  product-level activities. 
D)  facility-level activities. 
A)  unit-level activities. 
B)  batch-level activities. 
C)  product-level activities. 
D)  facility-level activities.

Question 13

Equipment setups are a ______________-level activity.

Accepted Answer

The answer of Equipment setups are a ______________-level activity....

Question 14

The legal firm of West, Green, and Ink uses ABC to allocate its overhead costs. The firm has identified the following activity cost pools:
A. Direct labor fringe benefits.
B. Printing and photocopying.
C. Secretarial support.
D. Client support.
E. Recruiting and training.
F. Computer support.
G. Liability insurance
Instructions
Match these cost pools with the appropriate cost driver listed below.
______ 1. Revenue billed.
______ 2. CPU minutes.
______ 3. Number of pages.
______ 4. Direct labor cost.
______ 5. Number of clients.
______ 6. Number of recruits.
______ 7. Direct professional hours.

Accepted Answer

1. G 5. D

Question 15

Reynoso Corporation manufactures titanium and aluminum tennis racquets. Reynoso's total overhead costs consist of assembly costs and inspection costs. The following information is available:   Reynoso is considering switching from one overhead rate based on labor hours to activity-based costing.
Using activity-based costing, how much inspections cost is assigned to titanium racquets?

Accepted Answer

A)  $30,000. 
B)  $47,500. 
C)  $50,000. 
D)  $52,500 
A)  $30,000. 
B)  $47,500. 
C)  $50,000. 
D)  $52,500

Question 16

Hale Company manufactures two models of its couch, the Mini and the Maxi. The Mini model requires 10,000 direct labor hours and the Maxi model requires 40,000 direct labor hours. The company produces 4,000 units of the Mini model and 1,000 units of the Maxi model each year. The company produces the Mini model in batch sizes of 200, while it produces the Maxi model in batch sizes of 100. The company expects to incur $360,000 of total setup costs this year. How much of the setup costs are allocated to the Mini model using ABC costing?

Accepted Answer

A)  $240,000 
B)  $180,000 
C)  $72,000 
D)  $300,000 
A)  $240,000 
B)  $180,000 
C)  $72,000 
D)  $300,000

Question 17

A __________________ is any activity that has a direct cause-effect relationship with the resources consumed.

Accepted Answer

The answer of A __________________ is any activity that has...

Question 18

Windsor Co. incurs $1,050,000 of overhead costs each year in its three main departments, machining ($600,000), inspections ($300,000) and packing ($150,000). The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year. Information about Windsor's two products is as follows:   Using ABC, how much overhead is assigned to Product X this year?

Accepted Answer

A)  $252,500 
B)  $363,462 
C)  $510,000 
D)  $525,000 
A)  $252,500 
B)  $363,462 
C)  $510,000 
D)  $525,000

Question 19

Which of the following statements is false?

Accepted Answer

A)  ABC can weaken control over overhead costs. 
B)  Under ABC, companies can trace many overhead costs directly to activities. 
C)  ABC allows some indirect costs to be identified as direct costs. 
D)  managers become more aware of their responsibility to control the activities that generate costs. 
A)  ABC can weaken control over overhead costs. 
B)  Under ABC, companies can trace many overhead costs directly to activities. 
C)  ABC allows some indirect costs to be identified as direct costs. 
D)  managers become more aware of their responsibility to control the activities that generate costs.

Question 20

Often the most difficult part of computing accurate unit costs is determining the proper amount of _________ to assign to each product, service, or job.

Accepted Answer

A)  direct materials 
B)  direct labor 
C)  overhead 
D)  direct materials and direct labor 
A)  direct materials 
B)  direct labor 
C)  overhead 
D)  direct materials and direct labor

Exam 17: Activity-Based Costing

Identify appropriate cost drivers for the following activity cost pools: 1. Human resources 2. Security 3. Receiving 4. Data processing

Which best describes the flow of overhead costs in an activity-based costing system?

Which of the following is a batch-level activity?

Label the following costs as value-adding (VA) or non-value-adding (NVA): ____ 1. Engineering design ____ 2. Machine repair ____ 3. Inventory storage ____ 4. Machining ____ 5. Assembly ____ 6. Painting ____ 7. Inspections ____ 8. Packaging

In service industries

For its inspecting cost pool, Ellsworth, Inc. expected overhead cost of $400,000 and 4,000 inspections. The actual overhead cost for that cost pool was $480,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is

Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Overhead applied to audit services using activity-based costing is

ABC eliminates all arbitrary cost allocations.

Which would be an appropriate cost driver for the ordering and receiving activity cost pool?

Activities required to support or sustain an entire production process are called

Equipment setups are a ______________-level activity.

A __________________ is any activity that has a direct cause-effect relationship with the resources consumed.

Which of the following statements is false?

Often the most difficult part of computing accurate unit costs is determining the proper amount of _________ to assign to each product, service, or job.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations Perpetual Approach

Inventories Periodic Approach

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Stock Transactions, and Stockholders Equity

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Time Value of Money

Investments

Payroll Accounting

Subsidiary Ledgers and Special Journals

Other Significant Liabilities

Filters

Label the following costs as value-adding (VA) or non-value-adding (NVA): 1. Engineering design 2. Machine repair 3. Inventory storage 4. Machining 5. Assembly 6. Painting 7. Inspections 8. Packaging