Exam 17: Activity-Based Costing

Hartley Company produces two products, Flower and Planter. Flower is a high-volume item totaling 20,000 units annually. Planter is a low-volume item totaling only 6,000 units per year. Flower requires one hour of direct labor for completion, while each unit of Planter requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $960,000. Hartley uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of Planter would be assigned overhead of

Machining is a non-value-added activity.

An "Ordering and Receiving Materials" cost pool would most likely have as a cost driver:

Ordering materials, setting up machines, assembling products, and inspecting products are examples of

A company incurs $3,600,000 of overhead each year in three departments: Processing, Packaging, and Testing. The company performs 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year in producing 400,000 drums of Oil and 600,000 drums of Sludge. The following data are available: Production information for the two products is as follows: The amount of overhead assigned to Sludge using ABC is

An example of a cost which would not be assigned to an overhead cost pool is

An activity-based overhead rate is computed as follows:

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: If traditional costing based on direct labor hours is used, how much overhead is assigned to Product X this year?

The number of ___________________ is an appropriate cost driver for the ordering and receiving activity cost pool.

An example of an activity cost pool is

Thomsen Computer Company produces three products: Earth, Wind, and Fire. Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Thomsen has identified an activity cost pool with allocated overhead of $960,000 for which the cost driver is machine setups. How much overhead is assigned to each product?

Which of the following is a non-value-added activity?

Which of the following is a limitation of activity-based costing?

As compared to high-volume products, low-volume products

Estimated costs for activity cost pools and other item(s) are as follows: Total estimated overhead is

Direct labor is sometimes the appropriate basis for assigning overhead cost to products. It is appropriate to use direct labor when which of the following is true? (1) Direct labor constitutes a significant part of total product cost. (2) A high correlation exists between direct labor and changes in the amount of overhead costs.

Which of the following is a value-added activity?

What are the conditions that would indicate to the management of a firm that they should switch from traditional costing to activity-based costing?

To assign overhead costs to each product, the company