Exam 5: Activity-Based Costing and Management

Arnold Corporation's customers differ greatly with respect to number of required sales contacts (e.g., phone calls and sales visits), account payment patterns, and design/engineering change orders.Which of the following choices likely denotes an ideal customer from Arnold's perspective?

Colonial Company manufactures decorative wall clocks and uses activity-based costing.Each clock consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce.Additional information is as follows: What is the total manufacturing cost per clock?

At a recent professional meeting, two controllers discussed product-costing problems in their respective companies.Both controllers are familiar with ABC systems, but neither of their firms utilizes such a system. Controller D reported that part of the problem in his firm results from major differences among product lines with respect to unit volume, utilization of activities, quality assurance requirements established by customers, and product size.Controller M noted that in her company, which manufactures consumer goods, all items undergo the same basic production processes in the same sequence.Lately, however, there has been a significant increase in the number of item colors. Both controllers are worried about the potential distortion of product costs under their traditional product-costing systems. Required: Which controller should be more concerned about the potential distortion? Explain.

Which of the following activity cost pools and activity measures likely has the lowest degree of correlation?

St.Vincent's, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers.Data on the cost pools and respective driver volumes follow. The overhead cost allocated to Beta by using traditional costing procedures would be:

A product's cost is the sum of its direct-material cost, its direct-labor cost, and its overhead cost, which is the accumulation of all the resource costs driven to the product by the various cost drivers selected for the ABC system.

Barnett Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe.The company, which uses activity-based costing, has identified five activities (and related cost drivers).Each activity, its budgeted cost, and related cost driver is identified below. The following information pertains to the three product lines for next year: What is Barnett's pool rate for the finishing activity?

Which of the following would likely not be a cost driver?

Of the following organizations, activity-based costing (ABC) cannot be used by:

Simplified forms of ABC use time-driven elements for service companies that are well aligned with the resources deployed in terms of units of time of labor.

Baxter customer service department follows up on customer complaints by telephone inquiry.During a recent period, the department initiated 10,000 calls and incurred costs of $312,000.Of these calls, 3,800 were for the company's wholesale operation; the remainder was for the retail division.Costs allocated to the retail division are:

Skyline Florists uses an activity-based costing system to compute the cost of making floral bouquets and delivering the bouquets to its commercial customers. Company personnel who earn $180,000 typically perform both tasks; other firm-wide overhead is expected to total $70,000.These costs are allocated as follows: Skyline anticipates making 20,000 bouquets and 4,000 deliveries in the upcoming year. The cost of wages and salaries and other overhead that would be charged to each delivery is closest to:

The adoption of a 24/7 employee hotline for workplace complaints is an example of a:

The adoption of a 24/7 customer service help line is an example of a:

International Gems sells fine jewelry and has implemented activity-based costing.Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping.International has determined that the number of boxes shipped is an appropriate cost driver for these costs.The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected.The final cost pool is used for general operations of the department and the cost driver is the number of orders.Information about the activities is summarized below: During December, 4,000 items were sold, reflecting 800 orders that were packed and shipped in 2,100 boxes.What amount is allocated to each order for general operations of the department?

Flavorful Manufacturing sells a number of goods whose selling price is heavily influenced by cost.A recent study of product no.519 revealed a traditionally- derived total cost of $1,019, a selling price of $1,850 based on that figure, and a newly computed activity-based total cost of $1,215.Which of the following statements is true?

Colonial Company manufactures decorative wall clocks and uses activity-based costing.Each clock consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce.Additional information is as follows: What is the cost of materials handling per clock?

The division of activities into unit-level, batch-level, product-sustaining level, and facility-level categories is commonly known as a cost:

Successful adoptions of activity-based costing typically occur when companies rely heavily on:

Which of the following is most likely to be a cost driver for a packaging and shipping activity?