St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labour hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. $\begin{array} { | c | c | c | c | } \hline \text { Product } & \begin{array} { c } \text { Pool No. 1 } \\ \text { (Driver: DLH) } \end{array} & \begin{array} { c } \text { Pool No. 2 } \\ \text { (Driver: SU) } \end{array} & \begin{array} { c } \text { Pool No. 3 } \\ \text { (Driver: PC) } \end{array} \\ \hline \text { Beta } & 1.200 & 45 & 2.250 \\ \hline \text { Zeta } & 2.800 & 55 & 750 \\ \hline & & & \\ \hline \begin{array} { c } \text { Pool } \\ \text { Cost } \end{array} & \$ 160,000 & \$ 280,000 & \$ 360,000 \\ \hline \end{array}$ The overhead cost allocated to Beta by using activity-based costing procedures would be:

A) $240,000. B) $356,000. C) $444,000. D) $560,000. E) $800,000. A) $240,000. B) $356,000. C) $444,000. D) $560,000. E) $800,000.

Horton 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 Horton's perspective? $\begin{array} { | l | c | c | c | } \hline & \begin{array} { c } \text { Required } \\ \text { Sales } \\ \text { Contacts } \end{array} & \begin{array} { c } \text { Account } \\ \text { Payment Patterns } \end{array} & \begin{array} { c } \text { Design Engineering } \\ \text { Change Orders } \end{array} \\ \hline 1 & \text { Many } & \text { Slow } & \text { Many } \\ \hline 2 & \text { Many } & \text { Rapid } & \text { Many } \\ \hline 3 & \text { Few } & \text { Slow } & \text { Many } \\ \hline 4 & \text { Few } & \text { Rapid } & \text { Few } \\ \hline 5 & \text { Many } & \text { Rapid } & \text { Few } \\ \hline \end{array}$

A) 1. B) 2. C) 3. D) 4. E) 5. A) 1. B) 2. C) 3. D) 4. E) 5.

Oliver and Sprung, an accounting firm, provides tax compliance and tax planning services. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $300,000) has been allocated to services on this basis. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: $\begin{array} { | l | r r | } \hline \text { Staff Support } & \$ \quad 215,000 \\ \hline \text { In-house IT charges } & 65,000 \\ \hline \text { Miscellaneous office expenditures } & 20,000 \\ \hline & \$ 300,000 \\ \hline \end{array}$ A recent analysis of staff support found a strong correlation with the number of clients served. In contrast, in-house IT and miscellaneous office expenditures varied directly with the number of computer hours logged and number of client transactions, respectively. Tax compliance clients served totaled 25% of the total client base, consumed 35% of the firm's computer hours, and accounted for 30% of the total client transactions. If Oliver and Sprung switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to tax compliance services would:

A) decrease by $24,500. B) increase by $24,500. C) decrease by $114,500. D) increase by $114,500. E) decrease by $89,000. A) decrease by $24,500. B) increase by $24,500. C) decrease by $114,500. D) increase by $114,500. E) decrease by $89,000.

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labour hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. $\begin{array} { | c | c | c | c | } \hline \text { Product } & \begin{array} { c } \text { Pool No. 1 } \\ \text { (Driver: DLH) } \end{array} & \begin{array} { c } \text { Pool No. 2 } \\ \text { (Driver: SU) } \end{array} & \begin{array} { c } \text { Pool No. 3 } \\ \text { (Driver: PC) } \end{array} \\ \hline \text { Beta } & 1.200 & 45 & 2.250 \\ \hline \text { Zeta } & 2.800 & 55 & 750 \\ \hline & & & \\ \hline \begin{array} { c } \text { Pool } \\ \text { Cost } \end{array} & \$ 160,000 & \$ 280,000 & \$ 360,000 \\ \hline \end{array}$ The overhead cost allocated to Zeta by using activity-based costing procedures would be:

A) $240,000. B) $356,000. C) $444,000. D) $560,000. E) $800,000. A) $240,000. B) $356,000. C) $444,000. D) $560,000. E) $800,000.

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labour hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. $\begin{array} { | c | c | c | c | } \hline \text { Product } & \begin{array} { c } \text { Pool No. 1 } \\ \text { (Driver: DLH) } \end{array} & \begin{array} { c } \text { Pool No. 2 } \\ \text { (Driver: SU) } \end{array} & \begin{array} { c } \text { Pool No. 3 } \\ \text { (Driver: PC) } \end{array} \\ \hline \text { Beta } & 1.200 & 45 & 2.250 \\ \hline \text { Zeta } & 2.800 & 55 & 750 \\ \hline & & & \\ \hline \begin{array} { c } \text { Pool } \\ \text { Cost } \end{array} & \$ 160,000 & \$ 280,000 & \$ 360,000 \\ \hline \end{array}$ The overhead cost allocated to Beta by using traditional costing procedures would be:

A) $240,000. B) $360,000. C) $440,000. D) $560,000. E) $800,000. A) $240,000. B) $360,000. C) $440,000. D) $560,000. E) $800,000.

X-Ray Machines Ltd. manufactures three product lines: Standard, Deluxe, and Superior. 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: $\begin{array}{|l|r|r|r|} \hline & \text { Standard } & \text { Deluxe } & \text { Supe rior } \\ \hline \text { Units to be produced } & 15,000 & 10,000 & 7,000 \\ \hline \text { Orders to be shipped } & 1,000 & 500 & 500 \\ \hline \text { Number of parts per unit } & 10 & 15 & 25 \\ \hline \text { Machine hours per unit } & 3 & 5 & 7 \\ \hline \text { Labour hours per unit } & 2 & 2 & 2 \\ \hline \end{array}$ What is X-Ray's pool rate for the finishing activity?

A) $3.13 per labour hour. B) $3.13 per machine hour. C) $3.13 per unit. D) $3.13 per part. E) $50,000. A) $3.13 per labour hour. B) $3.13 per machine hour. C) $3.13 per unit. D) $3.13 per part. E) $50,000.

Kelly and Logan, an accounting firm, provides consulting and tax planning services. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: $\begin{array} { | l | r | } \hline \text { Staff support } & \$ 180,000 \\ \hline \text { In-house computing charges } & 50,000 \\ \hline \text { Miscellaneous office costs } & 20.000 \\ \hline \text { Total } & \$ 250.000 \\ \hline \end{array}$ A recent analysis of staff support found a strong correlation with the number of clients served (consulting, 20 clients; tax planning, 60 clients). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions. Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax planning services is:

A) 20%. B) 60%. C) 65%. D) 75%. E) 80%. A) 20%. B) 60%. C) 65%. D) 75%. E) 80%.

Which of the following activity cost pools and activity measures likely has the lowest degree of correlation? $\begin{array}{|l|l|l|l|} \hline & {\text { Activity Cost Pool }} & &{\text { Activity Measure }} \\ \hline 1 & \text { Order department } && \text { Number of orders processed } \\ \hline 2 & \text { Sales management } && \text { Time spent by managers in each sales } \\ &&&\text { territory }\\ \hline 3 & \text { Accounts receivable processing } && \text { Number of customers } \\ \hline 4 & \text { Catering } & &\text { Numbers of meals served } \\ \hline 5 & \text { Employee travel to job sites (sites } & &\text { Number of employees } \\ &\text { are within } 100 \text {-mile radius of }\\ &\text { company headquarters) }\\ \hline \end{array}$

A) 1. B) 2. C) 3. D) 4. E) 5. A) 1. B) 2. C) 3. D) 4. E) 5.

X-Ray Machines Ltd. manufactures three product lines: Standard, Deluxe, and Superior. 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: $\begin{array}{|l|r|r|r|} \hline & \text { Standard } & \text { Deluxe } & \text { Supe rior } \\ \hline \text { Units to be produced } & 15,000 & 10,000 & 7,000 \\ \hline \text { Orders to be shipped } & 1,000 & 500 & 500 \\ \hline \text { Number of parts per unit } & 10 & 15 & 25 \\ \hline \text { Machine hours per unit } & 3 & 5 & 7 \\ \hline \text { Labour hours per unit } & 2 & 2 & 2 \\ \hline \end{array}$ Under an activity-based costing system, what is the per-unit cost of Standard?

A) $73.88. B) $96.88. C) $157.88. D) $160.88. E) 165.88. A) $73.88. B) $96.88. C) $157.88. D) $160.88. E) 165.88.

Exam 5: Activity-Based Costing and Management

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labour hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. Product Pool No. 1 (Driver: DLH) Pool No. 2 (Driver: SU) Pool No. 3 (Driver: PC) Beta 1.200 45 2.250 Zeta 2.800 55 750 Pool Cost \ 160,000 \ 280,000 \ 360,000 The overhead cost allocated to Beta by using activity-based costing procedures would be:

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Question 21

Factory Oak produces various wooden bookcases, tables, storage units, and chairs. Which of the following would be included in a listing of the company's non-value-added activities?

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Question 22

Purdy Manufacturing produces flat-screen computer monitors. Consider the following selected costs that arose during the current year: 1. Direct materials used: $4,440,000 2. Plant rent, utilities, and taxes: $1,300,000 3. New technology design engineering: $2,030,000 4. Materials receiving: $418,000 5. Manufacturing-run/set-up charges: $215,000 6. Equipment depreciation: $92,000 7. General management salaries: $1,560,000 Required: A. Briefly distinguish between batch-level and facility-level activities. B. Determine the cost of the firm's unit-level, batch-level, product-sustaining, and facility-level activities.

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Question 23

Consider the following costs that relate to a bank and a manufacturer of software: Bank 1. Review cost of commercial loan applications 2. Operating cost of human resources department 3. Immediate processing cost of a specific customer's cash deposit 4. Bank membership cost of joining local Chamber of Commerce Software manufacturer 5. Label and packaging charges from a commercial printer for a new software release 6. Air conditioning/heating costs of the firm's production plant 7. Transport cost of moving the CD-output from production run no. 1 to the company's warehouse 8. Design, development, and coding cost of new spreadsheet software Required: A. Classify the eight costs listed as arising from either a unit-level, batch-level, product-sustaining, or facility-level activity. B. Would number of loan applications or number of customers be a more appropriate cost-driver base for the review of loan applications? Briefly explain.

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Question 24

Horton 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 Horton's perspective? Required Sales Contacts Account Payment Patterns Design Engineering Change Orders 1 Many Slow Many 2 Many Rapid Many 3 Few Slow Many 4 Few Rapid Few 5 Many Rapid Few

(Multiple Choice)

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Question 25

When determining customer profitability, activity-based costing is not a useful tool to analyze:

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Question 26

Oliver and Sprung, an accounting firm, provides tax compliance and tax planning services. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $300,000) has been allocated to services on this basis. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff Support \ 215,000 In-house IT charges 65,000 Miscellaneous office expenditures 20,000 \ 300,000 A recent analysis of staff support found a strong correlation with the number of clients served. In contrast, in-house IT and miscellaneous office expenditures varied directly with the number of computer hours logged and number of client transactions, respectively. Tax compliance clients served totaled 25% of the total client base, consumed 35% of the firm's computer hours, and accounted for 30% of the total client transactions. If Oliver and Sprung switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to tax compliance services would:

(Multiple Choice)

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Question 27

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labour hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. Product Pool No. 1 (Driver: DLH) Pool No. 2 (Driver: SU) Pool No. 3 (Driver: PC) Beta 1.200 45 2.250 Zeta 2.800 55 750 Pool Cost \ 160,000 \ 280,000 \ 360,000 The overhead cost allocated to Zeta by using activity-based costing procedures would be:

(Multiple Choice)

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Question 28

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labour hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. Product Pool No. 1 (Driver: DLH) Pool No. 2 (Driver: SU) Pool No. 3 (Driver: PC) Beta 1.200 45 2.250 Zeta 2.800 55 750 Pool Cost \ 160,000 \ 280,000 \ 360,000 The overhead cost allocated to Beta by using traditional costing procedures would be:

(Multiple Choice)

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Question 29

Generally speaking, companies prefer doing business with customers who:

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Question 30

X-Ray Machines Ltd. manufactures three product lines: Standard, Deluxe, and Superior. 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: Standard Deluxe Supe rior Units to be produced 15,000 10,000 7,000 Orders to be shipped 1,000 500 500 Number of parts per unit 10 15 25 Machine hours per unit 3 5 7 Labour hours per unit 2 2 2 What is X-Ray's pool rate for the finishing activity?

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Question 31

The salaries of a manufacturing plant's management are said to arise from:

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Question 32

Kelly and Logan, an accounting firm, provides consulting and tax planning services. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff support \ 180,000 In-house computing charges 50,000 Miscellaneous office costs 20.000 Total \ 250.000 A recent analysis of staff support found a strong correlation with the number of clients served (consulting, 20 clients; tax planning, 60 clients). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions. Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax planning services is:

(Multiple Choice)

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Question 33

Which of the following activity cost pools and activity measures likely has the lowest degree of correlation? Activity Cost Pool Activity Measure 1 Order department Number of orders processed 2 Sales management Time spent by managers in each sales territory 3 Accounts receivable processing Number of customers 4 Catering Numbers of meals served 5 Employee travel to job sites (sites Number of employees are within 100 -mile radius of company headquarters)

(Multiple Choice)

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Question 34

Ippilito's Fresh Meats and Produce is a wholesale distributor that operates in central California. An analysis of two of the company's customers, Atriums Retirement Home and Sigma Sigma Fraternity, revealed the data that follow for a recent 12-month period. Atriums Retirement Sigma Sigma Sales revenue \ 680,000 \ 270,000 Cost of goods sold 90\% of sales 80\% of sales Number of deliveries 100 135 Number of invoices 120 180 Ippilito's uses activity-based costing to determine the cost of servicing its customers. The company had total delivery costs during the year of $576,000 and 8,000 deliveries, along with cost of $765,000 for the administrative processing of 90,000 invoices. Required: A. Compute the pool rates for deliveries and invoice processing. B. Compute the operating income that Ippilito's earned from these two customers. C. Compute the total of customer-related costs (deliveries and invoice processing) for each customer as a percentage of gross margin, and analyze the results for management. Explain any significant differences that you find.

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Question 35

X-Ray Machines Ltd. manufactures three product lines: Standard, Deluxe, and Superior. 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: Standard Deluxe Supe rior Units to be produced 15,000 10,000 7,000 Orders to be shipped 1,000 500 500 Number of parts per unit 10 15 25 Machine hours per unit 3 5 7 Labour hours per unit 2 2 2 Under an activity-based costing system, what is the per-unit cost of Standard?

(Multiple Choice)

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Question 36

Which of the following statements about a just-in-time (JIT) purchasing system is false?

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Question 37

You have recently been hired by a manufacturing company. Two days ago, you met with the top management of the company to discuss future strategies for the firm. During the meeting, the president of the company expressed concern about the profitability of the company and the company's ability to compete effectively in the future. You responded to the president's concerns by mentioning some articles you had read in professional accounting journals regarding JIT. The president responded to your comments by saying that although the JIT concept sounded interesting, no one in the company was knowledgeable about JIT. The president then requested that you prepare a brief summary of JIT for the next strategic planning meeting. Required: A. List five major requirements for implementing a successful JIT system. B. List at least five benefits cited of a JIT system.

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Question 38

Weston Enterprises uses a traditional-costing system to estimate quality-control costs for its PDA product line. Costs are estimated at 32% of direct-labour cost, and direct labour totalled $860,000 for the quarter just ended. Management is contemplating a change to activity-based costing, and has established three cost pools: incoming material inspection, in-process inspection, and final product certification. Number of parts, number of units, and number of orders have been selected as the respective cost drivers. The following data show the pool rates that have been calculated by the company along with the quantity of driver units for the PDAs: \ 0.50 per part 20 parts 0.12 per unit 28,000 units 115.00 per order 90 orders Required: A. Calculate the quarterly quality-control cost that is allocated to the PDA product line under Weston's traditional-costing system. B. Calculate the quarterly quality-control cost that is allocated to the PDAs if activity-based costing is used. C. Does the traditional approach undercost or overcost the product line? By how much?

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Question 39

Profile Incorporated, an appliance manufacturer, is developing a new line of ovens that uses controlled-laser technology. The research and testing costs associated with the new ovens is said to arise from a:

(Multiple Choice)

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Question 40

Factory Oak produces various wooden bookcases, tables, storage units, and chairs. Which of the following would be included in a listing of the company's non-value-added activities?

When determining customer profitability, activity-based costing is not a useful tool to analyze:

Generally speaking, companies prefer doing business with customers who:

The salaries of a manufacturing plant's management are said to arise from:

Which of the following statements about a just-in-time (JIT) purchasing system is false?

Profile Incorporated, an appliance manufacturer, is developing a new line of ovens that uses controlled-laser technology. The research and testing costs associated with the new ovens is said to arise from a:

The Changing Role of Managerial Accounting

Basic Cost Management Concepts

Product Costing and Cost Accumulation

Process Costing and Hybrid Product-Costing Systems

Activity Analysis, Cost Behaviour, and Cost Estimation

Cost-Volume-Profit Analysis, Absorption and Variable Costing

Profit Planning and Activity-Based Budgeting

Standard Costing and Flexible Budgeting

Cost Management Tools

Responsibility Accounting, Investment Centres, and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

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