Question 1

What is a transactiondriver?

Accepted Answer

A)  An event that causes a transactionto begin. 
B)  A measure of the amount of time required to perform an activity. 
C)  An event that causes a transactionto end. 
D)  A simple count of the number of times an activity occurs. 
A)  An event that causes a transactionto begin. 
B)  A measure of the amount of time required to perform an activity. 
C)  An event that causes a transactionto end. 
D)  A simple count of the number of times an activity occurs. D

Question 2

Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs).The company has two products,W82R and L48S,about which it has provided the following data:
 $$\begin{array} { | l | r | r | } 
\hline & \text { W82R } & \text { L48S } \
\hline \text { Direct materials per unit } & \$ 11.50 & \$ 62.90 \
\hline \text { Direct labour per unit } & \$ 2.00 & \$ 13.00 \
\hline \text { Direct labour hours per unit } & 0.20 & 1.30 \
\hline \text { Annual production } & 45,000 & 10,000 \
\hline
\end{array}$$ 
The company's estimated total manufacturing overhead for the year is $1,521,960 and the company's estimated total direct labour-hours for the year is 22,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports.Data for this proposed activity-based costing system appear below:
 $$\begin{array} { | l | r | } 
\hline \text { Activities and Activity Measures } & \text { Estimated Overhead Cost } \
\hline \text { Supporting direct labour (DIHS) } & \$ 352,000 \
\hline \text { Setting up machines (setups) } & 201,960 \
\hline \text { Parts administration (part types) } & \$ 968,000 \
\hline \text { Total } & \$ 1,521,960 \
\hline
\end{array}$$ 
 $$\begin{array} { | l | r | r | r | } 
\hline \text { Activities } & \text { W82R } & \text { L48g } & \text { Total } \
\hline \begin{array} { l } 
\text { Supporting direct } \
\text { labour }
\end{array} & 9,000 & 13,000 & 22,000 \
\hline \text { Settinig up machines } &  8 1 4 & 374 & 1,188 \
\hline \text { Part administration } & 924 & 1,012 & 1,936 \
\hline
\end{array}$$ 
Required:
a.Determine the unit product cost of each of the company's two products under the traditional costing system.
b.Determine the unit product cost of each of the company's two products under activity-based costing system.

Accepted Answer

a.Traditional Unit Product Costs
Predetermined overhead rate = $1,521,960 * 22,000 DLHs = $69.18 per DLH
 $\begin{array}{|l|c|c|}
\hline & \text { W82R } & \text { L48S } \
\hline \text { Direct materials } & \$ 11.50 & \$ 62.90 \
\hline \text { Direct labour } & 2.00 & 13.00 \
\hline \begin{array}{l}
\text { Manufacturing overhead } \
(0.2 \text { DLHs x } \$ 69.18 \text { per } \
\text { DLH; } 1.3 \text { DLHs x } \$ 69.18 \
\text { per DLH) }
\end{array} & 13.84 & 89.93 \
\hline \text { Unit product cost } & \$ 27.34 & \$ 165.83 \
\hline
\end{array}$
 b.ABC Unit Product Costs
 $$\begin{array} { | l | r | r | r | } 
\hline & \begin{array} { r } 
\text { Estimated } \
\text { Overhend Cost }
\end{array} & \begin{array} { r } 
\text { Tatal Expected } \
\text { Activity }
\end{array} & \text { Activity Rate } \
\hline \begin{array} { l } 
\text { Supporting direct } \
\text { labour }
\end{array} & \$ 3 5 2 , 0 0 0&2 2 , 0 0 0 \text { DLHS } & \text { \$16 per DLH } \
\hline \text { Setting up machines } & \$ 201,960 & 1,188 \text { setups } & \text { \$170 per setup } \
\hline \text { Part administration } & \$ 968,000 & 1,936 \text { part types } & \text { \$500 per part type } \
\hline
\end{array}$$ Overhead cost for W82R
 $\begin{array}{|l|r|r|r|}
\hline & \text { Activity Rate } & \text { Activity } & \text { ABC Cost } \
\hline \begin{array}{l}
\text { Supporting direct } \
\text { labour }
\end{array} & \text { \$16 per DLH } & 9,000 \mathrm{DLHs} & \$ 144,000 \
\hline \text { Setting up machines } & \text { \$170 per setup } & 814 \text { setups } & 138,380 \
\hline \text { Part administration } & \$ 500 \text { per part type } & 924 \text { part types } & 462,000 \
\hline \text { Total } & & & \$ 744,380 \
\hline
\end{array}$
 Overhead cost for L48S
 $\begin{array}{|c|c|c|c|}
\hline & \text { Activity Rate } & \text { Activity } & \mathrm{ABC} \text { Cost } \
\hline \begin{array}{l}
\text { Supporting direct } \
\text { labour }
\end{array} & \$ 16 \text { per D L H} & 13,000 \text { DLHs } & \$ 208,000 \
\hline \text { Setting up machines } & \$ 170 \text { per setup } & 374 \text { setups } & 63,580 \
\hline \text { Part administration } & \$ 500 \text { per part type } & \text { 1,012 part types } & 506,000 \
\hline \text { Total } & & & \$ 777,5 \
\hline
\end{array}$
 $\begin{array}{|l|c|c|}
\hline & \text { W82R } & \text { L48S } \
\hline \text { Direct materials } & \$ 11.50 & \$ 62.90 \
\hline \text { Direct labour } & 2.00 & 13.00 \
\hline \begin{array}{l}
\text { Manufacturing overhead } \
(\$ 744,400 / 45,000 \text { units; } \
\$ 777,600 / 10,000 \text { units) }
\end{array} & \underline{16.54} & \underline{ 77.76} \
\hline \text { Unit product cost } & \$ 30.04 & 53.66 \
\hline
\end{array}$

Question 3

-What would be the total overhead cost per order according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Filling Orders activity cost pool?

Accepted Answer

A)  $273.00. 
B)  $292.50. 
C)  $302.00. 
D)  $312.00 
A)  $273.00. 
B)  $292.50. 
C)  $302.00. 
D)  $312.00 C

Question 4

Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). The company has two products, R58G and R09O, about which it has provided the following data:

-(Appendix 7A)The manufacturing overhead that would be applied to a unit of product R58G under the company's traditional costing system is closest to:

Accepted Answer

A)  $6.74 
B)  $16.10 
C)  $22.84 
D)  $2.90 
A)  $6.74 
B)  $16.10 
C)  $22.84 
D)  $2.90

Question 5

Which of the following statements about overhead allocation based on volume alone is correct?

Accepted Answer

A)  It is a key aspect of the activity-based costing model. 
B)  It will systematically overcost high-volume products and undercost low-volume products. 
C)  It will systematically overcost low-volume products and undercost high-volume products. 
D)  It must be used for external financial reporting. 
A)  It is a key aspect of the activity-based costing model. 
B)  It will systematically overcost high-volume products and undercost low-volume products. 
C)  It will systematically overcost low-volume products and undercost high-volume products. 
D)  It must be used for external financial reporting.

Question 6

Matt Company uses activity-based costing.The company has two products: A and B.The annual production and sales of Product A is 8,000 units and of Product B is 6,000 units.There are three activity cost pools,with estimated total cost and expected activity as follows:
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Expected Activity }$$\begin{array} { | l | r | r | r | r | } 
\hline \begin{array} { l } 
\text { Activity Cost } \
\text { Pool }
\end{array} & \text { Estimated Cost } & \text { Product A } & \text { Product B } & \text { Total } \
\hline \text { Activity 1 } & \$ 20,000 & 100 & 400 & 500 \
\hline \text { Activity 2 } & 37,000 &8 0 0& 200 & 1,000 \
\hline \text { Activity 3 } & 91,200 & 8 0 0 &3 , 0 0 0  & 3,800 \
\hline
\end{array}$
The cost per unit of Product A under activity-based costing is closest to which of the following?

Accepted Answer

A)  $2.40. 
B)  $3.90. 
C)  $6.60. 
D)  $10.59. [(20,000/500) * 100 + (37,000/1,000) * 800 + (91,200/3,800) * 800]/8,000 = $6.60. 
A)  $2.40. 
B)  $3.90. 
C)  $6.60. 
D)  $10.59. [(20,000/500) * 100 + (37,000/1,000) * 800 + (91,200/3,800) * 800]/8,000 = $6.60.

Question 7

Jackson Painting paints the interiors and exteriors of homes and commercial buildings.The company uses an activity-based costing system for its overhead costs.The company has provided the following data concerning its activity-based costing system.
 $$\begin{array} { | l | l | r | } 
\hline \text { Activity Cost Pool } & \text { Activity Measure } & \text { Annual Activity } \
\hline \text { Painting overhead } & \text { Square metres } & 10,000 \text { square metres } \
\hline \text { Job support } & \text { Jobs } & 320 \text { jobs } \
\hline \text { Other } & \text { None } & \text { Not applicable } \
\hline
\end{array}$$ The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centres.The results are listed below:
 $$\begin{array} { | l | r | r | r | r | } 
\hline & \text { Printing } & \text { Job Support } & \text { Other } & \text { Total } \
\hline \begin{array} { l } 
\text { Painting } \
\text { overhead }
\end{array} & \$ 54,000 & \$ 42,000 & \$ 24,000 & \$ 120,000 \
\hline \text { Office expense } & \underline { 16,000 } & \underline { 96,000 } & 48,000 & 160,000 \
\hline \text { Total } & \$ 70,000 & \$ 138,000 & \$ 72,000 & \$ 280,000 \
\hline
\end{array}$$ 
Required:
a)Compute the activity rates (i.e.,cost per unit of activity)for the Painting and Job Support activity cost pools by filling in the table below.Round off all calculations to the nearest whole cent.
 $$\begin{array} { | l | l | l | } 
\hline \text { Answer: } & \text { Printing } & \text { Job Support } \
\hline \text { Production overhead } & & \
\hline \text { Office expense } & & \
\hline \text { Total } & & \
\hline
\end{array}$$ 
b)Prepare a report in good form of a job that involves painting 63 square metres and has direct materials and direct labour cost of $2,070.The sales revenue from this job is $3,500.

Accepted Answer

a)Activity rates (costs divided by activ

Question 8

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?

Accepted Answer

A)  Unit-level activity. 
B)  Batch-level activity. 
C)  Customer-level activity. 
D)  Organization-sustaining activity. 
A)  Unit-level activity. 
B)  Batch-level activity. 
C)  Customer-level activity. 
D)  Organization-sustaining activity.

Question 9

Costs incurred at which of the following activity levels should NOT be allocated to products for decision-making purposes?

Accepted Answer

A)  Unit-level activities. 
B)  Batch-level activities. 
C)  Product-level activities. 
D)  Organization-sustaining activities. 
A)  Unit-level activities. 
B)  Batch-level activities. 
C)  Product-level activities. 
D)  Organization-sustaining activities.

Question 10

When there are batch-level or product-level costs,in comparison to a traditional cost system,an activity-based costing system ordinarily will shift costs from high-volume to low-volume products.

Accepted Answer

A) True 
 B)False

Question 11

-What would be the total overhead cost per delivery according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Deliveries activity cost pool?

Accepted Answer

A)  $6.00 
B)  $6.60 
C)  $6.80 
D)  $7.20 
A)  $6.00 
B)  $6.60 
C)  $6.80 
D)  $7.20

Question 12

Monson Company has two products: G and P. The company uses activity-based costing and has prepared the following analysis, showing the estimated total overhead cost and expected activity for each of its three activity cost pools:
  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Expected Activity }$
$\begin{array} { | l | r | r | r | r | } 
\hline \begin{array} { l r r  r } 
\text { Activity Cost } \
\text { Pool }
\end{array} & \text { Estimated Cost } & \text { Product G } & \text { Product P } & \text { Total } \
\hline \text { Activity 1 } & \$ 30,000 & 200 & 400 & 600 \
\hline \text { Activity 2 } & 24,000 & 600 & 900 & 1,500 \
\hline \text { Activity 3 } & 80,000 & 400 & 3,600 & 4,000 \
\hline
\end{array}$The annual production and sales of Product G is 10,640 units. The annual production and sales of Product P is 26,600.

-The overhead cost per unit of Product P under activity-based costing is closest to which of the following?

Accepted Answer

A)  $4.00. 
B)  $6.88. 
C)  $10.00. 
D)  $30.16. 
A)  $4.00. 
B)  $6.88. 
C)  $10.00. 
D)  $30.16.

Question 13

What is a duration driver?

Accepted Answer

A)  A simple count of the number of times an activity occurs. 
B)  An activity measure that is used for the life of the company. 
C)  A measure of the amount of time required to perform an activity. 
D)  An activity measure that is used for the life of an activity-based costing system. 
A)  A simple count of the number of times an activity occurs. 
B)  An activity measure that is used for the life of the company. 
C)  A measure of the amount of time required to perform an activity. 
D)  An activity measure that is used for the life of an activity-based costing system.

Question 14

In general,duration drivers are more accurate measures of the consumption of resources than transaction drivers.

Accepted Answer

A) True 
 B)False

Question 15

Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). The company has two products, U86Y and M91F, about which it has provided the following data:$\begin{array} { | l | r | r | } 
\hline & \text { U86Y } & \text { M91F } \
\hline \text { Direct materials per unit } & \$ 19.80 & \$ 45.80 \
\hline \text { Direct labour per unit } & \$ 18.20 & \$ 49.40 \
\hline \text { Direct labour hours per unit } & 0.70 & 1.90 \
\hline \text { Annual production } & 40,000 & 10,000 \
\hline
\end{array}$The company's estimated total manufacturing overhead for the year is $2,541,760 and the company's estimated total direct labour-hours for the year is 47,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for externalreports. Data for this proposed activity-based costing system appear below:
$\begin{array} { | l | r | } 
\hline \text { Activities and Activity Measures } & \text { Estimated Overhead Cost } \
\hline \text { Supporting direct labour (DLHs) } & \$ 1,175,000 \
\hline \text { Setting up machines (setups) } & 407,000 \
\hline \text { Parts administration (part types) } & \underline {958,800 } \
\hline \text { Total } & \$ 2,541,760 \
\hline
\end{array}$

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Expected Activity } $
$\begin{array} { | l | r | r | r | } 
\hline & \text { P85G } & \text { C43S } & \text { Total } \
\hline \text { DLHs } & 28,000 & 19,000 & 47,000 \
\hline \text { Setups } & 2,256 & 658& 2,914 \
\hline \text { Part types } & 1,034&2,162 & 3,196 \
\hline
\end{array}$
- The unit product cost of product M91F under the activity-based costing system is closest to:

Accepted Answer

A)  $95.20 
B)  $121.57 
C)  $216.77 
D)  $197.95 
A)  $95.20 
B)  $121.57 
C)  $216.77 
D)  $197.95

Question 16

Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

Accepted Answer

A) True 
 B)False

Question 17

-What would be the total overhead cost per bouquet according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Making Bouquets activity cost pool?

Accepted Answer

A)  $2.48. 
B)  $2.75. 
C)  $2.83. 
D)  $3.03. 
A)  $2.48. 
B)  $2.75. 
C)  $2.83. 
D)  $3.03.

Question 18

Unit-level production activities are performed each time a unit is made.

Accepted Answer

A) True 
 B)False

Question 19

-What would be the total overhead cost per delivery according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Deliveries activity cost pool?

Accepted Answer

A)  $3.93. 
B)  $4.71. 
C)  $4.93. 
D)  $5.50. 
A)  $3.93. 
B)  $4.71. 
C)  $4.93. 
D)  $5.50.

Question 20

Grodt Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system:
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Activity Cost Pools }$
$\begin{array} { | l | r | r | }

\hline & \text { Preparing Meals } & \text { Arranging Functions } \
\hline \text { Wages } & \$ 0.85 & \$ 110.00 \
\hline \text { Supplies } & \$ 0.50 & \$ 310.00 \
\hline \text { Other expenses } & \$ 0.30 & \$ 120.00 \
\hline
\end{array}$The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.

Management would like to know whether the company made any money on a recent function at which 60 meals were served. The company catered the function for a fixed price of $19.00 per meal. The cost of the raw ingredients for the meals was $8.60 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above.

-According to the activity-based costing system,what was the total cost (including the costs of raw ingredients)of the function mentioned above,rounded to the nearest whole dollar?

Accepted Answer

A)  $505. 
B)  $655. 
C)  $1,155. 
D)  $1,355. 
A)  $505. 
B)  $655. 
C)  $1,155. 
D)  $1,355.

What is a transactiondriver?

-What would be the total overhead cost per order according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Filling Orders activity cost pool?

Which of the following statements about overhead allocation based on volume alone is correct?

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?

Costs incurred at which of the following activity levels should NOT be allocated to products for decision-making purposes?

When there are batch-level or product-level costs,in comparison to a traditional cost system,an activity-based costing system ordinarily will shift costs from high-volume to low-volume products.

-What would be the total overhead cost per delivery according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Deliveries activity cost pool?

What is a duration driver?

In general,duration drivers are more accurate measures of the consumption of resources than transaction drivers.

Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

-What would be the total overhead cost per bouquet according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Making Bouquets activity cost pool?

Unit-level production activities are performed each time a unit is made.

-What would be the total overhead cost per delivery according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Deliveries activity cost pool?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

Filters

Exam 7: Activity-Based Costing: A Tool to Aid Decision Making

What is a transactiondriver?

-What would be the total overhead cost per order according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Filling Orders activity cost pool?

Which of the following statements about overhead allocation based on volume alone is correct?

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?

Costs incurred at which of the following activity levels should NOT be allocated to products for decision-making purposes?

When there are batch-level or product-level costs,in comparison to a traditional cost system,an activity-based costing system ordinarily will shift costs from high-volume to low-volume products.

-What would be the total overhead cost per delivery according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Deliveries activity cost pool?

What is a duration driver?

In general,duration drivers are more accurate measures of the consumption of resources than transaction drivers.

Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

-What would be the total overhead cost per bouquet according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Making Bouquets activity cost pool?

Unit-level production activities are performed each time a unit is made.

-What would be the total overhead cost per delivery according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Deliveries activity cost pool?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

Filters