Question 1

The storage of raw materials is considered a non-value-added activity.

Accepted Answer

A) True 
 B)False

Question 2

Babcock Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs.The company has two departments: Assembly and Sanding.The Assembly Department uses a departmental overhead rate of $20 per machine hour,while the Sanding Department uses a departmental overhead rate of $15 per direct labour hour.Job 396 used the following direct labour hours and machine hours in the two departments:
   
The cost for direct labour is $25 per direct labour hour and the cost of the direct materials used by Job 396 is $1,200.
What was the total cost of Job 396 if Babcock Industries used the departmental overhead rates to allocate manufacturing overhead?

Accepted Answer

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Question 3

Sparrow Manufacturing manufactures small parts and uses an activity-based costing system.
 
The following parts were produced in October with the following information:
 
Total units costs for all parts is

Accepted Answer

A) $4.34. 
B) $6.06. 
C) $7.98. 
D) $13.48. 
A) $4.34. 
B) $6.06. 
C) $7.98. 
D) $13.48.

Question 4

Which of the following statements does NOT describe an ABC system?

Accepted Answer

A) ABC systems can create more accurate product costs. 
B) ABC systems may only be used by service companies. 
C) ABC systems are more complex and costly than traditional costing systems. 
D) ABC systems are used in both manufacturing and non manufacturing companies. 
A) ABC systems can create more accurate product costs. 
B) ABC systems may only be used by service companies. 
C) ABC systems are more complex and costly than traditional costing systems. 
D) ABC systems are used in both manufacturing and non manufacturing companies.

Question 5

The departmental overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.

Accepted Answer

A) True 
 B)False

Question 6

ABC costing might lead to

Accepted Answer

A) cutting back on high-volume products that appear unprofitable. 
B) expanding low-volume products that appear profitable. 
C) raising the sale price of high-volume products. 
D) raising the sale price of low-volume products. 
A) cutting back on high-volume products that appear unprofitable. 
B) expanding low-volume products that appear profitable. 
C) raising the sale price of high-volume products. 
D) raising the sale price of low-volume products.

Question 7

As a result of cost distortion,either all products will be over costed,or all products will be under costed.

Accepted Answer

A) True 
 B)False

Question 8

Martin Corporation manufactures two products-Plows and Harrows.The annual production and sales of Plows is 1,000 units,while 2,000 units of Harrows are produced and sold.The company has traditionally used direct labour hours to allocate its overhead to products.Plows require 5.0 direct labour hours per unit,while Harrows require 2.0 direct labour hours per unit.The total estimated overhead for the period is $603,500.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools:
 
The cost pool activity rate for Machining Costs would be closest to

Accepted Answer

A) $223.52 per Machine hour. 
B) $198.53 per Machine hour. 
C) $125.00 per Machine hour. 
D) $37.50 per Machine hour. 
A) $223.52 per Machine hour. 
B) $198.53 per Machine hour. 
C) $125.00 per Machine hour. 
D) $37.50 per Machine hour.

Question 9

Signs that a product cost system is not working properly include

Accepted Answer

A) managers don't understand costs and profits 
B) the cost system was installed five years ago 
C) the cost system has multiple allocation bases 
D) the cost system is fully depreciated 
A) managers don't understand costs and profits 
B) the cost system was installed five years ago 
C) the cost system has multiple allocation bases 
D) the cost system is fully depreciated

Question 10

Moylan & Bolognese,Attorneys at Law,provide a variety of legal services.The law firm uses an activity-based costing system and has developed the following activity pool cost rates:
   
Cost and activity data related to two clients is as follows:
   
Required:
A.Calculate the amount of overhead that would be allocated to Client 352 using the activity-based costing system.
B.Calculate the amount of overhead that would be allocated to Client 487 using the activity-based costing system.

Accepted Answer

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Question 11

The cost of depreciation,insurance,and property tax on the entire production plant would be considered a unit-level cost.

Accepted Answer

A) True 
 B)False

Question 12

One condition that favours using departmental overhead rates,rather than a plant-wide overhead rate,is that different jobs or products use the departments to a different extent.

Accepted Answer

A) True 
 B)False

Question 13

The cost of inspecting and packaging EACH unit the company produces would be considered a unit-level activity cost.

Accepted Answer

A) True 
 B)False

Question 14

ABC can be used in routine planning and control decisions as well as pricing,product mix and
cost cutting decisions.

Accepted Answer

A) True 
 B)False

Question 15

Why are the benefits of adopting ABC/ABM higher for companies in competitive markets?

Accepted Answer

A) Because ABM can pinpoint opportunities for cost savings 
B) Because accounting /information system expertise is inexpensive to develop 
C) Because accurate product cost information is not as relevant for price setting 
D) Because companies in competitive markets have low indirect costs 
A) Because ABM can pinpoint opportunities for cost savings 
B) Because accounting /information system expertise is inexpensive to develop 
C) Because accurate product cost information is not as relevant for price setting 
D) Because companies in competitive markets have low indirect costs

Question 16

Durable Engines Company uses ABC to account for it manufacturing process.
 
Durable Engines Company expects to produce 2,000 engines.Durable Engines Company also expects to use 12,000 parts and have 16 setups.
The allocation rate for machine setups is

Accepted Answer

A) $1,200. 
B) $800. 
C) $375. 
D) $5.28. 
A) $1,200. 
B) $800. 
C) $375. 
D) $5.28.

Question 17

Menno Corporation manufactures two products-Tables and Chairs.The annual production and sales of Tables is 2,000 units,while 8,000 units of Chairs are produced and sold.The company has traditionally used direct labour hours to allocate its overhead to products.Tables require 1.0 direct labour hours per unit,while Chairs require 0.5 direct labour hours per unit.The total estimated overhead for the period is $235,000.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools:
 
The overhead cost per Chair using the traditional costing system would be closest to

Accepted Answer

A) $39.17. 
B) $21.75. 
C) $19.58. 
D) $18.01. 
A) $39.17. 
B) $21.75. 
C) $19.58. 
D) $18.01.

Question 18

Sector's Machine Works manufactures custom equipment.Sector's Machine Works currently uses a plant-wide overhead rate,based on direct labour hours,to allocate its $2,000,000 of manufacturing overhead to individual jobs.However,Franco Sector,owner and CEO,is considering refining the company's costing system by using departmental overhead rates.Currently,the Machining Department incurs $1,400,000 of MOH while the Assembly Department incurs $600,000 of MOH.Franco has identified machine hours (MH)as the primary MOH cost driver in the Machining Department and direct labour (DL)hours as the primary cost driver in the Assembly Department.Sector completed job numbers 550 and 555 on May 15.Both jobs incurred a total of 7 DL hours throughout the entire production process.Job 550 incurred 3 MH in the Machining Department and 6 DL hours in the Assembly Department (the other DL hour occurred in the Machining Department).Job 555 incurred 4 MH in the Machining Department and 5 DL hours in the Assembly Department (the other two DL hours occurred in the Machining Department).
Requirements
1.Compute departmental overhead rates,assuming Sector expects to incur 25,000 MH in the Machining Department and 30,000 DL hours in the Finishing Department during the year.
2.Using the departmental rates how much manufacturing overhead would be allocated to Job 550 and to Job 555.

Accepted Answer

1.Departmental rates:
Machining: $1,400,

Question 19

Non-value-added activities are activities that neither enhance the customer's image of the product or service nor provide a competitive advantage.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is TRUE regarding activity-based costing systems?

Accepted Answer

A) ABC systems accumulate overhead costs by departments. 
B) ABC costing systems are less complex and,therefore,less costly than traditional systems. 
C) ABC costing systems can be used in manufacturing firms only. 
D) ABC costing systems have separate indirect cost allocation rates for each activity. 
A) ABC systems accumulate overhead costs by departments. 
B) ABC costing systems are less complex and,therefore,less costly than traditional systems. 
C) ABC costing systems can be used in manufacturing firms only. 
D) ABC costing systems have separate indirect cost allocation rates for each activity.

The storage of raw materials is considered a non-value-added activity.

Sparrow Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: Total units costs for all parts is

Which of the following statements does NOT describe an ABC system?

The departmental overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.

ABC costing might lead to

As a result of cost distortion,either all products will be over costed,or all products will be under costed.

Signs that a product cost system is not working properly include

The cost of depreciation,insurance,and property tax on the entire production plant would be considered a unit-level cost.

One condition that favours using departmental overhead rates,rather than a plant-wide overhead rate,is that different jobs or products use the departments to a different extent.

The cost of inspecting and packaging EACH unit the company produces would be considered a unit-level activity cost.

ABC can be used in routine planning and control decisions as well as pricing,product mix and cost cutting decisions.

Why are the benefits of adopting ABC/ABM higher for companies in competitive markets?

Durable Engines Company uses ABC to account for it manufacturing process. Durable Engines Company expects to produce 2,000 engines.Durable Engines Company also expects to use 12,000 parts and have 16 setups. The allocation rate for machine setups is

Non-value-added activities are activities that neither enhance the customer's image of the product or service nor provide a competitive advantage.

Which of the following statements is TRUE regarding activity-based costing systems?

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Process Costing

Cost Behaviour

Cost-Volume-Profit Analysis

Short-Term Business Decisions

The Master Budget and Responsibility Accounting

Flexible Budgets and Standard Costs

Performance Evaluation and the Balanced Scorecard

Capital Investment Decisions and the Time Value of Money

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Exam 4: Activity Based Costing

The storage of raw materials is considered a non-value-added activity.

Sparrow Manufacturing manufactures small parts and uses an activity-based costing system. The following parts were produced in October with the following information: Total units costs for all parts is

Which of the following statements does NOT describe an ABC system?

The departmental overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.

ABC costing might lead to

As a result of cost distortion,either all products will be over costed,or all products will be under costed.

Signs that a product cost system is not working properly include

The cost of depreciation,insurance,and property tax on the entire production plant would be considered a unit-level cost.

One condition that favours using departmental overhead rates,rather than a plant-wide overhead rate,is that different jobs or products use the departments to a different extent.

The cost of inspecting and packaging EACH unit the company produces would be considered a unit-level activity cost.

ABC can be used in routine planning and control decisions as well as pricing,product mix and cost cutting decisions.

Why are the benefits of adopting ABC/ABM higher for companies in competitive markets?

Durable Engines Company uses ABC to account for it manufacturing process. Durable Engines Company expects to produce 2,000 engines.Durable Engines Company also expects to use 12,000 parts and have 16 setups. The allocation rate for machine setups is

Non-value-added activities are activities that neither enhance the customer's image of the product or service nor provide a competitive advantage.

Which of the following statements is TRUE regarding activity-based costing systems?

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Process Costing

Cost Behaviour

Cost-Volume-Profit Analysis

Short-Term Business Decisions

The Master Budget and Responsibility Accounting

Flexible Budgets and Standard Costs

Performance Evaluation and the Balanced Scorecard

Capital Investment Decisions and the Time Value of Money

Filters