Question 1

Why would a firm use activity-based costing (ABC) rather than traditional methods of cost allocation for overhead?

Accepted Answer

ABC systems can more accurately trace costs to individual jobs. It is especially effective when the same department or departments produce many different types of products. With ABC complex products are assigned a larger portion of the overhead when based on activities.

Question 2

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.  
 
- 
Using activity-based costing for assigning overhead costs, the activity rate for machine setups is:

Accepted Answer

A)  $60 per setup 
B)  $100 per setup 
C)  $120 per setup 
D)  $240 per setup 
E)  $80 per setup 
A)  $60 per setup 
B)  $100 per setup 
C)  $120 per setup 
D)  $240 per setup 
E)  $80 per setup A

Question 3

Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: $\begin{array}{llr}
\text { Activity Cost Pools }&\text { Activity Rate }\
\text { Assembling products } & \$ 6.56 \text { per assembly hour } \
\text { Processing customer orders } & \$ 65.38 \text { per customer order } \
\text { Setting up batches } & \$ 82.84 \text { per batch }
\end{array}$

Data for one of the company's products follow:

$\begin{array} { l l l } & & \text { Product P59G } \ \text { Number of assembly hours } & 240 & \ \text { Number of customer orders } & 48 & \ \text { Number of batches } & 64 \end{array}$
- The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. How much total cost would be assigned to the 4,000 units of Product P59G using the activity-based costing system?

Accepted Answer

A)  $31,814.40 
B)  $51,000.00 
C)  $10,014.40 
D)  $39,214.40 
E)  $61,014.40 
A)  $31,814.40 
B)  $51,000.00 
C)  $10,014.40 
D)  $39,214.40 
E)  $61,014.40 E

Question 4

A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

Accepted Answer

A)  Plantwide overhead costing. 
B)  A cost center accounting system. 
C)  Controllable costing. 
D)  Performance costing. 
E)  Activity-based costing. 
A)  Plantwide overhead costing. 
B)  A cost center accounting system. 
C)  Controllable costing. 
D)  Performance costing. 
E)  Activity-based costing.

Question 5

Quantum Corporation has provided the following data from its activity-based costing system: $\begin{array}{lcrl}
\text { Activity Cost Pool }&&\text { Overhead Cost }&\text { Total Activity }\
\text { Assembly } & \$ & 1,114,920 & 57,000 \text { machine hours } \
\text { Processing orders } & \$ & 47,016 & 1,800 \text { orders } \
\text { Inspection } & \$ & 107,328 & 1,560 \text { inspection hours }
\end{array}$

The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit. 
-According to the activity-based costing system, the product margin for product R32E is:

Accepted Answer

A)  $29,132.50 
B)  $4,116.50 
C)  $5,161.30 
D)  $6,180.50 
E)  $4,981.00 
A)  $29,132.50 
B)  $4,116.50 
C)  $5,161.30 
D)  $6,180.50 
E)  $4,981.00

Question 6

Bangor Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year:
Total Activity
Activity Cost PoolTotal Cost Product F Product G Total
 Machine setups $\$ 10,800 \quad 80$ setups 100 setups 180 setups
Purchases orders$ \$77,520 \quad 510$ orders 1,010 orders 1,520 orders
General Factory $\$ 75,920 \quad 2,240$ hours 3,600 hours 5,840 hours Required: Using the activity-based costing approach, determine the overhead cost per unit for each product.

Accepted Answer

The activity rates for each activity cos

Question 7

Naples Corporation has provided the following data from its activity-based costing accounting system:$\begin{array}{lrl}
\text { Indirect factory wages } & \$ 520,000 \
\text { Factory equipment depreciation } & \$ 260,000
\end{array}$

$\begin{array}{llr}
\text {Activity Cost Pools}&\text {Activity Rate}\
\text { Processing customer orders } & \$ 92.86 \text { per customer order } \
\text { Assembling products } & \$ 1.78 \text { per assembly hour } \
\text { Setting up batches } & \$ 52.09 \text { per batch }
\end{array}$

- 
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Product Processing activity cost pool?

Accepted Answer

A)  $780,000 
B)  $260,000 
C)  $169,000 
D)  $351,000 
E)  $429,000 
A)  $780,000 
B)  $260,000 
C)  $169,000 
D)  $351,000 
E)  $429,000

Question 8

In activity-based costing, there are a number of activity cost pools, which consist of activities that belong to the same process and/or are caused by the same cost driver.

Accepted Answer

A) True 
 B)False

Question 9

Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.

Accepted Answer

A) True 
 B)False

Question 10

In activity-based costing, low-volume complex products are usually undercosted and high volume simpler products are overcosted, because the method fails to reflect the different uses of indirect resources.

Accepted Answer

A) True 
 B)False

Question 11

Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.

Accepted Answer

A) True 
 B)False

Question 12

After all activity costs are accumulated in an activity cost pool account, overhead rates are computed and costs are allocated to cost objects based on:

Accepted Answer

A)  Indirect factors. 
B)  Opportunity cost principles. 
C)  Cost drivers. 
D)  Joint cost principles. 
E)  Direct factors. 
A)  Indirect factors. 
B)  Opportunity cost principles. 
C)  Cost drivers. 
D)  Joint cost principles. 
E)  Direct factors.

Question 13

Kozlov Corporation has provided the following data from its activity-based costing system: $$\begin{array} { l l l } 
\text { Activity Cost Pool } & \text { Total Cost } & \text { Total Activity } \
\text { Assembly } & \$ 942,480 & 66,000 \text { machine hours } \
\text { Processing orders } & \$ 85,050 & 1,800 \text { orders } \
\text { Inspection } & \$ 126,854 & 1,820 \text { inspection hours }
\end{array}$$ The company makes 430 units of product A21W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit.
- According to the activity-based costing system, the average cost of product A21W is closest to:

Accepted Answer

A)  $89.72 per unit 
B)  $65.18 per unit 
C)  $64.99 per unit 
D)  $92.49 per unit 
E)  $94.11 per unit 
A)  $89.72 per unit 
B)  $65.18 per unit 
C)  $64.99 per unit 
D)  $92.49 per unit 
E)  $94.11 per unit

Question 14

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of rent and utilities allocated to Dept. 2 using activity-based costing. $$\begin{array} { l c r } 
& \text { Direct Labor Hours } & \text { Machine Hours } \
\text { Operating Dept. 1 } & 980 & 9,200 \
\text { Operating Dept. 2 } & 2,100 & 6,000 \
\text { Totals } & 3,080 & 15,200 \
& & \
\text { Factory overhead costs } & &\
\text { Rent and utilities } & & \$ 21,700   \ 
\text { Indirect labor } & &  17,300\
\text { Depreciation - Equipment } & &14,000\
\text { Total factory overhead }&& \$ 53,000
\end{array}$$

Accepted Answer

A)  $8,566. 
B)  $14,152. 
C)  $6,000. 
D)  $13,134. 
E)  $14,092. 
A)  $8,566. 
B)  $14,152. 
C)  $6,000. 
D)  $13,134. 
E)  $14,092.

Question 15

Superior Fasteners, Co. is considering switching from traditional allocation of overhead based on direct labor hours to an activity-based costing system. The manager has accumulated the following information on engineering changes for two of the company's major products:
 $$\begin{array} { l | l | l } 
& \begin{array} { l } 
\text { Autom otive } \
\text { Fasteners }
\end{array} & \begin{array} { l } 
\text { Computer } \
\text { Fasteners }
\end{array} \
\hline \text { Total units produced } & 5,000 & 2,500 \
\hline \text { Cost per engineering change } & \$ 400 & \$ 400 \
\hline \text { Number of engineering changes } & 5 & 25 \
\hline \text { Direct labor hours per unit } & 4 & 4
\end{array}$$ Compute the cost per unit using:
(1) The traditional allocation of the costs of engineering changes based on direct labor hours.
(2) The activity-based cost allocation of the costs of engineering changes.

Accepted Answer

($400 * 5) + ($400 * 25) = $12,000 total

Question 16

Under traditional cost allocation methods, low-volume complex products are often ________ and high-volume simpler products are likely to be ________.

Accepted Answer

undercoste

Question 17

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.  
 
-
Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is:

Accepted Answer

A)  $12.00 per unit 
B)  $13.40 per unit 
C)  $70.00 per unit 
D)  $14.00 per unit 
E)  $75.60 per unit 
A)  $12.00 per unit 
B)  $13.40 per unit 
C)  $70.00 per unit 
D)  $14.00 per unit 
E)  $75.60 per unit

Question 18

Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.
 $\begin{array}{|l|c|c|c|}
\hline& \text { Flat } & \text { Round } & \text { Total }\ 
\hline \text { Direct materials } & \$ 12,000 & \$ 24,000 & \$ 36,000 \
\hline \text { Direct labor } & 6,000 & 18,000 & 24,000 \
\hline \text { Overhead ( } 250 \% \text { of direct labor cost) } & 15,000 & 45,000 & 60,000 \
\hline \text { Total cost } & \$ 33,000 & \$ 87,000 & \$ 120,000 \
\hline \text { Units produced } & 10,000 & 15,000 & \
\hline \text { Average cost per unit } & \$ 3.30 & \$ 5.80 & \
\hline
\end{array}$
 Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.
 $\begin{array}{|l|l|l}
\hline\text { Overhead Cost Category (Activity Cost Pool) }&\text { Cost }\
\hline \text { Supervision } & \$ 12,600 \
\hline \text { Depreciation of machinery } & 30,600 \
\hline \text { Assembly line preparation } & 16,800 \
\hline \text { Total overhead } & \$ 60,000\
\hline
\end{array}$

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.
   Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller?

Accepted Answer

The average cost of flat increases and t

Question 19

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing. $$\begin{array} { l c c } 
& \text { Direct Labor Hours } & \text { Machine Hours } \
\text { Operating Dept. 1 } & 980 & 9,200 \
\text { Operating Dept. 2 } & 2,100 & 6,000 \
\text { Totals } & 3,080 & 15,200 \
 & & \
\text { Factory overhead costs } & & \
\text { Rent and utilities } & &  \$ 21,700 \
\text { Indirect labor } & & 17,300\
\text { Depreciation - Equipment } & &14,000  \
\end{array}$$ Total factory overhead $ 53,000

Accepted Answer

A)  $11,795. 
B)  $14,092. 
C)  $25,887. 
D)  $27,112. 
E)  $26,500. 
A)  $11,795. 
B)  $14,092. 
C)  $25,887. 
D)  $27,112. 
E)  $26,500.

Question 20

Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing.

Accepted Answer

A) True 
 B)False

Why would a firm use activity-based costing (ABC) rather than traditional methods of cost allocation for overhead?

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using activity-based costing for assigning overhead costs, the activity rate for machine setups is:

A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

In activity-based costing, there are a number of activity cost pools, which consist of activities that belong to the same process and/or are caused by the same cost driver.

Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.

In activity-based costing, low-volume complex products are usually undercosted and high volume simpler products are overcosted, because the method fails to reflect the different uses of indirect resources.

Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.

After all activity costs are accumulated in an activity cost pool account, overhead rates are computed and costs are allocated to cost objects based on:

Under traditional cost allocation methods, low-volume complex products are often and high-volume simpler products are likely to be .

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is:

Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Filters

Exam 27: Activity-Based Costing

Why would a firm use activity-based costing (ABC) rather than traditional methods of cost allocation for overhead?

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using activity-based costing for assigning overhead costs, the activity rate for machine setups is:

A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

In activity-based costing, there are a number of activity cost pools, which consist of activities that belong to the same process and/or are caused by the same cost driver.

Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.

In activity-based costing, low-volume complex products are usually undercosted and high volume simpler products are overcosted, because the method fails to reflect the different uses of indirect resources.

Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.

After all activity costs are accumulated in an activity cost pool account, overhead rates are computed and costs are allocated to cost objects based on:

Under traditional cost allocation methods, low-volume complex products are often ________ and high-volume simpler products are likely to be ________.

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is:

Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Filters

Under traditional cost allocation methods, low-volume complex products are often and high-volume simpler products are likely to be .