Question 1

Activity-based management (ABM)can be used to make pricing and product mix decisions.

Accepted Answer

A) True 
 B)False

Question 2

Rubio,Inc. ,a law consulting firm,has been using a single predetermined overhead allocation rate with direct labor hours as the allocation base to allocate overhead costs.The direct labor rate is $300 per hour.Clients are billed at 160% of direct labor cost.Chandler Massey,the president of Rubio,decided to develop an ABC system to more accurately allocate the indirect costs.He identified two activities related to the total indirect costs-travel and information technology (IT)support.The other relevant details are given below: $\begin{array}{|l|l|r|r|}
\hline\text { Activity } & \text { Allocation base } & \text { Estimated costs } & \begin{array}{c}
\text { Estimated quantity } \
\text { of allocation base }
\end{array} \
\hline \text { Travel } & \text { Miles driven } & \$ 85,000 & 1,500 \text { miles } \
\hline \text { IT Support } & \text { Direct labor hour's } & \underline{59,000} & 1,250 \text { DLH } \
\hline \text { Total } & & \$ 144,000 & \
\hline
\end{array}$ The predetermined overhead allocation rate for travel will be ________.(Round your answer to the nearest cent. )

Accepted Answer

A) $47.20 per mile 
B) $56.67 per mile 
C) $68.00 per mile 
D) $96.00 per mile 
A) $47.20 per mile 
B) $56.67 per mile 
C) $68.00 per mile 
D) $96.00 per mile

Question 3

List two types of service companies that would benefit from using activity-based management.For each company listed,state the type of cost information management needs to know.
 $$\begin{array} { | l | l | } 
\hline \text { Type of service company } & \begin{array} { c } 
\text { Cost information management needs to } \
\text { know }
\end{array} \
\hline & \
\hline & \
\hline
\end{array}$$

Accepted Answer

Student an

Question 4

Quality costs are easy to measure.

Accepted Answer

A) True 
 B)False

Question 5

Activity-based management (ABM)uses activity-based costs to make decisions that increase profits while meeting customer needs.

Accepted Answer

A) True 
 B)False

Question 6

The costs incurred in the inspection of final products or services is an example of a(n)________.

Accepted Answer

A) prevention cost 
B) appraisal cost 
C) internal failure cost 
D) external failure cost 
A) prevention cost 
B) appraisal cost 
C) internal failure cost 
D) external failure cost

Question 7

Bag Ladies,Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $25,500.Additional estimated information is given below. $$\begin{array} { | l | r | r | } 
\hline & \text { Totes } & \text { Satchels } \
\hline \text { Direct materials cost per unit } & \$ 34 & \$ 40 \
\hline \text { Direct labor cost per unit } & \$ 54 & \$ 64 \
\hline \text { Number of units } & 530 & 390 \
\hline
\end{array}$$ Calculate the amount of overhead to be allocated to Totes.(Round any percentages to two decimal places and your final answer to the nearest dollar. )

Accepted Answer

A) $472 
B) $347 
C) $11,878 
D) $13,620 
A) $472 
B) $347 
C) $11,878 
D) $13,620

Question 8

Manufacturing overhead costs,which are also known as indirect costs,cannot be cost-effectively traced to products.

Accepted Answer

A) True 
 B)False

Question 9

A company is most likely to use value engineering ________.

Accepted Answer

A) to allocate manufacturing overhead to departments 
B) to reduce costs in order to achieve target costs 
C) to determine accurate product costs for pricing 
D) to make product mix decisions 
A) to allocate manufacturing overhead to departments 
B) to reduce costs in order to achieve target costs 
C) to determine accurate product costs for pricing 
D) to make product mix decisions

Question 10

Phoenix,Inc.manufactures widgets.The target sales price is $440 per unit.The company desires a 40% net profit margin on its products.What is the company's target full-product cost per unit using target pricing?

Accepted Answer

A) $176 
B) $616 
C) $704 
D) $264 
A) $176 
B) $616 
C) $704 
D) $264

Question 11

Businesses should invest up front in internal and external failure costs to reduce prevention and appraisal costs.

Accepted Answer

A) True 
 B)False

Question 12

Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.

Accepted Answer

A) True 
 B)False

Question 13

A product mix decision focuses on generating the maximum profit for a company but does not consider the company's limited production capabilities.

Accepted Answer

A) True 
 B)False

Question 14

________ are costs incurred to avoid poor-quality goods or services.

Accepted Answer

A) Prevention costs 
B) Appraisal costs 
C) Internal failure costs 
D) External failure costs 
A) Prevention costs 
B) Appraisal costs 
C) Internal failure costs 
D) External failure costs

Question 15

Dillani,Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single predetermined overhead allocation rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $200,000.The company is expected to work 8,000 direct labor hours during the year.The direct labor rate is $300 per hour.Clients are billed at 120% of direct labor cost.Last month,Dillani's consultants spent 170 hours on Davenport,Inc.Calculate the operating income from Davenport.

Accepted Answer

A) $51,195 
B) $51,000 
C) $164,333 
D) $5,950 
A) $51,195 
B) $51,000 
C) $164,333 
D) $5,950

Question 16

Under just-in-time costing,the purchase of raw materials is recorded by debiting the Raw Materials Inventory account.

Accepted Answer

A) True 
 B)False

Question 17

Blair Corporation has adopted a JIT management system and has the following transactions in March:
 Mar 5 Incurred labor and overhead costs, $ \$ 95,000 $
Mar 31 Completed 650 units with standard costs of $ \$ 94 $ for direct materials and $ \$ 128 $ for conversion costs
 Open a T-account for Conversion Costs.Post appropriate entries to determine the amount of underallocated or overallocated overhead.Record the adjusting entry.

Accepted Answer

\[\begin{array}{c}
\text { Conversion }\

Question 18

Costs incurred in customer service are categorized as ________.

Accepted Answer

A) prevention costs 
B) appraisal costs 
C) internal failure costs 
D) external failure costs 
A) prevention costs 
B) appraisal costs 
C) internal failure costs 
D) external failure costs

Question 19

Webster,Inc.has received a bid for 14,000 units.The costing estimates show that the average cost per unit for this bid will be $500.The company uses cost-based pricing and adds 20% markup to total costs.What total price will Webster ask for the entire order?

Accepted Answer

A) $8,400,000 
B) $7,000,000 
C) $1,400,000 
D) $5,600,000 
A) $8,400,000 
B) $7,000,000 
C) $1,400,000 
D) $5,600,000

Question 20

An activity-based costing system is developed in four steps: a.Compute the predetermined overhead allocation rate for each activity.
B.Identify activities and estimate their total costs.
C.Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base.
D.Allocate the indirect costs to the cost object.
Which of the following is the correct order for performing these steps?

Accepted Answer

A) a,b,c,d 
B) c,a,b,d 
C) b,c,a,d 
D) b,a,c,d 
A) a,b,c,d 
B) c,a,b,d 
C) b,c,a,d 
D) b,a,c,d

Exam 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems

Activity-based management (ABM)can be used to make pricing and product mix decisions.

List two types of service companies that would benefit from using activity-based management.For each company listed,state the type of cost information management needs to know. Type of service company Cost information management needs to know

Quality costs are easy to measure.

Activity-based management (ABM)uses activity-based costs to make decisions that increase profits while meeting customer needs.

The costs incurred in the inspection of final products or services is an example of a(n)________.

Manufacturing overhead costs,which are also known as indirect costs,cannot be cost-effectively traced to products.

A company is most likely to use value engineering ________.

Phoenix,Inc.manufactures widgets.The target sales price is $440 per unit.The company desires a 40% net profit margin on its products.What is the company's target full-product cost per unit using target pricing?

Businesses should invest up front in internal and external failure costs to reduce prevention and appraisal costs.

Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.

A product mix decision focuses on generating the maximum profit for a company but does not consider the company's limited production capabilities.

________ are costs incurred to avoid poor-quality goods or services.

Under just-in-time costing,the purchase of raw materials is recorded by debiting the Raw Materials Inventory account.

Costs incurred in customer service are categorized as ________.

Webster,Inc.has received a bid for 14,000 units.The costing estimates show that the average cost per unit for this bid will be $500.The company uses cost-based pricing and adds 20% markup to total costs.What total price will Webster ask for the entire order?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Internal Control and Cash

Receivables

Plant Assets, natural Resources, and Intangibles

Investments

Current Liabilities and Payroll

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Variable Costing

Master Budgets

Flexible Budgets and Standard Cost Systems

Responsibility Accounting and Performance Evaluation

Short-Term Business Decisions

Capital Investment Decisions

Accounting Information Systems

Filters