Question 1

Corporate administrative costs allocated to a division cost pool are MOST likely to be:

Accepted Answer

A) output unit-level costs. 
B) product-sustaining costs. 
C) organisation-sustaining costs. 
D) batch-level costs. 
A) output unit-level costs. 
B) product-sustaining costs. 
C) organisation-sustaining costs. 
D) batch-level costs.

Question 2

Answer the following questions using the information below:
Gold Coast Printing has contracts to provide fortnightly advertising supplements to 94 customers.For the year 2018,manufacturing overhead cost estimates total $600 000 for an annual production capacity of 24 million pages.
For 2018,Gold Coast Printing decided to evaluate the use of additional cost pools.After analysing manufacturing overhead costs,it was determined that number of design changes,set-ups and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis:
 $\begin{array} { l r c } \text { Cost Pool } & \text { Manufacturing Overhead Costs } & \text { Activity Level } \ \text { Design changes } & \$ 80000 & 200 \text { design changes } \ \text { Set-ups } & 400000 & 4000 \text { set-1ps } \ \text { Inspections } & 120000 & 16000 \text { inspections } \ \text { Total manufacturing overhead costs } & \$ 600000 & \end{array}$

During 2018, two customers, Wealth Managers and Health Systems, are expected to use the following printing services:

$\begin{array} { l c c } \text { Activity } & \text { Wealth Managers } & \text { Health Systems } \ \text { Pages } & 60000 & 76000 \ \text { Design changes } & 10 & 2 \ \text { Set-ups } & 20 & 10 \ \text { Inspections } & 30 & 38 \end{array}$
-Using the activity-cost driver rates determined in the previous question,what is the manufacturing overhead cost estimate for Health Systems during 2018?

Accepted Answer

A) $3412.50 
B) $2085.00 
C) $3113.75 
D) $2068.00 
A) $3412.50 
B) $2085.00 
C) $3113.75 
D) $2068.00

Question 3

Answer the following questions using the information below:
Geelong Publishing has contracts to complete weekly supplements required by 46 customers.For the year 2018,manufacturing overhead cost estimates total $420 000 for an annual production capacity of 12 million pages.
For 2018,Geelong Publishing has decided to evaluate the use of additional cost pools.After analysing manufacturing overhead costs,it was determined that the number of design changes,set-ups and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis:
 $\begin{array} { l r r } \text { Cost Pool } & \text { Manufacturing Overhead Costs } & \text { Activity Level } \ \text { Design changes } & \$ 60000 & 400 \text { design changes } \ \text { Set-ups } & 320000 & 8000 \text { set-ups } \ \text { Inspections } & 40000 & 8000 \text { inspections } \ \text { Total manufacturing overhead costs } & \$ 420000 & \end{array}$

During 2018, two customers, Kidscare Books and Biodata Research, are expected to use the following printing services:

$\begin{array} { l r r } \text { Activity } & \text { Kid scare Books } & \text { Biodata Research } \ \text { Pages } & 60000 & 76000 \ \text { Design changes } & 10 & 0 \ \text { Set-ups } & 20 & 10 \ \text { Inspections } & 30 & 38 \end{array}$
-Using pages printed as the only overhead cost driver,what is the manufacturing overhead cost estimate for Kidscare Books during 2018?

Accepted Answer

A) $2500 
B) $3000 
C) $2100 
D) $1750 
A) $2500 
B) $3000 
C) $2100 
D) $1750

Question 4

Activity-based costing information:

Accepted Answer

A) may assist in improving product design and efficiency. 
B) should be used when services place similar demands on resources. 
C) will yield inaccurate cost numbers when products are similar. 
D) does not support activity-based management. 
A) may assist in improving product design and efficiency. 
B) should be used when services place similar demands on resources. 
C) will yield inaccurate cost numbers when products are similar. 
D) does not support activity-based management.

Question 5

Snowy River Company produces a special spray nozzle.The budgeted indirect total cost of inserting the spray nozzle is $90 000.The budgeted number of nozzles to be inserted is 60 000.What is the budgeted indirect cost-allocation rate for this activity?

Accepted Answer

A) $1.00 
B) $0.50 
C) $1.50 
D) $2.00 
A) $1.00 
B) $0.50 
C) $1.50 
D) $2.00

Question 6

Which type of cost system recognises different resource-consumption patterns and eschews broad averages?

Accepted Answer

A) Traditional 
B) ABC 
C) Information 
D) Financial accounting 
A) Traditional 
B) ABC 
C) Information 
D) Financial accounting

Question 7

Product lines that produce different variations (models,styles or colours)often require specialised manufacturing activities that translate into:

Accepted Answer

A) fewer indirect costs for each product line. 
B) greater overhead costs for each product line. 
C) decisions to drop product variations. 
D) a greater number of direct manufacturing labour cost allocation rates. 
A) fewer indirect costs for each product line. 
B) greater overhead costs for each product line. 
C) decisions to drop product variations. 
D) a greater number of direct manufacturing labour cost allocation rates.

Question 8

When do activity-based costing systems provide better product costs?

Accepted Answer

A) When they employ more activity-cost drivers 
B) When they identify and cost more indirect cost differences among products 
C) When they employ fewer activity-cost drivers 
D) They always yield more accurate product costs than traditional systems 
A) When they employ more activity-cost drivers 
B) When they identify and cost more indirect cost differences among products 
C) When they employ fewer activity-cost drivers 
D) They always yield more accurate product costs than traditional systems

Question 9

How are cost drivers selected in activity-based costing systems?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

First,indirect costs are divided into ho

Question 10

________ systems are capable of producing reasonably accurate costs where significant costs are incurred on different activities within a department but the same cost driver applies to all the activities in the department.

Accepted Answer

A) Traditional 
B) ABC 
C) Financial accounting 
D) Management accounting 
A) Traditional 
B) ABC 
C) Financial accounting 
D) Management accounting

Question 11

It is important to assess and simplify organisational design before introducing ABC so that fewer costs need to be tracked.

Accepted Answer

A) True 
 B)False

Question 12

Put the following steps in a simple costing system for a single indirect-cost pool into correct order:
A.Select the cost-allocation bases to use for allocating indirect (or overhead)costs to the products.
B.Calculate the indirect costs allocated to the products.
C.Identify the direct costs of the products.
D.Identify the products that are the chosen cost objects.

Accepted Answer

A) DCAB 
B) BCAD 
C) ABCD 
D) BADC 
A) DCAB 
B) BCAD 
C) ABCD 
D) BADC

Question 13

Put the following ABC implementation steps in order:
A.Compute the allocation rates.
B.Compute the total cost of the products.
C.Identify the products that are the cost objects.
D.Select the cost allocation bases.

Accepted Answer

A) DACB 
B) BADC 
C) CDAB 
D) DBCA 
A) DACB 
B) BADC 
C) CDAB 
D) DBCA

Question 14

Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

Accepted Answer

A) True 
 B)False

Question 15

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process as possible so that:

Accepted Answer

A) product costs will reflect their relative consumption of resources. 
B) there is less likelihood of cross subsidising of product costs. 
C) non-value-added costs can be eliminated. 
D) All of these answers are correct. 
A) product costs will reflect their relative consumption of resources. 
B) there is less likelihood of cross subsidising of product costs. 
C) non-value-added costs can be eliminated. 
D) All of these answers are correct.

Question 16

What are the four parts of the cost hierarchy? Briefly explain each part and contrast this cost hierarchy to the fixed-variable dichotomy.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The four parts of the cost hierarchy are

Question 17

Answer the following questions using the information below:
Flinders Potters manufactures two sizes of ceramic paperweights,regular and jumbo.The following information applies to their expectations for the planning period:
 $$\begin{array} { l c l } 
\text { Cost Pool } & \text { Overhead Costs } & \text { Activity-cost Driver } \
\text { Materials handling } & \$ 50000 & 100000 \text { orders } \
\text { Machine maintenance } & \$ 300000 & 15000 \text { maintenance hours } \
\text { Set-ups } & \$ 270000 & 45000 \text { set-ups } \
\text { Inspections } & \$ 110000 & 22000 \text { inspections } \
\text { Total support costs } & \$ 730000 & \\
& { \text { Production Es timates } } \
 & \text { Production urits: } \
& \text { Regular } = 8000000 \text { units } \
& \text { Jumbo } = 16000000 \text { units } \
& \text { Machine-hours } = 200000 \mathrm { mh } \
&\text { Labour-hours } = 400000 \mathrm { dlh }
\end{array}$$ Flinders Potters uses an ABC system and assigns overhead costs based on the overhead activity information provided above.
-The materials handling activity-cost driver rate is:

Accepted Answer

A) $20.00 
B) $2.00 
C) $0.50 
D) $5.00 
A) $20.00 
B) $2.00 
C) $0.50 
D) $5.00

Question 18

Brilliant Accents Company manufactures and sells three styles of kitchen taps: brass,chrome and white.Production takes 25,25 and 10 machine hours to manufacture 1000-unit batches of brass,chrome and white taps,respectively.The following additional data apply:
 $\begin{array}{lrrr}
&\text { BRASS}&\text {  CHROME }&\text { WHITE }\ 
\text { Projected sales in units } & 30000 & 50000 & 40000\\
\underline{\text {PER UNIT data:}}\
\text {Selling price}& \$ 40 &\$ 20 & \$ 30\\
\text { Direct materials } & \$ 8 & \$ 4 & \$ 8 \
\text { Direct labour } & \$ 15 & \$ 3 & \$ 9 \
\text { Overhead cost based on direct labour hours } & & & \
\text { (traditional system) } & \$ 12 & \$ 3 & \$ 9
\end{array}$

$\text { Hours per } 1000 \text {-unit batch: }$
$\begin{array}{lrrr}
\text { Direct labour hours } & 40 & 10 & 30 \
\text { Machine hours } & 25 & 25 & 10 \
\text { Set-up hours } & 1.0 & 0.5 & 1.0 \
\text { Inspection hours } & 30 & 20 & 20
\end{array}$

$\begin{array}{lrr}
\text { Activity }&\text { Overhead costs } &\text { Activity levels }\
\hline\text { Direct labour hours } & 2900 \text { hours } \
\text { Machine hours } & 2400 \text { hours } \
\text { Set-ups } & \$ 465500 & 95 \text { set-up hours } \
\text { Inspections } & \$ 405000 & 2700 \text { inspection hours }
\end{array}$ 
Required:
a.Using the traditional system,determine the operating profit per unit for each style of tap.
b.Determine the activity-cost-driver rate for set-up costs and inspection costs.
c.Using the ABC system,for each style of tap:
1.compute the estimated overhead costs per unit
2.compute the estimated operating profit per unit.
d.Explain the differences between the profits obtained from the traditional system and the ABC system.Which system provides a better estimate of profitability? Why?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a. Traditional system:
ABC system:
Opera

Question 19

ABC systems identify ________ costs used by products.

Accepted Answer

A) short-term variable 
B) long-term fixed 
C) all 
D) short-term fixed 
A) short-term variable 
B) long-term fixed 
C) all 
D) short-term fixed

Question 20

Which method of allocation probably best estimates actual overhead costs used? Why?

Accepted Answer

A) Single direct labour-hours cost driver because it is the easiest to analyse and interpret. 
B) Three activity-cost drivers because they best reflect the relative consumption of resources. 
C) Single direct labour-hours cost driver because it is best to allocate total costs uniformly to individual jobs. 
D) Three activity-cost drivers because product costs can be significantly cross-subsidised. 
A) Single direct labour-hours cost driver because it is the easiest to analyse and interpret. 
B) Three activity-cost drivers because they best reflect the relative consumption of resources. 
C) Single direct labour-hours cost driver because it is best to allocate total costs uniformly to individual jobs. 
D) Three activity-cost drivers because product costs can be significantly cross-subsidised.

Corporate administrative costs allocated to a division cost pool are MOST likely to be:

Activity-based costing information:

Snowy River Company produces a special spray nozzle.The budgeted indirect total cost of inserting the spray nozzle is $90 000.The budgeted number of nozzles to be inserted is 60 000.What is the budgeted indirect cost-allocation rate for this activity?

Which type of cost system recognises different resource-consumption patterns and eschews broad averages?

Product lines that produce different variations (models,styles or colours)often require specialised manufacturing activities that translate into:

When do activity-based costing systems provide better product costs?

How are cost drivers selected in activity-based costing systems? _ _

________ systems are capable of producing reasonably accurate costs where significant costs are incurred on different activities within a department but the same cost driver applies to all the activities in the department.

It is important to assess and simplify organisational design before introducing ABC so that fewer costs need to be tracked.

Put the following ABC implementation steps in order: A.Compute the allocation rates. B.Compute the total cost of the products. C.Identify the products that are the cost objects. D.Select the cost allocation bases.

Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process as possible so that:

What are the four parts of the cost hierarchy? Briefly explain each part and contrast this cost hierarchy to the fixed-variable dichotomy. _ _

ABC systems identify ________ costs used by products.

Which method of allocation probably best estimates actual overhead costs used? Why?

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Exam 8: Activity-Based Management and Activity-Based Costing

Corporate administrative costs allocated to a division cost pool are MOST likely to be:

Activity-based costing information:

Snowy River Company produces a special spray nozzle.The budgeted indirect total cost of inserting the spray nozzle is $90 000.The budgeted number of nozzles to be inserted is 60 000.What is the budgeted indirect cost-allocation rate for this activity?

Which type of cost system recognises different resource-consumption patterns and eschews broad averages?

Product lines that produce different variations (models,styles or colours)often require specialised manufacturing activities that translate into:

When do activity-based costing systems provide better product costs?

How are cost drivers selected in activity-based costing systems? _____________________________________________________________________________________________ _____________________________________________________________________________________________

________ systems are capable of producing reasonably accurate costs where significant costs are incurred on different activities within a department but the same cost driver applies to all the activities in the department.

It is important to assess and simplify organisational design before introducing ABC so that fewer costs need to be tracked.

Put the following ABC implementation steps in order: A.Compute the allocation rates. B.Compute the total cost of the products. C.Identify the products that are the cost objects. D.Select the cost allocation bases.

Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process as possible so that:

ABC systems identify ________ costs used by products.

Which method of allocation probably best estimates actual overhead costs used? Why?

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

How are cost drivers selected in activity-based costing systems? _ _