Question 1

Management's pricing and cost decisions for a product are influenced by that product's cost assignments.

Accepted Answer

A) True 
 B)False

Question 2

Fischer Company identified the following activities, costs and activity drivers.
$$\begin{array} { | l | c | c | } 
\hline \text { Activity } & \text { Expected Costs } & \text { Expected Activity } \
\hline \text { Handling parts } & \$ 425,000 & \begin{array} { c } 
25,000 \text { parts in } \
\text { stock }
\end{array} \
\hline \text { Inspecting product } & \$ 390,000 & 940 \text { batches } \
\hline \text { Processing purchase orders } & \$ 220,000 & 440 \text { orders } \
\hline \text { Designing packaging } & \$ 230,000 & 5 \text { models } \
\hline
\end{array}$$
(a) Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals).
(b) Compute separate rates for each of the four activities using the activity based costing.

Accepted Answer

(a) ($425,000 + $390,000 + $220,000 + $2

Question 3

Which of the following is true?

Accepted Answer

A)  Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor. 
B)  The departmental overhead rate is not usually based on measures closely related to production volume. 
C)  The departmental overhead rate is most accurate in assigning overhead costs that are not driven by production volume. 
D)  Allocated overhead costs will be the same no matter which allocation method is used. 
E)  When cost analysts are able to logically trace cost objects to costs, costing accuracy is improved. 
A)  Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor. 
B)  The departmental overhead rate is not usually based on measures closely related to production volume. 
C)  The departmental overhead rate is most accurate in assigning overhead costs that are not driven by production volume. 
D)  Allocated overhead costs will be the same no matter which allocation method is used. 
E)  When cost analysts are able to logically trace cost objects to costs, costing accuracy is improved.

Question 4

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. 
  
Annual production and sales level of Product A1 is 8,480 units, and the annual production and sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of Product B2 under activity-based costing?

Accepted Answer

A)  $8.00 
B)  $9.00 
C)  $10.00 
D)  $12.00 
E)  $4.00 
A)  $8.00 
B)  $9.00 
C)  $10.00 
D)  $12.00 
E)  $4.00

Question 5

Departments are the cost objects when the plantwide overhead rate method is used.

Accepted Answer

A) True 
 B)False

Question 6

Rain Maker Company uses a plantwide overhead rate with direct-labor hours as the allocation base. Next year, 350,000 units are expected to be produced taking .80 direct-labor hours each. How much overhead will be assigned to each unit produced given the following estimated amounts?
$\begin{array}{lcc}
\text { Estimated: } & \text { Department } 1 & \text { Department 2 } \
\text { Manufacturing overhead costs } & \$ 2,730,000 & \$ 910,000 \
\text { Direct labor hours } & 168,000 \mathrm{DLH} & 112,000 \mathrm{DLH} \
\text { Machine hours } & 30,000 \mathrm{MH} & 7,000 \mathrm{MH}
\end{array}$

Accepted Answer

A)  $13.00 per unit. 
B)  $10.40 per unit. 
C)  $16.25 per unit. 
D)  $6.50 per unit. 
E)  $8.13 per unit. 
A)  $13.00 per unit. 
B)  $10.40 per unit. 
C)  $16.25 per unit. 
D)  $6.50 per unit. 
E)  $8.13 per unit.

Question 7

Explain cost flows for the plantwide overhead rate method.

Accepted Answer

The plantwide overhead rate me

Question 8

A company uses activity-based costing to determine the costs of its three products: A, B and C. The activity rates and activity levels for each of the company's three activity cost pools are shown below.
$$\begin{array} { | l | c | r | r | r | } 
\hline & &  { \text { Budgeted Activity } } \
\hline \begin{array} { l } 
\text { Activity Cost } \
\text { Pool }
\end{array} & \text { Activity Rate } & \text { Product A } & \text { Product B } & \text { Product C } \
\hline \text { Activity 1 } & \$ 19 & 700 & 1,150 & 650 \
\hline \text { Activity 2 } & \$ 27 & 2,400 & 2,100 & 1,500 \
\hline \text { Activity 3 } & \$ 62 & 600 & 1,350 & 1,050 \
\hline
\end{array}$$
Compute the company's budgeted cost for each of the three activities under activity-based costing.

Accepted Answer

The answer of A company uses activity-based costing to determine...

Question 9

ABC allocates overhead costs to products based on input measures rather than output measures.

Accepted Answer

A) True 
 B)False

Question 10

Rising Sun, Inc. produces granola which requires two processes, mixing and baking, to complete. The best selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown below.
  
Rising Sun's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department.
 
Determine the total product cost of this product line and each unit of cherry almond delight.

Accepted Answer

Mixing Dept overhead: $80,000/4,000 MH =

Question 11

A company estimates that overhead costs for the next year will be $7,200,000 for indirect labor, $400,000 for factory utilities and $43,000 for depreciation on factory machinery. The company uses direct labor hours as its overhead allocation base. If 955,375 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

Accepted Answer

($7,200,000 + $400,0

Question 12

Yellow Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product RST.

Accepted Answer

A)  40 MH per unit of RST. 
B)  2 MH per unit of RST. 
C)  20 MH per unit of RST. 
D)  37.5 MH per unit of RST. 
E)  80 MH per unit of RST. 
A)  40 MH per unit of RST. 
B)  2 MH per unit of RST. 
C)  20 MH per unit of RST. 
D)  37.5 MH per unit of RST. 
E)  80 MH per unit of RST.

Question 13

Lemon Yellow Company produces children's clothing which require two processes, cutting and sewing, to complete. The company is concerned about one product, a hooded jacket, which hasn't been selling as well as it had in past years. Information related to the 20,000 jackets produced annually is shown below.   
Lemon Yellow's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on direct labor hours in the cutting department and machine hours in the sewing department.
 
Assume this jacket currently sells for $10. How much profit does the company make per jacket?

Accepted Answer

Cutting Dept overhead: $480,000/16,000 D

Question 14

Orange Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product Q.

Accepted Answer

A)  35 MH per unit of Q. 
B)  .50 MH per unit of Q. 
C)  70 MH per unit of Q. 
D)  17.5 MH per unit of Q. 
E)  30 MH per unit of Q. 
A)  35 MH per unit of Q. 
B)  .50 MH per unit of Q. 
C)  70 MH per unit of Q. 
D)  17.5 MH per unit of Q. 
E)  30 MH per unit of Q.

Question 15

Which of the following companies would be best served by a plantwide overhead rate?

Accepted Answer

A)  A company which manufactures many different products and whose operations are an equal mix of labor and mechanized work. 
B)  A company which manufactures few products and whose operations are labor intensive. 
C)  A company which manufactures many different products and whose operations are highly mechanized. 
D)  A company whose products use overhead resources in very different ways. 
E)  A company whose products differ in batch size and complexity, and consume different amounts of overhead resources. 
A)  A company which manufactures many different products and whose operations are an equal mix of labor and mechanized work. 
B)  A company which manufactures few products and whose operations are labor intensive. 
C)  A company which manufactures many different products and whose operations are highly mechanized. 
D)  A company whose products use overhead resources in very different ways. 
E)  A company whose products differ in batch size and complexity, and consume different amounts of overhead resources.

Question 16

ABC can be used to assign costs to any cost object that is of management interest.

Accepted Answer

A) True 
 B)False

Question 17

What is the reason for pooling costs?

Accepted Answer

A)  To shift costs from low-volume to high-volume products. 
B)  It is a budgeting technique designed to accurately track fixed costs. 
C)  Determining a pool rate for all costs incurred by the same activity reduces the number of cost assignments required. 
D)  This procedure helps to determine which costs are directly related to production volume. 
E)  It simplifies departmental overhead costing procedures. 
A)  To shift costs from low-volume to high-volume products. 
B)  It is a budgeting technique designed to accurately track fixed costs. 
C)  Determining a pool rate for all costs incurred by the same activity reduces the number of cost assignments required. 
D)  This procedure helps to determine which costs are directly related to production volume. 
E)  It simplifies departmental overhead costing procedures.

Question 18

A company expects next year's overhead costs to be $400,000. During this time, the company also expects to produce 1,000,000 units, have 200,000 direct labor hours, and 800,000 machine hours.
Make the following independent calculations.
(a.) Compute a plantwide overhead rate using units of production as the allocation base.
(b.) Compute a plantwide overhead rate using direct labor hours as the allocation base.
(c.) Compute a plantwide overhead rate using machine hours as the allocation base.

Accepted Answer

(a.) $400,000/1,000,000 units

Question 19

Heritage Industries produces miniature models of farm equipment. These collectibles are in great demand. It takes two operations, molding and finishing, to complete the miniatures. Next year's expected activities are shown below.
 
-Heritage Industries uses departmental overhead rates and is planning on a $2 per machine hour overhead rate for the molding department. Compute the estimated manufacturing overhead cost for the molding department given the information above.

Accepted Answer

A)  $195,000 
B)  $162,500 
C)  $130,000 
D)  $325,000 
E)  $357,500 
A)  $195,000 
B)  $162,500 
C)  $130,000 
D)  $325,000 
E)  $357,500

Question 20

Examples of volume-related measures include direct labor hours, direct labor cost dollars and machine hours.

Accepted Answer

A) True 
 B)False

Management's pricing and cost decisions for a product are influenced by that product's cost assignments.

Which of the following is true?

Departments are the cost objects when the plantwide overhead rate method is used.

Explain cost flows for the plantwide overhead rate method.

ABC allocates overhead costs to products based on input measures rather than output measures.

Yellow Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product RST.

Orange Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product Q.

Which of the following companies would be best served by a plantwide overhead rate?

ABC can be used to assign costs to any cost object that is of management interest.

What is the reason for pooling costs?

Examples of volume-related measures include direct labor hours, direct labor cost dollars and machine hours.

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costing

Decentralization and Performance Evaluation

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Investments and International Operations

Accounting for Partnerships

Appendix : Accounting With Special Journals

Filters

Exam 17: Activity-Based Costing and Analysis

Management's pricing and cost decisions for a product are influenced by that product's cost assignments.

Which of the following is true?

Departments are the cost objects when the plantwide overhead rate method is used.

Explain cost flows for the plantwide overhead rate method.

ABC allocates overhead costs to products based on input measures rather than output measures.

Yellow Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product RST.

Orange Company uses a plantwide overhead rate with machine hours as the allocation base. Use the following information to solve for the amount of machine hours estimated per unit of product Q.

Which of the following companies would be best served by a plantwide overhead rate?

ABC can be used to assign costs to any cost object that is of management interest.

What is the reason for pooling costs?

Examples of volume-related measures include direct labor hours, direct labor cost dollars and machine hours.

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costing

Decentralization and Performance Evaluation

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Investments and International Operations

Accounting for Partnerships

Appendix : Accounting With Special Journals

Filters