Question 1

The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.

Accepted Answer

A) True 
 B)False  True

Question 2

Last year,Jasmine Taylor opened a gift store in a busy shopping center.She spent a lot on advertising and attracted many customers into the store,but very few customers made purchases and sales were declining.Jasmine paid attention to questions and requests made by customers and determined that they often requested items that were within the scope of her business but that she did not carry.When she offered to order items for her customers,delivery was usually too late and,again,sales were lost.What measures should Jasmine take to improve her business?

Accepted Answer

Jasmine has learned that customer value means revenue generated.The money spent on advertising did bring customers into the store,but it was not a value-adding activity as far as the customers were concerned.An attractive storefront and in-store displays would decrease the cost of this non-value-adding activity.Jasmine should also examine her product lines and find suppliers who can make faster deliveries to meet customer requests.She will improve her business if she listens to her customers' requests and offers quality goods at reasonable prices in a timely manner.

Question 3

Which of the following costs is not related to a batch-related activity?

Accepted Answer

A)  Material handling. 
B)  Machine setups. 
C)  Shipping costs. 
D)  Compliance costs. 
A)  Material handling. 
B)  Machine setups. 
C)  Shipping costs. 
D)  Compliance costs. D

Question 4

If a company has identified three major activities as setting up,handling material,and assembling,possible cost drivers would most likely be set-up hours,production runs,and number of shipments,respectively.

Accepted Answer

A) True 
 B)False

Question 5

Allure Company manufactures and distributes two products,M and XY.Overhead costs are currently allocated using the number of units produced as the allocation base.The controller has recommended changing to an activity-based costing (ABC)system.She has collected the following information:
$\begin{array}{|l|l|r|r|r|}
\hline \text { Acturity } & \text { Cost Driser } & \text { Amount } & \text { M } & \times Y \
\text { Production } & \text { Number of } & \$ 82,000 & 8 & 12 \
\text { setups } & \text { setups } & & & \
\hline \text { Material } & \text { Number of } & 48,000 & 56 & 24 \
\text { handling } & \text { parts } & & & \
\text { Packaging } & \text { Number of } & 130,000 & 80,000 & 50,000 \
\text { costs } & \text { units } & & & \
\hline&&\underline{\$260,000}&&\
\hline
\end{array}$

What is the total overhead per unit allocated to Product M using activity-based costing (ABC)?

Accepted Answer

A)  $2.60. 
B)  $2.27. 
C)  $2.00. 
D)  $1.83. 
A)  $2.60. 
B)  $2.27. 
C)  $2.00. 
D)  $1.83.

Question 6

Multiple (departmental)manufacturing overhead rates are considered preferable to a single (plantwide)overhead rate when: (CMA adapted)

Accepted Answer

A)  manufacturing is limited to a single product flowing through identical departments in a fixed sequence. 
B)  various products are manufactured that do not pass through the same departments or use the same manufacturing techniques. 
C)  individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships. 
D)  the single or plantwide rate is related to several identified cost drivers. 
A)  manufacturing is limited to a single product flowing through identical departments in a fixed sequence. 
B)  various products are manufactured that do not pass through the same departments or use the same manufacturing techniques. 
C)  individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships. 
D)  the single or plantwide rate is related to several identified cost drivers.

Question 7

Mission Company is preparing its annual profit plan.As part of its analysis of the profitability of individual products,the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below.
$$\begin{array} { | l | l | l | } 
\hline & \begin{array} { l } 
\text { Wall } \
\text { Miirors }
\end{array} & \begin{array} { l } 
\text { Specialty } \
\text { Windows }
\end{array} \
\hline \text { Units Produced } & 40 & 20 \
\hline \begin{array} { l } 
\text { Material moves per product } \
\text { line }
\end{array} & 5 & 15 \
\begin{array} { l } 
\text { Direct labor hours per } \
\text { product line }
\end{array} & 200 & 300 \
\hline{ \text { Budgeted material handling costs: } \$ 50,000 } \
\hline
\end{array}$$
(CMA based) Under a traditional costing system that allocates overhead on the basis of direct labor hours,the materials handling costs allocated to one unit of specialty windows would be:

Accepted Answer

A)  $1,500. 
B)  $500. 
C)  $2,000. 
D)  $5,000. 
A)  $1,500. 
B)  $500. 
C)  $2,000. 
D)  $5,000.

Question 8

The basic approach in product costing is to allocate costs in the cost pools to the individual cost objects,which are the products or services of interest.

Accepted Answer

A) True 
 B)False

Question 9

Pretty Dog Corporation manufactures two models of grooming stations,a standard and a deluxe model.The following activity and cost information has been compiled:
$$\begin{array} { | l | c c | c | } 
\hline \text { Product } & \begin{array} { c } 
\text { Number of } \
\text { Setups }
\end{array} & \begin{array} { c } 
\text { Number of } \
\text { Components }
\end{array} & \begin{array} { c } 
\text { Number of } \
\text { Direct Labor } \
\text { Hours }
\end{array} \
\hline \text { Standard } & 3 & 30 & 650 \
\hline \text { Deluse } & 7 & 50 & 150 \
\hline \begin{array} { l } 
\text { Overhead } \
\text { costs }
\end{array} & \$ 30,000 & \$ 50,000 & \
\hline
\end{array}$$
Assume a traditional costing system applies the overhead costs based on direct labor hours.Required:
a.What is the total amount of overhead costs assigned to the standard model?
b.What is the total amount of overhead costs assigned to the deluxe model?
Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.c.What is the total amount of overhead costs assigned to the standard model?
d.What is the total amount of overhead costs assigned to the deluxe model?

Accepted Answer

a.$65,000
b.$15,000
c.$27,750
d.$52,250

Question 10

JennerMaid Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $20 per direct labor hour.Department 1 produces Product X.Department 1 has $256,000 in traceable overhead.Department 2 manufactures Products Y and Z.Department 2 has $524,000 in traceable overhead.The product costs (per unit)and other information are as follows:
 
Required:
a.If JennerMaid changes its allocation basis to machine hours,what is the overhead cost per unit for Product X,Y,and Z?
b.If JennerMaid changes its overhead allocation to departmental rates,what are the overhead costs per unit for Product X,Y,and Z,assuming Department 1 uses direct labor hours and Department 2 uses machine hours as their respective allocation bases?

Accepted Answer

a.X: $39.00;Y: $19.50;Z: $29.25
b.X: $42

Question 11

Matchbox Manufacturing has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs).The company has two products,Utility and Super,about which it has provided the following data:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Utily } & \text { Super } \
\hline \text { Direct materials per unit } & \$ 34.10 & \$ 52.70 \
\hline \text { Direct labor per unit } & \$ 16.10 & \$ 39.10 \
\hline \text { Direct labor-hours per unit } & 0.70 & 1.70 \
\hline \text { Annual production } & 30,000 & 10,000 \
\hline
\end{array}$$ 
The company's estimated total manufacturing overhead for the year is $1,527,600 and the company's estimated total direct labor-hours for the year is 38,000.The company is considering using a variation of activity-based costing to determine its unit product costs for external reports.Data for this proposed activity-based costing system appear below:
$\begin{array}{|l|r|}
\hline \text { Activities and Activity } & \text { Estimated Owerhead } \
\text { Measures } & \text { Cost } \
\text { Assembling products (DLHs) } & \$ 608,000 \
\hline \text { Preparing batches (batches) } & 197,600 \
\hline \text { Axial milling (MHs) } & 722,000 \
\hline \text { Total } & \underline{\$ 1,527,600 }\
\hline
\end{array}$
$$\begin{array} { | l | r | r | r | } 
\hline & \text { Utility } & \text { Super } & \text { Total } \
\hline \text { Assembling products } & 21,000 & 17,000 & 38,000 \
\hline \text { Preparing batches } & 456 & 1,520 & 1,976 \
\hline \text { Axial milling } & 570 & 874 & 1,444 \
\hline
\end{array}$$
 Required:
a.Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.b.Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

Accepted Answer

a.Traditional Manufacturing Overhead Cos

Question 12

Any discrete task that an organization undertakes to make or deliver a product or service is known as a stage.

Accepted Answer

A) True 
 B)False

Question 13

Falcon Company manufactures and sells two models of a computer tablets.The Basic Model is has limited networking capability while the Explorer Model has significantly more features.The tablets are produced to order and the company has no inventories at the end of the year.The cost accounting system at Falcon allocates overhead to products based on direct-labor cost.Overhead in year 1,which just ended,was $4,012,500.Other data for year 1 for the two products follow:
$$\begin{array} { | l | r | r | } 
\hline & \begin{array} { r } 
\text { Basic Model } \
( \mathbf { 2 0 , 0 0 0 } \text { units) }
\end{array} & \begin{array} { r } 
\text { Explorer Model } \
\mathbf { ( 3 , 0 0 0 } \text { units) }
\end{array} \
\hline \text { Sales revenue } & \$ 6,600,000 & \$ 3,645,000 \
\hline \text { Direct materials } & 3,200,000 & 450,000 \
\hline \text { Direct labor } & 1,600,000 & 676,000 \
\hline
\end{array}$$
Required:
a.Compute product line profits for the Basic Model and the Explorer Model for year 1.b.A study of overhead shows that without the Basic Model,overhead would fall to $2,750,000.Assume all other revenues and costs would remain the same for the Explorer Model in year 2.Compute product line profits for the Explorer Model in year 2 assuming the Basic Model was not produced or sold.

Accepted Answer

@#IMG-DLM& ^a 150% = ($4,012,500 overhead ÷ $2,275,

Question 14

Sylvia's Housecleaning Service provides housecleaning services to its clients.The company uses an activity-based costing system for its overhead costs.The company has provided the following data from its activity-based costing system
 The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.One particular client,the Layton family,requested 49 jobs during the year that required a total of 245 hours of housecleaning.For this service,the client was charged $2,500.Required:
a.Compute the activity rates (i.e. ,cost per unit of activity)for the activity cost pools.Round off all calculations to the nearest whole cent.b.Using the activity-based costing system,compute the customer margin for the Layton family.Round off all calculations to the nearest whole cent.c.Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours.Compute the margin for the Layton family.Round off all calculations to the nearest whole cent.

Accepted Answer

a.The computation of the activity rates

Question 15

When a department or product line is dropped,the common fixed costs which had been allocated to that department:

Accepted Answer

A)  are eliminated. 
B)  become variable costs. 
C)  are allocated to the remaining departments or product lines. 
D)  become sunk costs. 
A)  are eliminated. 
B)  become variable costs. 
C)  are allocated to the remaining departments or product lines. 
D)  become sunk costs.

Question 16

Vanguard Corporation has provided the following data from its activity-based costing system:
  
The company makes 430 units of product O37W 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 O37W is closest to:

Accepted Answer

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

Question 17

If a company manufactures diverse products using different sets of resources in a plant,it is best to use a plantwide allocation rate.

Accepted Answer

A) True 
 B)False

Question 18

When overhead is applied based on the volume of output,high-volume products tend to "subsidize" low-volume products.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following activities would be classified as a batch-level activity?

Accepted Answer

A)  Setting up equipment. 
B)  Designing a new product. 
C)  Training employees. 
D)  Milling a part required for the final product. 
A)  Setting up equipment. 
B)  Designing a new product. 
C)  Training employees. 
D)  Milling a part required for the final product.

Question 20

Which of the following statements is true regarding time equations used in time-driven activity based costing?

Accepted Answer

A)  Time equations cannot adjust extra time for new vendors. 
B)  Time equations allow managers to adjust the times for orders with different characteristics. 
C)  Time equations cannot be used where there is a maximum size of an order that can be inspected or transported to the warehouse. 
D)  Time equations are only used as part of unmodified ABC systems. 
A)  Time equations cannot adjust extra time for new vendors. 
B)  Time equations allow managers to adjust the times for orders with different characteristics. 
C)  Time equations cannot be used where there is a maximum size of an order that can be inspected or transported to the warehouse. 
D)  Time equations are only used as part of unmodified ABC systems.

The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.

Which of the following costs is not related to a batch-related activity?

If a company has identified three major activities as setting up,handling material,and assembling,possible cost drivers would most likely be set-up hours,production runs,and number of shipments,respectively.

Multiple (departmental)manufacturing overhead rates are considered preferable to a single (plantwide)overhead rate when: (CMA adapted)

The basic approach in product costing is to allocate costs in the cost pools to the individual cost objects,which are the products or services of interest.

Any discrete task that an organization undertakes to make or deliver a product or service is known as a stage.

When a department or product line is dropped,the common fixed costs which had been allocated to that department:

If a company manufactures diverse products using different sets of resources in a plant,it is best to use a plantwide allocation rate.

When overhead is applied based on the volume of output,high-volume products tend to "subsidize" low-volume products.

Which of the following activities would be classified as a batch-level activity?

Which of the following statements is true regarding time equations used in time-driven activity based costing?

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters

Exam 9: Activity-Based Costing

The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.

Which of the following costs is not related to a batch-related activity?

If a company has identified three major activities as setting up,handling material,and assembling,possible cost drivers would most likely be set-up hours,production runs,and number of shipments,respectively.

Multiple (departmental)manufacturing overhead rates are considered preferable to a single (plantwide)overhead rate when: (CMA adapted)

The basic approach in product costing is to allocate costs in the cost pools to the individual cost objects,which are the products or services of interest.

Any discrete task that an organization undertakes to make or deliver a product or service is known as a stage.

When a department or product line is dropped,the common fixed costs which had been allocated to that department:

If a company manufactures diverse products using different sets of resources in a plant,it is best to use a plantwide allocation rate.

When overhead is applied based on the volume of output,high-volume products tend to "subsidize" low-volume products.

Which of the following activities would be classified as a batch-level activity?

Which of the following statements is true regarding time equations used in time-driven activity based costing?

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters