Question 1

An example of a customer-value-added activity is:

Accepted Answer

A)  final painting and polishing of the product. 
B)  installation of a computerized human resource management module. 
C)  shortening the customers' billing cycle. 
D)  addition of an employee hotline for workplace complaints. 
E)  maintenance of an adequate safety stock. 
A)  final painting and polishing of the product. 
B)  installation of a computerized human resource management module. 
C)  shortening the customers' billing cycle. 
D)  addition of an employee hotline for workplace complaints. 
E)  maintenance of an adequate safety stock.

Question 2

Dreyson Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent study of product no. 519 revealed a traditionally-derived total cost of $1,019, a selling price of $1,850 based on that figure, and a newly computed activity-based total cost of $1,215. Which of the following statements is true?

Accepted Answer

A)  All other things being equal, the company should consider a drop in its sales price. 
B)  The company may have been extremely competitive in the marketplace from a price perspective. 
C)  Product no. 519 could be labeled as being overcosted by the firm's traditional costing procedures. 
D)  If product no. 519 is undercosted by traditional accounting procedures, then all of the company's other products must be undercosted as well. 
E)  Generally speaking, the activity-based cost figure is "less accurate" than the traditionally-derived cost figure. 
A)  All other things being equal, the company should consider a drop in its sales price. 
B)  The company may have been extremely competitive in the marketplace from a price perspective. 
C)  Product no. 519 could be labeled as being overcosted by the firm's traditional costing procedures. 
D)  If product no. 519 is undercosted by traditional accounting procedures, then all of the company's other products must be undercosted as well. 
E)  Generally speaking, the activity-based cost figure is "less accurate" than the traditionally-derived cost figure.

Question 3

Consider the following statements regarding traditional costing systems:
I. Overhead costs are applied to products on the basis of volume-related measures.
II. All manufacturing costs are easily traceable to the goods produced.
III. Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements.
Which of the above statements is (are) true?

Accepted Answer

A)  I only. 
B)  II only. 
C)  III only. 
D)  I and III. 
E)  II and III. 
A)  I only. 
B)  II only. 
C)  III only. 
D)  I and III. 
E)  II and III.

Question 4

An example of a customer-value-added activity is final painting and polishing of the product.

Accepted Answer

A) True 
 B)False

Question 5

Homestead Corporation sells a line of power tools to home improvement chains, generating a cost of goods sold equal to 70% of net sales. The selected data that follow relate to the period just ended for the company's three largest customers: Weekend Project, Tool Mart, and Fix-It City.
A. 1. Customer-related costs as a percentage of gross margin:
Weekend Project: $245,100 ÷ [($2,000,000 - $100,000) × 30%] = 43%
Tool Mart: $918,000 ÷ [($4,900,000 - $400,000) × 30%] = 68%
Fix-It City: $457,800 ÷ [($4,600,000 - $240,000) × 30%] = 35%
2. Average order size:
Weekend Project: $2,000,000 ÷ 50 orders = $40,000
Tool Mart: $4,900,000 ÷ 175 orders = $28,000
Fix-It City: $4,600,000 ÷ 125 orders = $36,800
3. Ratio of regular orders to rush orders:
Weekend Project: 40:10 = 4:1
Tool Mart: 135:40 = 3.375:1
Fix-It City: 110:15 = 7.33:1
4. Number of sales returns as a percentage of total orders:
Weekend Project: 3 ÷ 50 = 6%
Tool Mart: 20 ÷ 175 = 11.4%
Fix-It City: 8 ÷ 125 = 6.4%
A. For each of the three chains, compute:
1. Total customer-related costs as a percentage of gross margin.
2. The average order size (ignoring sales returns).
3. The ratio of regular orders to rush orders.
4. The number of sales returns as a percentage of the number of total orders.
B. Customer-related costs are driven by events (and costs) directly traceable to clients. In this case, Tool Mart's costs as a percentage of gross margin are much higher (68%) than those of Weekend Project and Fix-It City. This result is not surprising given that the firm creates a large number of small orders ($28,000 vs. $36,800 and $40,000) for Homestead to process. In addition, relative to the other two firms, Tool Mart depends more heavily on rush orders, which likely creates additional cost. Finally, a number of Tool Mart's orders (11.4%) eventually result in sales returns, again creating additional processing expense for Homestead. In summary, Tool Mart seems to be an outlier in relation to Weekend Project and Fix-It City, and management should approach Tool Mart to see if the company can change its ways of doing business.
B. Prepare a brief summary of your findings. Should Homestead work with any of the chains in an effort to improve results? Explain.

Accepted Answer

@#IMG-DLM& Homestead's management recently attende

Question 6

Assume that HiTech is using a volume-based costing system, and the preceding overhead costs are applied to all products on the basis of direct labor hours. The overhead cost that would be assigned to the Standard product line is closest to:

Accepted Answer

A)  $456,471. 
B)  $646,471. 
C)  $961,176. 
D)  $1,141,176. 
E)  None of the other answers is correct. 
A)  $456,471. 
B)  $646,471. 
C)  $961,176. 
D)  $1,141,176. 
E)  None of the other answers is correct.

Question 7

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. $\begin{array}{cccc}& \text { Pool No. 1 } & \text { Pool No. 2 } & \text { Pool No. 3 } \
\text { Product } & \text { (Driver: DLH) } & \text { (Driver: SU) } & \text { (Driver: PC) }\\hline
\text { Beta } & 1,200 & 45 & 2,250 \
\text { Zeta } & 2,800 & 55 & 750 \
& & & \
\text { Pool Cost } & \$ 160,000 & \$ 280,000 & \$ 360,000
\end{array}$ The overhead cost allocated to Beta by using traditional costing procedures would be:

Accepted Answer

A)  $240,000. 
B)  $356,000. 
C)  $444,000. 
D)  $560,000. 
E)  None of the other answers is correct. 
A)  $240,000. 
B)  $356,000. 
C)  $444,000. 
D)  $560,000. 
E)  None of the other answers is correct.

Question 8

Under an activity-based costing system, what is the per-unit overhead cost of Deluxe?

Accepted Answer

A)  $272. 
B)  $282. 
C)  $320. 
D)  $440. 
E)  None of the other answers is correct. 
A)  $272. 
B)  $282. 
C)  $320. 
D)  $440. 
E)  None of the other answers is correct.

Question 9

Hilton Corporation's customers differ greatly with respect to number of required sales contacts (e.g., phone calls and sales visits), account payment patterns, and design/engineering change orders. Which of the following choices likely denotes an ideal customer from Hilton's perspective?

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
E)  Choice E 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
E)  Choice E

Question 10

In an activity-based costing system, materials receiving would typically be classified as a:

Accepted Answer

A)  unit-level activity. 
B)  batch-level activity. 
C)  product-sustaining activity. 
D)  facility-level activity. 
E)  period-level activity. 
A)  unit-level activity. 
B)  batch-level activity. 
C)  product-sustaining activity. 
D)  facility-level activity. 
E)  period-level activity.

Question 11

A hospital administrator is in the process of implementing an activity-based-costing system. Which of the following tasks would not be part of this process?

Accepted Answer

A)  Identification of cost pools. 
B)  Calculation of pool rates. 
C)  Assignment of cost to services provided. 
D)  Identification of cost drivers. 
E)  None of the other answers is correct. 
A)  Identification of cost pools. 
B)  Calculation of pool rates. 
C)  Assignment of cost to services provided. 
D)  Identification of cost drivers. 
E)  None of the other answers is correct.

Question 12

Consider the following statements:
I. Product diversity creates costing problems because diverse products tend to utilize manufacturing activities in different ways.
II. Overhead costs that are not incurred at the unit level create costing problems because such costs do not vary with traditional application bases such as direct labor hours or machine hours.
III. Product diversity typically exists when a single product (e.g., a ballpoint pen) is made in different colors.
Which of the above statements is (are) true?

Accepted Answer

A)  I only. 
B)  II only. 
C)  I and II. 
D)  I and III. 
E)  II and III. 
A)  I only. 
B)  II only. 
C)  I and II. 
D)  I and III. 
E)  II and III.

Question 13

Which of the following tasks is not normally associated with an activity-based costing system?

Accepted Answer

A)  Calculation of pool rates. 
B)  Identification of cost pools. 
C)  Preparation of allocation matrices. 
D)  Identification of cost drivers. 
E)  Assignment of cost to products. 
A)  Calculation of pool rates. 
B)  Identification of cost pools. 
C)  Preparation of allocation matrices. 
D)  Identification of cost drivers. 
E)  Assignment of cost to products.

Question 14

Generally speaking, companies prefer doing business with customers who order small quantities rather than large quantities.

Accepted Answer

A) True 
 B)False

Question 15

Consider the following costs that relate to a bank and a manufacturer of software:
Bank
1. Review costs of commercial loan applications
2. Operating costs of human resources department
3. Immediate processing costs of a specific customer's cash deposit
4. Bank membership costs of joining local Chamber of Commerce
Software manufacturer
5. Label and packaging charges from a commercial printer for a new software release
6. Air conditioning/heating costs of the firm's production plant
7. Transport costs of moving the finished products from production run no. 1 to the company's warehouse
8. Design and development costs of new spreadsheet software
Required:
A. 1. Unit-level
2. Facility-level
3. Unit-level
4. Facility-level
5. Product-sustaining
6. Facility-level
7. Batch-level
8. Product-sustaining 
A. Classify the eight costs listed as arising from either a unit-level, batch-level, product-sustaining, or facility-level activity.
B. The number of loan applications would be more appropriate because it has a higher correlation with the amount of review costs incurred. Applications create review costs; customers, on the other hand, may not.
B. Would number of loan applications or number of customers be a more appropriate cost-driver base for #1 above? Briefly explain.

Accepted Answer

A. @#IMG-DLM& B. The number of loan applications w

Question 16

Which of the following choices correctly depicts the proper classification of direct materials used and management salaries?

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
E)  Choice E 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
E)  Choice E

Question 17

HiTech Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below. $\begin{array}{lrl}\text { Activity } & \text { Cost } & \text { Cost Driver }\
\text { Material handling } & \$ 225,000 & \text { Number of parts } \
\text { Material insertion } & 2,475,000 & \text { Number of parts } \
\text { Automated machinery } & 840,000 & \text { Machine hours } \
\text { Finishing } & 170,000 & \text { Direct labor hour } \
\text { Packaging } & 170,000 & \text { Orders shipped }\\text { Total }&\$3,880,000
\end{array}$ The following information pertains to the three product lines for next year: $\begin{array}{lrrr}&\text { Economy }&\text { Standard}&\text {  Deluxe }\
\text { Units to be produced } & 10,000 & 5,000 & 2,000 \
\text { Orders to be shipped } & 1,000 & 500 & 200 \
\text { Number of parts per unit } & 10 & 15 & 25 \
\text { Machine hours per unit } & 1 & 3 & 5 \
\text { Labor hours per unit } & 2 & 2 & 2
\end{array}$
What is HiTech's pool rate for the finishing activity?

Accepted Answer

A)  $5.00 per labor hour. 
B)  $5.00 per machine hour. 
C)  $5.00 per unit. 
D)  $7.50 per unit. 
E)  None of the other answers is correct. 
A)  $5.00 per labor hour. 
B)  $5.00 per machine hour. 
C)  $5.00 per unit. 
D)  $7.50 per unit. 
E)  None of the other answers is correct.

Question 18

When determining customer profitability, activity-based costing can be used to analyze:

Accepted Answer

A)  orders processed. 
B)  sales visits. 
C)  special packaging and handling. 
D)  billing and collections. 
E)  All of the answers are correct. 
A)  orders processed. 
B)  sales visits. 
C)  special packaging and handling. 
D)  billing and collections. 
E)  All of the answers are correct.

Question 19

Astro's customer service department follows up on customer complaints by telephone inquiry. During a recent period, the department initiated 10,000 calls and incurred costs of $312,000. Of these calls, 3,800 were for the company's wholesale operation; the remainder was for the retail division. Costs allocated to the retail division are:

Accepted Answer

A)  $0. 
B)  $31,200. 
C)  $118,560. 
D)  $193,440. 
E)  $203,000. 
A)  $0. 
B)  $31,200. 
C)  $118,560. 
D)  $193,440. 
E)  $203,000.

Question 20

Under an activity-based costing system, what is the per-unit overhead cost of Standard?

Accepted Answer

A)  $164. 
B)  $228. 
C)  $272. 
D)  $282. 
E)  None of the other answers is correct. 
A)  $164. 
B)  $228. 
C)  $272. 
D)  $282. 
E)  None of the other answers is correct.

An example of a customer-value-added activity is:

An example of a customer-value-added activity is final painting and polishing of the product.

Assume that HiTech is using a volume-based costing system, and the preceding overhead costs are applied to all products on the basis of direct labor hours. The overhead cost that would be assigned to the Standard product line is closest to:

Under an activity-based costing system, what is the per-unit overhead cost of Deluxe?

Hilton Corporation's customers differ greatly with respect to number of required sales contacts (e.g., phone calls and sales visits), account payment patterns, and design/engineering change orders. Which of the following choices likely denotes an ideal customer from Hilton's perspective?

In an activity-based costing system, materials receiving would typically be classified as a:

A hospital administrator is in the process of implementing an activity-based-costing system. Which of the following tasks would not be part of this process?

Which of the following tasks is not normally associated with an activity-based costing system?

Generally speaking, companies prefer doing business with customers who order small quantities rather than large quantities.

Which of the following choices correctly depicts the proper classification of direct materials used and management salaries?

When determining customer profitability, activity-based costing can be used to analyze:

Under an activity-based costing system, what is the per-unit overhead cost of Standard?

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity Analysis, Cost Behavior, and Cost Estimation

Cost-Volume-Profit Analysis

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters

Exam 5: Activity-Based Costing and Management

An example of a customer-value-added activity is:

An example of a customer-value-added activity is final painting and polishing of the product.

Assume that HiTech is using a volume-based costing system, and the preceding overhead costs are applied to all products on the basis of direct labor hours. The overhead cost that would be assigned to the Standard product line is closest to:

Under an activity-based costing system, what is the per-unit overhead cost of Deluxe?

Hilton Corporation's customers differ greatly with respect to number of required sales contacts (e.g., phone calls and sales visits), account payment patterns, and design/engineering change orders. Which of the following choices likely denotes an ideal customer from Hilton's perspective?

In an activity-based costing system, materials receiving would typically be classified as a:

A hospital administrator is in the process of implementing an activity-based-costing system. Which of the following tasks would not be part of this process?

Which of the following tasks is not normally associated with an activity-based costing system?

Generally speaking, companies prefer doing business with customers who order small quantities rather than large quantities.

Which of the following choices correctly depicts the proper classification of direct materials used and management salaries?

When determining customer profitability, activity-based costing can be used to analyze:

Under an activity-based costing system, what is the per-unit overhead cost of Standard?

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity Analysis, Cost Behavior, and Cost Estimation

Cost-Volume-Profit Analysis

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters