Question 1

Define the term "cost driver" and discuss the factors that are important in the selection of appropriate cost drivers.

Accepted Answer

A cost driver is an event or activity th

Question 2

Grist Enterprises is converting to an activity-based costing system It wishes to depict the various activities in its manufacturing process along with the activities' relationships. Which of the following is a tool that the company can use to accomplish this task?

Accepted Answer

A)  Storyboards. 
B)  Activity relationship charts (ARCs). 
C)  Decision trees. 
D)  Simulation games. 
E)  Process organizers. 
A)  Storyboards. 
B)  Activity relationship charts (ARCs). 
C)  Decision trees. 
D)  Simulation games. 
E)  Process organizers.

Question 3

Which of the following is least likely to be classified as a facility-level activity in an activity-based costing system?

Accepted Answer

A)  Plant maintenance. 
B)  Property taxes. 
C)  Machine processing cost. 
D)  Plant depreciation. 
E)  Plant management salaries. 
A)  Plant maintenance. 
B)  Property taxes. 
C)  Machine processing cost. 
D)  Plant depreciation. 
E)  Plant management salaries.

Question 4

Templeton Industries currently assigns overhead to products by using a predetermined rate based on direct labor hours. The company is considering the adoption of an activity-based costing (ABC) system, and management desires a brief overview of this system before it makes a final decision.
Compare ABC with the company's current system, focusing on the number of cost pools and cost drivers, costing accuracy, and cost distortion.

Accepted Answer

Templeton is currently combining all ove

Question 5

Drake Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent study of product no. 520 revealed a traditionally-derived total cost of $1,623 and a selling price of $1,850 based on that figure. A newly computed activity-based total cost is $1,215. Which of the following statements is true?

Accepted Answer

A)  All other things being equal, Drake should consider increasing its sales price. 
B)  Drake should increase the product's selling price to maintain the same markup percentage. 
C)  Product no. 520 could be labeled as being overcosted by Drake's traditional costing procedures. 
D)  If product no. 520 is undercosted by traditional accounting procedures, then all of Drake'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, Drake should consider increasing its sales price. 
B)  Drake should increase the product's selling price to maintain the same markup percentage. 
C)  Product no. 520 could be labeled as being overcosted by Drake's traditional costing procedures. 
D)  If product no. 520 is undercosted by traditional accounting procedures, then all of Drake'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 6

Widely varying consumption ratios:

Accepted Answer

A)  are reflective of product-line diversity. 
B)  indicate an out-of-control production environment. 
C)  dictate a need for traditional costing systems. 
D)  work against the implementation of activity-based costing. 
E)  create an unsolvable product-costing problem. 
A)  are reflective of product-line diversity. 
B)  indicate an out-of-control production environment. 
C)  dictate a need for traditional costing systems. 
D)  work against the implementation of activity-based costing. 
E)  create an unsolvable product-costing problem.

Question 7

Kelly and Logan, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: $\begin{array}{lr}
\text { Staff support } & \$ 180,000 \
\text { In-house computing charges } & 50,000 \
\text { Miscellaneous office costs } & 20,000 \
\text { Total } & \$250,000 \
\end{array}$
A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; tax planning, 60). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions.
Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax planning services is:

Accepted Answer

A)  20%. 
B)  60%. 
C)  65%. 
D)  75%. 
E)  80%. 
A)  20%. 
B)  60%. 
C)  65%. 
D)  75%. 
E)  80%.

Question 8

Storch Corporation takes eight hours to complete the setup process for a certain electrical component, with the setup cost averaging $150 per hour. If the company's competitor can accomplish the same process in six hours, Stanley's non-value-added cost would be:

Accepted Answer

A)  $0. 
B)  $150. 
C)  $300. 
D)  $900. 
E)  $1,200. 
A)  $0. 
B)  $150. 
C)  $300. 
D)  $900. 
E)  $1,200.

Question 9

Bravo Manufacturing is a relatively new customer of Haxton Enterprises. In the short period that the two companies have done business with each other, Haxton has found Bravo to be, in management's words, "an expensive proposition." Numerous sales visits are typically required to "close a deal," with selling prices and discounts offered being among the most attractive in the industry. Complicating matters, Bravo is slow to settle its account, orders in small quantities, and often has numerous specialized shipping and handling needs.
A recent customer profitability analysis has painted a very negative picture of Bravo Manufacturing, and Haxton's managers are questioning whether an on-going relationship with the firm is warranted.
Required:
A. Briefly explain why the customer profitability analysis painted a negative picture of Bravo Manufacturing.
A. Profit is a function of two basic factors-revenues and expenses-and Haxton is being squeezed on both elements. Prices are low, discounts are high, and order sizes are small. Furthermore, the costs of working with Bravo are high, courtesy of numerous sales calls being required to produce a sale, a slow-paying customer, and specialized handling and shipping needs.
B. Haxton should attempt to work with Bravo in a cost-cutting drive, explaining that favorable terms can only be extended for a short period of time. Acceleration of amounts due, increases in order size, and reductions in sales visits and specialized handling and shipping needs are possible topics for discussion/improvement. If Haxton is unsuccessful in its efforts, price hikes and/or elimination of discounts may be in order.
B. What actions are available to Haxton Enterprises to improve Bravo profitability?

Accepted Answer

A. Profit is a function of two basic fac

Question 10

Consumption ratios are useful in determining the existence of product-line diversity.

Accepted Answer

A) True 
 B)False

Question 11

Consider the nine activities that follow.
1. Microsoft: Developing computer coding for a new spreadsheet package.
2. General Mills: Painting the office of a maintenance supervisor at a plant that produces cereal.
3. Mayo Clinic: Examining a new patient.
4. American Airlines: The 90 minutes that a Boeing 757 sits idle on the ground between flights.
5. Office Depot: Moving cases of paper from one location to another in the same warehouse.
6. Rolex: Attaching a watch band to the watch's face.
7. United States Postal Service: Reprocessing mail that had been sorted incorrectly on a malfunctioning sorting machine.
8. Fidelity Investments: Correcting errors made by company personnel in customer accounts.
9. Marriott: Upgrading the quality of bedding used at hotels in very competitive marketplaces.
Required:
Categorize each of the activities as either value-added or non-value-added for the companies noted.

Accepted Answer

The answer of Consider the nine activities that follow.
1. Microsoft:...

Question 12

Which of the following can have a negative impact on a particular sale's profitability?

Accepted Answer

A)  Number of required sales contacts (phone calls, visits, etc.). 
B)  Special shipping instructions. 
C)  Accounts receivable collection time. 
D)  Purchase-order changes. 
E)  All of the answers are correct. 
A)  Number of required sales contacts (phone calls, visits, etc.). 
B)  Special shipping instructions. 
C)  Accounts receivable collection time. 
D)  Purchase-order changes. 
E)  All of the answers are correct.

Question 13

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 packaging activity?

Accepted Answer

A)  $4.86 per machine hour. 
B)  $5.00 per labor hour. 
C)  $10.00 per unit. 
D)  $100.00 per order shipped. 
E)  None of the other answers is correct. 
A)  $4.86 per machine hour. 
B)  $5.00 per labor hour. 
C)  $10.00 per unit. 
D)  $100.00 per order shipped. 
E)  None of the other answers is correct.

Question 14

The adoption of a 24/7 employee hotline for workplace complaints is an example of a:

Accepted Answer

A)  business-value-added activity. 
B)  customer-value-added activity. 
C)  nonvalue-added activity. 
D)  batch-related activity. 
E)  product-sustaining activity. 
A)  business-value-added activity. 
B)  customer-value-added activity. 
C)  nonvalue-added activity. 
D)  batch-related activity. 
E)  product-sustaining activity.

Question 15

The division of activities into unit-level, batch-level, product-sustaining level, and facility-level categories is commonly known as a cost:

Accepted Answer

A)  object. 
B)  application method. 
C)  hierarchy. 
D)  estimation method. 
E)  classification scheme that is useful in traditional, volume-based systems. 
A)  object. 
B)  application method. 
C)  hierarchy. 
D)  estimation method. 
E)  classification scheme that is useful in traditional, volume-based systems.

Question 16

During a recent accounting period, Marty's shipping department processed 26 orders. Each order typically takes four hours to complete. However, the average time increased to five hours because of various departmental inefficiencies. If shipping labor is paid $14 per hour, the company's non-value-added cost would be:

Accepted Answer

A)  $0. 
B)  $56. 
C)  $364. 
D)  $1,456. 
E)  $1,820. 
A)  $0. 
B)  $56. 
C)  $364. 
D)  $1,456. 
E)  $1,820.

Question 17

The salaries of a manufacturing plant's management are said to arise from:

Accepted Answer

A)  unit-level activities. 
B)  batch-level activities. 
C)  product-sustaining activities. 
D)  facility-level activities. 
E)  direct-cost activities. 
A)  unit-level activities. 
B)  batch-level activities. 
C)  product-sustaining activities. 
D)  facility-level activities. 
E)  direct-cost activities.

Question 18

Consider the following factors:
I. The degree of correlation between consumption of an activity and consumption of a particular cost driver.
II. The likelihood that a particular cost driver will induce a desired behavioral effect.
III. The likelihood that a particular cost driver will cause an increase in the cost of measurement.
Which of these factors should be considered in the selection of a cost driver?

Accepted Answer

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

Question 19

St. Helena Cellars produces wine in northern California. Consider the following selected costs that arose during the current year:
1. Safety costs at winery
2. Truckload shipping costs
3. Building maintenance costs
4. Bottle and cork cost
5. Development cost of new, after-dinner wine
6. Tasting and testing costs
Required:
A. A unit-level activity is performed for each unit of production. In contrast, a product-sustaining activity is needed to support an entire product line. The latter is not necessarily performed each time a new unit or batch of products is manufactured.
A. Briefly distinguish between unit-level and product-sustaining activities.
B. 1. Facility-level
2. Batch-level
3. Facility-level
4. Unit-level
5. Product-sustaining
6. Batch-level
B. Classify the six costs listed as arising from a unit-level, batch-level, product-sustaining, or facility-level activity.

Accepted Answer

A. A unit-level activity is performed fo

Question 20

Which of the following is not an example of a business-value-added activity?

Accepted Answer

A)  Adopting bar-code technology in the receiving department. 
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)  Final painting and polishing of the product. 
A)  Adopting bar-code technology in the receiving department. 
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)  Final painting and polishing of the product.

Define the term "cost driver" and discuss the factors that are important in the selection of appropriate cost drivers.

Grist Enterprises is converting to an activity-based costing system It wishes to depict the various activities in its manufacturing process along with the activities' relationships. Which of the following is a tool that the company can use to accomplish this task?

Which of the following is least likely to be classified as a facility-level activity in an activity-based costing system?

Widely varying consumption ratios:

Storch Corporation takes eight hours to complete the setup process for a certain electrical component, with the setup cost averaging $150 per hour. If the company's competitor can accomplish the same process in six hours, Stanley's non-value-added cost would be:

Consumption ratios are useful in determining the existence of product-line diversity.

Which of the following can have a negative impact on a particular sale's profitability?

The adoption of a 24/7 employee hotline for workplace complaints is an example of a:

The division of activities into unit-level, batch-level, product-sustaining level, and facility-level categories is commonly known as a cost:

The salaries of a manufacturing plant's management are said to arise from:

Which of the following is not an example of a business-value-added activity?

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

Define the term "cost driver" and discuss the factors that are important in the selection of appropriate cost drivers.

Grist Enterprises is converting to an activity-based costing system It wishes to depict the various activities in its manufacturing process along with the activities' relationships. Which of the following is a tool that the company can use to accomplish this task?

Which of the following is least likely to be classified as a facility-level activity in an activity-based costing system?

Widely varying consumption ratios:

Storch Corporation takes eight hours to complete the setup process for a certain electrical component, with the setup cost averaging $150 per hour. If the company's competitor can accomplish the same process in six hours, Stanley's non-value-added cost would be:

Consumption ratios are useful in determining the existence of product-line diversity.

Which of the following can have a negative impact on a particular sale's profitability?

The adoption of a 24/7 employee hotline for workplace complaints is an example of a:

The division of activities into unit-level, batch-level, product-sustaining level, and facility-level categories is commonly known as a cost:

The salaries of a manufacturing plant's management are said to arise from:

Which of the following is not an example of a business-value-added activity?

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