Deck 5: Activitybased Costing: a Tool to Aid Decision Making

Question 1

In an ABC system, departmental managers are typically interviewed to determine how the departmental non-personnel costs should be distributed across the activity cost pools.

Answer 1

True

Question 2

In activity-based costing, all manufacturing costs must be included in product costs.

Answer 2

False

Question 3

The first-stage allocation in an ABC system is the process of assigning functionally organized overhead costs derived from the company's general ledger to activity cost pools.

Answer 3

True

Question 4

When activity-based costing is used for internal decision-making, the costs of idle capacity should be assigned to products.

Question 5

Organization-sustaining activities relate to specific customers and are not tied to any specific products.

Question 6

Direct labor costs are usually included in the costs that are allocated to activity cost pools in an activity-based costing system.

Question 7

A traditional cost system is generally easier to set up and run than an activity-based costing system.

Question 8

Batch-level activities are performed each time a unit is produced.

Question 9

A duration driver provides a simple count of the number of times that an activity occurs.

Question 10

When a company implements activity-based costing, manufacturing overhead cost is often shifted from low volume products to high volume products, with a higher unit cost resulting for the high volume products.

Question 11

Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers than managing and sustaining a single product. The costs of these resources can be accurately allocated to products using activity-based costing than traditional costing which is based entirely on direct labor-hours.

Question 12

When combining activities in an activity-based costing system, batch-level activities should be combined with unit-level activities whenever possible.

Question 13

When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system with batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.

Question 14

Departmental overhead rates will correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.

Question 15

Unit-level activities are performed each time a batch is handled or processed.

Question 16

Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.

Question 17

Activity-based costing is best proposed, designed and implemented by the accounting department without requiring the time of busy managers.

Question 18

First-stage allocations in an ABC system should not be based on the opinions of employees about how costs should be distributed among activity cost pools.

Question 19

Activity-based costing is a costing method that is designed to provide managers with product cost information for internal decision-making.

Question 20

In activity-based costing, as in traditional costing systems, manufacturing costs are not assigned to products.

Question 21

In the second-stage allocation in activity-based costing, costs that were not allocated in the first stage are assigned to the company's most profitable products.

Question 22

Which of the following would be an acceptable measure of activity for a material handling activity cost pool?

A) Option A
B) Option B
C) Option C
D) Option D

Question 23

Factory security and assembly activities at an appliance manufacturing plant would be best classified as unit-level, batch-level, product-level, or organization-sustaining activities?

A) Option A
B) Option B
C) Option C
D) Option D

Question 24

Testing a prototype of a new product is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Question 25

In the second-stage allocation in activity-based costing, activity rates are used to apply overhead costs to products and customers.

Question 26

An activity rate of $512 per product design means that on average a product design consumes resources that cost $512.

Question 27

To compute a product's profit or product margin, the product's sales and direct costs are needed in addition to the overhead costs computed in an activity-based costing system.

Question 28

Guerra Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the costs of inspecting the finished products at Guerra?

A) Machine-hours
B) Direct labor-hours
C) Inspection time
D) Number of inspections

Question 29

Providing the power required to run production equipment is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Question 30

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

A) under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.
B) under activity-based costing the sum of all product costs does not equal the total costs of the company.
C) activity-based costing has not been approved by the United Nation's International Accounting Board.
D) activity-based costing results in less accurate costs than more traditional costing methods based on direct labor-hours or machine-hours.

Question 31

Production order processing is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Question 32

Designing a new backpack at an outdoor sports equipment company is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Facility-level activity.

Question 33

Parts administration is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining.

Question 34

Direct materials costs are usually excluded from the costs that are allocated to activity cost pools in an activity-based costing system.

Question 35

In activity-based costing, a product margin may exclude costs from some of the company's activity cost pools.

Question 36

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

A) Setting up a machine for a batch of a standard product.
B) Operating a cafeteria for employees.
C) Running the Human Resource department.
D) Advertising a product.

Question 37

Machining a part for a product is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Question 38

In the first-stage allocation in an ABC system, some costs may be allocated to a special cost pool that are not subsequently allocated to products or customers.

Question 39

Departmental overhead rates may not correctly assign overhead costs due to:

A) the use of direct labor hours in allocating overhead costs to products rather than machine time or quantity of materials used.
B) the high correlation between direct labor-hours and the incurrence of overhead costs.
C) overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.
D) difficulties associated with identifying cost pools for the first stage of the allocation process.

Question 40

Purchase order processing is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Question 41

Bippus Corporation manufactures two products: Product X08R and Product P56L. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X08R and P56L. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P56L?

A) $311,500
B) $373,800
C) $249,200
D) $418,000

Question 42

Paparo Corporation has provided the following data from its activity-based costing system: Data concerning the company's product Q79Y appear below:
According to the activity-based costing system, the average cost of product Q79Y is closest to:

A) $133.29 per unit
B) $85.03 per unit
C) $127.43 per unit
D) $129.94 per unit

Question 43

Perl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs: The distribution of resource consumption across the three activity cost pools is given below: How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool?

A) $336,000
B) $319,000
C) $330,000
D) $396,000

Question 44

Leaper Corporation uses an activity-based costing system with the following three activity cost pools: The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.
The company has provided the following data concerning its costs:
The distribution of resource consumption across activity cost pools is given below: The activity rate for the Order Processing activity cost pool is closest to:

A) $1,485 per order
B) $1,540 per order
C) $1,465 per order
D) $1,320 per order

Question 45

Nick Company has two products: A and B. The company uses activity-based costing. The total cost and activity for each of the company's three activity cost pools are as follows: The activity rate under the activity-based costing system for Activity 3 is closest to:

A) $525.00
B) $44.65
C) $105.00
D) $205.00

Question 46

Hosley Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs: The distribution of resource consumption across the three activity cost pools is given below: How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?

A) $123,000
B) $174,000
C) $58,000
D) $203,000

Question 47

Huelskamp Corporation has provided the following data concerning its overhead costs for the coming year: The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:
The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below: The activity rate for the Assembly activity cost pool is closest to:

A) $2.65 per labor-hour
B) $3.85 per labor-hour
C) $2.85 per labor-hour
D) $2.75 per labor-hour

Question 48

Bennette Corporation has provided the following data concerning its overhead costs for the coming year: $\begin{array}{lr}\text { Wages and salaries } & \$ 340,000 \\\text { Depreciation } & 120,000 \\\text { Rent } & 140,000 \\\text { Total } & \$ 600,000\end{array}$ The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:
The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below: The activity rate for the Order Processing activity cost pool is closest to:

A) $430 per order
B) $420 per order
C) $360 per order
D) $440 per order

Question 49

In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by:

A) the direct labor-hours required by the product.
B) the machine-hours required by the product.
C) the total activity for the activity cost pool.
D) the total direct labor-hours for the activity cost pool.

Question 50

Lakatos Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs: The distribution of resource consumption across the three activity cost pools is given below: How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool?

A) $88,000
B) $132,000
C) $264,000
D) $120,000

Question 51

Gutknecht Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: Distribution of resource consumption: How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?

A) $138,000
B) $210,000
C) $180,000
D) $216,000

Question 52

Millner Corporation has provided the following data from its activity-based costing accounting system: The activity rate for the "designing products" activity cost pool is closest to:

A) $101 per product design hour
B) $1,372,448 per product design hour
C) $176 per product design hour
D) $57 per product design hour

Question 53

Tatman Corporation uses an activity-based costing system with the following three activity cost pools: The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.
The company has provided the following data concerning its costs:
The distribution of resource consumption across activity cost pools is given below: The activity rate for the Fabrication activity cost pool is closest to:

A) $3.30 per machine-hour
B) $13.20 per machine-hour
C) $10.30 per machine-hour
D) $8.80 per machine-hour

Question 54

Mayeux Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: Distribution of resource consumption: How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool?

A) $360,000
B) $336,000
C) $288,000
D) $348,000

Question 55

Ben Corporation manufactures two products: Product E05G and Product L64Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products E05G and L64Y. Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product E05G is closest to:

A) 27.87%
B) 19.00%
C) 30.00%
D) 50.00%

Question 56

Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below: The activity rate for the "meeting with clients" activity cost pool is closest to:

A) $95 per meeting hour
B) $61 per meeting hour
C) $163 per meeting hour
D) $1,182,239 per meeting hour

Question 57

Arrojo Corporation manufactures two products: Product X71B and Product C91I. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X71B and C91I. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product X71B?

A) $416,500
B) $499,800
C) $333,200
D) $372,000

Question 58

Orear Corporation manufactures two products: Product Z34D and Product J25M. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Z34D and J25M. Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product J25M is closest to:

A) 50.00%
B) 30.00%
C) 15.15%
D) 19.87%

Question 59

When switching from a traditional costing system to an activity-based costing system that contains some batch-level costs:

A) the unit product costs of both high and low volume products typically increase.
B) the unit product costs of both high and low volume products typically decrease.
C) the unit product costs of high volume products typically increase and the unit product costs of low volume products typically decrease.
D) the unit product costs of high volume products typically decrease and the unit product costs of low volume products typically increase.

Question 60

Eccles Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: Distribution of resource consumption: How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?

A) $144,000
B) $96,000
C) $36,000
D) $105,000

Question 61

Leber Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $2,423.00 per customer, is the cost of serving a customer for one year. Solecki Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
According to the ABC system, the total overhead cost for this customer this past year was closest to:

A) $1,805.55
B) $4,228.55
C) $13,678.55
D) $9,450.00

Question 62

Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Data concerning two products appear below:
How much overhead cost would be assigned to Product K91B using the activity-based costing system?

A) $9,097.41
B) $81,146.53
C) $4,961.04
D) $135.47

Question 63

Meli Corporation manufactures two products: Product L61P and Product B60E. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products L61P and B60E. Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product L61P is closest to:

A) 50.00%
B) 31.37%
C) 10.34%
D) 70.00%

Question 64

Annika Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There are three activity cost pools, with total cost and activity as follows: The activity-based costing cost per unit of Product A is closest to:

A) $20.40
B) $10.00
C) $18.15
D) $17.00

Question 65

Kulka Corporation manufactures two products: Product F82D and Product T05P. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products F82D and T05P. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product T05P?

A) $156,000
B) $303,000
C) $147,000
D) $304,500

Question 66

Bertsche Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $1,488.00 per customer, is the cost of serving a customer for one year.
Yousif Corporation buys only one of the company's products which Bertsche Enterprises sells for $25.00 per unit. Last year Yousif Corporation ordered a total of 900 units of this product in 3 orders. To fill the orders, 11 batches were required. The direct materials cost is $8.20 per unit and the direct labor cost is $7.65 per unit. Each unit requires 0.40 DLHs.
According to the ABC system, the total cost of the activity "Supporting assembly" for this customer this past year was closest to:

A) $2,880.00
B) $1.28
C) $1,152.00
D) $360.00

Question 67

Weissman Corporation manufactures two products: Product E16S and Product P17K. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products E16S and P17K. Using the ABC system, the percentage of the total overhead cost that is assigned to Product E16S is closest to:

A) 52.24%
B) 42.16%
C) 10.07%
D) 50.00%

Question 68

Houseal Corporation has provided the following data from its activity-based costing system: Data concerning one of the company's products, Product W58B, appear below:
According to the activity-based costing system, the product margin for product W58B is:

A) $3,668.60
B) $5,975.60
C) $5,515.40
D) $19,418.40

Question 69

Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Data for one of the company's products follow:
How much overhead cost would be assigned to Product U94W using the activity-based costing system?

A) $42,176.55
B) $83.85
C) $7,784.21
D) $2,666.92

Question 70

Nourse Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $2,026.00 per customer, is the cost of serving a customer for one year. Koerner Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
According to the ABC system, the customer margin for this customer this past year was closest to:

A) $14,670.00
B) $10,578.55
C) $16,020.00
D) $19,083.55

Question 71

Activity rates from Lippard Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products: Last year, Product H50E involved 9 customer orders, 666 assembly hours, and 77 batches. How much overhead cost would be assigned to Product H50E using the activity-based costing system?

A) $60,979.68
B) $3,588.97
C) $5,778.31
D) $81.09

Question 72

Feldpausch Corporation has provided the following data from its activity-based costing system: The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit.
According to the activity-based costing system, the product margin for product W26B is:

A) $6,444.70
B) $4,679.20
C) $3,384.70
D) $16,675.60

Question 73

Digerolamo Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $1,159.00 per customer, is the cost of serving a customer for one year.
Carlacci Corporation buys only one of the company's products which Digerolamo Enterprises sells for $18.85 per unit. Last year Carlacci Corporation ordered a total of 1,500 units of this product in 4 orders. To fill the orders, 9 batches were required. The direct materials cost is $8.15 per unit and the direct labor cost is $2.60 per unit. Each unit requires 0.15 DLHs.
According to the ABC system, the total cost of the activity "Processing batches" for this customer this past year was closest to:

A) $59.35
B) $1,704.15
C) $1,763.50
D) $189.35

Question 74

Dobles Corporation has provided the following data from its activity-based costing system: The company makes 420 units of product D28K a year, requiring a total of 460 machine-hours, 80 orders, and 10 inspection-hours per year. The product's direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit.
According to the activity-based costing system, the average cost of product D28K is closest to:

A) $95.34 per unit
B) $93.60 per unit
C) $74.32 per unit
D) $89.93 per unit

Question 75

Larry Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $1,913.00 per customer, is the cost of serving a customer for one year. Prosonic Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
According to the ABC system, the total cost of the activity "Processing batches" for this customer this past year was closest to:

A) $138.35
B) $553.40
C) $77.00
D) $630.40

Question 76

Pilkerton Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $2,533.00 per customer, is the cost of serving a customer for one year.
Christoforou Corporation buys only one of the company's products which Pilkerton Enterprises sells for $21.65 per unit. Last year Christoforou Corporation ordered a total of 1,300 units of this product in 3 orders. To fill the orders, 10 batches were required. The direct materials cost is $6.60 per unit and the direct labor cost is $2.75 per unit. Each unit requires 0.15 DLHs.
According to the ABC system, the total overhead cost for this customer this past year was closest to:

A) $4,254.65
B) $1,721.65
C) $12,155.00
D) $16,409.65

Question 77

Mustafa Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $2,737.00 per customer, is the cost of serving a customer for one year. Dahle Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
According to the ABC system, the total cost of the activity "Supporting assembly" for this customer this past year was closest to:

A) $6,000.00
B) $3.00
C) $320.00
D) $2,400.00

Question 78

Fletes Corporation manufactures two products: Product O95C and Product M31N. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products O95C and M31N. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product O95C?

A) $392,500
B) $136,000
C) $399,000
D) $263,000

Question 79

Cambra Corporation manufactures two products: Product N70E and Product F54Y. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products N70E and F54Y. Using the ABC system, the percentage of the total overhead cost that is assigned to Product F54Y is closest to:

A) 51.17%
B) 27.16%
C) 50.00%
D) 24.01%

Question 80

Cumberland Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $2,663.00 per customer, is the cost of serving a customer for one year.
Steckman Corporation buys only one of the company's products which Cumberland Enterprises sells for $22.05 per unit. Last year Steckman Corporation ordered a total of 1,200 units of this product in 4 orders. To fill the orders, 8 batches were required. The direct materials cost is $7.65 per unit and the direct labor cost is $5.20 per unit. Each unit requires 0.30 DLHs.
According to the ABC system, the customer margin for this customer this past year was closest to:

A) $20,269.60
B) $4,849.60
C) $17,280.00
D) $11,040.00