Deck 11: Activity-Based Costing

Question 1

If activity-based costing is used, setups would be classified as a

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

Answer 1

B

Question 2

All of the following are nonunit-based activity drivers EXCEPT

A)number of setups.
B)number of direct labour hours.
C)number of inspections.
D)number of material moves.

Answer 2

B

Question 3

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is(are) the unit-level activity(ies)?

A)engineering
B)setups
C)inspecting
D)machining

Answer 3

machining

Question 4

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is(are) the facility-level activity(ies)?

A)providing utilities
B)providing space
C)inspecting
D)both a and b

Question 5

Figure 11-1
Ubben Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: $\begin{array}{lll}&\text { Model X } & \text { Model Y } \\\text { Units produced } & 20,000 & 40,000 \\\text { Machine hours } & 8,000 & 10,000 \\\text { Direct labour hours } & 14,000 & 16,000 \\\text { Engineering labour (hours) } & 1,000 & 1,400 \\\text { Setups } & 40 & 60\end{array}$ The following costs are reported: $\begin{array}{ll}\text { Engineering } & £ 48,000 \\\text { Setups } & 100,000 \\\text { Machine-rel ated overhead } & 144,000\end{array}$

-Refer to Figure 11-1. Setups would be classified as a

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

Question 6

Riley, SA., has identified the following overhead costs and activity drivers for next year: $\begin{array}{lclc}\text { Expected }&&\text { Expected }\\\text { Overhead Item }&\text { Cost } & \text { Activity Driver } & \text { Quantity }\\\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000\end{array}$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\mathrm{Job} \text { AA} &\mathrm{Job} \text { BB }\\\text { Direct materials } & £ 375 & £ 1,000 \\\text { Direct labour } & £ 350 & £ 1,200 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 50 & 80 \\\text { Number of setups } & 1 & 4 \\\text { Number of orders } & 4 & 5 \\\text { Machine hours } & 20 & 25 \\\text { Kilowatt hours } & 30 & 50\end{array}$ The company's normal activity is 4,000 direct labour hours. If the activity drivers are used to allocate overhead costs, the unit cost (rounded to two decimal places) for Job BB would be

A)£21.40.
B)£26.56.
C)£26.95.
D)£27.03.

Question 7

All of the following are unit-based activity drivers EXCEPT

A)machine hours.
B)number of setups.
C)number of units.
D)direct labour hours.

Question 8

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is(are) the product-level activity(ies)?

A)engineering
B)setups
C)inspecting
D)none of the above

Question 9

If activity-based costing is used, insurance on the plant would be classified as a

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

Question 10

Maintenance of the production equipment would be classified as a

A)unit-level activity.
B)product-level activity.
C)cell-level activity.
D)facility-level activity.

Question 11

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is the cost pool overhead rate for the unit-level activities?

A)£80.00 per machine hour
B)£13,500.00 per setup
C)£17.20 per machine hour
D)£97.20 per machine hour

Question 12

If activity-based costing is used, electricity usage would be an example of a

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

Question 13

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is the cost pool rate for the batch-level activities?

A)£80.00 per machine hour
B)£13,500.00 per setup
C)£17.20 per machine hour
D)£97.20 per machine hour

Question 14

Which of the following quantities is an example of an activity driver in activity-based costing?

A)number of setups
B)number of orders placed
C)number of machine hours
D)all of the above

Question 15

If activity-based costing is used, product inspections would be classified as a

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

Question 16

Figure 11-1
Ubben Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: $\begin{array}{lll}&\text { Model X } & \text { Model Y } \\\text { Units produced } & 20,000 & 40,000 \\\text { Machine hours } & 8,000 & 10,000 \\\text { Direct labour hours } & 14,000 & 16,000 \\\text { Engineering labour (hours) } & 1,000 & 1,400 \\\text { Setups } & 40 & 60\end{array}$ The following costs are reported: $\begin{array}{ll}\text { Engineering } & £ 48,000 \\\text { Setups } & 100,000 \\\text { Machine-rel ated overhead } & 144,000\end{array}$

-Refer to Figure 11-1. Machine-related overhead would be classified as a

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

Question 17

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is(are) the batch-level activity(ies)?

A)engineering
B)setups
C)inspecting
D)all of the above

Question 18

The use of unit-based activity drivers to assign costs tends to

A)overcost low-volume products.
B)overcost high-volume products.
C)undercost all products.
D)overcost all products.

Question 19

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is the cost pool rate for the facility-level activities?

A)£80.00 per machine hour
B)£13,500.00 per setup
C)£17.20 per machine hour
D)£97.20 per machine hour

Question 20

Figure 11-2
Owens Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: $\begin{array}{ll}\text { Engineering } & £ 1,000,000 \\\text { Setups } & 900,000 \\\text { Machining } & 2,000,000 \\\text { Inspection } & 800,000 \\\text { Providing space } & 250,000 \\\text { Providing utilities } & 180,000\end{array}$ Activity drivers for each activity have been identified and their practical capacities listed: $\begin{array}{ll}\text { Machine hours } & 25,000 \\\text { Setups } & 200 \\\text { Engineering hours } & 5,000 \\\text { Inspection hours } & 2,500\end{array}$ The costs of facility-level activities are assigned using machine hours.

-Refer to Figure 11-2. What is the cost pool rate for the product-level activities?

A)£80.00 per machine hour
B)£13,500.00 per setup
C)£17.20 per machine hour
D)none of the above

Question 21

Which of the following items would be classified as committed resources (short-term)?

A)salaried employees
B)depreciation on building
C)fuel to generate electricity internally
D)lease on machinery

Question 22

Resources that are only purchased precisely at the time the resource is needed are called

A)committed resources.
B)flexible resources.
C)scarce resources.
D)none of the above.

Question 23

Figure 11-3
Moss Ltd. has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering:
$\begin{array}{ll}\text { Salaries } & £ 75,000 \\\text { Equipment } & 40,000 \\\text { Supplies } & 10,000 \\\quad \text { Total } &£ 125,000\\\end{array}$

-Refer to Figure 11-3. What is the cost assigned to the training employees activity?

A)£27,500
B)£125,000
C)£31,250
D)£81,250

Question 24

The overhead rates of the traditional-based approach to product costing use

A)nonunit-based cost drivers.
B)unit-based cost drivers.
C)process costing.
D)job-order costing.

Question 25

What is the initial step in implementing an activity-based costing system?

A)assigning costs to activities
B)assigning costs to products
C)identifying activities and attributes
D)dividing activity costs by activity drivers

Question 26

Basing overhead allocation solely on volume

A)will undercost high-volume products and overcost low-volume products.
B)will overcost high-volume products and undercost low-volume products.
C)is the sole basis of the activity-based costing model.
D)All of the above are correct.

Question 27

Figure 11-3
Moss Ltd. has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering:
$\begin{array}{ll}\text { Salaries } & £ 75,000 \\\text { Equipment } & 40,000 \\\text { Supplies } & 10,000 \\\quad \text { Total } &£ 125,000\\\end{array}$

-Refer to Figure 11-3. What is the cost assigned to the improving processes activity?

A)£250,000
B)£25,000
C)£43,750
D)£51,000

Question 28

An example of a nonunit-level driver is

A)pounds of direct materials.
B)number of setups.
C)number of machine hours where each product manufactured requires one machine hour.
D)number of labour hours.

Question 29

An example of a production or unit-level driver is

A)pounds of direct materials.
B)number of setups.
C)number of batches.
D)number of product lines.

Question 30

Which of the following items would be classified as committed resources (long-term)?

A)salaried employees
B)depreciation on building
C)lease on machinery
D)both b and c

Question 31

Figure 11-3
Moss Ltd. has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering:
$\begin{array}{ll}\text { Salaries } & £ 75,000 \\\text { Equipment } & 40,000 \\\text { Supplies } & 10,000 \\\quad \text { Total } &£ 125,000\\\end{array}$

-Refer to Figure 11-3. What is the cost assigned to the creating BOMs activity?

A)£31,250
B)£7,500
C)£43,750
D)£125,000

Question 32

An activity-based cost system

A)differs from a traditional-based cost system in the nature and number of the cost drivers used.
B)uses both unit-based and nonunit-based cost drivers that reflect a cause-and-effect relationship.
C)can trace cost accurately to cost objects other than products.
D)does all of the above.

Question 33

Committed resources are

A)hard to purchase.
B)purchased precisely at the time the resource is needed and have no unused capacity.
C)supplied in advance of usage and may have unused capacity.
D)none of the above.

Question 34

An activity-based costing system uses which of the following procedures?

A)Overhead costs are traced to departments, then costs are traced to products.
B)Overhead costs are traced to activities, then costs are traced to products.
C)Overhead costs are traced directly to products.
D)All overhead costs are expensed as incurred.

Question 35

Which of the following items would be classified as flexible resources?

A)salaried employees
B)depreciation on building
C)fuel to generate electricity internally
D)lease on machinery

Question 36

An activity cost driver is

A)a factor that causes variations in a cost.
B)another term for input measure.
C)the largest single category of cost in a company.
D)a variable cost.

Question 37

More accurate product costing information is produced by assigning costs using

A)volume-based, plantwide rates.
B)volume-based, departmental rates.
C)activity-based pool rates.
D)All of the above produce accurate product costing information.

Question 38

In an activity-based cost system, what types of drivers are used to describe cost behaviour?

A)activity drivers
B)production or unit-level drivers
C)nonunit-level drivers
D)both production (or unit-level) and nonunit-level drivers

Question 39

Figure 11-3
Moss Ltd. has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering:
$\begin{array}{ll}\text { Salaries } & £ 75,000 \\\text { Equipment } & 40,000 \\\text { Supplies } & 10,000 \\\quad \text { Total } &£ 125,000\\\end{array}$

-Refer to Figure 11-3. What is the cost assigned to the designing tooling activity?

A)£81,250
B)£33,000
C)£25,000
D)£125,000

Question 40

Figure 11-4
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: $\begin{array}{ll}\text { Direct materials } & £ 1,500 \\\text { Direct labour } & £ 5,000 \\\text { Machine hours } & 400 \\\text { Number of inspections } & 6 \\\text { Direct labour hours } & 750\end{array}$ Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.

-Refer to Figure 11-4. Using direct labour hours to assign overhead, the total cost of the potential job would be

A)£9,500.
B)£6,000.
C)£3,000.
D)£1,600.

Question 41

Figure 11-5
Granite, SA., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l l l l } \text { Overhead Item } & \text { Expected Cost } & \text { Cost Driver } & \text { Expected Quantity } \\\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\underline{\text { Job } 500}&\underline{\text { Job } 501}\\\text { Direct materials } & £ 1,500 & £ 2,000 \\\text { Direct labour } & £ 1,400 & £ 2,400 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 100 & 160 \\\text { Number of setups } & 2 & 8 \\\text { Number of orders } & 8 & 10 \\\text { Machine hours } & 40 & 50 \\\text { Kilowatt hours } & 60 & 100\end{array}$ The company's normal activity is 4,000 direct labour hours.

-Refer to Figure 11-5. If Granite, SA., used activity-based cost drivers to allocate overhead costs, the unit cost for Job 500 would be

A)£53.15.
B)£54.15.
C)£56.67.
D)£57.15.

Question 42

Figure 11-6
Peach, SA., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l c l l } \text { Overhead Item } & \text { Expected Cost } & \multicolumn{1}{c} { \text { Cost Driver } } & \text { Expected Quantity } \\\text { Setup costs } & £ 200,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 80,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 400,000 & \text { Machine hours } & 4,000 \\\text { Power } & 40,000 & \text { Kilowatt hours } & 80,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\underline{\text { Job } 400}&\underline{\text { Job } 401}\\\text { Direct materials } & £ 750 & £ 2,000 \\\text { Direct labour } & £ 700 & £ 2,400 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 50 & 80 \\\text { Number of setups } & 1 & 4 \\\text { Number of orders } & 4 & 5 \\\text { Machine hours } & 20 & 25 \\\text { Kilowatt hours } & 30 & 50\end{array}$

The company's normal activity is 4,000 direct labour hours.

-Refer to Figure 11-6. If Peach, SA., used direct labour hours to assign overhead, the unit cost for Job 401 would be

A)£117.50.
B)£111.88.
C)£105.00.
D)£102.50.

Question 43

Flanigan Manufacturing uses an activity-based cost system. The company produces Product R and Product X. Information concerning the two products is as follows: $\begin{array}{lll}&\text { Product R } & \text { Froduct X } \\\text { Units produced } & 30,000 & 50,000 \\\text { Direct labour hours } & 24,000 & 26,000 \\\text { Engineering labour (hours) } & 4,000 & 6,000 \\\text { Setups } & 20 & 30 \\\text { Kilowatt hours } & 5,000 & 7,000\end{array}$ The following costs are reported: $\begin{array}{ll}\text { Power } & £ 24,000 \\\text { Engineering } & 140,000 \\\text { Setups } & 120,000\end{array}$

Question 44

Godwin Ltd. produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours.
a.Identify the activities within each process as unit-level, batch-level, product-level, or facility-level.
b.Create homogeneous cost pools. Identify the activities that belong to each pool and the activity driver that will be used for computing pool rates.
c.Build an activity relational (i.e. cost) table.
d.Compute the cost pool rates.

Question 45

Holbrook, SA., has identified the following overhead costs and cost drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 40,000 direct labour hours.
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four cost drivers. (Round amounts to two decimal places.)
c.Which method produces the more accurate cost assignment? Why?

Question 46

Activity-based costing assigns costs to cost object by first

A)tracing costs to products and then tracing costs to cost objects.
B)tracing costs to departments and then tracing costs to products.
C)tracing costs to activities and then tracing costs to cost objects.
D)tracing costs to customers and then tracing costs to products.

Question 47

Hunter Company manufactures two products (XX and YY). The overhead costs have been divided into four cost pools that use the following activity drivers: $\begin{array}{ccccc}& \text { Number of } & \text { Number of } & \text { Number oflabour } & \text { Labour } \\\text { Product } & \text { Orders } & \text { Setups } & \text { Transactions } & \text { Hours }\\X X & 60 & 20 & 50 & 2,000 \\Y Y & 20 & 80 & 70 & 500\\\\\text { Cost per pool } & £ 16,000 & £ 13,000 & £ 2,400 & £ 20,000\end{array}$
a.Compute the allocation rates for each of the activity drivers listed.
b.Allocate the overhead costs to Products XX and YY using activity-based costing.
c.Compute the overhead rate using labour hours under the traditional functional-based costing system.
d.Allocate the overhead costs to Products XX and YY using the traditional functional-based costing system overhead rate calculated in part (c).

Question 48

Figure 11-5
Granite, SA., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l l l l } \text { Overhead Item } & \text { Expected Cost } & \text { Cost Driver } & \text { Expected Quantity } \\\text { Setup costs } & £ 100,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 4,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 80,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\underline{\text { Job } 500}&\underline{\text { Job } 501}\\\text { Direct materials } & £ 1,500 & £ 2,000 \\\text { Direct labour } & £ 1,400 & £ 2,400 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 100 & 160 \\\text { Number of setups } & 2 & 8 \\\text { Number of orders } & 8 & 10 \\\text { Machine hours } & 40 & 50 \\\text { Kilowatt hours } & 60 & 100\end{array}$ The company's normal activity is 4,000 direct labour hours.

-Refer to Figure 11-5. If Granite, SA., used activity-based cost drivers to allocate overhead costs, the total cost of Job 500 would be

A)£5,715.
B)£5,667.
C)£5,415.
D)£5,315.

Question 49

Batch-related costs are added to which of the following costs in break-even analysis?

A)variable
B)fixed
C)mixed
D)none of the above

Question 50

Ernest, SA., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l l l c } \text { Overhead Item } & \text { Expected Cost } & { \text { Cost Driver } } & \text { Expected Quantity } \\\text { Setup costs } & £ 320,000 & \text { Number of setups } & 4,000 \\\text { Ordering costs } & 120,000 & \text { Number of orders } & 20,000 \\\text { Maintenance } & 480,000 & \text { Machine hours } & 24,000 \\\text { Power } & 40,000 & \text { Kilowatt hours } & 160,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\text { Job } 320& \text { Job } 321\\\text { Direct materials } & £ 8,000 & £ 19,000 \\\text { Direct labour } & £ 6,400 & £ 12,000 \\\text { Units completed } & 800 & 1,600 \\\text { Direct labour hours } & 240 & 500 \\\text { Number of setups } & 12 & 20 \\\text { Number of orders } & 20 & 40 \\\text { Machine hours } & 400 & 600 \\\text { Kilowatt hours } & 280 & 400\end{array}$ The company's normal activity is 32,000 direct labour hours. (Round amounts to two decimal places.)
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four cost drivers.
c.Which method produces the more accurate cost assignment? Why?

Question 51

Figure 11-4
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: $\begin{array}{ll}\text { Direct materials } & £ 1,500 \\\text { Direct labour } & £ 5,000 \\\text { Machine hours } & 400 \\\text { Number of inspections } & 6 \\\text { Direct labour hours } & 750\end{array}$ Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.

-Refer to Figure 11-4 above. Using activity-based costing and the appropriate cost drivers, the total cost of the potential job would be

A)£9,230.
B)£8,180.
C)£2,250.
D)£1,680.

Question 52

Figure 11-6
Peach, SA., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l c l l } \text { Overhead Item } & \text { Expected Cost } & \multicolumn{1}{c} { \text { Cost Driver } } & \text { Expected Quantity } \\\text { Setup costs } & £ 200,000 & \text { Number of setups } & 500 \\\text { Ordering costs } & 80,000 & \text { Number of orders } & 3,200 \\\text { Maintenance } & 400,000 & \text { Machine hours } & 4,000 \\\text { Power } & 40,000 & \text { Kilowatt hours } & 80,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\underline{\text { Job } 400}&\underline{\text { Job } 401}\\\text { Direct materials } & £ 750 & £ 2,000 \\\text { Direct labour } & £ 700 & £ 2,400 \\\text { Units completed } & 100 & 160 \\\text { Direct labour hours } & 50 & 80 \\\text { Number of setups } & 1 & 4 \\\text { Number of orders } & 4 & 5 \\\text { Machine hours } & 20 & 25 \\\text { Kilowatt hours } & 30 & 50\end{array}$

The company's normal activity is 4,000 direct labour hours.

-Refer to Figure 11-6. If Peach, SA., used activity-based cost drivers to allocate overhead costs, the unit cost for Job 401 would be (round to two decimal places)

A)£42.81.
B)£53.13.
C)£53.91.
D)£54.06.

Question 53

Funk Manufacturing Company produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers: Activity drivers for each activity have been identified and their practical capacities listed: The costs of facility-level activities are assigned using machine hours.
a.Identify the activities within each process as unit-level, batch-level, product-level, or facility-level.
b.Create homogeneous cost pools. Identify the activities that belong to each pool and the activity driver that will be used for computing pool rates.
c.Build an activity relational (i.e. cost) table.
d.Compute the cost pool rates.

Question 54

Books Company manufactures and sells two products: Soft Cover (S) and Hard Cover (H). The firm's activities have been analyzed and placed into a hierarchy of activity costs. Presented is information on activity cost drivers and costs per unit of cost driver at each activity level. $$\begin{array} { l l l } \text { Activity Level } & \text { Activity } & \text { Cost } \\\text { Unit level } & X _ { 11 } , \text { S acquire direct materials } & b _ { 11 } , £ 6 \\& X _ { 12 } , \text { H acquire direct materials } & b _ { 12 } , £ 10 \\& X _ { 13 } , \text { S other manufacturing costs } & b _ { 1 } , £ 2 \\& X _ { 14 } , \text { H other manufacturing costs } & b _ { 14 } , £ 4 \\\text { Batch level } & X _ { 21 } , \text { S setup } & b _ { 21 } , £ 200 \\& X _ { 2 } , \text { H setup } & b _ { 22 } , £ 300 \\\text { Product level } & X _ { 31 } , \text { S advertising } & b _ { 31 } , £ 20,000 \\& X _ { 32 } , \text { H advertising } & b _ { 32 } , £ 30,000 \\\text { Facility level } & X _ { 41 } , \text { Rent } & b _ { 41 } , £ 10,000\end{array}$$ During January 2012, Books Company produced 10,000 units of Soft Covers and 5,000 units of Hard Covers. Each batch of products includes 1,000 units of Soft Covers or 1,000 units of Hard Covers.

Question 55

Hill Manufacturing uses an activity-based costing system. The company produces Model A and Model B. Information concerning the two products is as follows: $\begin{array} { l l l } & \text { Model A } & \text { Model B } \\ \text { Units produced } & 30,000 & 50,000 \\ \text { Direct labour hours } & 24,000 & 26,000 \\ \text { Engineering labour (hours) } & 4,000 & 6,000 \\ \text { Setups } & 20 & 30 \\ \text { Kilowatt hours } & 5,000 & 7,000 \end{array}$


The following costs are reported:

$\begin{array}{ll}\text { Power } & £ 12,000 \\\text { labour-related overhead } & 70,000 \\\text { Setups } & 60,000\end{array}$
a.Classify the following overhead activities as unit-level activities, batch-level activities, or product-level activities:PowerEngineeringSetups
b.Calculate the following:A cost pool rate for powerA cost pool rate for setupsA cost pool rate for engineering
c.Calculate the following:Power costs assigned to Model BSetups costs assigned to Model AEngineering costs assigned to Model A

Question 56

Lyons, SA., has identified the following overhead costs and activity drivers for next year: $$\begin{array} { l c l c } \text { Overhead Item } & \text { Expected Cost } & \text { Activity Driver } & \text { Expected Qty. } \\\text { Setup costs } & £ 150,000 & \text { Number of setups } & 1,200 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 10,000 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 16,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 100,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\underline{\text { Job XX}} &\underline{\text { Job YY} }\\\text { Direct materials } & £ 2,250 & £ 2,500 \\\text { Direct labour } & 3,000 & 1,875 \\\text { Units completed } & 375 & 300 \\\text { Direct labour hours } & 90 & 110 \\\text { Number of setups } & 6 & 8 \\\text { Number of orders } & 8 & 15 \\\text { Machine hours } & 180 & 150 \\\text { Kilowatt hours } & 90 & 120\end{array}$
The company's normal activity is 20,000 direct labour hours.
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.)
c.Which method produces the more accurate cost assignment? Why?