Deck 7: Activity-Based Costing: a Tool to Aid Decision Making

Question 1

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

Answer 1

False

Question 2

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 2

True

Question 3

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

Answer 3

True

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

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 9

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 10

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

Question 11

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

Question 12

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 13

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 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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.

Question 20

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

Question 21

In a Cost Analysis report in time-based activity-based costing, the first step is to divide the total cost of the resources suppliedby the practical capacity of the resources supplied to obtain the cost per minute of the resource supplied.

Question 22

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 23

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 24

In a Cost Analysis report in time-based activity-based costing, the time-driven activity rate for an activity is computed by dividing the minutes required of the resource per unit of activity by the cost per minute of the resource supplied.

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

In a Capacity Analysis report in time-based activity-based costing, the unused capacity in number of employees is computed by multiplying the unused capacity in minutes by the practical capacity per employee in minutes.

Question 27

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 28

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)
B)
C)
D)

Question 29

In a Capacity Analysis report in time-based activity-based costing, the impact on expenses of matching capacity with demand is computed by multiplying the potential adjustment in the number of employees by the average salary per employee.

Question 30

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 31

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 32

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

Question 33

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 34

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 35

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 36

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

Question 37

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 38

Time-based activity-based costing does not require extensive interviews with employees to perform stage one allocations.

Question 39

In time-based activity-based costing, the practical capacity percentage is an estimate of the company's capacity in relation to its closest competitor.

Question 40

In a Capacity Analysis report in time-based activity-based costing, the unused capacity in minutes is computed by subtracting the total minutes used to meet demand from the total minutes available to meet demand.

Question 41

Bennette 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 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 42

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 43

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 44

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 45

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 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

Parts administration is an example of a:

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

Question 48

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 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

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 51

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 52

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 53

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 54

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 55

Bennette 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 Order Processing activity cost pool is closest to:

A) $515 per order
B) $505 per order
C) $405 per order
D) $525 per order

Question 56

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) $316,233
B) $328,900
C) $486,200
D) $149,600

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

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 59

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 60

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 61

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 62

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 63

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 64

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 65

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 66

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 67

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) $98 per meeting hour
B) $76 per meeting hour
C) $174 per meeting hour
D) $1,314,222 per meeting hour

Question 68

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 69

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) $726 per order
B) $1,870 per order
C) $930 per order
D) $660 per order

Question 70

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 71

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) $129.80 per unit
B) $89.11 per unit
C) $129.90 per unit
D) $143.31 per unit

Question 72

Feldpausch Corporation has provided the following data from its activity-based costing system: The company makes 1,030 units of product W26B a year, requiring a total of 1,840 machine-hours, 79 orders, and 31 inspection-hours per year. The product's direct materials cost is $54.47 per unit and its direct labor cost is $18.29 per unit. The product sells for $132.50 per unit.According to the activity-based costing system, the product margin for product W26B is: (Round your intermediate calculations and final answers to 2 decimal places.)

A) $8,251.28
B) $61,532.20
C) $10,514.28
D) $10,564.40

Question 73

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 74

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 75

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 76

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 77

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 78

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 79

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 Direct labor-hours.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 80

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