Deck 17: Activity-Based Costing

Question 1

Which method for allocating manufacturing overhead costs is usually more accurate?

A) Job order costing
B) Activity-based costing
C) Process costing
D) Unit-based costing

Answer 1

B

Question 2

Traditional product costing systems (e.g. job order costing and process costing) usually assume that:

A) Products consume overhead costs
B) Activities consume overhead costs
C) Overhead costs are insignificant
D) All of these are correct

Answer 2

A

Question 3

Historically, a plant-wide manufacturing overhead rate would usually be assigned on the basis of:

A) Either direct tracing of overhead or direct labor hours
B) Either direct labor hours or number of products produced
C) Either cost pools or cost drivers
D) Either cost drivers or direct tracing of overhead

Answer 3

B

Question 4

Which of the following costs is usually NOT directly attributable to specific products?

A) Direct materials
B) Sales commissions
C) Direct labor
D) Property taxes

Question 5

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

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

Question 6

If activity-based costing is used, purchase orders would be classified as a:

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

Question 7

Which of the following types of costing systems identifies business activities that create overhead costs and then assigns overhead to products or divisions according to these activities?

A) Unit-based costing
B) Job order costing
C) Activity-based costing
D) Process costing

Question 8

For greater accuracy when using activity-based costing, management accountants should:

A) Use the just-in-time inventory system
B) Carefully estimate the total amount of overhead costs
C) Compute a plant-wide rate of allocation based on volume
D) Have a larger number of cost pools

Question 9

Which of the following is the correct sequence of the five steps of implementing and using an activity-based costing system?

A) Identify overhead cost activities, identify measurable cost drivers, assign overhead, analyze individual overhead costs in terms of those cost activities, and use the cost data to make decisions
B) Use the cost data to make decisions, analyze individual overhead costs in terms of those cost activities, identify measurable cost drivers, assign overhead, and identify overhead cost activities
C) Identify overhead cost activities, analyze individual overhead costs in terms of those cost activities, identify measurable cost drivers, assign overhead, and use the cost data to make decisions
D) Identify measurable cost drivers, assign overhead, identify overhead cost activities, analyze individual overhead costs in terms of those cost activities, and use the cost data to make decisions

Question 10

Activity-based costing systems assume that:

A) Products consume overhead costs
B) Activities consume overhead costs
C) Overhead costs are insignificant
D) All of these are correct

Question 11

Assume that direct labor and direct materials are the major cost components of a product and that the small amount of overhead cost can easily be associated with products using a simple overhead allocation basis such as direct labor hours. Which one of the following statements is the most correct?

A) Activity-based costing should probably be used in this situation.
B) Activity-based costing is probably too expensive to justify using it in this situation.
C) Job order costing is probably too expensive to justify using it in this situation.
D) None of these are correct

Question 12

Activity-based costing deals with the allocation of:

A) Direct labor costs
B) Manufacturing overhead costs
C) Direct material costs
D) Indirect materials costs

Question 13

If activity-based costing is used, property taxes would be classified as a:

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

Question 14

Which of the following activities would most likely NOT be considered a batch activity:

A) Hours required for set-up
B) Accounting for materials
C) Storage in warehouse
D) Hours required for inspection

Question 15

If activity-based costing is used, receiving docks would be classified as a:

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

Question 16

The allocation of which of the following can cause the greatest errors when computing product costs?

A) Direct labor
B) Manufacturing overhead
C) Direct materials
D) All of these are correct

Question 17

Activity-based costing is most useful when there are variations in:

A) Production volume
B) Size of products
C) Complexity of products
D) All of these are correct

Question 18

Activity-based costing differs from traditional product costing in the allocation of:

A) Direct labor costs
B) Direct material costs
C) Manufacturing overhead costs
D) All of these are correct

Question 19

Tracing overhead costs to activities involves dividing overhead costs into:

A) Cost pools
B) Cost drivers
C) Pool rates
D) Overhead rates

Question 20

Usually activity-based costing would be significantly more accurate than traditional product costing in a:

A) One-product firm
B) Multiple-product firm that has separate manufacturing facilities for each product
C) Multiple-product firm where products are quite similar
D) Multiple-product firm where products are quite different

Question 21

When assigning cost drivers to facility support activities, an appropriate cost driver would be:

A) Production output
B) Labor hours
C) Floor space
D) No cost driver should be assigned

Question 22

The traditional overhead cost allocation system focuses the accumulation of overhead cost on:

A) Cost pools
B) Cost drivers
C) Products
D) Pool rate

Question 23

If a cost activity does NOT have any production-related cost driver that matches up with changes in the amount of overhead cost associated with the activity then:

A) Any basis can be selected as a cost driver
B) Direct labor hours should be used as the cost driver
C) No cost driver should be selected; the costs should be treated as common costs
D) Number of items produced should be the cost driver.

Question 24

Which of the following would most likely NOT be considered a facility support activity?

A) Property taxes
B) Factory equipment
C) Depreciation on headquarters building
D) Executive salaries

Question 25

Exhibit 17-2 BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The company has recently implemented an activity-based costing system. BigView has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of monitor and next year's anticipated manufacturing operations:
Refer to Exhibit 17-2. What is BigView's cost per cost driver for automated processing for next year (rounded)?

A) $9.00 per machine hour
B) $16.80 per machine hour
C) $17.68 per machine hour
D) $33.60 per machine hour

Question 26

An appropriate cost driver for inspection costs is:

A) Number of inspected products sold
B) Quantity of items produced
C) Direct labor hours
D) Number of inspections completed

Question 27

Exhibit 17-1 Maggie's Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an activity-based costing system. She has started by identifying four overhead cost activities. Listed below is the table that Maggie created identifying the cost activities and the percentage of time spent on each activity by various factory employees.
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Refer to Exhibit 17-1. Using the information above, compute the amount of the cost pool associated with ordering parts.

A) $88,500
B) $69,750
C) $85,000
D) $66,500

Question 28

Number of purchase orders is an example of a(n):

A) Cost driver
B) Cost pool
C) Allocation rate
D) Pool rate

Question 29

Exhibit 17-1 Maggie's Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an activity-based costing system. She has started by identifying four overhead cost activities. Listed below is the table that Maggie created identifying the cost activities and the percentage of time spent on each activity by various factory employees.
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Refer to Exhibit 17-1. Using the information above, compute the amount of the cost pool associated with engineering changes.

A) $130,250
B) $105,000
C) $88,500
D) $66,500

Question 30

When using activity-based costing, the cost associated with producing each batch is an example of a:

A) Cost driver
B) Cost pool
C) Pool rate
D) Unit cost

Question 31

Which of the following would most likely NOT be considered a source of a product line activity?

A) Product manager
B) In-house training for special services
C) Depreciation on the product warehouse
D) Maintenance of machinery

Question 32

Exhibit 17-2 BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The company has recently implemented an activity-based costing system. BigView has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of monitor and next year's anticipated manufacturing operations:
Refer to Exhibit 17-2. What is BigView's cost per cost driver for parts handling for next year (rounded)?

A) $0.17 per part
B) $0.53 per part
C) $9.00 per part
D) $15.00 per part

Question 33

Company A allocates one type of overhead cost on the basis of movement of materials. The number of movement of materials processed is an example of a(n):

A) Cost driver
B) Pool rate
C) Overhead rate
D) Cost pool

Question 34

An activity that affects a particular cost is a(n):

A) Cost pool
B) Cost driver
C) Pool rate
D) Overhead rate

Question 35

Exhibit 17-2 BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The company has recently implemented an activity-based costing system. BigView has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of monitor and next year's anticipated manufacturing operations:
Refer to Exhibit 17-2. What is BigView's cost per cost driver for testing for next year (rounded)?

A) $1.33 per labor hour
B) $3.40 per labor hour
C) $3.58 per labor hour
D) $6.80 per labor hour

Question 36

An appropriate cost driver for engineering changes is:

A) Number of employees
B) Number of set-ups performed
C) Direct labor hours
D) Quantity of items produced

Question 37

A more accurate allocation of manufacturing overhead and product costing can take place when costs are assigned on the basis of:

A) Direct labor hours
B) Machine setups
C) Cost drivers
D) Production volume

Question 38

Exhibit 17-1 Maggie's Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an activity-based costing system. She has started by identifying four overhead cost activities. Listed below is the table that Maggie created identifying the cost activities and the percentage of time spent on each activity by various factory employees.
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Refer to Exhibit 17-1. Using the information above, compute the amount of the cost pool associated with repairing equipment.

A) $88,500
B) $69,750
C) $85,000
D) $66,500

Question 39

Which of the following is an example of a cost driver?

A) Engineering
B) Machine setups
C) Maintenance
D) Procurement

Question 40

With activity-based costing, overhead costs are assigned using:

A) Product costs
B) Cash flows
C) Cost drivers
D) Direct labor hours

Question 41

Exhibit 17-3 Bird's Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently implemented an activity-based costing system. Bird's Eye View has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of bird cage and next year's anticipated manufacturing operations:
Refer to Exhibit 17-3. What is Bird's Eye View cost per cost driver for inspections for next year (rounded)?

A) $1.18 per part
B) $3.58 per part
C) $10.74 per part
D) $11.48 per part

Question 43

Exhibit 17-3 Bird's Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently implemented an activity-based costing system. Bird's Eye View has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of bird cage and next year's anticipated manufacturing operations:
Refer to Exhibit 17-3. Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a medium cage (rounded)?

A) $100
B) $119
C) $120
D) $151

Question 44

Exhibit 17-4 The Dormir Company uses an activity-based costing system to account for its process of manufacturing camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time. Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Refer to Exhibit 17-4. The cost of material handling per tent is:

A) $3.00
B) $15.00
C) $45.00
D) $120.00

Question 45

Exhibit 17-3 Bird's Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently implemented an activity-based costing system. Bird's Eye View has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of bird cage and next year's anticipated manufacturing operations:
Refer to Exhibit 17-3. Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a large cage (rounded)?

A) $100
B) $119
C) $120
D) $151

Question 46

Define activity-based costing and list the five steps in implementing and using an activity-based costing system.

Question 47

Exhibit 17-5 The following information is available for Dakota Company:
*allocated based on direct labor hours
Dakota Company has decided to allocate its manufacturing overhead cost using activity-based costing. Manufacturing overhead will be allocated based on batch-level and product line manufacturing as follows:
Refer to Exhibit 17-5. What is Dakota Company's gross margin for Product 1 using activity based costing?

A) $400,000
B) $370,000
C) $450,000
D) $520,000

Question 48

Exhibit 17-3 Bird's Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently implemented an activity-based costing system. Bird's Eye View has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of bird cage and next year's anticipated manufacturing operations:
Refer to Exhibit 17-3. What is Bird's Eye View cost per cost driver for parts insertion for next year (rounded)?

A) $0.25 per part
B) $0.79 per part
C) $7.56 per part
D) $21.18 per part

Question 49

BigPlay Company manufactures playground equipment. BigPlay is shifting from a traditional costing system to an activity-based costing system. The company started by identifying four overhead cost activities. Listed below is the table that the controller for BigPlay created identifying the cost activities and the percentage of time spent on each activity by various factory employees.

Question 50

Which of the following products usually consumes the highest amount of overhead costs per unit?

A) High-volume standard products
B) Low-volume standard products
C) High-volume unique products
D) Low-volume unique products

Question 51

Exhibit 17-3 Bird's Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently implemented an activity-based costing system. Bird's Eye View has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of bird cage and next year's anticipated manufacturing operations:
Refer to Exhibit 17-3. Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a small cage (rounded)?

A) $100
B) $119
C) $120
D) $151

Question 52

Exhibit 17-2 BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The company has recently implemented an activity-based costing system. BigView has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of monitor and next year's anticipated manufacturing operations:
Refer to Exhibit 17-2. Under an activity-based product costing system, what is the per unit cost for manufacturing overhead of 20-inch monitors (rounded)?

A) $95
B) $155
C) $177
D) $273

Question 53

The result of cross-subsidization is that:

A) Some products look less profitable than they really are
B) Some products look more profitable than they really are
C) Both a and b
D) Neither a nor b

Question 54

Exhibit 17-4 The Dormir Company uses an activity-based costing system to account for its process of manufacturing camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time. Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Refer to Exhibit 17-4. The cost of assembling per tent is:

A) $3.00
B) $15.00
C) $20.00
D) $45.00

Question 55

Exhibit 17-3 Bird's Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently implemented an activity-based costing system. Bird's Eye View has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of bird cage and next year's anticipated manufacturing operations:
Refer to Exhibit 17-3. What is Bird's Eye View cost per cost driver for automated processing for next year (rounded)?

A) $4.23 per part
B) $10.36 per part
C) $14.29 per part
D) $29.63 per part

Question 56

Exhibit 17-4 The Dormir Company uses an activity-based costing system to account for its process of manufacturing camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time. Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Refer to Exhibit 17-4. The cost of sewing per tent is:

A) $20.00
B) $60.00
C) $160.00
D) $300.00

Question 57

Exhibit 17-4 The Dormir Company uses an activity-based costing system to account for its process of manufacturing camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time. Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Refer to Exhibit 17-4. The total manufacturing cost per tent is:

A) $128
B) $140
C) $255
D) $268

Question 58

Exhibit 17-5 The following information is available for Dakota Company:
*allocated based on direct labor hours
Dakota Company has decided to allocate its manufacturing overhead cost using activity-based costing. Manufacturing overhead will be allocated based on batch-level and product line manufacturing as follows:
Refer to Exhibit 17-5. What is Dakota Company's gross margin for Product 2 using activity based costing?

A) $300,000
B) $350,000
C) $480,000
D) $30,000

Question 59

Exhibit 17-2 BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The company has recently implemented an activity-based costing system. BigView has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of monitor and next year's anticipated manufacturing operations:
Refer to Exhibit 17-2. Under an activity-based product costing system, what is the per unit cost for manufacturing overhead of 15-inch monitors (rounded)?

A) $95
B) $155
C) $177
D) $273

Question 60

Exhibit 17-2 BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The company has recently implemented an activity-based costing system. BigView has identified five different production activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the budgeted amount that is associated with each activity for next year.
The following information relates to each size of monitor and next year's anticipated manufacturing operations:
Refer to Exhibit 17-2. Under an activity-based product costing system, what is the per unit cost for manufacturing overhead of 17-inch monitors (rounded)?

A) $95
B) $155
C) $177
D) $273

Question 61

Jantar Company makes three different styles of kitchen tables: round, oblong, and rectangle. The following information is provided about the company's costs:

Question 62

Westvaco Inc. has two divisions. Gross profit computations for these two divisions for the year 2012 are given below:

Question 63

Carolina manufactures two products. The following information is available concerning the manufacturing overhead costs:

Question 64

Custom Woods Inc. makes three different door styles for kitchen cabinets: standard, flat panel, and raised panel. The following information is provided about the company's costs: