Deck 27: Activity-Based Costing C

Question 1

The following is taken from Ames Company's internal records of its factory with two operating departments.The cost driver for indirect labor is direct labor costs,and the cost driver for the remaining items is number of hours of machine use.Compute the total amount of overhead allocated to Dept.2 using activity-based costing.

A)$18,720.
B)$12,930.
C)$13,400.
D)$19,190.
E)$19,440.

Answer 1

B
Explanation: Indirect Labor: $11,220/$37,400 = 30% * $15,600 = $4,680
Other overhead; ($12,900 + $8,000)/3,800 = $5.50 * 1,500 = $8,250; $4,680+ $8,250= $12,930

Question 2

Activity based costing can be applied to:

A)Manufacturing activities only.
B)Service activities only.
C)Merchandising activities only.
D)Any company in any industry.
E)Government only.

Answer 2

D

Question 3

An activity-based costing system usually involves a fewer number of allocations compared with a traditional cost allocation system.

Answer 3

False

Question 4

A factor that causes the cost of an activity to go up or down is a(n):

A)Direct factor.
B)Indirect factor.
C)Cost driver.
D)Product cost.
E)Contribution factor.

Question 5

In activity-based costing,some manufacturing costs may be excluded from product costs.

Question 6

Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.

Question 7

Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports.

Question 8

Activity cost pools are an important part of the allocation of overhead costs using activity-based costing.

Question 9

Spendlove Corporation has provided the following data from its activity-based costing system: The company makes 430 units of product S78N a year,requiring a total of 1,120 machine-hours,40 orders,and 30 inspection-hours per year.The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit.The product sells for $129.90 per unit.According to the activity-based costing system,the product margin for product S78N is:

A)$4,116.50
B)$29,132.50
C)$6,180.50
D)$5,161.30
E)$4,981.00

Question 10

Activity-based costing assigns costs first to activity pools,and then costs from activity cost pools are assigned to the cost objects benefiting from the activities.

Question 11

In activity-based costing,there are a number of activity cost pools,each of which is allocated to products and other costing objects using its own unique measure of activity.

Question 12

A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

A)A responsibility accounting system.
B)A cost center accounting system.
C)Controllable costing.
D)Activity-based costing.
E)Performance costing.

Question 13

A basis for allocating the cost of a resource to an activity cost pool or allocating the cost of an activity cost pool to a cost object is a(n):

A)Direct factor.
B)Indirect factor.
C)Cost driver.
D)Joint cost.
E)Opportunity cost.

Question 14

Bossie 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: How much cost,in total,would be allocated in the first-stage allocation to the Assembly activity cost pool?

A)$196,333
B)$209,000
C)$310,000
D)$155,000
E)$200,000

Question 15

Activity-based costing can be especially effective in situations where many different products are manufactured in the same department or departments.

Question 16

The following is taken from Ames Company's internal records of its factory with two operating departments.The cost driver for indirect labor is direct labor costs,and the cost driver for the remaining items is number of hours of machine use.Compute the total amount of overhead allocated to Dept.1 using activity-based costing.

A)$18,720.
B)$12,930.
C)$13,400.
D)$19,190.
E)$19,440.

Question 17

Which of the following is not a limitation of activity-based costing?

A)Maintaining an activity-based costing system is more costly than maintaining a traditional direct labor-based costing system.
B)Changing from a traditional direct labor-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers.Such changes are often resisted by managers.
C)In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system.This results in overstated costs.
D)More accurate product costs may result in increasing the selling prices of some products.
E)All of the choices are not limitations of activity-based costing.

Question 18

If a firm uses activity-based costing to allocate costs,it must:

A)Combine costs in appropriate pools.
B)Select appropriate cost drivers.
C)Calculate an appropriate rate for each pool.
D)Allocate costs based on predetermined rates for cost pools.
E)Perform all of these steps.

Question 19

An activity-based cost allocation system:

A)Is one form of a direct or variable costing system.
B)Does not provide total unit cost data.
C)Traces costs to products on the basis of activities performed on them.
D)Does not provide for the allocation of any cost to products that cannot be directly attributable to those products.
E)Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods.

Question 20

Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.

Question 21

Cosgrove Company manufactures two products,Product K-7 and Product L-15.Product L-15 is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product K-7.Product L-15 is the more complex of the two products,requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product K-7.Product L-15 is produced on an automated production line.
Overhead currently is applied to the products on the basis of direct labor-hours.The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product L-15 and 40,000 units of Product K- 7 during the current year.
Unit costs for materials and labor are:

Required:
a.Compute the predetermined overhead rate under the current method,and determine the unit product cost of each product for the current year.
b.The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead.Data relating to the company's activity cost pools for the current year are given below:

Using the data above,determine the unit product cost of each product for the current year.
c.What items of overhead cost make Product L-15 so costly to produce according to the activity-based costing system?
What influence might the activity-based costing data have on management's opinions regarding the profitability of Product L-15?

Question 22

Drewniak Corporation has provided the following data from its activity-based costing system: The company makes 430 units of product O37W a year,requiring a total of 690 machine-hours,40 orders,and 10 inspection-hours per year.The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit.According to the activity-based costing system,the average cost of product O37W is closest to:

A)$94.11 per unit
B)$89.72 per unit
C)$65.18 per unit
D)$92.49 per unit
E)$64.99 per unit

Question 23

Under traditional cost allocation methods,low-volume complex products are often ________________ and high-volume simpler products are likely to be ________________.

Question 24

Ekmark 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 P59G using the activity-based costing system?

A)$54,482.56
B)$5,301.76
C)$10,014.40
D)$154.78
E)$5,301.76

Question 25

Tresselt Corporation has provided the following data from its activity-based costing accounting system:
Distribution of Resource Consumption across Activity Cost Pools:
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
Required:
a.Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool.Show your work!
b.Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products.Show your work!

Question 26

Billabong Resources provides the following data to enable you to calculate overhead rates:
Machining Department Overhead is $16,000,which is to be allocated on estimated machine hours of 25,000.The rate per Machine Hour would be ___________________.If Machining cost is to be allocated to three jobs which consumed A = 3,000 hours,B = 6,000 hours,and C = 1,000 hours respectively; then Job A should be charged $ _______________; Job B should be charged $_______________; and Job C $_______________.

Question 27

Daba Company manufactures two products,Product F and Product G.The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year.The company uses activity-based costing to compute unit product costs for external reports.Data relating to the company's three activity cost pools are given below for the current year:

Required:
Using the activity-based costing approach,determine the overhead cost per unit for each product.

Question 28

An activity __________________ is a temporary account accumulating the costs a company incurs to support an identified set of activities.

Question 29

A _________________ is a factor that causes the cost of an activity to go up and down.

Question 30

Activity rates from Quattrone Corporation's activity-based costing system are listed below.The company uses the activity rates to assign overhead costs to products: Last year,Product F76D involved 2 customer orders,434 assembly hours,and 20 batches.How much overhead cost would be assigned to Product F76D using the activity-based costing system?

A)$1,041.80
B)$2,000.04
C)$66,908.88
D)$146.73
E)$772.52

Question 31

Briefly describe the process of activity-based costing.

Question 32

Larabee Company produces two types of product,flat and round,on the same production line.For the current period,the company reports the following data.
Larabee's controller wishes to apply activity-based costing (ABC)to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above.She has collected the following information.
She has also collected the following information about the cost drivers for each category (cost pool)and the amount of each driver used by the two product lines.
Assign these three overhead cost pools to each of the two products using ABC.Show each overhead cost allocation by product and the total overhead allocated to each product.Determine average cost per unit for each of the two products using ABC.(Round your answer to 2 decimal places.)Which overhead cost allocation method would you recommend to the controller?

Question 33

Outdoor Sports,Inc.,produces two types of skis,downhill skis and cross country skis.Product and production information about the two items is shown below:
Required:
1.If Outdoor Sports uses the traditional two-stage method of allocating overhead costs based on direct labor hours,what is the amount of indirect costs per set of skis for each of the two types of skis?
2.If Outdoor Sports uses activity based costing,what is the total amount of indirect costs per set of skis for each of the two types of skis?
Assume that depreciation is allocated based on machine hours,setup costs based on the number of setups,and miscellaneous costs based on the number of direct labor hours.

Question 34

Precision Brackets,Co.is considering switching from traditional allocation of overhead based on direct labor hours to an activity-based costing system.The manager has accumulated the following information on engineering changes for two of the company's major products:
Compute the cost per unit using:
(1)The traditional two-stage allocation of the costs of engineering changes based on direct labor hours.
(2)The activity-based cost allocation of the costs of engineering changes.

Question 35

Why would a firm use activity-based costing (ABC)rather than traditional two-stage methods of cost allocation for overhead?

Question 36

Reach Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland,Dallas,and Miami.Two of the company's activity cost pools are General Service and Research Service.These costs are allocated to the three branch offices using an activity-based costing system.Information for next year follows: Estimated branch data for next year is as follows:
How much of the headquarters cost allocation should Dallas expect to receive next year?

A)$280,000
B)$409,500
C)$472,500
D)$504,000
E)$560,000

Question 37

Wecker 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 V09X using the activity-based costing system?

A)$157.87
B)$91,722.47
C)$10,385.22
D)$5,485.50
E)$16,640.87