Deck 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems

Question 1

Companies calculate the predetermined overhead rate at the beginning of an accounting period using the actual values of overhead costs.

Answer 1

False

Question 2

Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

Answer 2

False

Question 3

Modiste Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $24,250.Additional information is given below.

-Calculate the predetermined overhead allocation rate.

A)45%
B)50%
C)60%
D)30%

Answer 3

50%

Question 4

Activity-based costing refines the cost allocation process even more than the traditional allocation costing.

Question 5

Traditional costing systems employ multiple allocation rates,but an activity-based costing system uses only one rate for allocating manufacturing overhead.

Question 6

Activity-based management focuses on making decisions that improve customers' satisfaction while also increasing profits.

Question 7

Archid Inc.,a manufacturer of spare parts,has two production departments-Assembling and Packaging.The Assembling department is mechanized,while the Packaging department is labor-oriented.Estimated manufacturing overheads for the year 2015 were $15,000,000 for Assembling and $10,000,000 for Packaging.Calculate the department-wide allocation rates if the total estimated machine hours were 30,000 and labor hours were 20,000 for the year.

A)$250,$300
B)$500,$500
C)$300,$300
D)$450,$540

Question 8

Predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Question 9

Modiste Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $24,250.Additional information is given below.

-Calculate the amount of overhead to be allocated to Satchels.

A)$36,000
B)$12,740
C)$10,500
D)$11,750

Question 10

Cardec Inc.,a leading manufacturer of car spare parts,divided its manufacturing process into two departments-Production and Packing.The estimated overhead cost for the Production and Packing departments amounted to $25,000,000 and $20,000,000,respectively.The company produces two types of parts-Part-1 and Part-2.The total estimated labor hours for the year 2015 were 40,000 and estimated machine hours were 50,000.The Production department is mechanized whereas the Packing department is labor-oriented.Calculate departmental overhead allocation rates.

Question 11

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

Question 12

The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation base for each activity.

Question 13

A radial tire manufacturer produces products in two departments-Division A and B.The company uses separate allocation rates for each department to allocate its overhead.Division A and B have estimated manufacturing overhead costs of $150,000 and $ 350,000,respectively.Division A uses machine hours as the allocation base,and Division B uses direct labor hours as the allocation base.The total estimated machine hours were 30,000 and direct labor hours were 20,000 for the year.Calculate the departmental overhead allocation rates.

A)Division A-$5,Division B-$17.5
B)Division A-$17.5,Division B-$6
C)Division A-$6,Division B-$18.2
D)Division A-$4,Division B-$14.6

Question 14

The first step in developing an activity-based costing system is to identify the activities that will be used to assign the manufacturing overhead.

Question 15

Manufacturing overhead costs,which are also known as indirect costs,cannot be cost-effectively traced to products.

Question 16

Which of the following statements is true of costing systems?

A)Many traditional costing systems can distort product costs and profitability.
B)Traditional costing systems tend to be more costly than activity-based costing systems.
C)Activity-based costing systems tend to combine various costs into a single cost pool.
D)Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.

Question 17

Moonrays Inc.manufactures both normal and premium tube lights.The company allocates manufacturing overhead using a single plantwide rate with machine hours as the allocation base.Estimated overhead costs for the year are $110,000.Additional information is given below. Calculate the predetermined overhead allocation rate.

A)$3 per direct labor hour
B)$2 per machine hour
C)$5 per machine hour
D)$2.2 per direct labor hour

Question 18

A furniture corporation manufactures two models of furniture-Standard and Deluxe.The total manufacturing overhead is $64,350. The company uses direct labor costs as the base to allocate manufacturing overhead.Calculate the predetermined overhead rate.

A)28%
B)35%
C)63%
D)60%

Question 19

Modiste Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $24,250.Additional information is given below.

-Calculate the amount of overhead to be allocated to Totes.

A)$36,000
B)$25,740
C)$10,500
D)$13,750

Question 20

Direct material costs and direct labor costs cannot be easily traced to products.Therefore,they are allocated to products.

Question 21

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices.


-What is the cost per account for the account verification activity?

A)$30.00
B)$0.50
C)$2.25
D)$0.75

Question 22

Activity-based costing uses a common allocation base for all activities.

Question 23

Brannon Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan has twenty separate parts.The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture.Additional information is as follows:

-What is the cost of materials handling per ceiling fan?

A)$1.60
B)$7.20
C)$6.00
D)$5.00

Question 24

For a pharmaceutical company,the most suitable base for allocating research and development costs to the finished products would be the ________.

A)direct labor hours
B)cost of raw materials purchased
C)number of new patents filed
D)number of set ups

Question 25

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?

A)number of employees
B)number of materials purchased
C)number of machine hours
D)number of service calls

Question 26

Brannon Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan consists of twenty separate parts.The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture.Additional information is as follows:

- What is the cost of machining per ceiling fan?

A)$18
B)$180
C)$30
D)$144

Question 27

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices.


-How much of the account inquiry cost will be assigned to the Midwest Office?

A)$2,000
B)$6,500
C)$3,000
D)$6,000

Question 28

Alpha Company manufactures breadboxes and uses an activity-based costing system.The following information is provided for the month of May: Each breadbox consists of four parts,and the direct materials cost per breadbox is $7.00.There is no direct labor.What is the total manufacturing cost per breadbox?

A)$17.40
B)$24.00
C)$12.40
D)$26.00

Question 29

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices.


- How much of the correspondence cost will be assigned to the Northeast Office?

A)$500
B)$1,200
C)$2,500
D)$800

Question 30

Which of the following is the last step in developing an activity-based costing system?

A)estimating the total quantity of the cost driver
B)estimating the total indirect costs of each activity
C)identifying the activities
D)allocating costs to the cost object

Question 31

Companies with diverse products can obtain better costing information by using a single plantwide rate.

Question 32

Oscar Inc.,a manufacturer of gift articles,uses a single plantwide rate to allocate indirect costs.The company allocates manufacturing overhead using a single plantwide rate with machine hours as the allocation base.Estimated overhead cost for the year is $5,000,000.And estimated machine hours are 25,000.During the year,the actual machine hours used was 30,000.Calculate the predetermined overhead allocation rate.

A)$166
B)$250
C)$200
D)$150

Question 33

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices.


-What is the cost per hour for the account inquiry activity?

A)$0.75
B)$30.00
C)$10.00
D)$1.50

Question 34

Brannon Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan consists of twenty separate parts.The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture.There is no direct labor cost.Additional information is as follows: What is the total manufacturing cost per ceiling fan?

A)$125.75
B)$121.13
C)$115.32
D)$124.30

Question 35

Brannon Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan consists of twenty separate parts.The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture.Additional information is as follows: What is the cost of assembling per ceiling fan?

A)$87.50
B)$7.00
C)$7.50
D)$35.00

Question 36

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices.


- What is the cost per line for the account billing activity?

A)$1.50
B)$30.00
C)$1.60
D)$1.43

Question 37

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices.


- What is the cost per letter for the correspondence activity?

A)$10.00
B)$30.50
C)$25.00
D)$0.75

Question 38

Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.

Question 39

An activity-based costing system is developed in four steps. a.Compute the allocation rate for each activity.
B.Identify activities and estimate their total costs.
C.Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base.
D.Allocate the indirect costs to the cost object.
Which of the following is the correct order of performing these steps?

A)a,b,c,d
B)c,a,b,d
C)b,c,a,d
D)b,a,c,d

Question 40

Which of the following statements is true of an activity-based costing system?

A)It uses separate indirect cost allocation rates for each activity.
B)It is not as accurate or precise as traditional costing systems.
C)It accumulates overhead costs by processing departments.
D)It is not as complex or as costly as traditional systems.

Question 41

Ace Plastics produces different kinds of products,all in one manufacturing facility.They have identified four activities for their costing system:
Materials management-allocated by number of purchase orders
Chemical processing-allocated on metric tons
Molding-allocated on direct labor hours
Packaging-allocated by number of units produced
The activity rates are as follows:
Engineering design shows that the order will require direct material worth $540,direct labor cost being $90.The order will also require four purchase orders to be placed,use 2 metric tons of chemical base,and need 8 direct labor hours.The size of the order is to produce 3,000 units of product.Calculate total cost of production of the order.

Question 42

Which of the following decisions will most likely involve the use of activity-based management?

A)decisions related to the funding of an investment using equity or debt fund
B)decisions related to the expansion operations in a particular geographic location
C)decisions related to the pricing of a product
D)decisions related to the payment of dividends

Question 43

________ is the maximum cost to develop,produce,and deliver a product or service and earn the desired profit.

A)Marginal cost
B)Target cost
C)Variable cost
D)Sunk cost

Question 44

Target pricing starts with the full product cost and it then adds the desired profit to arrive at the sales price.

Question 45

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy.The standard bearings require $200 of direct materials per unit (per crate)and the heavy bearings require $245 of direct materials per unit.The operation is mechanized and there is no direct labor.Previously AAA used a single plantwide allocation rate for manufacturing overhead,which was $1.55 per machine hour.Based on the single rate,gross profit was as follows:
Although the data showed that the heavy bearings were more profitable than the standard bearings,the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings,and that this factor was not adequately reflected in the single allocation rate.He suspected that it was distorting the profit data.He suggested adopting an activity-based costing approach.
Working together,the engineers and accountants identified the following three manufacturing activities,and broke down the annual overhead costs as shown below:
Engineers believed that metal fabrication costs should be allocated by weight,and estimated that the plant processed 12,000 kilos of metal per year.Machine processing costs were correlated to machine hours,and the engineers estimated a total of 380,000 machine hours for the year.Packaging costs were the same for both types of products,and so they could be allocated simply by the number of units produced.The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year.Additional data on a per unit basis was as given below:
Using the data above,calculate activity rates.Then,following the ABC methodology,calculate the production cost and gross profit for one unit of standard bearings.(Round your intermediate calculations to two decimal places.)

Question 46

A product mix decision focuses on generating maximum profit but does not consider limited production capabilities.

Question 47

Activity-based management uses activity-based costs to make decisions that increase profits while meeting customer needs.

Question 48

Quality Stereo Company has provided the following information regarding its activity-based costing system: Each stereo produced has fifty parts,and the direct materials cost per unit is $70.There are no direct labor costs.Quality Stereo has an order for 1,000 stereos which will require 50 purchase orders in all.What is the total cost for the 1,000 stereos?

A)$125,750
B)$55,750
C)$123,750
D)$122,000

Question 49

Target cost is calculated by deducting desired gross profit from target sales price.

Question 50

Which of the following is a nonmanufacturing cost?

A)direct labor
B)direct materials
C)administrative expenses
D)indirect labor

Question 51

Which of the following would most likely be treated as an activity in an activity-based costing system?

A)direct labor cost
B)machine processing
C)direct materials cost
D)sales revenues

Question 52

A company is most likely to use value engineering ________.

A)to allocate manufacturing overhead to departments
B)to reduce costs in order to achieve target costs
C)to determine accurate product costs for pricing
D)to make product mix decisions

Question 53

The activity-based costing system improves the allocation of ________.

A)indirect manufacturing costs
B)direct labor
C)direct materials
D)sales commissions

Question 54

Value engineering means reevaluating activities to reduce costs while still meeting customer needs.

Question 55

Which of the following is the correct formula to calculate the target cost?

A)Target Cost = Target Sales Price + Desired Profit
B)Target Cost = Target Sales Price - Desired Profit
C)Target Cost = Target Sales Price
D)Target Cost = Desired Profit + Research and Development Expenses

Question 56

Orlando Avionics makes three types of radios for small aircraft-Model A,Model B,and Model C.The manufacturing operations are mechanized and there is no direct labor.Manufacturing overhead costs are significant,and Orlando has adopted an activity-based costing system.Direct materials costs per unit for each model are as follows: Orlando has three activities-assembly,materials management,and testing.The cost driver for assembly is machine hours.The cost driver for materials management is the number of parts,and the cost driver for testing is the number of units of product.Total costs and production volumes for the year 2015 were estimated as follows:
The Model A radio requires twelve parts to construct,and requires 16 machine hours of processing.What is the manufacturing cost to make one unit of Model A?

A)$150.00
B)$132.00
C)$126.50
D)$154.50

Question 57

Activity-based management (ABM)can be used to make pricing and product mix decisions.

Question 58

Pitt Jones Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: The above activities are carried out at two of its regional offices.


-How much of the account verification costs will be assigned to the Northeast Office?

A)$800
B)$2,500
C)$750
D)$1,500

Question 59

In target pricing,the target price is the ________.

A)total product cost incurred in producing a product
B)net profit desired by the company
C)amount customers are willing to pay for a product or service
D)price calculated by deducting the desired profit from the total production cost

Question 60

Which of the following statements is true of target pricing?

A)It starts with the price that customers are willing to pay.
B)It uses the full product cost that a company estimates to arrive at the sales price.
C)It does not consider the nonmanufacturing costs while calculating the target cost.
D)It is the same as cost-based pricing.

Question 61

Dunby Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $150,000.The company is expected to work for 5,000 direct labor hours during the year.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Last month,Dunby's consultants spent 175 hours on Xyme Inc.Calculate the total cost assigned to Xyme.

A)$49,000
B)$43,750
C)$38,500
D)$61,250

Question 62

Dunby Inc.,a law consulting firm,has been using a single plantwide rate with direct labor hours as the allocation base to allocate overhead costs.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Chandler Massey,the president of Dunby,decided to develop an ABC system to accurately allocate the indirect costs.He identified two activities that amount to the total indirect costs-travel and information technology support.The other relevant details are given below: The predetermined overhead allocation rate for travel will be ________.

A)$40.74 per mile
B)$38.00 per mile
C)$78.74 per mile
D)$250 per mile

Question 63

Activity-based costing can be used in determining the cost of services as well as products.

Question 64

While using an activity-based costing in service companies,the allocation of indirect costs to the cost object is the last step of the process.

Question 65

An inventory management system in which a company produces just in time to satisfy customer needs is known as just-in-time management.

Question 66

Vincent Jardine,a CPA,has a firm in the state of New York.Vincent uses ABC to allocate overhead costs and has computed the following predetermined overhead allocation rates:
Vincent has important contacts in the northeastern parts of New York.During the past month,Vincent completed a job for Nurix Inc.The job required 135 labor hours and 4,000 photocopies.Determine the amount of indirect costs to be allocated to the job.

Question 67

Dunby Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $150,000.The company is expected to work for 5,000 direct labor hours during the year.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Last month,Dunby's consultants spent 175 hours on Xyme Inc.Calculate the operating income from Xyme.

A)$49,000
B)$43,750
C)$38,500
D)$12,250

Question 68

The steps of an activity-based costing for a service firm are significantly different from that used for a manufacturing firm.

Question 69

Dunby Inc.,a law consulting firm,has been using a single plantwide rate with direct labor hours as the allocation base to allocate overhead costs.The direct labor rate is $250 per hour.Chandler Massey,the president of Dunby,decided to develop an ABC system to accurately allocate the indirect costs.He identified two activities that amount to the total indirect costs- travel and information technology support.The other relevant details are given below: During the current month,Dunby's consultants spent 175 labor hours for Xyme Inc.The job required the professionals to travel 30 miles in total.Determine the total cost of the consulting job using the ABC system.

A)$43,750
B)$8,270
C)$7,130
D)$52,020

Question 70

Jetz Inc.manufactures water bottles for children.Similar water bottles are available in the market for $5.Jetz desires a 20% net profit margin.Jetz's target cost is ________.

A)$4
B)$3.75
C)$4.17
D)$4.20

Question 71

J-Time Inc.is planning to launch a new brand of watches for kids.Similar watches are available in the market for $50.In order to penetrate the market,the company plans to use target pricing and desires a 20% net profit markup on total cost.Calculate the target cost.

A)$60.00
B)$30.75
C)$41.67
D)$40.20

Question 72

Activity-based management is not suitable for service companies as it deals with the proper allocation of manufacturing overhead.

Question 73

Ferrero Corp.manufactures gourmet dips along with potato chips flavored with Cajun spices.The market price for similar chips is $7.The management of the company desires a 30% net profit margin.
The current costing data relating to this product are as follows.
Determine if Ferrero's current full-product costs meet its target cost.

Question 74

Just-in-time management systems typically help reduce direct labor costs of a company.

Question 75

The just-in-time management system results in an increase in the inventory carrying costs of a company.

Question 76

Cilia Corp.specializes in the production of finials which is mostly sold within the territory.The selling price for each finial is $15.Using the traditional allocation method to allocate manufacturing overhead,the full-product cost is determined to be $10.The company recently introduced activity-based costing method to allocate its overhead.The refinement of costs shows that the full-product cost is less by $2.50 from the traditional estimate.
Requirement:
1.Calculate and analyze the change in net profit percentage as a result of introduction of activity-based costing.
2.The desired net profit margin of the company is 60%.If the production costs cannot be reduced,by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing.)

Question 77

Dunby Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $150,000.The company is expected to work for 5,000 direct labor hours during the year.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Last month,Dunby's consultants spent 175 hours on Xyme Inc.What is the predetermined overhead allocation rate per direct labor hour?

A)$250 per hour
B)$30 per hour
C)$280 per hour
D)$350 per hour

Question 78

Webster Inc.has received a bid for 12,000 units.The costing estimates show that the average cost per unit for this bid will be $600.The company uses cost-based pricing and adds 25% markup to total costs.What total price will Webster ask for the entire order?

A)$9,000,000
B)$7,200,000
C)$1,800,000
D)$2,250,000

Question 79

Phoenix Inc.manufactures widgets.The target sales price is $400 per unit.The company desires a 30% net profit margin on its products.What is the company's target full-product cost per unit using target pricing?

A)$120.00
B)$307.69
C)$235.29
D)$280.00

Question 80

The just-in-time costing system waits until the units are completed to record the cost of production.