Deck 8: Activity-Based Costing

Question 1

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.

Answer 1

C

Question 2

Zang Manufacturing Company manufactures two products (A and B). The overhead costs (£58,000) have been divided into three cost pools that use the following activity cost drivers: What is the allocation rate per order using ABC?

A) £10,000
B) £2,320
C) £400
D) £58,000

Answer 2

C

Question 3

The activity-based resource usage model improves managerial control and decision making such as

A) the best way to use excess activity capacity in the system.
B) maximization of individual unit performance.
C) increasing the allocation of costs.
D) focusing on managing costs rather than activities.

Answer 3

A

Question 4

Green, Inc., has identified the following overhead costs and activity drivers for next year: The following are two of the jobs completed during the year:
The company's normal activity is 2,000 direct labour hours.
If the number of setups is used to assign setup costs, the amount of setup costs assigned to Job 10A would be

A) £1,600.
B) £1,000.
C) £800.
D) £1,680.

Question 5

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 6

Committed resources

A) are supplied as needed.
B) are acquired by a contract for the exact amount of their usage.
C) may exceed the demand for their usage.
D) All of the above are correct.

Question 7

_____ are those that are acquired from outside sources, where the terms of acquisition do NOT require any long-term commitment for any given amount of the resource.

A) Flexible resources
B) Committed resources
C) Discretionary fixed expenses
D) Committed fixed expenses

Question 8

The Xiang plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
The plant currently applies overhead using direct labour hours and expected capacity of 50,000 direct labour hours. The following data have been assembled for use in developing a bid for a proposed job:
Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.
Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be

A) £1,200.
B) £1,800.
C) £3,700.
D) £3,875.

Question 9

Zipp Company manufactures two products (X and Y). The overhead costs (£84,000) have been divided into three cost pools that use the following activity drivers: What is the amount of overhead cost to be assigned to Product X using machine hours as the activity driver in an activity-based costing system?

A) £12,000
B) £60,000
C) £48,000
D) £16,800

Question 10

Figure 1 A company usually processes 20,000 orders at a total cost of £300,000. During the year, only 16,000 orders were processed.
Refer to Figure 1. What is the cost of unused activity?

A) £300,000
B) £240,000
C) £30
D) £60,000

Question 11

Zipp Company manufactures two products (X and Y). The overhead costs (£84,000) have been divided into three cost pools that use the following activity cost drivers: What is the allocation rate per setup using activity-based costing?

A) £900
B) £450
C) £9,000
D) £2,100

Question 12

More accurate product costing information is produced by assigning costs using

A) a volume-based, plantwide rate.
B) volume-based, departmental rates.
C) activity-based pool rates.
D) all of the above.

Question 13

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 14

The proportion of an overhead activity consumed by a product is the

A) overhead ratio.
B) consumption ratio.
C) quick ratio.
D) fixed ratio.

Question 15

The activity-based approach to break-even costing emphasizes

A) fixed and variable cost behaviour
B) unit and nonunit cost behaviour
C) product and period cost behaviour
D) value chain cost behaviour

Question 16

When a firm acquires the resources needed to perform an activity, it is obtaining

A) practical capacity.
B) resource usage.
C) activity capacity.
D) unused capacity.

Question 17

Zipp Company manufactures two products (X and Y). The overhead costs (£84,000) have been divided into three cost pools that use the following activity cost drivers: What is the allocation rate per packing order using activity-based costing?

A) £15,000
B) £60
C) £7,500
D) £200

Question 18

Flexible resources

A) are supplied as needed.
B) are acquired from outside sources, not requiring a long-term commitment.
C) have no unused capacity.
D) All of the above are correct.

Question 19

Refer to Figure 1 in the previous question. What is the cost of resource usage?

A) £300,000
B) £240,000
C) £30
D) £60,000

Question 20

Products might consume overhead in different proportions due to

A) differences in product size.
B) differences in setup times.
C) differences in product complexity.
D) all of the above.

Question 21

If activity-based costing is used, modifications made by engineering to the product design of several products would be classified as a

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

Question 22

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: The following costs are reported:
Setups would be classified as a

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

Question 23

Riley, SA., has identified the following overhead costs and activity drivers for next year: The following are two of the jobs completed during the year:
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 24

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 25

Greem, Inc., has identified the following overhead costs and activity drivers for next year: The following are two of the jobs completed during the year:
The company's normal activity is 2,000 direct labour hours.
If the four activity drivers are used to allocate overhead costs, total overhead allocated to Job 10A would be

A) £5,533.
B) £4,830.
C) £5,030.
D) £5,630.

Question 26

The Xiang plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
The plant currently applies overhead using direct labour hours and expected capacity of 50,000 direct labour hours. The following data have been assembled for use in developing a bid for a proposed job:
Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.
Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be

A) £1,200.
B) £1,800.
C) £3,700.
D) £3,875.

Question 27

Green, Inc., has identified the following overhead costs and activity drivers for next year: The following are two of the jobs completed during the year:
The company's normal activity is 2,000 direct labour hours.
If kilowatt hours are used to assign power costs, the amount of power costs assigned to Job 10A would be

A) £33.20.
B) £30.00.
C) £102.00.
D) £53.32.

Question 28

If activity-based costing is used, security is an example of a

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

Question 29

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: Activity drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
What is(are) the batch-level activity(ies)?

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

Question 30

Spear Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows: Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. 20,000 direct labour hours are budgeted for next year.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent. Estimates for the proposed job are as follows:
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labour hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are:
If material moves are used to assign material handling costs, the amount of material handling costs allocated to the proposed job would be

A) £180.
B) £170.
C) £147.
D) £60.

Question 31

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 32

Quint Manufacturing uses an activity-based costing system. The company produces Model 1 and Model 2. Information relating to the two products is as follows: The following costs are reported:
Setup costs assigned to Model 2 are

A) £36,000.
B) £35,000.
C) £28,000.
D) £25,000.

Question 33

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

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

Question 34

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.

Question 35

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: Activity drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
What is(are) the unit-level activity(ies)?

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

Question 36

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: The following costs are reported:
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 37

Spear Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows: Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. 20,000 direct labour hours are budgeted for next year.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent. Estimates for the proposed job are as follows:
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labour hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are:
If the number of inspections is used to assign inspection costs, the amount of inspection costs allocated to the proposed job would be

A) £2,700.
B) £990.
C) £900.
D) £540.

Question 38

Quint Manufacturing uses an activity-based costing system. The company produces Model 1 and Model 2. Information relating to the two products is as follows: The following costs are reported:
labour-related overhead costs assigned to Model 1 are

A) £60,000.
B) £58,000.
C) £54,400.
D) £48,000.

Question 39

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

A) number of direct labour hours
B) number of labour transactions
C) number of machine hours
D) all of the above

Question 40

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 41

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: Activity cost drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
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 42

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 43

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 44

_____ is(are) the cost of acquiring activity capacity.

A) Joint costs
B) Resource spending
C) Absorption costing
D) Variable costing

Question 45

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 46

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: The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid £50,000, while the other earns £25,000. The £50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions:
What is the cost assigned to the creating BOMs activity?

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

Question 47

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: Activity cost drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
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 48

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: The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid £50,000, while the other earns £25,000. The £50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions:
What is the cost assigned to the training employees activity?

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

Question 49

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: Activity cost drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
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 50

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: Activity cost drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
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 51

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 52

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: The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid £50,000, while the other earns £25,000. The £50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions:
What is the cost assigned to the designing tooling activity?

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

Question 53

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: The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid £50,000, while the other earns £25,000. The £50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions:
What is the cost assigned to the improving processes activity?

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

Question 54

When selecting an activity driver, a company should consider

A) the cost of measurement.
B) the time of the year.
C)
C) the cause and effect between the activity driver and the cost pool.
D) both a and

Question 55

Product costs can be distorted if a unit-based activity driver is used and

A) nonunit-based overhead costs are a significant proportion of total overhead.
B) the consumption ratios differ between unit-based and nonunit-based input categories.
C) both a and b.
D) neither a nor b.

Question 56

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: Activity drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
What is(are) the facility-level activity(ies)?

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

Question 57

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: Activity cost drivers for each activity have been identified and their practical capacities listed:
The costs of facility-level activities are assigned using machine hours.
What is(are) the product-level activity(ies)?

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

Question 58

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.

Question 59

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 60

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 61

Figure 2
The management of Chott Industries predicted that overhead cost would total £180,000 for the current year. Management further estimated that under absolutely perfect conditions they could produce 25,000 units. Under efficient conditions, they can produce 23,000 units. The product is expected to appeal to the public for approximately three years during which time Chott expects to sell a total of 60,000 units. Because poor economic conditions are forecast for the upcoming year, Chott plans to produce only 18,000 units.
Refer to Figure 2. What will Chott's overhead application rate be if Chott uses theoretical capacity?

A) £10.00
B) £7.20
C) £7.83
D) £9.00

Question 62

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 63

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 64

Figure 4
Wheat Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows:
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 20,000 direct labour hours are budgeted.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent.
Estimates for the proposed job are as follows:
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based cost driver--direct labour hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would be used are as follows:

Refer to Figure 4. If Wheat Manufacturing used activity-based cost drivers to assign overhead and the company's bid is full cost plus 15 percent, the company's bid would be

A) £12,696.00
B) £13,965.60
C) £10,120.00
D) £9,936.00

Question 65

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 66

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 67

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 68

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 69

Figure 3
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
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:
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 3. 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 70

Figure 4
Wheat Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows:
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 20,000 direct labour hours are budgeted.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent.
Estimates for the proposed job are as follows:
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based cost driver--direct labour hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would be used are as follows:

Refer to Figure 4. If Wheat Manufacturing used direct labour hours as the cost driver and the company's bid is full cost plus 15 percent, the company's bid would be

A) £17,480
B) £16,583
C) £13,110
D) £12,765

Question 71

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 72

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 73

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 74

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 75

Figure 2
The management of Chott Industries predicted that overhead cost would total £180,000 for the current year. Management further estimated that under absolutely perfect conditions they could produce 25,000 units. Under efficient conditions, they can produce 23,000 units. The product is expected to appeal to the public for approximately three years during which time Chott expects to sell a total of 60,000 units. Because poor economic conditions are forecast for the upcoming year, Chott plans to produce only 18,000 units.
Refer to Figure 2. What will Chott's overhead application rate be if Chott uses practical capacity?

A) £10.00
B) £7.20
C) £7.83
D) £9.00

Question 76

Figure 2
The management of Chott Industries predicted that overhead cost would total £180,000 for the current year. Management further estimated that under absolutely perfect conditions they could produce 25,000 units. Under efficient conditions, they can produce 23,000 units. The product is expected to appeal to the public for approximately three years during which time Chott expects to sell a total of 60,000 units. Because poor economic conditions are forecast for the upcoming year, Chott plans to produce only 18,000 units.
Refer to Figure 2. What will Chott's overhead application rate be if Chott uses the expected activity level?

A) £10.00
B) £7.20
C) £7.83
D) £9.00

Question 77

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 78

In a pure activity-based cost system, which of the following might be treated as period costs?

A) facility-level costs
B) product-level costs
C) batch-level costs
D) unit-level costs

Question 79

Product costs can be distorted if a unit-based cost driver is used and

A) nonunit-based overhead costs are a significant proportion of total overhead
B) the consumption ratios differ between unit-based and nonunit-based input categories
C) both a and b
D) neither a nor b

Question 80

Figure 3
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
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:
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 3 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