Deck 8: Process Costing Systems

Question 1

Organisation-sustaining activities are activities of the general organisation that support specific products

Answer 1

False

Question 2

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

- Determine the total overhead cost for product B using the using the activity based data

A)£26,667
B)£50,000
C)£46,733
D)£21,000

Answer 2

£46,733

Question 3

Personnel administration is an example of a

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

Answer 3

D

Question 4

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

- Determine the total overhead cost for product B using the number of hours to apply overhead

A)£41,667
B)£51,667
C)£25,000
D)£35,000

Question 5

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

- Determine the total overhead cost for product B using the number of hours to apply overhead

A)£16,667
B)£50,000
C)£21,667
D)£21,000

Question 6

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

-Determine the total unit cost for product B using the activity based data

A)£21.72
B)£41.67
C)£25.00
D)£44.37

Question 7

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

-Determine the total overhead cost for product C using the using the activity based data

A)£44,667
B)£58,600
C)£6,890
D)£59,133

Question 8

An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labour

Question 9

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

- Determine the total unit cost for product C using the number of hours to apply overhead

A)£20.33
B)£8.33
C)£16.67
D)£21.67

Question 10

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

-Determine the total unit cost for product B using the number of hours to apply overhead

A)£20.00
B)£46.00
C)£25.00
D)£21.67

Question 11

Leeds Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: $\begin{array}{l}\begin{array}{lcc}&\text { Activity}&\text { Cost Pools }\\&\text { Preparing}&\text {Arranging }\\&\text { Meals}&\text { Functions }\\\text { Wages}& £ 0.80 & £ 180.00 \\\text { Supplies}& £ 0.40 & £ 290.00 \\\text { Other expenses. } & £ 0.20 & £ 140.00 \\\end{array}\\\end{array}$
The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.
Management would like to know whether the company made any money on a recent function at which 90 meals were served. The company catered the function for a fixed price of £25.00 per meal. The cost of the raw ingredients for the meals was £13.90 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. Suppose an action analysis report is prepared for the function mentioned above.

- What would be the 'yellow margin' in the action analysis report? (Round to the nearest whole pound.)

A)£421
B)£601
C)£496
D)£546

Question 12

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

-Determine the total overhead cost for product A using the using the activity based data

A)£9,133
B)£20,000
C)£21,667
D)£21,000

Question 13

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

-Determine the total overhead cost for product A using the number of hours to apply overhead

A)£16,667
B)£50,000
C)£21,667
D)£21,000

Question 14

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

- Determine the total unit cost for product A using the activity based data

A)£31.00
B)£46.45
C)£16.13
D)£24.13

Question 15

Leeds Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: $\begin{array}{l}\begin{array}{lcc}&\text { Activity}&\text { Cost Pools }\\&\text { Preparing}&\text {Arranging }\\&\text { Meals}&\text { Functions }\\\text { Wages}& £ 0.80 & £ 180.00 \\\text { Supplies}& £ 0.40 & £ 290.00 \\\text { Other expenses. } & £ 0.20 & £ 140.00 \\\end{array}\\\end{array}$
The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.
Management would like to know whether the company made any money on a recent function at which 90 meals were served. The company catered the function for a fixed price of £25.00 per meal. The cost of the raw ingredients for the meals was £13.90 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. Suppose an action analysis report is prepared for the function mentioned above.

-. What would be the 'red margin' in the action analysis report? (Round to the nearest whole pound.)

A)£263
B)£113
C)£163
D)£413

Question 16

Property taxes and insurance is an example of a cost that would be considered to be

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

Question 17

Matt Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 8,000 units and of Product B is 6,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Estimated \quad\quad\quad Expectedactivity }$
$\begin{array}{lrr}\text { Activity CostPool }&\text {Cost }&\text {ProductA}&\text {Product B}&\text {Total }\\ \text { Activity1 } &£20,000&100&400&500\\ \text { Activity2} &£37,000&800&200&1,000\\ \text { Activity3 } &£91,200&800&3,000&3,800\\\end{array}$

The cost per unit of Product A under activity-based costing is closest to

A)£2.40.
B)£3.90.
C)£10.59.
D)£6.60.

Question 18

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$

- Determine the total unit cost for product C using the activity based data

A)£23.72
B)£21.33
C)£46.67
D)£21.67

Question 19

Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers than managing and sustaining a single product. The costs of these resources can be accurately allocated to products on the basis of direct labour-hours

Question 20

Leeds Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: $\begin{array}{l}\begin{array}{lcc}&\text { Activity}&\text { Cost Pools }\\&\text { Preparing}&\text {Arranging }\\&\text { Meals}&\text { Functions }\\\text { Wages}& £ 0.80 & £ 180.00 \\\text { Supplies}& £ 0.40 & £ 290.00 \\\text { Other expenses. } & £ 0.20 & £ 140.00 \\\end{array}\\\end{array}$
The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.
Management would like to know whether the company made any money on a recent function at which 90 meals were served. The company catered the function for a fixed price of £25.00 per meal. The cost of the raw ingredients for the meals was £13.90 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. Suppose an action analysis report is prepared for the function mentioned above.

-According to the activity-based costing system, what was the total cost (including the costs of raw ingredients) of the function mentioned above? (Round to the nearest whole pound.)

A)£1,487
B)£1,337
C)£2,187
D)£1,987

Question 21

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

Question 22

If a cost object such as a product or customer has a positive green margin, then

A)its yellow margin will be positive.
B)its yellow margin may be either positive, negative, or zero.
C)its yellow margin will be negative.
D)its yellow margin will be zero.

Question 23

Paul Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: $\begin{array}{lrr}&\text { Estimated}& \text {Expected Activity }\\\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1 } &£ 22,000&400 &100 &500\\\\ \text { Activity 2. } &£ 16,240& 380& 200 &580\\\\ \text { Activity 3 } &£14,600& 500 &250 & 750\\\end{array}$

The activity rate under the activity-based costing system for Activity 3 is closest to

A)£70.45.
B)£28.87.
C)£19.47.
D)£58.40.

Question 24

Jennifer Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows. $\begin{array}{lrr}&\text { Estimated}& \text {Expected Activity }\\\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1 } &£ 23,500&400 &100 & 500\\\\ \text { Activity 2. } &£ 18,000& 500 & 200 &700\\\\ \text { Activity 3 } &£ 34,600& 600 & 300 & 900\\\end{array}$

The activity rate under the activity-based costing system for Activity 3 is closest to

A)£36.24.
B)£38.44.
C)£84.56.
D)£115.33.

Question 25

Jasmine Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 10,000 units and of Product B is 4,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: $\begin{array}{lrr}&\text { Estimated}& \text {Expected Activity }\\\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1 } &£ 25,000&150 &100 &250\\\\ \text { Activity 2. } &£ 65,000& 800 & 200 &1,000\\\\ \text { Activity 3 } &£ 90,000& 1,000 &2,000 &3,000\\\end{array}$


The cost per unit of Product A under activity-based costing is closest to

A)£6.00.
B)£9.70.
C)£1.50.
D)£3.00.

Question 26

A transaction driver is

A)An event that causes a transaction to begin.
B)A measure of the amount of time required to perform an activity.
C)An event that causes a transaction to end.
D)A simple count of the number of times an activity occurs.

Question 27

Anola Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: $\begin{array}{lrr}&\text { Estimated}& \text {Expected Activity }\\\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1 } &£ 18,000&300 &200 &500\\\\ \text { Activity 2. } &£ 16,000& 500 & 100 &600\\\\ \text { Activity 3 } &£ 27,000& 600 &300 & 900\\\end{array}$

The activity rate under the activity-based costing system for Activity 3 is closest to

A)£30.00.
B)£30.50.
C)£90.00.
D)£67.78.

Question 28

Forrest Florist specialises in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs: $\begin{array}{lrr} \text { Wages and salaries } &£ 70,000\\ \text {Other expenses. } &£ 40,000\\\text {Total. } &£ 110,000 \end{array}$

Distribution of resource consumption:
The 'Other' activity cost pool consists of the costs of idle capacity and organisation-sustaining costs.
The amount of activity for the year is as follows: $\begin{array}{lrr} \text { Activity Cost Pool} & \text { Activity} \\ \text { Making bouquets} & \text { 20,000 bouquets } \\ \text { Delivery. } &\text {1,000 deliveries } &\\\end{array}$



- What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round your answer to the nearest whole pence.)

A)£2.75
B)£2.83
C)£3.03
D)£2.48

Question 29

Customer-level activities relate to specific customers and are not tied to any specific products

Question 30

Costs classified as batch-level costs should depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume

Question 31

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

A)some manufacturing costs (i.e., the costs of idle capacity and organisation-sustaining costs) will not be assigned to products
B)some non-manufacturing costs are assigned to products.
C)first-stage allocations may be based on subjective interview data.
D)all of the above are reasons why an activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles.

Question 32

In activity-based costing, activity (i.e., overhead) rates must be computed on the basis of the budgeted or the expected activity of the period

Question 33

Angel Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:
$\begin{array}{ll} & \text { Estimated } \\ \text { Activity Cost Pools (and Activit Measures } &\text {overheadCost}\\\\ \text { Machine related (machine-hours) } & £ 81,600\\ \text { Batch setup (setups). } &£ 387,000\\ \text { General factory (direct labour-hours). } &£ 274,800 \\\end{array}$

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $\quad$$\text { Expected Activity }$
$\begin{array}{lrr}\text { Activity Cost Pools }& \text { Total } & \text {Product X}& \text { Product Y}\\ \text { Machine related. } &8,000&3,000&5,000\\ \text { Batch setup. } &10,000&2,000&8,000\\ \text { General factory. } &12,000&7,000&5,000\\\end{array}$

The activity rate for the batch setup activity cost pool is closest to:

A)£48.40
B)£38.70
C)£74.30
D)£193.50

Question 34

Angel Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:
$\begin{array}{lrr} &\text { Estimated } \\ \text {Activity Cost Pools (and Activity Meseasure } & \text {overhead Cost}\\ \text { Machine related (machine-hours). } &£ 81,600\\ \text { Batch setup (setups).} &£ 387,000 \\ \text { General factory (direct labour-hours). } & £ 274,800 \\\end{array}$


$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $\quad$$\text { Expected Activity }$
$\begin{array}{lrr}\text { Activity Cost Pools }& \text { Total } & \text {Product X}& \text { Product Y}\\ \text {Machine related. } &8,000&3,000&5,000\\ \text { Batch setup. } &10,000&2,000&8,000\\ \text {General factory } &12,000&7,000&5,000\\\end{array}$

Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to:

A)£371,700
B)£387,000
C)£268,300
D)£149,000

Question 35

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 36

Vex Corporation manufactures a variety of products. In the past, Vex had been using a traditional overhead allocation system based on machine-hours. For the current year, Vex decided to switch to an activity-based costing system using machine-hours and the number of inspections as measures of activity. Information on these measures of activity and related overhead rates for the current year are as follows: $\begin{array}{lrr} \text { Estimated Activity } & \text { Prederemined} &\\ &\text {Overhed Rate}\\ \text {Machine-hours. } & \text { £8 per machine-hour } \\ \text { Number of inspections} & \text { £40 per inspection} \\\end{array}$

Job #812 for the current year required 15 machine-hours and 2 inspections. Would this job have been overcosted or undercosted under the traditional system and by how much?

A)Undercosted by £36
B)Undercosted by £44
C)Overcosted by £80
D)Undercosted by £80

Question 37

Which of the following statements concerning ease of adjustment codes is incorrect

A)'Green' costs adjust automatically to changes in activity.
B)'Yellow' costs could be adjusted to changes in activity, but such adjustments require management action; the adjustment is not automatic.
C)'Red' costs cannot be adjusted to changes in activity.
D)The costs of idle capacity and organisation-sustaining costs are not assigned codes.

Question 38

If a cost object such as a product or customer has a negative red margin, then

A)its yellow margin will be positive.
B)its yellow margin may be positive, negative, or zero.
C)its yellow margin will be negative.
D)its yellow margin will be zero.

Question 39

Forrest Florist specialises in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs: $\begin{array}{lrr} \text { Wages and salaries } &£ 70,000\\ \text {Other expenses. } &£ 40,000\\\text {Total. } &£ 110,000 \end{array}$

Distribution of resource consumption:
The 'Other' activity cost pool consists of the costs of idle capacity and organisation-sustaining costs.
The amount of activity for the year is as follows: $\begin{array}{lrr} \text { Activity Cost Pool} & \text { Activity} \\ \text { Making bouquets} & \text { 20,000 bouquets } \\ \text { Delivery. } &\text {1,000 deliveries } &\\\end{array}$



- What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round your answer to the nearest whole pence).

A)£27.50
B)£38.50
C)£33.00
D)£34.50

Question 40

Bridget Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 2,000 units and of Product B is 3,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows. $\begin{array}{lrr}&\text { Estimated}& \text {Expected Activity }\\\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1 } &£ 9,000&400 &350 &760\\\\ \text { Activity 2. } &£ 12,000& 100 & 400 &500\\\\ \text { Activity 3 } &£ 84,000& 400 &1,200 & 1,600\\\end{array}$

The cost per unit of Product A under activity-based costing is closest to

A)£6.00.
B)£9.60.
C)£8.63.
D)£13.80.

Question 41

A duration driver is

A)A simple count of the number of times an activity occurs.
B)An activity measure that is used for the life of the company.
C)A measure of the amount of time required to perform an activity.
D)An activity measure that is used for the life of an activity-based costing system.

Question 42

The practice of assigning the costs of idle capacity to products can result in unstable unit product costs

Question 43

Reach Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Reach's headquarter activities are assigned to two activity cost pools: General Service and Research Service. These costs are then allocated to the three branch offices. Information for next year related to this activity-based costing system is as follows: $\begin{array}{lrr} \text { Activity Cost Pool}& \text { Activity Measure}& \text { Estimated}\\ &&\text { Overhead cost}\\ \text {General service. } & \text { \% of time devoted to branch } &£ 700,000 \\ \text {Research service. } & \text { Computer time } &£ 140,000\\\end{array}$

Estimated branch data for next year is as follows: $\begin{array}{lcc}& \text {\% of of tha devoted to branch }& \text { computer Time } &\\ \text { Portland } &30\%& \text {200,000 \text { minutes } }\\ \text { Dallas } &60\%& \text {150,000 \text { minutes } }\\ \text { Miami} &10\%& \text { 50,000 \text { minutes } }\\\end{array}$

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

Question 44

Lindsey Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 5,000 units and of Product B is 2,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: $\begin{array}{lrr}&\text { Estimated}&& \text { Expected Activity }\\\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1. } &£ 24,000& 200 &800 &1,000\\ \text { Activity 2. } &£36,900 & 750 & 150 &900\\ \text { Activity 3.} &£ 63,000 &1,000 &800&1,800\\\end{array}$


The cost per unit of Product A under activity-based costing is closest to

A)£14.11.
B)£13.77.
C)£7.00.
D)£17.70.

Question 45

Nick Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: $\begin{array}{lrr}&\text { Estimated}&& \text { Expected Activity }\\\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1. } &£ 32,600& 700 & 300 &1,000\\ \text { Activity 2. } &£ 17,600 & 600 & 200 &800\\ \text { Activity 3.} &£52,500 &400 &100&500\\\end{array}$


The activity rate under the activity-based costing system for Activity 3 is closest to

A)£525.00.
B)£44.65.
C)£105.00.
D)£205.00.

Question 46

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

Question 47

An activity-based costing system should include all of the activities carried out in an organisation because any simplification will inevitably result in inaccuracy

Question 48

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

Question 49

Designing a new product is an example of a

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

Question 50

The costs of a particular department should not be split up among activity cost pools in an activity-based costing system.

Question 51

Transaction drivers usually take more effort to record than duration drivers

Question 52

In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers

Question 53

Khalika Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: $\begin{array}{lrr}&\text { Estimated}&& \text { Expected Activity }\\\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1. } &£ 16,800& 100 & 700 &800\\ \text { Activity 2. } &£ 22,000 & 200 & 800 &1,00\\ \text { Activity 3.} &£ 34,300 &500 &600&1,100\\\end{array}$


The activity rate under the activity-based costing system for Activity 3 is closest to

A)£31.18.
B)£25.21.
C)£57.17.
D)£66.45.

Question 54

If a cost object such as a product or customer has a negative green margin, then

A)its yellow margin will be positive.
B)its yellow margin may be either positive or negative.
C)its yellow margin will be negative.
D)its yellow margin will be zero.

Question 55

Which of the following activities would be classified as a batch-level activity in the Lindsey Company

A)Setting up equipment.
B)Designing a new product.
C)Training employees.
D)Milling a part required for the final product.

Question 56

Selena Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: $\begin{array}{lrr}&\text { Estimated}&& \text { Expected Activity }\\\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1. } &£ 17,600& 800 & 300 &1,100\\ \text { Activity 2. } &£ 12,000 & 500 & 200 &700\\ \text { Activity 3.} &£ 26,000 &800 &400&1,200\\\end{array}$

The activity rate under the activity-based costing system for Activity 3 is closest to

A)£46.33.
B)£21.67.
C)£65.00.
D)£18.53.

Question 57

Annika Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: $\begin{array}{lrr}&\text { Estimated}&& \text { Expected Activity }\\\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\\ \text {Activity 1. } &£ 18,000& 700 & 300 &1,100\\ \text { Activity 2. } &£ 24,000 & 500 & 100 &600\\ \text { Activity 3.} &£ 60,000 &800 &400&1,200\\\end{array}$


The cost per unit of Product A under activity-based costing is closest to

A)£20.40.
B)£10.00.
C)£18.15.
D)£17.00.

Question 58

Purchase order processing is an example of a

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

Question 59

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 labour-based costing system.
B) Changing from a traditional direct labour-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.

Question 60

If a cost object such as a product or customer has a positive red margin, then

A)its green margin will be positive.
B)its green margin may be positive, negative, or zero.
C)its green margin will be negative.
D)its green margin will be zero.

Question 61

ABC always gives you a very accurate product cost. Discuss.

Question 62

Write an explanation in your own words to John Tower of Classic Brass Ltd (p278/9 of Ch 8) at to why they are losing tehri high volume business.

Question 63

ABC is mainly limited to cost cutting exercises. Discuss.

Question 64

Compare and contrast ABC and traditional Absorption Costing methods . Is ABC always the right answer? Explain.

Question 65

Outline the advantages and disadvantages of using the simplified ABC approach.

Question 66

Distinguish between unit, batch, product and customer level activities.

Question 67

Explain why ABC is particularly useful for service companies.