Deck 4: Activity-Based Costing

Question 1

The activity-based cost assignment is the most accurate method of costing because it follows a cause-and-effect pattern of overhead consumption.

Answer 1

True

Question 2

Overhead assignments should reflect the amount of overhead demanded by each product.

Answer 2

True

Question 3

If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.

Answer 3

False

Question 4

Classifying activities into four general categories facilitates product costing by associating the response to different types of activity drivers.

Question 5

The difference between actual overhead and applied overhead is an underapplied overhead.

Question 6

A list of the activities identified in the design of an activity-based system is called an activity inventory.

Question 7

Product classification attributes define and describe activities and are the basis for product classification.

Question 8

The first step in designing an activity-based costing system is to identify activities.

Question 9

Non-unit-based drivers are factors that measure the demands that cost objects place on activities.

Question 10

If applied overhead is greater than actual overhead it is called overapplied overhead.

Question 11

Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.

Question 12

An activity-based costing system traces costs to activities and then to products and other cost objects.

Question 13

Predetermined overhead rates are calculated at the end of each year using the formula: overhead rate = budgeted annual driver level/budgeted annual driver level.

Question 14

The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.

Question 15

Management information systems can be divided into a unit-based type and activity-based type.

Question 16

Unit-based product costing assigns manufacturing and selling costs to products.

Question 17

Activity attributes are nonfinancial and financial information items that describe individual activities.

Question 18

After identifying and describing activities, the next step is to determine the cost of the performance of each activity.

Question 19

Activity-based costing uses only unit-level drivers for costing.

Question 20

Unit-level drivers are factors that measure the demands placed on unit-level activities by products.

Question 21

There are many two-driver combinations that may be used to reduce the ABC system without sacrificing accuracy.

Question 22

Efforts to simplify activity-based costing systems (ABC) involve either before-the-fact simplification or after-the- fact simplification.

Question 23

A(n) costing system first traces costs to activities and then to products.

Question 24

drivers create distortions when different products utilize resources differently.

Question 25

Activity helps management achieve objectives such as product or customer costing and continuous improvement.

Question 26

Activity are nonfinancial and financial data that describe individual activities.

Question 27

Time driven activity-based costing (TDABC) requires the need to identify resource drivers to assign costs to activities.

Question 28

For labor-intensive operations, the most appropriate activity driver would be the hours.

Question 29

The formula Budgeted annual overhead/Budgeted annual driver level is used to calculate a __________ rate.

Question 30

The use of activity drivers to assign costs tends to high-volume products.

Question 31

Offering greater product accuracy than an activity-based costing system is not a characteristic of a costing system.

Question 32

After-the-fact simplification includes two approaches: the approximately relevant reduced ABC system and the equally accurate enhanced ABC system.

Question 33

Materials handling would be classified as a activity when using activity-level costing.

Question 34

Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.

Question 35

The activity is a simple list of activities identified in an ABC system.

Question 36

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

Question 37

An costing database is the collected data sets that are organized and interrelated for use in a
company's ABC information system.

Question 38

A(n) method first traces costs to a department and then to products.

Question 39

A(n) is a grouping of logically related information.

Question 40

In the ABC systems, managers directly estimate the resource demands imposed by each product.

Question 41

For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?

A) machine hours
B) direct labor hours
C) number of employees
D) units of output

Question 42

The method that first traces costs to a department and then to products is called:

A) direct costing
B) absorption costing
C) unit-based costing
D) indirect costing

Question 43

Figure 4 - 3
The records of Family Manufacturing show the following information:

Refer to Figure 4-3. The amount of overapplied or underapplied overhead is

A) $10,000 underapplied.
B) $50,000 overapplied.
C) $60,000 overapplied.
D) $65,200 underapplied.

Question 44

In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?

A) units produced
B) direct labor hours
C) machine hours
D) number of batches

Question 45

Unit-level product costing assigns

A) direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
B) direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
C) direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.
D) direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.

Question 46

Unit-based product costing uses which of the following procedures?

A) All overhead costs are expensed as incurred.
B) Overhead costs are traced to departments, then costs are traced to products.
C) Overhead costs are traced directly to products.
D) Overhead costs are traced to activities, then costs are traced to products.

Question 47

Which is NOT a characteristic of a unit-based costing system?

A) It uses traditional product costing definitions.
B) It uses unit-based activity drivers to assign overhead to products.
C) It offers greater product costing accuracy than an activity-based costing system.
D) It is cheaper than an activity-based costing system.

Question 48

Figure 4-1
The Foremost Company predicted factory overhead for 2016 and 2017 would be $120,000 for each year. The predicted activity for 2016 and 2017 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2016 and 2017 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-2. The actual overhead rate for applying manufacturing overhead is

A) $7.14.
B) $7.50.
C) $10.00.
D) $10.50.

Question 49

All of the following are non-unit-based activity drivers EXCEPT

A) number of direct labor hours.
B) number of inspections.
C) number of setups.
D) number of material moves.

Question 50

The overhead rates of the traditional functional-based product costing use

A) non-unit-based activity drivers.
B) unit-based activity drivers.
C) process costing.
D) job order costing.

Question 51

Figure 4-1
The Foremost Company predicted factory overhead for 2016 and 2017 would be $120,000 for each year. The predicted activity for 2016 and 2017 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2016 and 2017 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-2. If normal costing is used, the amount of overhead applied for the year is

A) $414,000.
B) $400,000.
C) $480,000.
D) $460,000.

Question 52

Avatar Corporation uses a predetermined rate to apply overhead. At the beginning of the year, Avatar estimated its overhead costs at $240,000, direct labor hours at 40,000, and machine hours at 10,000. Actual overhead costs incurred were $249,280, actual direct labor hours were 41,000, and actual machine hours were 11,000. What is the predetermined overhead rate per machine hour for Avatar?

A) $6.08
B) $5.85
C) $22.66
D) $24.00

Question 53

A costing system that uses actual costs for direct materials and labor and predetermined overhead rates to apply overhead is called a(n)

A) actual costing system.
B) standard costing system.
C) normal costing system.
D) activity-based costing system.

Question 54

All of the following are unit-based activity drivers EXCEPT

A) number of setups.
B) machine hours.
C) number of units.
D) direct labor hours.

Question 55

A predetermined overhead rate is calculated using which of the following formulas?

A) Actual annual overhead / budgeted annual driver level
B) Budgeted annual overhead / budgeted annual driver level
C) Budgeted annual overhead / actual annual driver level
D) Actual annual overhead / actual annual driver level

Question 56

Common measures of production activity include

A) units produced.
B) direct labor hours.
C) machine hours.
D) all of these.

Question 57

Figure 4-1
The Foremost Company predicted factory overhead for 2016 and 2017 would be $120,000 for each year. The predicted activity for 2016 and 2017 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2016 and 2017 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-1. When the normal factory overhead rate is used, the gross profits for 2016 and 2017, respectively, are

A) $80,000 and $80,000.
B) $200,000 and $200,000.
C) $120,000 and $140,000.
D) $100,000 and $100,000.

Question 58

If unit-based product costing is used, which of the following would be traced directly to the product?

A) setup costs
B) direct labor
C) maintenance of machinery
D) inspection costs

Question 59

Figure 4-1
The Foremost Company predicted factory overhead for 2016 and 2017 would be $120,000 for each year. The predicted activity for 2016 and 2017 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2016 and 2017 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-1. When the annual estimated factory overhead rate is used, the gross profits for 2016 and 2017, respectively, are

A) $150,000 and $150,000.
B) $150,000 and $100,000.
C) $250,000 and $250,000.
D) $100,000 and $150,000.

Question 60

A department that is capital-intensive most likely would use a predetermined departmental overhead rate based on which of the following activity bases?

A) units of direct material used
B) direct labor hours
C) direct labor cost
D) machine hours

Question 61

The following information pertains to Whitestone Industries for 2016: What is the predetermined overhead rate for Whitestone Industries for 2016?

A) 66.7%
B) 150%
C) 160%
D) 62.5%

Question 62

Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Assume the following: Actual overhead costs equaled estimated overhead. Actual direct labor hours exceeded estimated direct labor hours used to calculate the predetermined overhead rate. If overhead is applied using the predetermined overhead rate, then overhead is

A) $-0-.
B) underapplied.
C) overapplied.
D) indeterminable from the information given.

Question 63

Figure 4-5
The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. What is the predetermined overhead rate? (round to 2 decimal places)

A) $0.62
B) $0.65
C) $0.67
D) $0.70

Question 64

Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
The following information is provided by the Sutton Corporation for the year: If normal costing is used, budgeted overhead used to calculate the predetermined rate would be

A) $443,250.
B) $450,000.
C) $487,500.
D) $536,250.

Question 65

Account balances from the Boilermakers Company are as follows: If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of

A) $ 960,000.
B) $ 640,000.
C) $1,040,000.
D) $1,440,000.

Question 66

Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on direct labor hours, the cost of Job A2 for the Mannitou Company is

A) $60,000.
B) $75,000.
C) $63,000.
D) $66,000.

Question 67

Material amounts of underapplied or overapplied overhead should be

A) treated as an adjustment to cost of goods sold.
B) treated as an adjustment to work in process.
C) allocated to direct materials, work in process, and finished goods.
D) allocated to work in process, finished goods, and cost of goods sold.

Question 68

Figure 4-5
The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. How much was overhead over/underapplied?

A) $25,000
B) $17,500
C) $42,500
D) none of these

Question 69

Figure 4-5
The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. If the accounts had the following balances, how much will cost of goods sold be adjusted?

A) debit $12,500
B) debit $21,250
C) credit $26,562.50
D) none of these

Question 70

Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is

A) $69,000.
B) $75,000.
C) $63,000.
D) $66,000.

Question 71

Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 20160: What is the amount of under- or overapplied overhead for Lonestar Corporation in 2016?

A) $40,000 overapplied
B) $20,000 overapplied
C) $40,000 underapplied
D) $20,000 underapplied

Question 72

Figure 4-6
The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:

Refer to Figure 4-6. How much overhead is applied to the planes?

A) $ 60,000
B) $250,000
C) $219,500
D) $225,000

Question 73

Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
The following information is provided for the year: If normal costing is used, the amount of overhead applied for the year is

A) $568,750.00.
B) $441,031.25.
C) $481,250.00.
D) $525,000.00.

Question 74

Figure 4-5
The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. How much overhead is applied to each 9 volt batteries and AAA batteries respectively? (round to 2 decimal places)

A) $87,500; $280,000
B) $70,000; $280,00
C) $81,250; $260,000
D) none of these

Question 75

Figure 4-6
The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:

Refer to Figure 4-6. What is the overhead per unit for race cars? (round to 3 decimal places)

A) $0.50
B) $0.505
C) $0.32
D) $1.40

Question 76

Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
The Magnanimous Company uses a predetermined overhead rate of $12 per direct labor hour to apply overhead. During the year, 30,000 direct labor hours were worked. Actual overhead costs for the year were $320,000. The overhead variance is

A) $40,000 underapplied.
B) $35,560 underapplied.
C) $36,000 overapplied.
D) none of the above.

Question 77

Figure 4-6
The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:

Refer to Figure 4-6. How much was overhead over or underapplied?

A) $14,250
B) $10,000
C) $ 4,250
D) none of these

Question 78

Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Bear Claw Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year: The following information was available for Job No. 7-29, which was started and completed during August: The predetermined overhead rate for the molding department is

A) $100.
B) $83.
C) $70.
D) $50.

Question 79

Figure 4-6
The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:

Refer to Figure 4-6. What are the departmental overhead rates for the molding and finishing department respectively?

A) $25; $2.50
B) $8.33; $2
C) $25; $10
D) $12.50; $2.50

Question 80

Figure 4 - 3
The records of Family Manufacturing show the following information:

Refer to Figure 4-3. The company uses a predetermined overhead rate to apply overhead. Manufacturing overhead applied is

A) $750,000.
B) $700,000.
C) $690,000.
D) $648,000.