Question 1

Grogam 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:

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 100 meals were served. The company catered the function for a fixed price of $21.00 per meal. The cost of the raw ingredients for the meals was $8.25 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.

-(Appendix 5A)In an action analysis report prepared for the function mentioned above,what would be the "red margin" in the report,rounded to the nearest whole dollar?

Accepted Answer

A)  $390. 
B)  $440. 
C)  $540. 
D)  $690.

Question 2

When combining activities in an activity-based costing system,activities should be grouped together at the same level.For example,batch-level activities should not be combined with unit-level activities.

Accepted Answer

A) True 
 B)False

Question 3

Ingersol Draperies makes custom draperies for homes and businesses.The company uses an activity-based costing system for its overhead costs.The company has provided the following data concerning its annual overhead costs and its activity cost pools:

Distribution of Resource Consumption:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows:

Required:

a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:

b) Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support activity cost pools by filling in the table below:

c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making 71 metres of drapes and has direct materials and direct labour cost of $2,510. The sales revenue from this job is $4,400. For purposes of this action analysis report, direct materials and direct labour should be classified as a Green cost, production overhead as a Red cost, and office expense as a Yellow cost.

Accepted Answer

The answer of Ingersol Draperies makes custom draperies for homes...

Question 4

Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows:

-The predetermined overhead rate (i.e.,activity rate)for Activity 2 under the activity-based costing system is closest to which of the following?

Accepted Answer

A)  $10.25. 
B)  $16.77. 
C)  $24.91. 
D)  $26.36.

Question 5

Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labour-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labour hours per unit and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $71,286.
The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three factory overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.)
-(Appendix 5B)The predetermined overhead rate under the traditional costing system is closest to:

Accepted Answer

A)  $25.34 
B)  $22.60 
C)  $37.30 
D)  $122.91

Question 6

Davis Company uses an activity-based costing system in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of the costs to the activity cost pools.
-How much cost,in total,would be allocated in the first-stage allocation to the Order Size activity cost pool?

Accepted Answer

A)  $210,000. 
B)  $240,000. 
C)  $255,000. 
D)  $300,000.

Question 7

Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labour-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labour hours per unit and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $71,286.
The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three factory overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.)
-(Appendix 5B)The overhead cost per unit of Product B under the activity-based costing system is closest to:

Accepted Answer

A)  $73.74 
B)  $56.62 
C)  $22.38 
D)  $47.52

Question 8

Escalona Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows

-To the nearest whole dollar,how much wages and salaries cost would be allocated to a customer who placed four orders in a year?

Accepted Answer

A)  $7,124. 
B)  $8,859. 
C)  $10,595. 
D)  $14,248.

Question 9

Davis Company uses an activity-based costing system in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of the costs to the activity cost pools.
-How much cost,in total,would be allocated in the first-stage allocation to the Customer Support activity cost pool?

Accepted Answer

A)  $180,000. 
B)  $255,000. 
C)  $280,000. 
D)  $330,000.

Question 10

Escoto Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows:

-What would be the total overhead cost per customer according to the activity-based costing system,rounded to the nearest whole dollar? In other words,what would be the overall activity rate for the Customer Support activity cost pool?

Accepted Answer

A)  $11,100. 
B)  $12,950. 
C)  $13,800. 
D)  $14,800.

Question 11

Unit-level production activities are performed each time a unit is made.

Accepted Answer

A) True 
 B)False

Question 12

Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). The company has two products, R58G and R09O, about which it has provided the following data:

The company's estimated total manufacturing overhead for the year is $1,617,600 and the company's estimated total direct labour-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

-(Appendix 5B)The manufacturing overhead that would be applied to a unit of product R58G under the company's traditional costing system is closest to:

Accepted Answer

A)  $6.74 
B)  $16.10 
C)  $22.84 
D)  $2.90

Question 13

Cabanos Company manufactures two products,Product C and Product D.The company estimated it would incur $160,790 in manufacturing overhead costs during the current period.Overhead currently is applied to the products on the basis of direct labour hours.Data concerning the current period's operations appear below:

Required:

a) Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.
b) The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

Determine the unit product cost of each product for the current period using the activity-based costing approach.

Accepted Answer

The answer of Cabanos Company manufactures two products,Product C and...

Question 14

Foss Florist specializes 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:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows:

-What would be the total overhead cost per delivery according to the activity-based costing system,rounded to the nearest whole cent? In other words,what would be the overall activity rate for the Deliveries activity cost pool?

Accepted Answer

A)  $3.93. 
B)  $4.71. 
C)  $4.93. 
D)  $5.50.

Question 15

Lionel Corporation manufactures two products,Product B and Product H.Product H is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product B.Product H is produced on an automated production line.
Overhead is currently assigned to the products on the basis of direct labour hours.The company estimated it would incur $450,000 in manufacturing overhead costs and produce 7,500 units of Product H and 30,000 units of Product B during the current year.Unit costs for materials and direct labour are:

Required:

a) Compute the predetermined overhead rate under the current method of allocation, and determine the unit product cost of each product for the current year.
b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

Accepted Answer

The answer of Lionel Corporation manufactures two products,Product B and...

Question 16

Escoto Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows:

-To the nearest whole dollar,how much wages and salaries cost would be allocated to a customer who placed eight orders in a year?

Accepted Answer

A)  $7,474. 
B)  $9,191. 
C)  $10,908. 
D)  $14,948.

Question 17

(Appendix 5A)An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labour.

Accepted Answer

A) True 
 B)False

Question 18

Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.

Accepted Answer

A) True 
 B)False

Question 19

Monson Company has two products: G and P. The company uses activity-based costing and has prepared the following analysis, showing the estimated total cost and expected activity for each of its three activity cost pools:

The annual production and sales of Product G is 10,640 units. The annual production and sales of Product P is 26,600.
-The activity rate under the activity-based costing system for Activity 2 is closest to which of the following?

Accepted Answer

A)  $16.00. 
B)  $21.97. 
C)  $26.67. 
D)  $89.33.

Question 20

Monson Company has two products: G and P. The company uses activity-based costing and has prepared the following analysis, showing the estimated total cost and expected activity for each of its three activity cost pools:

The annual production and sales of Product G is 10,640 units. The annual production and sales of Product P is 26,600.
-The cost per unit of Product P under activity-based costing is closest to which of the following?

Accepted Answer

A)  $4.00. 
B)  $6.88. 
C)  $10.00. 
D)  $30.16.

Exam 5: Activity-Based Costing: A Tool to Aid Decision Making

When combining activities in an activity-based costing system,activities should be grouped together at the same level.For example,batch-level activities should not be combined with unit-level activities.

Unit-level production activities are performed each time a unit is made.

(Appendix 5A)An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labour.

Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.