Question 1

An activity-based costing system is generally easier to set up and run than a traditional cost system.

Accepted Answer

A) True 
 B)False

Question 2

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)  $6.00 
B)  $6.60 
C)  $6.80 
D)  $7.20

Question 3

Activity-based costing uses a number of activity cost pools,each of which is allocated to products on the basis of direct labour hours.

Accepted Answer

A) True 
 B)False

Question 4

How much cost,in total,should not be allocated to orders and customer support in the second stage of the allocation process if the activity-based costing system is used for internal decision making?

Accepted Answer

A)  $0. 
B)  $82,000. 
C)  $104,000. 
D)  $164,000.

Question 5

What would be the total overhead cost per order 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 Filling Orders activity cost pool?

Accepted Answer

A)  $18.50. 
B)  $23.50. 
C)  $27.75. 
D)  $37.00.

Question 6

What would be the total overhead cost per order 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 Filling Orders activity cost pool?

Accepted Answer

A)  $273.00. 
B)  $292.50. 
C)  $302.00. 
D)  $312.00

Question 7

The total annual production cost for Product B is closest to which of the following?

Accepted Answer

A)  $37,816. 
B)  $107,802. 
C)  $65,231. 
D)  $70,000.

Question 8

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 9

Which of the following is NOT a limitation of activity-based costing?

Accepted Answer

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 10

In activity-based costing,a plant-wide overhead rate is used to apply overhead to products.

Accepted Answer

A) True 
 B)False

Question 11

According to the activity-based costing system,what is the total profit margin for this function?

Accepted Answer

A)  ($70). 
B)  ($20). 
C)  $80. 
D)  $230.

Question 12

Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

Accepted Answer

A) True 
 B)False

Question 13

The predetermined overhead rate under the traditional costing system is closest to which of the following?

Accepted Answer

A)  $9.15. 
B)  $19.08. 
C)  $43.48. 
D)  $84.43.

Question 14

According to the activity-based costing system,what is the total profit margin for this function?

Accepted Answer

A)  $1,365. 
B)  $540. 
C)  $1,040. 
D)  $1,190.

Question 15

What is a transaction driver?

Accepted Answer

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 16

EMD Corporation manufactures two products,Product S and Product W.Product W is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product S.Product W is the more complex of the two products,requiring one hour of direct labour time per unit to manufacture,compared to a half-hour of direct labour time for Product S.Product W 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 $500,000 in manufacturing overhead costs and produce 10,000 units of Product W and 60,000 units of Product S during the current year.Unit cost 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:

Accepted Answer

The answer of EMD Corporation manufactures two products,Product S and...

Question 17

(Appendix 7A)The total cost of a unit of product P85G under the company's traditional costing system is closest to:

Accepted Answer

A)  $146.97 
B)  $102.58 
C)  $101.69 
D)  $80.50

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

Jackson Painting paints the interiors and exteriors of homes and commercial buildings.The company uses an activity-based costing system for its overhead costs.The company has provided the following data concerning its activity-based costing system.  
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centres.The results are listed below:  
Required:
a)Compute the activity rates (i.e. ,cost per unit of activity)for the Painting and Job Support activity cost pools by filling in the table below.Round off all calculations to the nearest whole cent.

Accepted Answer

The answer of Jackson Painting paints the interiors and exteriors...

Question 20

(Appendix 7A)The overhead cost per unit of Product B under the activity-based costing system is closest to: (Do not round intermediate calculations)

Accepted Answer

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

Exam 7: Activity-Based Costing: a Tool to Aid Decision Making

An activity-based costing system is generally easier to set up and run than a traditional cost system.

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?

Activity-based costing uses a number of activity cost pools,each of which is allocated to products on the basis of direct labour hours.

How much cost,in total,should not be allocated to orders and customer support in the second stage of the allocation process if the activity-based costing system is used for internal decision making?

What would be the total overhead cost per order 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 Filling Orders activity cost pool?

What would be the total overhead cost per order 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 Filling Orders activity cost pool?

The total annual production cost for Product B is closest to which of the following?

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.

Which of the following is NOT a limitation of activity-based costing?

In activity-based costing,a plant-wide overhead rate is used to apply overhead to products.

According to the activity-based costing system,what is the total profit margin for this function?

Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

The predetermined overhead rate under the traditional costing system is closest to which of the following?

According to the activity-based costing system,what is the total profit margin for this function?

What is a transaction driver?

(Appendix 7A) The total cost of a unit of product P85G under the company's traditional costing system is closest to:

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.

(Appendix 7A) The overhead cost per unit of Product B under the activity-based costing system is closest to: (Do not round intermediate calculations)