Question 1

Gizmo Company, a manufacturer of small appliances, had the following activities, allocated costs, and allocation bases: $$\begin{array} { | l | l | l | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 68,000 & 2600 \text { hours } \
\hline \text { Account billing (lines) } & \$ 34,000 & 17,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 18,000 & 20,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 10,000 & 1400 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | l | l | } 
\hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 100 \text { hours } & 250 \text { hours } \
\hline \text { Account billing (lines) } & 16,000 \text { lines } & 3000 \text { lines } \
\hline \text { Account verification (accounts) } & 1900 \text { accounts } & \text { 700 accounts } \
\hline \text { Correspondence (letters) } & 50 \text { letters } & 140 \text { letters } \
\hline
\end{array}$$ What is the cost per hour for the account inquiry activity? (Round your answer to the nearest cent.)

Accepted Answer

A)  $0.90 
B)  $26.15 
C)  $7.14 
D)  $2.00

Question 2

Why is it difficult to measure external failure costs? What are some nonfinancial measures quality management systems can use to gauge external failure?

Accepted Answer

The answer of Why is it difficult to measure external...

Question 3

Traditional costing systems employ multiple allocation rates for manufacturing overhead costs, but an activity-based costing system uses only one rate for allocating manufacturing overhead costs.

Accepted Answer

A) True 
 B)False

Question 4

List and briefly discuss three major differences between just-in-time costing (JIT) and traditional costing.

Accepted Answer

The answer of List and briefly discuss three major differences...

Question 5

Which of the following statements is true of costing systems?

Accepted Answer

A)  Many traditional costing systems can distort product costs and profitability. 
B)  Traditional costing systems tend to be more costly than activity-based costing systems. 
C)  Activity-based costing systems tend to combine various costs into a single cost pool. 
D)  Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.

Question 6

The costs incurred in training employees is an example of a(n) ________.

Accepted Answer

A)  external failure cost 
B)  internal failure cost 
C)  prevention cost 
D)  appraisal cost

Question 7

Internal failure costs are costs incurred ________.

Accepted Answer

A)  to detect poor-quality materials, goods, or services 
B)  when the company corrects poor-quality goods or services before delivery to customers 
C)  after the company delivers poor-quality goods or services to customers and then has to make things right with the customer 
D)  to avoid poor-quality goods or services

Question 8

Camilleri, Inc. completed the production of 500 units with standard costs of $520 for direct materials and $75 for conversion costs. During the current year, it incurred $260,000 for direct materials and $44,000 for conversion costs. The company uses a just-in-time costing system. Record the adjusting entry for the amount of underallocated or overallocated conversion costs. Omit explanation.

Accepted Answer

The answer of Camilleri, Inc. completed the production of 500...

Question 9

Under a just-in-time costing system, the journal entry that is recorded when the goods are completed and moved to Finished Goods Inventory is ________.

Accepted Answer

A)  $\begin{array}{|l|}
  \hline \text {  Finished Goods Inventory} \
 \hline \text { Raw and In-Process Inventory } \
\hline 
\end{array}$ 
B)  $\begin{array}{|l|}
  \hline \text {  Finished Goods Inventory} \
 \hline \text { Raw and In-Process Inventory } \
 \hline \text {  Conversion Costs}\
\hline 
\end{array}$ 
C)  $$\begin{array} { | l | } 
\hline \text { Finished Goods Inventory } \
\hline \text { Conversion Costs } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | } 
\hline \text {Raw and In-Process Inventory} \
\hline \text { Conversion Costs } \
\hline \text {Finished Goods Inventory}\
\hline
\end{array}$$

Question 10

Appraisal costs are costs incurred ________.

Accepted Answer

A)  to avoid poor-quality goods or services 
B)  to detect poor-quality materials, goods, or services 
C)  when the company corrects poor-quality goods or services before delivery to customers 
D)  after the company delivers poor-quality goods or services to customers and then has to make things right with the customer

Question 11

Just-in-time costing systems use a combined account for Raw Materials Inventory and Work-in-Process Inventory known as the ________.

Accepted Answer

A)  Raw Materials Inventory account 
B)  Work-in-Process Inventory account 
C)  Raw and In-Process Inventory account 
D)  Process account

Question 12

A modification of the overhead allocation method which uses a single plantwide rate, is to use multiple predetermined overhead allocation rates that have different allocation bases.

Accepted Answer

A) True 
 B)False

Question 13

Borsetta, Inc. manufactures two kinds of bags-totes and satchels. The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base. Estimated overhead costs for the year are $25,000. Additional estimated information is given below. $$\begin{array} { | l | r | r | } 
\hline & \text { Totes } & \text { Satchels } \
\hline \text { Direct materials cost per unit } & \$ 33 & \$ 44 \
\hline \text { Direct labor cost per unit } & \$ 54 & \$ 62 \
\hline \text { Number of units } & 540 & 370 \
\hline
\end{array}$$ Calculate the amount of overhead to be allocated to Satchels, if the actual units produced and direct labor costs equal the estimated amounts. (Round any percentages to two decimal places and your final answer to the nearest dollar.)

Accepted Answer

A)  $463 
B)  $13,991 
C)  $11,007 
D)  $22,940

Question 14

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Accepted Answer

A) True 
 B)False

Question 15

Barricade Corporation specializes in the production of door knobs, which are mostly sold within its territory. The selling price for each door knob is $15. Using the traditional allocation method to allocate manufacturing overhead, the full-product cost is determined to be $10. The company recently introduced the activity-based costing method to allocate its overhead. The refinement of costs shows that the full-product cost is $2.50 lower with activity-based costing than with traditional costing.
Requirement:
1. Calculate the change in net profit percentage as a result of the introduction of activity-based costing.
2. The desired net profit margin of the company is 60%. If the production costs cannot be reduced, by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing.)

Accepted Answer

The answer of Barricade Corporation specializes in the production of...

Question 16

Companies using just-in-time production systems are far more vulnerable to production shutdowns if they receive defective raw materials.

Accepted Answer

A) True 
 B)False

Question 17

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

Accepted Answer

A) True 
 B)False

Question 18

In service companies, activity-based management ________.

Accepted Answer

A)  results in more accurate cost per service information 
B)  follows different steps than in a manufacturing environment 
C)  is used to estimate total direct costs 
D)  uses one predetermined overhead allocation rate for all service activities

Question 19

Which of the following accounts would NOT be used with just-in-time costing?

Accepted Answer

A)  Finished Goods Inventory 
B)  Raw Materials Inventory 
C)  Conversion Costs 
D)  Cost of Goods Sold

Question 20

A product mix decision focuses on generating the maximum profit for a company but does not consider the company's limited production capabilities.

Accepted Answer

A) True 
 B)False

Exam 19: Cost Management Systems: Activity-Based Just-In-Time

Why is it difficult to measure external failure costs? What are some nonfinancial measures quality management systems can use to gauge external failure?

Traditional costing systems employ multiple allocation rates for manufacturing overhead costs, but an activity-based costing system uses only one rate for allocating manufacturing overhead costs.

List and briefly discuss three major differences between just-in-time costing (JIT) and traditional costing.

Which of the following statements is true of costing systems?

The costs incurred in training employees is an example of a(n) ________.

Internal failure costs are costs incurred ________.

Under a just-in-time costing system, the journal entry that is recorded when the goods are completed and moved to Finished Goods Inventory is ________.

Appraisal costs are costs incurred ________.

Just-in-time costing systems use a combined account for Raw Materials Inventory and Work-in-Process Inventory known as the ________.

A modification of the overhead allocation method which uses a single plantwide rate, is to use multiple predetermined overhead allocation rates that have different allocation bases.

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Companies using just-in-time production systems are far more vulnerable to production shutdowns if they receive defective raw materials.

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

In service companies, activity-based management ________.

Which of the following accounts would NOT be used with just-in-time costing?

A product mix decision focuses on generating the maximum profit for a company but does not consider the company's limited production capabilities.