Question 1

Oscar,Inc. ,a manufacturer of gift articles,uses a single plantwide rate to allocate indirect costs with machine hours as the allocation base.Estimated overhead costs for the year are $5,000,000.Estimated machine hours are 40,000.During the year,the actual machine hours used were 45,000.Calculate the predetermined overhead allocation rate.(Round your answer to the nearest dollar. )

Accepted Answer

A) $111 
B) $91 
C) $125 
D) $63

Question 2

Companies calculate the predetermined overhead rate at the beginning of an accounting period using the actual values of overhead costs.

Accepted Answer

A) True 
 B)False

Question 3

Direct material costs and direct labor costs cannot be easily traced to products.Therefore,they are allocated to products.

Accepted Answer

A) True 
 B)False

Question 4

Managers can use activity-based management to make what two kinds of decisions?

Accepted Answer

The answer of Managers can use activity-based management to make...

Question 5

Since quality improvement programs are always needed,there is no reason to compare the costs of undertaking a quality improvement program to the costs of continuing without the quality improvement program.

Accepted Answer

A) True 
 B)False

Question 6

Leyden Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 80,000 & 2,200 \text { hours } \
\hline \text { Account billing (lines) } & \$ 31,000 & 19,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 10,000 & 21,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 12,000 & 1,400 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 180 \text { hours } & 250 \text { hours } \
\hline \text { Account billing (lines) } & 16,000 \text { lines } & 7,000 \text { lines } \
\hline \text { Account verification (accounts) } & 1,400 \text { accounts } & 600 \text { accounts } \
\hline \text { Correspondence (letters) } & 50 \text { letters } & 140 \text { letters } \
\hline
\end{array}$$ How much of the correspondence cost will be assigned to the Northeast Office? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )

Accepted Answer

A) $429 
B) $12,000 
C) $1,200 
D) $5,143

Question 7

Malloy Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 77,000 & 2,800 \text { hours } \
\hline \text { Account billing (lines) } & \$ 31,000 & 15,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 14,000 & 29,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 14,000 & 1,000 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 100 \text { hours } & 300 \text { hours } \
\hline \text { Account billing (lines) } & 16,000 \text { lines } & 8,000 \text { lines } \
\hline \text { Account verification (accounts) } & 1,800 \text { accounts } & 600 \text { accounts } \
\hline \text { Correspondence (letters) } & 50 \text { letters } & 110 \text { letters } \
\hline
\end{array}$$ How much of the account inquiry cost will be assigned to the Midwest Office? (Round any intermediate calculations to two decimal places and your final answer to the nearest dollar. )

Accepted Answer

A) $16,500 
B) $77,000 
C) $27,500 
D) $8,250

Question 8

Which of the following would most likely be treated as an activity in an activity-based costing system?

Accepted Answer

A) direct labor cost 
B) machine processing 
C) direct materials cost 
D) sales revenues

Question 9

Musings,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 $31,000 for conversion costs.Record the adjusting entry for the amount of underallocated or overallocated conversion costs.

Accepted Answer

The answer of Musings,Inc.completed the production of 500 units with...

Question 10

In selecting machine usage as the primary cost driver for the Production Department,management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred.

Accepted Answer

A) True 
 B)False

Question 11

Modiste,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 $24,000.Additional estimated information is given below. $$\begin{array} { | l | r | r | } 
\hline & \text { Totes } & \text { Satchels } \
\hline \text { Direct materials cost per unit } & \$ 33 & \$ 43 \
\hline \text { Direct labor cost per unit } & \$ 50 & \$ 61 \
\hline \text { Number of units } & 530 & 380 \
\hline
\end{array}$$ Calculate the predetermined overhead allocation rate.(Round your answer to two decimal places. )

Accepted Answer

A) 90.57% 
B) 48.31% 
C) 96.58% 
D) 1.36%

Question 12

Engelhardt,Inc. ,a law consulting firm,has been using a single predetermined overhead allocation rate with direct labor hours as the allocation base to allocate overhead costs.The direct labor rate is $40 per hour.Ted Heath,the president of Engelhardt,decided to develop an ABC system to accurately allocate the indirect costs.He identified two activities related to the total indirect costs-travel and information technology (IT)support.The other relevant details are given below: $\begin{array}{|l|l|r|r|}
\hline\text { Activity } & \text { Allocation base } & \text { Estimated costs } & \begin{array}{c}
\text { Estimated quantity } \
\text { of allocation base }
\end{array} \
\hline \text { Travel } & \text { Miles driven } & \$ 77,000 & 3,500 \mathrm{miles} \
\hline \text { IT Support } & \text { Direct labor hours } & \underline{55,000} & 1,250 \mathrm{DLH} \
\hline \text { Total } & & \$ 132,000,00 & \
\hline
\end{array}$ During the current month,Engelhardt's consultants spent 150 labor hours for Cunningham,Inc.The job required the professionals to travel 400 miles in total.Determine the total cost of the consulting job using the ABC system.(Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )

Accepted Answer

A) $6,000 
B) $1,760 
C) $6,600 
D) $21,400

Question 13

Activity-based costing can be used in determining the cost of services as well as products.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Target pricing starts with the full product cost,and it then adds the desired profit to arrive at the sales price.

Accepted Answer

A) True 
 B)False

Question 16

The first step in developing an activity-based costing system is to identify the activities that will be used to allocate the manufacturing overhead costs.

Accepted Answer

A) True 
 B)False

Question 17

Orlando Avionics makes three types of radios for small aircraft-Model A,Model B,and Model C.The manufacturing operations are mechanized,and there is no direct labor.Manufacturing overhead costs are significant,and Orlando has adopted an activity-based costing system.Direct materials costs per unit for each model are as follows: $\begin{array}{ll}
\text { Model A } & \$ 20 \
\text { Model B } & \$ 33 \
\text { Model C } & \$ 36
\end{array}$ Orlando has three activities-assembly,materials management,and testing.The cost driver for assembly is machine hours.The cost driver for materials management is the number of parts,and the cost driver for testing is the number of units of product.Total costs and production volumes for the year were estimated as follows:
$\begin{array}{|l|r|r|r|} \hline&&\text { Allocation }\
&{\text { Total cost }} &{\text { Base }} & \text { Cost Driver } \
\hline \text { Assembly } & \$ 792,000 & 123,750 & \text { Machine hours } \
\hline \text { Materials management } & \$ 136,000 & 80,000 & \text { Parts } \
\hline \text { Testing } & \$ 23,000 & 5,750 & \text { Units } \
\hline
\end{array}$ The Model A radio requires 12 parts to construct and 20 machine hours of processing.What is the manufacturing cost to make one unit of Model A? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

Accepted Answer

A) $168 
B) $44 
C) $152 
D) $172

Question 18

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 19

Activity-based management focuses on making decisions that improve customers' satisfaction while also increasing profits.

Accepted Answer

A) True 
 B)False

Question 20

A furniture manufacturer has decided that its use of a single plantwide predetermined overhead allocation rate is no longer accurate.In making the transition to using multiple predetermined overhead allocation rates,which of the following statements is incorrect?

Accepted Answer

A) In selecting machine usage as the primary cost driver for the Production Department,management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred. 
B) Management must analyze the expected overhead costs and separate them into a cost pool for each department. 
C) The allocation process changes because there are now multiple cost pools and multiple allocation bases. 
D) The use of multiple predetermined overhead allocation rates is more complex,but it may be more accurate.

Exam 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems

Companies calculate the predetermined overhead rate at the beginning of an accounting period using the actual values of overhead costs.

Direct material costs and direct labor costs cannot be easily traced to products.Therefore,they are allocated to products.

Managers can use activity-based management to make what two kinds of decisions?

Since quality improvement programs are always needed,there is no reason to compare the costs of undertaking a quality improvement program to the costs of continuing without the quality improvement program.

Which of the following would most likely be treated as an activity in an activity-based costing system?

In selecting machine usage as the primary cost driver for the Production Department,management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred.

Activity-based costing can be used in determining the cost of services as well as products.

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

Target pricing starts with the full product cost,and it then adds the desired profit to arrive at the sales price.

The first step in developing an activity-based costing system is to identify the activities that will be used to allocate the manufacturing overhead costs.

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.

Activity-based management focuses on making decisions that improve customers' satisfaction while also increasing profits.

A furniture manufacturer has decided that its use of a single plantwide predetermined overhead allocation rate is no longer accurate.In making the transition to using multiple predetermined overhead allocation rates,which of the following statements is incorrect?