Question 1

Smelly Perfume Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Cindy is the department manager of Department C which produces Products J and P.Department C has $16,200 in traceable overhead.Diane is the department manager of Department D which manufactures Product X.Department D has $11,100 in traceable overhead.The product costs (per case of 24 bottles)and other information are as follows:  Department D has recently purchased and installed new computerized equipment for Product X.This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings)in Department D by $3.00 per case.Machine hours will not change.If Smelly uses a plantwide rate based on direct labor hours,what is the revised product cost per case for Product J?

Accepted Answer

A) $175.33. 
B) $161.50. 
C) $169.30. 
D) $183.36.

Question 2

The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.The death spiral is continually increasing the prices to match the increased reported costs.

Accepted Answer

A) True 
 B)False

Question 3

Multiple (departmental)manufacturing overhead rates are considered preferable to a single (plantwide)overhead rate when: (CMA adapted)

Accepted Answer

A) manufacturing is limited to a single product flowing through identical departments in a fixed sequence. 
B) various products are manufactured that do not pass through the same departments or use the same manufacturing techniques. 
C) individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships. 
D) the single or plantwide rate is related to several identified cost drivers.

Question 4

Companies using activity-based costing (ABC)have learned that costs are a function of:

Accepted Answer

A) volume and activities. 
B) time and complexity. 
C) volume and time. 
D) resources and time.

Question 5

Which of the following activities would be classified as a batch-level activity?

Accepted Answer

A) Setting up equipment. 
B) Designing a new product. 
C) Training employees. 
D) Milling a part required for the final product.

Question 6

Traditional product costing systems (e.g. ,job and process costing)are designed primarily to accumulate cost information for financial reporting.This is the primary purpose of accumulating cost information.

Accepted Answer

A) True 
 B)False

Question 7

In general,variable costs are allocated using a first-stage cost allocation system and fixed costs are allocated using a second-stage cost allocation system.Variable and fixed costs are both involved in the first-stage cost allocation.

Accepted Answer

A) True 
 B)False

Question 8

Smelly Perfume Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Cindy is the department manager of Department C which produces Products J and P.Department C has $16,200 in traceable overhead.Diane is the department manager of Department D which manufactures Product X.Department D has $11,100 in traceable overhead.The product costs (per case of 24 bottles)and other information are as follows:  If Smelly changes its overhead allocation to departmental rates,what is the product cost per case for Product P assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

Accepted Answer

A) $117.15. 
B) $163.50. 
C) $121.50. 
D) $138.15.

Question 9

Cost pools are used with:

Accepted Answer

A) Option a 
B) Option b 
C) Option c 
D) Option d

Question 10

Property taxes are an example of a cost that would be considered to be:

Accepted Answer

A) Unit-level. 
B) Batch-level. 
C) Product-level. 
D) Organization-sustaining.

Question 11

Management estimates that it costs $400 to analyze and close a commercial loan.What is the overhead rate if Muskego allocates the remaining indirect costs using direct labor hours?

Accepted Answer

A) $14.00 per hour. 
B) $16.67 per hour. 
C) $1,000 per loan. 
D) $500 per loan.

Question 12

What is the typical effect on the numbers of cost pools and cost assignment bases when an activity-based costing (ABC)system replaces a traditional costing system? (CPA adapted)

Accepted Answer

A) Option a 
B) Option b 
C) Option c 
D) Option d

Question 13

The LMN Company recently switched to activity-based costing (ABC)from the department allocation method.The department method allocated overhead costs at a rate of $60 per machine hour.The cost accountant for Department XZ has gathered the following data:  During April,LMN purchased and used $100,000 of direct materials at $20 per ton.There were eight (8)production runs using a total of 12,000 machine hours in April.The manager of Department XZ needed 12 inspections.Actual overhead costs totaled $820,000 for the month.How much overhead costs were applied to the Work-in-Process Inventory during April using activity-based costing?

Accepted Answer

A) $536,000. 
B) $720,000. 
C) $736,000. 
D) $820,000.

Question 14

Scottso Enterprises has identified the following overhead costs and cost drivers for the coming year:  Budgeted direct labor cost was $200,000 and budgeted direct material cost was $800,000.The following information was collected on three jobs that were completed during the month:  If the company uses traditional costing and allocates overhead using direct materials cost,what is the cost of each unit of Job A-28?

Accepted Answer

A) $196.00. 
B) $516.00. 
C) $364.50. 
D) $352.00.

Question 15

Smelly Perfume Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Cindy is the department manager of Department C which produces Products J and P.Department C has $16,200 in traceable overhead.Diane is the department manager of Department D which manufactures Product X.Department D has $11,100 in traceable overhead.The product costs (per case of 24 bottles)and other information are as follows:  Department D has recently purchased and installed new computerized equipment for Product X.This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings)in Department D by $3.00 per case.Machine hours will not change.If Smelly uses departmental rates,what are the product costs per case for Product J assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

Accepted Answer

A) $161.50. 
B) $169.30. 
C) $171.45. 
D) $183.36.

Question 16

Smelly Perfume Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Cindy is the department manager of Department C which produces Products J and P.Department C has $16,200 in traceable overhead.Diane is the department manager of Department D which manufactures Product X.Department D has $11,100 in traceable overhead.The product costs (per case of 24 bottles)and other information are as follows:  If Smelly changes its allocation basis to machine hours,what is the total product cost per case for Product X?

Accepted Answer

A) $80.48. 
B) $79.50. 
C) $74.00. 
D) $75.17.

Question 17

Terri Martin,CPA provides bookkeeping and tax services to her clients.She charges a fee of $60 per hour for bookkeeping and $90 per hour for tax services.Martin estimates the following costs for the upcoming year:  Operating profits declined last year and Ms.Martin has decided to use activity-based costing (ABC)procedures to evaluate her hourly fees.She gathered the following information from last year's records:  A major client has requested bookkeeping services.However,Martin is already billing 100% of her capacity (i.e. ,2,000 hours per year)and would need to shift 100 hours from her tax services to meet this client's request.What is the minimum fee per hour that Martin could charge this client for bookkeeping services and be no worse off than last year?

Accepted Answer

A) $48.75. 
B) $60.00. 
C) $81.25. 
D) $90.00.

Question 18

Which of the following would NOT be a batch-related activity?

Accepted Answer

A) Setting up a machine for a new production run. 
B) Performing 100% inspection. 
C) Purchasing materials. 
D) Processing a customer order.

Question 19

Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced?

Accepted Answer

A) Volume-related activities. 
B) Batch-related activities. 
C) Product-related activities. 
D) Facility-related activities.

Question 20

Terri Martin,CPA provides bookkeeping and tax services to her clients.She charges a fee of $60 per hour for bookkeeping and $90 per hour for tax services.Martin estimates the following costs for the upcoming year:  Operating profits declined last year and Ms.Martin has decided to use activity-based costing (ABC)procedures to evaluate her hourly fees.She gathered the following information from last year's records:  Martin wants her hourly fees for the tax services to be 160% of their activity-based costs.What is the fee per hour for tax services in the upcoming year?

Accepted Answer

A) $70.40. 
B) $88.00. 
C) $110.00. 
D) $118.40.

Exam 9: Activity-Based Costing

The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.The death spiral is continually increasing the prices to match the increased reported costs.

Multiple (departmental) manufacturing overhead rates are considered preferable to a single (plantwide) overhead rate when: (CMA adapted)

Companies using activity-based costing (ABC) have learned that costs are a function of:

Which of the following activities would be classified as a batch-level activity?

Traditional product costing systems (e.g. ,job and process costing)are designed primarily to accumulate cost information for financial reporting.This is the primary purpose of accumulating cost information.

In general,variable costs are allocated using a first-stage cost allocation system and fixed costs are allocated using a second-stage cost allocation system.Variable and fixed costs are both involved in the first-stage cost allocation.

Cost pools are used with:

Property taxes are an example of a cost that would be considered to be:

Management estimates that it costs $400 to analyze and close a commercial loan.What is the overhead rate if Muskego allocates the remaining indirect costs using direct labor hours?

What is the typical effect on the numbers of cost pools and cost assignment bases when an activity-based costing (ABC) system replaces a traditional costing system? (CPA adapted)

Which of the following would NOT be a batch-related activity?

Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced?