Deck 4: Activity-Based Costing

Question 1

Management information systems can be divided into a unit-based type and activity-based type.

Answer 1

True

Question 2

Activity-based costing uses only unit-level drivers for costing.

Answer 2

False

Question 3

Product classification attributes define and describe activities and are the basis for product classification.

Answer 3

False

Question 4

After identifying and describing activities, the next step is to determine the cost of the performance of each activity.

Question 5

The difference between actual overhead and applied overhead is an underapplied overhead.

Question 6

Predetermined overhead rates are calculated at the end of each year using the formula: overhead rate = budgeted annual driver level/budgeted annual driver level.

Question 7

Unit-based product costing assigns manufacturing and selling costs to products.

Question 8

Activity attributes are nonfinancial and financial information items that describe individual activities.

Question 9

Overhead assignments should reflect the amount of overhead demanded by each product.

Question 10

A list of the activities identified in the design of an activity-based system is called an activity inventory.

Question 11

If applied overhead is greater than actual overhead it is called overapplied overhead.

Question 12

The first step in designing an activity-based costing system is to identify activities.

Question 13

An activity-based costing system traces costs to activities and then to products and other cost objects.

Question 14

Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.

Question 15

If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.

Question 16

The activity-based cost assignment is the most accurate method of costing because it follows a cause-and-effect pattern of overhead consumption.

Question 17

Non-unit-based drivers are factors that measure the demands that cost objects place on activities.

Question 18

Unit-level drivers are factors that measure the demands placed on unit-level activities by products.

Question 19

The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.

Question 20

Classifying activities into four general categories facilitates product costing by associating the response to different types of activity drivers.

Question 21

The formula Budgeted annual overhead/Budgeted annual driver level is used to calculate a __________ rate.

Question 22

Activity __________ are nonfinancial and financial data that describe individual activities.

Question 23

In the __________ ABC systems, managers directly estimate the resource demands imposed by each product.

Question 24

There are many two-driver combinations that may be used to reduce the ABC system without sacrificing accuracy.

Question 25

Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.

Question 26

__________ drivers create distortions when different products utilize resources differently.

Question 27

An __________costing database is the collected data sets that are organized and interrelated for use in a company's ABC information system.

Question 28

Time driven activity-based costing (TDABC) requires the need to identify resource drivers to assign costs to activities.

Question 29

Efforts to simplify activity-based costing systems (ABC) involve either before-the-fact simplification or after-the-fact simplification.

Question 30

The use of __________ activity drivers to assign costs tends to __________ high-volume products.

Question 31

Materials handling would be classified as a __________ activity when using activity-level costing.

Question 32

A(n) __________ is a grouping of logically related information.

Question 33

The proportion of an overhead activity consumed by a product is the __________ ratio.

Question 34

Activity __________ helps management achieve objectives such as product or customer costing and continuous improvement.

Question 35

Offering greater product accuracy than an activity-based costing system is not a characteristic of a __________ costing system.

Question 36

For labor-intensive operations, the most appropriate activity driver would be the __________ hours.

Question 37

A(n) __________ method first traces costs to a department and then to products.

Question 38

The activity __________ is a simple list of activities identified in an ABC system.

Question 39

A(n) __________ costing system first traces costs to activities and then to products.

Question 40

After-the-fact simplification includes two approaches: the approximately relevant reduced ABC system and the equally accurate enhanced ABC system.

Question 41

Which of the following is true of a unit-based costing system?

A)It estimates the time to perform one unit of activity.
B)It measures the demands that cost objects place on support activities.
C)It assigns only manufacturing costs to products.
D)It offers greater product costing accuracy than an activity-based costing system.

Question 42

Azure Company predicted factory overhead for 2018 and 2019 would be $150,000 for each year. Direct labor hours were predicted as 35,000 hours for 2018 and 25,000 hours for 2019. Additional data are as follows: The company assumes that the long-run normal production level is 25,000 direct labor hours per year. The actual factory overhead cost for the end of 2018 and 2019 was $150,000. Assume that it takes one direct labor hour to make one finished unit.
When the normal factory overhead rate is used, the gross profits for 2018 and 2019, respectively, are

A)$320,000 and $320,000, respectively.
B)$720,000 and $720,000, respectively.
C)$400,000 and $400,000, respectively.
D)$360,000 and $360,000, respectively.

Question 43

The following information is provided by the Salinger Corporation for the year: Which of the following is the predetermined overhead rate, if calculated using direct labor hours? (Round the answer to two decimal places.)

A)$1.53
B)$6.52
C)$8.02
D)$12.30

Question 44

The method that first traces costs to a department and then to products is called:

A)direct costing
B)absorption costing
C)unit-based costing
D)indirect costing

Question 45

The total overhead assigned to actual production at any point in time is called:

A)non-unit-based overhead.
B)budgeted overhead.
C)overhead assignment.
D)applied overhead.

Question 46

If unit-based product costing is used, which of the following would be traced directly to the product?

A)setup costs
B)direct labor
C)maintenance of machinery
D)inspection costs

Question 47

A predetermined overhead rate is calculated using which of the following formulas?

A)Actual annual overhead / budgeted annual driver level
B)Budgeted annual overhead / budgeted annual driver level
C)Budgeted annual overhead / actual annual driver level
D)Actual annual overhead / actual annual driver level

Question 48

Unit-level product costing assigns

A)direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
B)direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
C)direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.
D)direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.

Question 49

In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?

A)units produced
B)direct labor hours
C)machine hours
D)number of batches

Question 50

A department that is capital-intensive most likely would use a predetermined departmental overhead rate based on which of the following activity bases?

A)units of direct material used
B)direct labor hours
C)direct labor cost
D)machine hours

Question 51

Unit-based product costing uses which of the following procedures?

A)All overhead costs are expensed as incurred.
B)Overhead costs are traced to departments, then costs are traced to products.
C)Overhead costs are traced directly to products.
D)Overhead costs are traced to activities, then costs are traced to products.

Question 52

For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?

A)machine hours
B)direct labor hours
C)number of employees
D)units of output

Question 53

The following information pertains to Whitestone Industries for 2018:
What is the predetermined overhead rate for Whitestone Industries for 2018?

A)66.7%
B)150%
C)160%
D)62.5%

Question 54

The following information is provided by Zinger Corporation for the year: If normal costing is used, the amount of overhead applied for the year is:

A)$550,000.
B)$300,000.
C)$450,000.
D)$675,000.

Question 55

The overhead rates of the traditional functional-based product costing use

A)non-unit-based activity drivers.
B)unit-based activity drivers.
C)process costing.
D)job order costing.

Question 56

The records of Family Manufacturing show the following information:
The amount of overapplied or underapplied overhead is

A)$10,000 underapplied.
B)$50,000 overapplied.
C)$60,000 overapplied.
D)$65,200 underapplied.

Question 57

Zercox Corporation uses a predetermined rate to apply overhead. At the beginning of the year, Zercox estimated its overhead costs at $380,000, direct labor hours at 55,000, and machine hours at 25,000. Actual overhead costs incurred were $350,150, actual direct labor hours were 56,000, and actual machine hours were 26,000.
What is Zercox's predetermined overhead rate per machine hour? (Round the answer to two decimal places.)

A)$6.79
B)$14.62
C)$14.00
D)$15.20

Question 58

The records of Family Manufacturing show the following information:
The company uses a predetermined overhead rate to apply overhead. Manufacturing overhead applied is

A)$750,000.
B)$700,000.
C)$690,000.
D)$648,000.

Question 59

A costing system that uses actual costs for direct materials and labor and predetermined overhead rates to apply overhead is called a(n)

A)actual costing system.
B)standard costing system.
C)normal costing system.
D)activity-based costing system.

Question 60

Mannitou Company made the following predictions for 2018: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is

A)$69,000.
B)$75,000.
C)$63,000.
D)$66,000.

Question 61

Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 2018: Factory overhead rate is $18 per direct labor hour.
What is the amount of under- or overapplied overhead for Lonestar Corporation in 2018?

A)$40,000 overapplied
B)$20,000 overapplied
C)$40,000 underapplied
D)$20,000 underapplied

Question 62

Motorsports, Inc. had a predetermined overhead rate of $2 per direct labor hour. The direct labor hours were estimated to be 25,000. The actual manufacturing overhead incurred was $47,000 and 24,000 actual direct labor hours were worked. How much was overhead over/under applied last year?

A)$1,000 underapplied
B)$2,000 underapplied
C)$1,000 overapplied
D)$3,000 overapplied

Question 63

The Magnanimous Company uses a predetermined overhead rate of $12 per direct labor hour to apply overhead. During the year, 30,000 direct labor hours were worked. Actual overhead costs for the year were $320,000. The overhead variance is

A)$40,000 underapplied.
B)$35,560 underapplied.
C)$36,000 overapplied.
D)none of the above.

Question 64

Material amounts of underapplied or overapplied overhead should be

A)treated as an adjustment to cost of goods sold.
B)treated as an adjustment to work in process.
C)allocated to direct materials, work in process, and finished goods.
D)allocated to work in process, finished goods, and cost of goods sold.

Question 65

The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
What is the predetermined overhead rate? (round to 2 decimal places)

A)$0.62
B)$0.65
C)$0.67
D)$0.70

Question 66

Assume the following: Actual overhead costs equaled estimated overhead. Actual direct labor hours exceeded estimated direct labor hours used to calculate the predetermined overhead rate. If overhead is applied using the predetermined overhead rate, then overhead is

A)$-0-.
B)underapplied.
C)overapplied.
D)indeterminable from the information given.

Question 67

The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
If the accounts had the following balances, how much will cost of goods sold be adjusted?

A)debit $12,500
B)debit $21,250
C)credit $26,562.50
D)none of these

Question 68

Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
If factory overhead is applied based on direct labor hours, the cost of Job A2 for the Mannitou Company is

A)$60,000.
B)$75,000.
C)$63,000.
D)$66,000.

Question 69

The following information is provided for the year: Assuming normal costing is used, calculate the amount of overhead applied for the year. (Round the answer to two decimal places.)

A)$568,750.00
B)$441,031.25
C)$824,840.40
D)$525,000.00

Question 70

Lamar Corporation uses departmental manufacturing overhead rates to apply overhead. Direct labor cost is used to apply manufacturing overhead in Department A and machine hours are used for Department B. What predetermined overhead rate would be used for departments A and B respectively?

A)83%; $5
B)83%; $3
C)120%; $4
D)$8.40; $5

Question 71

Bear Claw Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year:
The following information was available for Job No. 7-29, which was started and completed during August:
The predetermined overhead rate for the molding department is

A)$100.
B)$83.
C)$70.
D)$50.

Question 72

Account balances from the Boilermakers Company are as follows:
If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of

A)$ 960,000.
B)$ 640,000.
C)$1,040,000.
D)$1,440,000.

Question 73

The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data: What is the overhead per unit for race cars? (round to 3 decimal places)

A)$0.50
B)$0.505
C)$0.32
D)$1.40

Question 74

The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
How much overhead is applied to each 9 volt batteries and AAA batteries respectively? (round to 2 decimal places)

A)$87,500; $280,000
B)$70,000; $280,00
C)$81,250; $260,000
D)none of these

Question 75

The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data: What are the departmental overhead rates for the molding and finishing department respectively?

A)$25; $2.50
B)$8.33; $2
C)$25; $10
D)$12.50; $2.50

Question 76

The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
How much was overhead over/underapplied?

A)$25,000
B)$17,500
C)$42,500
D)none of these

Question 77

The following information is provided by the Sutton Corporation for the year:
If normal costing is used, budgeted overhead used to calculate the predetermined rate would be

A)$443,250.
B)$450,000.
C)$487,500.
D)$536,250.

Question 78

The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:
How much overhead is applied to the planes?

A)$ 60,000
B)$250,000
C)$219,500
D)$225,000

Question 79

Tarot Company has a predetermined overhead rate of $6 per direct labor hour. Last year the company incurred $156,600 of actual manufacturing overhead cost and the account was $12,600 underapplied. How many direct labor hours were worked during the year?

A)24,000 direct labor hours
B)25,000 direct labor hours
C)26,000 direct labor hours
D)28,200 direct labor hours

Question 80

The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:
How much was overhead over or underapplied?

A)$14,250
B)$10,000
C)$ 4,250
D)none of these