Deck 9: Activity- Based Costing

Question 1

Some companies choose to have more detailed Manufacturing Overhead (MOH) allocations and then calculate a MOH rate for each of their departments. What is the correct formula to calculate a departmental rate?

A) Total MOH costs in a department's cost pool × Total quantity of department's cost driver
B) Total MOH costs in a department's cost pool/Total quantity of department's cost driver
C) Total quantity of department's cost driver + Total MOH costs in a department's cost pool
D) Total quantity of department's cost driver/Total MOH costs in a department's cost pool

Answer 1

Total MOH costs in a department's cost pool/Total quantity of department's cost driver

Question 2

Both traditional and activity-based costing have certain features that may make them unique in comparison. Which of the following traits is most closely aligned with activity-based costing?

A) It is used primarily for financial reporting for external users.
B) It separates total MOH into smaller activity pools and uses related cost drivers.
C) It uses a predetermined MOH rate along with one cost driver.
D) Its purpose is to systematically allocate a company's Manufacturing Overhead (MOH) costs to each job.

Answer 2

It separates total MOH into smaller activity pools and uses related cost drivers.

Question 3

If a company uses traditional costing and only one cost driver, what would be the correct order with which costs are considered in calculating overall product cost?

A) Manufacturing overhead applied with a cost driver + Direct Materials - Direct Labor
B) Manufacturing overhead applied with a cost driver + Direct Materials + Direct Labor
C) Total manufacturing overhead - Direct Materials - Direct Labor
D) Total Manufacturing Overhead (MOH) + Direct Materials + Direct Labor

Answer 3

Manufacturing overhead applied with a cost driver + Direct Materials + Direct Labor

Question 4

In comparing a traditional costing systems with an activity-based costing system, which of the following would be considered a feature of a traditional cost system?

A) Dividing a large cost pool into multiple and varied smaller cost pools
B) Using a generic cost driver to allocate costs
C) Using activities undertaken in the value chain to determine smaller cost pools
D) Using relevant cost drivers to allocate costs

Question 5

In a traditional simple costing system, a plant-wide cost pool accumulates factory-wide Manufacturing Overhead (MOH). What is the correct formula to calculate the plant-wide rate?

A) Total MOH costs in a plant-wide cost pool × Total quantity of a single driver
B) Total MOH costs in a plant-wide cost pool/Total quantity of a single driver
C) Total quantity of a single driver + Total MOH costs in a plant-wide cost pool
D) Total quantity of a single driver/Total MOH costs in a plant-wide cost pool

Question 6

Roger has just been hired as an accountant and is in the process of performing some cost accounting calculations. The factory where he works produces tennis balls and uses a plant-wide cost pool under their simple costing system. The factory's total Manufacturing Overhead (MOH) costs are budgeted for: rent for the factory, $72,000; factory utilities, $40,000; quality control salaries, $52,000; and janitorial salaries, $36,000 in addition to assembly line workers' wages of $246,000, tennis ball coating costs of $10,000, and tennis ball core costs of $5,000. What is the budgeted MOH rate using one plant-wide pool based on Direct Labor (DL) cost?

A) $0.33
B) $0.81
C) $3.57
D) $4.35

Question 7

John is currently working on assembling some cost accounting numbers for the upcoming year for a client who produces disposable utensils. The factory has the following costs: Factory Insurance, $55,000; Factory Supervisor's Salary, $200,000; Direct Materials (Plastic), $30,000; Cardboard for Packaging, $12,000; Depreciation on Factory Equipment, $120,000; and Assembly Line Worker Wages, $36,000. The Direct Labor (DL) costs consisted of 10,000 DL hours and 4,000 machine hours. Management has decided to proceed using a simple costing system resulting in a plant-wide cost pool. What is the budgeted MOH rate using one plant-wide pool based on machine hours?

A) $0.01
B) $10.42
C) $37.50
D) $93.75

Question 8

Monarch Inc. is a company that creates and distributes butterfly-themed home décor. You are attempting to calculate total product costs for Monarch by using traditional costing. They have the following costs: Direct Materials (DM) of Resin, $12,000; DM of Metal Backing, $9,000; Paint, $6,000; DM of Adhesive, $10,000; Cardboard for Packaging, $3,000; Assembly Line Wages, $55,750; Marketing, $36,000; and Sales Commissions, $60,000. Their Manufacturing Overhead (MOH) will be 85% of their Direct Labor (DL) cost. What are their total product costs?

A) $143,137.50
B) $151,500.00
C) $209,737.50
D) $320,737.50

Question 9

Shinebright, Inc., a company that produces sunscreen has asked John to calculate their total product costs. Shinebright currently uses traditional costing and has reported the following costs: Janitorial Wages, $32,300; Factory Workers' Wages, $60,000; Machine Operators' Salaries, $34,616; Chemical Compounds, $51,000; Plastic Containers, $11,000; and their Manufacturing Overhead (MOH) will be 84% of their Direct Labor (DL) costs. What are their total product costs?

A) $218,616.00
B) $236,093.44
C) $295,525.44
D) $315,832.00

Question 10

Artie, Inc. manufactures soy candles in the Southeast region of the United States. They have reported the following costs for their rose-scented line of candles: Glass Containers, $28,600; Cotton Wicks, $20,000; Candle Assembly Wages, $46,250; Shipping, $26,000; Package Assembly Wages, $6,000; and Candle Lids, $5,962. Their Manufacturing Overhead (MOH) will be 90% of their Direct Labor (DL) costs. You are reviewing the work of a fellow accountant and confirming calculations for their traditional costing numbers. What are the total product costs for the rose-scented line of candles?

A) $132,812.00
B) $153,837.00
C) $181,917.80
D) $211,062.00

Question 11

Your client, a factory that produces chips and salsa, uses traditional costing, and you are attempting to calculate total cost per unit. They have the following costs (same for each item): Direct Materials (DM), $56,280; Direct Labor (DL), $63,460; and their Manufacturing Overhead (MOH) will be 82% of their DL cost. They produced 33,470 units of glass salsa jars and 42,000 packets of chips during the period. What is their total cost per unit for salsa?

A) $4.09
B) $4.36
C) $5.13
D) $5.47

Question 12

Susan is currently working on assembling some numbers for her client's cost accounting practices for the current year. The client is a factory that produces condiments including ketchup and mustard. They use traditional costing, and Susan would like to calculate total cost per unit. They have the following costs (same for both condiments): Direct Materials (DM), $87,444; Direct Labor (DL), $96,782; and their Manufacturing Overhead (MOH) will be 88% of their DL cost. They produced 42,760 units of ketchup and 53,990 units of mustard during the period. What is their total cost per unit for mustard?

A) $4.99
B) $5.20
C) $6.30
D) $6.57

Question 13

Tasty Sauce, Inc. is currently comparing their current use of traditional costing with what results would look like if they had instead implemented Activity-Based Costing (ABC). This company creates two products: regular soy sauce and sodium-free soy sauce. They will be producing 125,000 bottles of regular soy sauce and 108,000 bottles of sodium-free soy sauce. Under traditional costing, Manufacturing Overhead (MOH) is allocated at $43,760.80 to regular soy sauce and $16,482.20 to sodium-free soy sauce. In ABC, MOH is allocated at $39,802.62 to regular soy sauce and $20,440.38 to sodium-free soy sauce. Which of the following is true?

A) Unit cost will be higher for regular soy sauce under ABC than traditional costing.
B) Unit cost will be higher for regular soy sauce under traditional costing than ABC.
C) Unit cost will be higher for sodium-free soy sauce under traditional costing than ABC.
D) Unit cost will be lower for sodium-free sauce under ABC than traditional costing.

Question 14

A company is currently using traditional costing and has arrived at the following unit costs for their two products: Caramel, $0.88 per unit; and Hot Fudge, $0.77 per unit. If they had instead used Activity-Based Costing (ABC), then it would have resulted in the following unit costs: Caramel, $0.83 per unit; and Hot Fudge, $0.82 per unit. Which of the following statements is correct?

A) The higher unit cost of caramel under traditional costing will lead to a higher profit compared to ABC.
B) The lower unit cost of hot fudge under traditional costing will lead to a lower profit compared to ABC.
C) The profit of caramel will be understated under traditional costing compared to ABC.
D) The profit of hot fudge will be overstated under ABC compared to traditional costing.

Question 15

Sharon has decided to try and calculate her Manufacturing Overhead (MOH) allocation with a departmental rate rather than using a plant-wide rate. She works for Seashell, Inc., a factory that produces seashell-themed keychains. She is looking at the costs derived from the production department and the department's total budgeted costs include: Factory Utilities, $66,000; Factory Supervisor Salaries, $100,000; Assembly Line Worker Wages, $284,000; Maintenance Wages, $32,000; Seashells, $15,000; Metal for Keychains, $7,000; and Factory Depreciation, $54,000. What is the budgeted departmental MOH rate based on Direct Labor (DL) cost?

A) $0.21
B) $0.89
C) $4.67
D) $11.45

Question 16

Rose, Inc., a factory that produces two different fragrances, rose and lilac, is considering switching their suppliers, and you are attempting to calculate total Manufacturing Overhead (MOH) to get an accurate picture of their budget. Under their traditional costing system, they had the following costs: Rose Fragrance: Glass Bottles, $78,000; Fragrance, $28,540; Bottler Wages, $76,000; and Assembly Line Wages, $26,578; and Lilac Fragrance: Glass Bottles, $118,648; Fragrance, $33,620; Bottler Wages, $84,350; and Assembly Line Wages, $33,668. The manufacturing overhead for each fragrance will be 86% of their Direct Labor (DL) costs. They produced 28,400 glass bottles of rose fragrance and 43,200 glass bottles of lilac fragrance during the period. What is their total allocated MOH for the lilac fragrance?

A) $88,217.08
B) $101,495.48
C) $118,018.00
D) $130,950.48

Question 17

During the current year, Mary is compiling figures for a cookie factory's cost accounting, which is currently utilizing traditional costing. The factory produces two kinds of cookies: chocolate chip and oatmeal raisin. Mary would like to calculate the total cost per unit and notes the following costs for chocolate chip: Direct Materials (DM), $68,300; and Direct Labor (DL), $82,450; and the following costs for oatmeal raisin: Direct Materials, $57,890; and Direct Labor, $71,708. The Manufacturing Overhead (MOH) for each cookie will be 85% of their direct labor cost. They created 126,756 units of chocolate chip and 104,222 units of oatmeal raisin during the period. What is the factory's total cost per unit for chocolate chip?

A) $1.64
B) $1.74
C) $2.00
D) $2.10

Question 18

Bard Inc. is currently comparing a potential implementation of Activity-Based Costing (ABC) with their current use of traditional costing and comparing the results. Bard creates two products: Candy Bars, 60,000 units; and lollipops, 82,000 units. Under ABC, Manufacturing Overhead (MOH) is allocated at $43,877.44 to candy bars and $32,781.90 to lollipops. Under traditional costing, MOH is allocated at $46,707.87 to candy bars and $29,915.47 to lollipops. Which of the following statements is correct?

A) Unit cost will be higher for lollipops under traditional costing than ABC.
B) Unit cost will be lower for candy bars under ABC than traditional costing.
C) Unit cost will be lower for candy bars under traditional costing than ABC.
D) Unit cost will be lower for lollipops under ABC than traditional costing.

Question 19

An organization currently employs traditional costing for its cost accounting functions. They have computed the following unit costs for two of their current products: Salt, $0.33 per unit; and Pepper, $0.40 per unit. If they were instead using Activity-Based Costing (ABC), then it would have resulted in the following unit costs: Salt, $0.36 per unit; and Pepper, $0.37 per unit. Which of the following statements is correct?

A) As compared to ABC, the profit of pepper will be overstated under traditional costing.
B) As compared to ABC, the profit of salt will be overstated under traditional costing.
C) As compared to traditional costing, the profit of pepper will be understated under ABC.
D) As compared to traditional costing, the profit of salt will be overstated under ABC.

Question 20

Susan has gathered the following data about the tire factory she manages: the department's total costs are budgeted as follows: Quality Control- $122,000, Property Tax- $18,000, Direct Wages and Salaries, $506,300; Rubber, $87,482; Fabrics, $62,500; Factory Supervisor Salaries, $166,200; and Factory Depreciation, $102,000 all of which have been derived from the production department. Rather than using a plant-wide rate, she will be calculating the Manufacturing Overhead (MOH) allocation with a departmental rate. What is the budgeted MOH rate using a departmental rate based on DL cost?

A) $0.26
B) $0.81
C) $3.84
D) $4.67

Question 21

Activity-Based Costing (ABC) requires that its users separate costs by the level and then by the type of activity. For a manufacturing business, this would entail separating activity costs into Manufacturing Overhead (MOH) and nonmanufacturing period costs. Which of the following would be considered MOH at the product/process-level?

A) Design costs
B) Factory utilities
C) Marketing for a new product
D) Research and development

Question 22

When using Activity-Based Costing (ABC) a manufacturing business will have to differentiate between Manufacturing Overhead (MOH) and nonmanufacturing period costs. Which of the following would be considered a nonmanufacturing period cost at the facility-level?

A) Depreciation on factory assets
B) Factory rent
C) Factory utilities
D) Management salaries

Question 23

Two staff accountants, Michael and Anthony, are having a lively discussion about various costing procedures that are currently in place at the factory where they are employed. The production department has asked the accountants to determine the most effective way in which they can allocate their department costs. The production department has a total Manufacturing Overhead (MOH) cost of $3,660,500. Michael and Anthony have gathered the following cost driver information:
Budgeted machine setups 50,460 setups ($1,000,000)
Budgeted pounds of indirect material 124,800 pounds ($2,660,500)
A recent production run used 400 machine setups and 2,380 pounds of indirect material. How much of the department's MOH cost will be allocated for the most recent run for the batch-level activity? (If required, round calculations to two decimal places.)

A) $7,928.00
B) $29,016.00
C) $1,000,000.00
D) $3,660,500.00

Question 24

Two staff accountants, Michael and Anthony, are having a lively discussion about various costing procedures that are currently in place at the factory where they are employed. The production department has asked the accountants to determine the most effective way in which they can allocate their department costs. The production department has a total Manufacturing Overhead (MOH) cost of $3,660,500. Michael and Anthony have gathered the following cost driver information:
Budgeted machine setups 50,460 setups ($1,000,000)
Budgeted pounds of indirect material 124,800 pounds ($2,660,500)
A recent production run used 400 machine setups and 2,380 pounds of indirect material. How much of the department's MOH cost will be allocated for the most recent run for the unit-level activity? (If required, round calculations to two decimal places.)

A) $49,718.20
B) $50,741.60
C) $2,660,500.00
D) $3,660,500.00

Question 25

Susan is the controller for Simply Devine Inc., a company that produces ice cream and specializes in dairy-free versions of the Cookie Dough and Rocky Road flavors. Susan has recommended that Simply Devine implement Activity-Based Costing (ABC) as they gear up to produce the following number of pints in the coming year: Cookie Dough, 98,700 pints; and Rocky Road, 88,430 pints. Susan believes that a traditional costing system has not been the most effective manner to allocate their Manufacturing Overhead (MOH) costs. She has compiled the following data about the usage of their company resources:
Problems 25 and 26 seem a little long for multiply choice questions.
As this is a Hard-level question, it requires the test-taker to do a more thorough look at the material.
Their MOH is comprised of the following costs:
What is the ABC-based total MOH cost allocated per unit for Cookie Dough ice cream? (If required, round calculations to two decimal places.)

A) $0.74
B) $1.40
C) $1.41
D) $1.56

Question 26

Susan is the controller for Simply Devine Inc., a company that produces ice cream and specializes in dairy-free versions of the Cookie Dough and Rocky Road flavors. Susan has recommended that Simply implement Activity-Based Costing (ABC) as they gear up to produce the following number of pints in the coming year: Cookie Dough, 98,700 pints; and Rocky Road, 88,430 pints. Susan believes that a traditional costing system has not been the most effective manner to allocate their Manufacturing Overhead (MOH) costs. She has compiled the following data about the usage of their company resources:
Their MOH is comprised of the following costs:
What is the ABC-based total MOH cost allocated per unit for Rocky Road ice cream? (If required, round calculations to two decimal places.)

A) $0.64
B) $1.22
C) $1.36
D) $1.37

Question 27

Fescue, Inc. is a company that produces grass seed that they sell to regional businesses. They are in the process of examining their facility-level costs. Which of the following lists is made up of costs that would be classified as facility-level?

A) Insurance, Factory Depreciation, Office Manager's Salary
B) Insurance, Rent, Supervisor Salary
C) Rent, Plant Manager's Salary, Income Taxes
D) Rent, Plant Manager's Salary, Property Taxes

Question 28

Daisy Company is a mid-sized organization that creates flower-themed home décor items that are sold to both large local and regional stores. They would like to become more organized and are dividing and segmenting their costs into different hierarchies. Which of the following would be considered something other than a product/process-level cost?

A) The depreciation expense for their cutting machine that is used on the assembly-line
B) The expense incurred to acquire personal protective equipment for employees
C) The salary for John, the supervisor
D) The salary for Susan, the plant manager

Question 29

Alice is a new cost accountant working at a local factory in her hometown. She has been given the task of ensuring that costs for the company have been put into the correct cost hierarchies. She is currently evaluating a list and searching for batch-level costs. Which of the following is comprised of costs that would be included in her list of batch-level costs?

A) Cleaning/Maintenance, Machine Set-up, Movement of Materials
B) Indirect Materials, Supervisor Salary, Direct Labor
C) Movement of Materials, Cleaning/Maintenance, Equipment Maintenance
D) Property tax, Insurance, Machine Set-up

Question 30

John is evaluating costs incurred at the factory where he works and is thinking about which hierarchies would apply to certain costs. He has just started to think about unit-level costs. Which of the following is false as it pertains to unit-level costs?

A) Direct Labor (DL) costs are an example of unit-level costs.
B) Direct Materials (DM) costs are an example of unit-level costs.
C) Most Manufacturing Overhead (MOH) costs are unit-level costs.
D) Unit-level costs increase in total with each additional unit of a product made.

Question 31

A cost hierarchy is used by businesses and is divided into four layers. Each layer has various costs assigned to it and is given a rationale for its use. Which of the following best represents the rationale for product/process-level costs?

A) Costs enable an entire product line or individual type of service delivery
B) Costs enable the overall manufacturing process/delivery of services effort
C) Costs enable the production of each batch
D) Costs enable the production of each unit

Question 32

Imagine that you are looking at the costs for a restaurant's activities. Which of the following activities would be classified as Direct Labor (DL)?

A) Cleaning and maintenance
B) Moving and sorting ingredients
C) Paying a chef's salary
D) Quality control

Question 33

Premium Pizza, Inc. is in the process of documenting all their costs using Activity-Based Costing (ABC). Premium specializes in unique sauces, and they have assigned the following Manufacturing Overhead (MOH) costs to their key activities: Moving and Sorting (150 pounds moved), $32,000; Quality Control (800 inspections completed), $22,400; and Cleaning/Maintenance (2,050 cleaning/maintenance hours) $16,820.
They bottled a total of 440 red sauce units and 336 white sauce units during the year. How much of the quality control MOH would be allocated to red sauce units?

A) $10,917.50
B) $16,100.00
C) $19,199.70
D) $26,217.50

Question 34

Premium Pizza, Inc. is in the process of documenting all their costs using Activity-Based Costing (ABC). Premium specializes in unique sauces, and they have assigned the following Manufacturing Overhead (MOH) costs to their key activities: Moving and sorting (150 pounds moved), $32,000; quality control (800 inspections completed), $22,400; and Cleaning and Maintenance (2,050 cleaning/maintenance hours), $16,820.
How much of the Cleaning and Maintenance MOH would be allocated to the white sauce units? (If required, round calculations to two decimal places.)

A) $5,535.00
B) $6,300.00
C) $12,799.80
D) $26,217.25

Question 35

Beacon Hill, Corp. manufactures balloons that it then packages and sells throughout the country. Beacon Hill would like to have a better understanding of their overall budgets, and they have decided to implement the use of Activity-Based Costing (ABC). They have decided upon four unique key activities that they would like to assign activity-based rates to the following Manufacturing Overhead (MOH) costs: quality Inspection, $32,400 (2,400 inspection hours); maintenance, $16,858 (2,000 maintenance hours); moving and sorting, $12,444 (662 pounds of materials); and factory supervisor wages, $58,784 (4,788 supervisor hours). Beacon Hill will be allocating MOH to two different products: red balloons and blue balloons. Each balloon used the following resources:
Red balloons: 1,400 inspection hours, 1,450 maintenance hours, 412 pounds of materials, and 2,448 supervisor hours
Blue balloons: 1,000 inspection hours, 550 maintenance hours, 250 pounds of materials, and 2,340 supervisor hours
How much of the Quality Inspection MOH will be allocated to the red balloons?

A) $23,142.86
B) $32,400.00
C) $13,500.00
D) $18,900.00

Question 36

Beacon Hill, Corp. manufactures balloons that it then packages and sells throughout the country. Beacon Hill would like to have a better understanding of their overall budgets, and they have decided to implement the use of Activity-Based Costing (ABC). They have decided upon four unique key activities which they would like to assign activity-based rates to the following Manufacturing Overhead (MOH) costs: quality inspection, $32,400 (2,400 inspection hours); maintenance, $16,858 (2,000 maintenance hours); moving and sorting, $12,444 (662 pounds of materials); and factory supervisor wages, $58,784 (4,788 supervisor hours). Beacon Hill will be allocating MOH to two different products: red balloons and blue balloons. Each balloon used the following resources:
Red balloons: 1,400 inspection hours, 1,450 maintenance hours, 412 pounds of materials, and 2,448 supervisor hours
Blue balloons: 1,000 inspection hours, 550 maintenance hours, 250 pounds of materials, 2,340 supervisor hours
How much of the Moving and Sorting MOH will be allocated to the blue balloons? (Do not round intermediate calculation.)

A) $12,440.00
B) $7,746.60
C) $4,699.40
D) $10,340.00

Question 37

Sarah is an accountant for Flowy, Inc., a small factory that manufactures disposable hospital gowns and slippers. Previously, Flowy had been utilizing a traditional costing system to account for their budgeted Manufacturing Overhead (MOH) costs. After a few years, Sarah recommended that they opt for Activity-Based Costing (ABC) as that would afford them the opportunity to better account for their costs. She has determined that Flowy had three key activities to use for MOH budgeted costs: Materials sorting, garment inspection, and materials management wages. She has collected the following data:
Materials sorting: $37,888 (3,678 sorting hours)
Garment inspection: $55,986 (4,770 inspection hours)
Materials management wages: $18,900 (13,000 management hours)
If gowns used 2,000 sorting hours, then what amount of material sorting MOH costs will be allocated to slippers? (Do not round intermediate calculation.)

A) $13,328.32
B) $17,285.50
C) $20,600.00
D) $37,888.00

Question 38

Sarah is an accountant for Flowy, Inc., a small factory that manufactures disposable hospital gowns and slippers. Previously, Flowy had been utilizing a traditional costing system to account for their budgeted Manufacturing Overhead (MOH) costs. After a few years, Sarah recommended that they opt for Activity-Based Costing (ABC) as it would afford them the opportunity to better account for their costs. She determined that Flowy had three key activities to use for MOH budgeted costs: Material sorting, garment inspection, and materials management wages. She has collected the following data:
Material sorting: $37,888 (3,678 sorting hours)
Garment Inspection: $55,986 (4,770 inspection hours)
Materials Management wages: $18,900 (13,000 management hours)
If slippers used 2,862 inspection hours, what amount of the garment inspection MOH costs will be allocated to the gowns? (Do not round intermediate calculation.)

A) $22,394.40
B) $29,043.31
C) $33,599.88
D) $55,986.00

Question 39

Stevie has been allocating Manufacturing Overhead (MOH) costs to her products using a single plant-wide rate of $14.00 per Direct Labor (DL) hour. A recent job required 347 DL hours, 42 production runs, 25 quality inspections, and 20 factory supervisor hours. Based on the increased activity, the accountants are suggesting a transition to Activity-Based Costing (ABC) and have suggested the following rates:
Materials Handling: $9.75 per direct labor hour
Production Setup: $18.50 per production run
Quality Inspections: $6.00 per inspection
Factory Supervisor: $12.30 per supervisor hour
Assuming that Stevie makes the switch to ABC, what are the total MOH costs allocated to the most recent production run?

A) $1,173.00
B) $1,388.00
C) $3,383.25
D) $4,556.25

Question 40

Adopting Activity-Based Costing (ABC) involves four steps. Which of the following contains the four steps in the correct order?

A) Calculate cost driver rates and assign Manufacturing Overhead (MOH) to products, identify direct costs, identify activities and cost drivers for MOH, and record MOH costs
B) Identify activities and cost drivers for MOH, identify direct costs, calculate cost driver rates and assign MOH to products, and record MOH costs
C) Identify direct costs, identify activities and cost drivers for MOH, calculate cost driver rates and assign MOH to products, and record MOH costs
D) Record MOH costs, identify direct costs, identify activities and cost drivers for MOH, and calculate cost driver rates and assign MOH to products

Question 41

The Manufacturing Overhead (MOH) T-account for companies using Activity-Based Costing (ABC) will typically include which of the following items on the credit side?

A) Actual cost incurred for factory insurance
B) Actual cost incurred for indirect labor
C) Actual cost incurred for workers' safety equipment
D) Budgeted MOH cost

Question 42

In calculating the activity-based rate (cost driver rate), which of the following formulas is correct?

A) Total cost in activity cost pool × Total quantity of activity's cost driver
B) Total cost in activity cost pool/Total quantity of activity's cost driver
C)Total quantity of activity's cost driver × Total cost in activity cost pool
D) Total quantity of activity's cost driver/Total cost in activity cost pool

Question 43

After a company has successfully determined their activity-based rate, what steps must be taken to allocate Manufacturing Overhead (MOH) for an activity?

A) Divide the activity-based rate by the actual quantity of cost driver used
B) Divide the activity-based rate by the budgeted quantity of cost driver used
C) Multiply the activity-based rate by the actual quantity of cost driver used
D) Multiply the activity-based rate by the budgeted quantity of cost driver used

Question 44

Denominator volume refers to the total occurrences of the cost driver within an activity. The availability of each activity's capacity can be expressed in several ways. Which of the following ways would be considered inappropriate?

A) Absurd capacity
B) Normal capacity
C) Practical capacity
D) Theoretical capacity

Question 45

Activity-based costing (ABC) will utilize cost drivers to allocate various costs. Which of the following would be an appropriate cost driver for an employee cafeteria?

A) Employee head count by department
B) Number of marketing campaigns
C) Number of meals purchased from the cafeteria
D) Square footage of facility

Question 46

Sparrow, Inc. produces birdseed that it sells to regional markets. Susan, the accountant at Sparrow, is evaluating the impact of Activity-Based Costing (ABC) on several activities for the factory. Sparrow has the following budgeted costs: Direct Materials, $150,000; and Direct Labor, $98,000. Their budgeted Manufacturing Overhead (MOH) costs are comprised of the following: Setup, $75,000 (1,000 setup hours); Production, $376,000 (50,000 machine hours); and Maintenance, $63,400 (12,000 maintenance hours). Allocate MOH costs to Setup activity using the budgeted activity-based rate considering the actual usages of 262 setup hours, 13,409 machine hours, and 3,432 maintenance hours.
I would replace with a product name. Allocating Setup costs to Setup activity is confusing.
This question is about allocating MOH costs for setup activity instead of allocating setup costs. And, if the activity is Setup, wouldn't it make sense to leave it named as Setup?

A) $19,650
B) $25,676
C) $39,300
D) $75,000

Question 47

Sparrow, Inc. produces birdseed that it sells to regional markets. Susan, the accountant at Sparrow, is evaluating the impact of Activity-Based Costing (ABC) on several activities for the factory. Sparrow has the following budgeted costs: Direct Materials, $150,000; and Direct Labor, $98,000. Their budgeted Manufacturing Overhead (MOH) costs are comprised of the following: Setup, $75,000 (1,000 setup hours); Production, $376,000 (50,000 machine hours); and Maintenance, $63,400 (12,000 maintenance hours). Allocate MOH costs to production activity using the budgeted activity-based rate, considering the actual usages of 262 setup hours, 13,409 machine hours, and 3,432 maintenance hours.
I would change this to a product name. This is confusing allocating production costs to production.
This question is about allocating MOH costs for production activity instead of allocating production costs. And, if the activity is Production, wouldn't it make sense to leave it named as Production?

A) $25,808.64
B) $40,227.00
C) $90,240.00
D) $100,835.68

Question 48

Tiny Corp. has provided the following information about its budgeted Manufacturing Overhead (MOH) costs. They also reported Direct Labor (DL) of $126,780 and Direct Materials (DM) of $78,699. They have broken the MOH costs into three activities:
What is Tiny's plant-wide MOH rate if allocations are based on machine hours?

A) $7.15
B) $11.53
C) $16.64
D) $20.33

Question 49

Tiny Corp. has provided the following information about its budgeted Manufacturing Overhead (MOH) costs. They also reported Direct Labor (DL) of $126,780 and Direct Materials (DM) of $78,699. They have broken the MOH costs into three activities:
What is Tiny's activity rate for each activity?

A) Utilities, $1.00/square foot; Maintenance, $1.80/maintenance hour; and Machining, $3.30/machine hour
B) Utilities, $1.00/square foot; Maintenance, $6.00/maintenance hour; and Machining, $9.00/machine hour
C) Utilities, $1.00/square foot; Maintenance, $8.74/maintenance hour; and Machining, $9.00/machine hour
D) Utilities, $6.10/square foot; Maintenance, $20.33/maintenance hour; and Machining, $16.64/machine hour

Question 50

Yogi Inc. is a small company that produces yoga mats and assorted accessories. They have recently transitioned to Activity-Based Costing (ABC) and are in the process of creating a budget. They have compiled the following budgeted Manufacturing Overhead (MOH) costs which are divided into three key activities:
During the year, Yogi used 4,000 setup hours; 12,600 machine hours; and 2,300 inspection hours. If Yogi wants to use an activity rate that is tailored to each activity, then what rate would they use for each?

A) Setup, $12.50/setup hour; Production, $16.67/machine hour; and Quality Inspection, $13.28/inspection hour
B) Setup, $31.25/setup hour; Production, $16.67/machine hour; and Quality Inspection, $13.28/inspection hour
C) Setup, $31.25/setup hour; Production, $26.46/machine hour; and Quality Inspection, $46.17/inspection hour
D) Setup, $56.47/setup hour; Production, $28.23/machine hour; and Quality Inspection, $70.58/inspection hour

Question 51

Yogi Inc. is a small company that produces yoga mats and assorted accessories. They have recently transitioned to Activity-Based Costing (ABC) and are in the process of creating a budget. They have compiled the following budgeted Manufacturing Overhead (MOH) costs which are divided into three key activities:
During the year, Yogi used 4,000 setup hours; 12,600 machine hours; and 2,300 inspection hours. How much Production MOH will Yogi report for Product A, considering the actual usage of each of the three key activities? (Do not round the calculations.)

A) $66,680.00
B) $210,073.50
C) $355,729.50
D) $529,285.71

Question 52

Melissa is the controller for Barker Inc., a factory that creates unique dog chew toys. Until now, Barker has been using a single plant-wide rate of $10.75 per direct labor hour to allocate Manufacturing Overhead (MOH) costs. Melissa has been debating a switch to activity-based costing and has derived the following activity-based rates:
$18)00 per machine hour
$11)00 per direct labor hour
$6)00 per inspection hour
A recent production run used 80 machine hours, 240 direct labor hours, and 10 inspection hours. How much MOH would be allocated using the newly derived activity-based rates?

A) $2,000.00
B) $2,700.00
C) $4,080.00
D) $4,140.00

Question 53

Melissa is the controller for Barker Inc., a factory that creates unique dog chew toys. Until now, Barker has been using a single plant-wide rate of $10.75 per direct labor hour to allocate Manufacturing Overhead (MOH) costs. Melissa has been debating a switch to activity-based costing and has derived the following activity-based rates:
$18)00 per machine hour
$11)00 per direct labor hour
$6)00 per inspection hour
A recent production run used 65 machine hours, 186 direct labor hours, and 13 inspection hours. How much MOH would be allocated using the newly derived activity-based rates?

A) $2,821.00
B) $3,216.00
C) $3,294.00
D) $4,596.00

Question 54

Trojan Corp. creates miniature wooden figurines that it sells to local stores around the state. Trojan is switching to Activity-Based Costing (ABC) and has arrived at the following activity-based rates for their Manufacturing Overhead (MOH) allocation: $22.00 per direct labor hour, $17.50 per packaging hour, and $8.60 per inspection hour. A recent job required the following:
600 direct labor hours
127 packaging hours
78 inspection hours
What is the amount of MOH that would be allocated to this most recent job based upon the pre-determined activity-based rates?

A) $13,393.30
B) $15,422.50
C) $16,093.30
D) $16,664.80

Question 55

Trojan Corp. creates miniature wooden figurines that it sells to local stores around the state. Trojan is switching to Activity-Based Costing (ABC) and has arrived at the following activity-based rates for their Manufacturing Overhead (MOH) allocation: $22.00 per direct labor hour, $17.50 per packaging hour, and $8.60 per inspection hour. A recent job required the following:
780 direct labor hours
182 packaging hours
93 inspection hours
What is the amount of MOH that would be allocated to this most recent job based upon the predetermined activity-based rates?

A) $17,634.80
B) $20,345.00
C) $21,144.80
D) $21,963.80

Question 56

Robert has been evaluating all costing data after he realized how small his margin for dinner plates had become. These plates have become the focal point for the organization so Robert has a vested interest in increasing the margin per plate. He has spent time aligning with beneficial suppliers and reducing his material cost and streamlined labor usage in a successful effort to minimize labor costs as well. The remaining task in this journey to improve margin is to evaluate the allocation of Manufacturing Overhead (MOH) costs that are estimated to be $563,559.00 for the year. Three main cost drivers and their related information are as follows:
How much of the MOH costs would be allocated to dinner plates if Robert chooses to continue using a single plant-wide rate based upon Direct Labor hours? (If required, round calculations to two decimal places.)

A) $122,533.70
B) $157,210.30
C) $206,430.12
D) $228,166.20

Question 57

Robert has been evaluating all costing data after he realized how small his margin for dinner plates had become. These plates have become the focal point for the organization so Robert has a vested interest in increasing the margin per plate. He has spent time aligning with beneficial suppliers and reducing his material cost and streamlined labor usage in a successful effort to minimize labor costs as well. The remaining task in this journey to improve margin is to evaluate the allocation of manufacturing overhead (MOH) costs that are estimated to be $563,559.00 for the year. Three main cost drivers and their related information are as follows:
How much of the MOH costs would be allocated to dinner plates if Robert chooses to utilize an activity-based approach instead of a single plant-wide rate? (If required, round calculations to two decimal places.)

A) $220,873.34
B) $228,166.20
C) $231,434.32
D) $563,559.00

Question 58

Roland's company makes and sells scarves, and he has just completed his annual financial analysis for the most recent year-end. The company produces two varieties of scarves: Silk and Cotton. Roland used a single plant-wide rate based on Direct Labor (DL) hours this year just as he had for many years prior, but he is not positive that this is the best approach moving forward. Roland has become interested in Activity-Based Costing (ABC). Roland has determined that Manufacturing Overhead (MOH) key activities include: Folding, $19,420.00 (driven by DL hours); Cleaning/Maintenance, $10,330.00 (driven by cleaning/maintenance hours); and Quality inspections, $4,600.00 (driven by number of inspections). He has compiled the following financial data to assist with his evaluation of the costing systems:
What is the total amount of MOH allocated to the silk scarves using ABC? (Do not round the calculations.)

A) $15,654.30
B) $18,695.70
C) $19,420.00
D) $21,500.00

Question 59

Roland's company makes and sells scarves, and he has just completed his annual financial analysis for the most recent year-end. The company produces two varieties of scarves: Silk and Cotton. Roland used a single plant-wide rate based on Direct Labor (DL) hours this year, just as had for many years prior, but he is not positive that this is the best approach moving forward. Roland has become interested in Activity-Based Costing (ABC). Roland has determined that Manufacturing Overhead (MOH) key activities include: Folding, $19,420.00 (driven by DL hours); Cleaning/Maintenance, $10,330.00 (driven by cleaning/maintenance hours); and Quality Inspections, $4,600.00 (driven by number of inspections). He has compiled the following financial data to assist with his evaluation of the costing systems:
If Roland uses ABC, then what will the net operating income be for the cotton scarves? (Do not round the calculations.)
This more of a problem than an multiply choice question.
I have updated the question to ask for the net operating income, which cut down on the amount of work being completed by the student.

A) $140,964.30
B) $159,660.00
C) $164,624.30
D) $208,970.00

Question 60

Josephine has been investigating a potential switch to Activity-Based Costing (ABC) for the cookie company where she works. She has decided to focus on their biggest seller, vanilla cookies, before moving forward with this decision. She has gathered the following pertinent financial data:
Josephine has determined that there are three key activities where Manufacturing Overhead (MOH) costs can be divided along with the total activity for the year: cutting, $34,500.00 (25,600 direct labor hours); washing cookie trays, $37,900.00 (15,780 trays washed); and wages for the supervisors, $24,600.00 (12,630 supervisor hours). Josephine would like to decide soon. If she uses ABC, then what will the net operating income per unit be for the vanilla cookies? (Do not round the calculations.)

A) $0.73
B) $1.30
C) $1.86
D) $5.01

Question 61

Josephine has been investigating a potential switch to Activity-Based Costing (ABC) for the cookie company where she works. She has decided to focus on their biggest seller, vanilla cookies, before moving forward with this decision. She has gathered the following pertinent financial data:
Josephine determined that there are three key activities where Manufacturing Overhead (MOH) costs can be divided along with the total activity for the year: cutting, $34,500 (25,600 direct labor hours); washing cookie trays, $37,900 (15,780 trays washed); and wages for the supervisors, $24,600 (12,630 supervisor hours). Josephine would like to decide soon. What is the total amount of MOH allocated to the vanilla cookies using ABC? (Do not round the calculations.)

A) $54,944.11
B) $55,087.50
C) $97,000.00
D) $98,330.00

Question 62

Eagleton Inc. is a retail business that sells fedoras and other decorative hats. They are in the process of evaluating their costing systems and working towards an Activity-Based Costing (ABC) implementation. They have compiled the following data about their Manufacturing Overhead (MOH) costs:
The production department tallied the following amounts in a recent production run: 3,600 square feet; 2,009 supervisor hours; and 998 pounds of indirect materials. What is the total amount of facility-level MOH costs allocated to the production run?

A) $0.00
B) $4,320.00
C) $7,928.40
D) $24,588.00

Question 63

Eagleton Inc. is a retail business that sells fedoras and other decorative hats. They are in the process of evaluating their costing systems and working towards an Activity-Based Costing (ABC) implementation. They have compiled the following data about their Manufacturing Overhead (MOH) costs:
The production department tallied the following amounts in a recent production run: 3,600 square feet; 2,009 supervisor hours; and 998 pounds of material. What is the total amount of unit-level MOH costs allocated to the production run? (If required, round calculations to two decimal places.)

A) $0.00
B) $3,986.16
C) $9,940.08
D) $29,636.26

Question 64

Samantha is the controller for Tasty Jerky, company that manufactures vegan jerky and currently has two flavors: Cajun and BBQ. Samantha believes that Tasty Jerky is in a great position to transition to Activity-Based Costing (ABC) from a traditional costing system. Tasty Jerky is planning to produce 77,670 bags of Cajun jerky and 81,400 bags of BBQ jerky. Management has asked Samantha to compile costing data using ABC. She has identified the following key activity information:
Moving and Sorting Ingredients $98,444 (146,800 pounds)
Quality Control $264,306 (14,500 inspections)
Each product will require the following amount of each key activity:
In addition, Cajun will need $99,430.00 of Direct Materials and $128,900.00 of Direct Labor while BBQ will need $103,220.00 of Direct Materials and $139,800.00 of Direct Labor. Determine the total production costs for Cajun jerky under the ABC system. (If required, round calculations to two decimal places.)

A) $282,568.50
B) $385,788.50
C) $388,942.50
D) $396,688.50

Question 65

Samantha is the controller for Tasty Jerky., company that manufactures vegan jerky and currently has two flavors: Cajun and BBQ. Samantha believes that Tasty Jerky is in a great position to transition to Activity-Based Costing (ABC) from a traditional costing system. Tasty Jerky is planning to produce 77,670 bags of Cajun jerky and 81,400 bags of BBQ jerky. Management has asked Samantha to compile costing data using ABC. She has identified the following key activity information:
Moving and Sorting Ingredients $98,444 (146,800 pounds)
Quality Control $264,306 (14,500 inspections)
Each product will require the following amount of each key activity:
In addition, Cajun will need $99,430.00 of Direct Materials and $128,900.00 of Direct Labor while BBQ will need $103,220.00 of Direct Materials and $139,800.00 of Direct Labor. Determine the total production costs for BBQ jerky under the ABC system? (If required, round calculations to two decimal places.)

A) $243,020.00
B) $385,788.50
C) $419,372.50
D) $445,098.50

Question 66

If a business wants to use Time-Driven Activity-Based Costing (TDABC), then they will need to calculate the cost per transaction after determining their rate for supplying an activity. Which of the following represents the correct formula for calculating the cost per transaction?

A) Cost per minute for supplying an activity (under TDABC) - Number of minutes per transaction
B) Cost per minute for supplying an activity (under TDABC) / Number of minutes per transaction
C) Cost per minute for supplying an activity (under TDABC) + Number of minutes per transaction
D) Cost per minute for supplying an activity (under TDABC) × Number of minutes per transaction

Question 67

Cost drivers are used in Activity-Based Costing (ABC) to allocate various costs. Which of the following would be an appropriate cost driver for an area such as Marketing?

A) Number of invoices issued
B) Number of purchase orders filled
C) Number of reports requested
D) Number of marketing campaigns run

Question 68

Peacock Inc. is a contracting business that creates one-of-a-kind murals for each individual client. They have been asked by a potential client to prepare an estimate for the creation of a floral mural for the client's office waiting room. Turner, the main artist for Peacock would like the company to consider updating its billing methods from a flat rate of $370.00 per painting hour to an activity-based costing method that would include a markup of 29%. After visiting the client's proposed site, Turner has put together the following estimate for the floral mural:
What is the final bid price that Peacock will present to the client as per new estimated rates?

A) $24,884.75
B) $31,820.00
C) $32,101.33
D) $41,047.80

Question 69

Peacock Inc. is a contracting business that creates one-of-a-kind murals for each individual client. They have been asked by a potential client to prepare an estimate for the creation of a floral mural for the client's office waiting room. Turner, the main artist for Peacock would like the company to consider updating its billing methods from a flat rate of $370.00 per painting hour to an Activity-Based Costing (ABC) method that would include a markup of 29%. After visiting the client's proposed site, Turner has put together the following estimate for the floral mural:
What is the difference in profit for Peacock between the flat rate and the new ABC method proposed by Turner?

A) $281.33 less profit under ABC
B) $281.33 more profit under ABC
C) $8,946.47 less profit under ABC
D) $8,946.47 more profit under ABC

Question 70

Curtis owns Mayflower Construction, a company that specializes in the design and construction of what they have promoted as a backyard oasis. Curtis is putting together an informational packet to distribute to potential clients that will include examples of projects and suggested pricing. The first project in the packet will be backyard oasis consisting of a large pergola and seating. Curtis would like to upgrade Mayflower's costing to be in line with Activity-Based Costing (ABC) and has put together the following information about the first example project:
Curtis would like to add a 19% markup to the total cost of the project. This would be a big transition from his current method of billing at a flat rate of $194 per linear square foot. Should Curtis switch to the new ABC method?

A) No, Curtis will make $108.30 less using ABC
B) No, Curtis will make $1,330.00 less using ABC
C) Yes, Curtis will make $108.30 more using ABC
D) Yes, Curtis will make $1,330.00 more using ABC

Question 71

Curtis owns Mayflower Construction, a company that specializes in the design and construction of what they have promoted as a backyard oasis. Curtis is putting together an informational packet to distribute to potential clients that will include examples of projects and suggested pricing. The first project in the packet will be backyard oasis consisting of a large pergola and seating. Curtis would like to upgrade Mayflower's costing to be in line with Activity-Based Costing (ABC) and has put together the following information about the first example project:
Curtis would like to add a 21% markup to the total cost of the project. This would be a big transition from his current method of billing at a flat rate of $198 per linear square foot. How much is final price that Curtis will include in the packet?

A) $6,430.00
B) $7,651.70
C) $7,780.30
D) $7,920.00

Question 72

David owns a small boutique that sells products created by local vendors and artisans. He would very much like to update his store and will be hiring a contractor to complete the work. The contractor has informed him that the project will entail the following activities: Store design, 15 hours at $137 per hour; Carpet installation, 1,250 square feet at $10.80 per square foot; Fixture construction, $112 per piece with a total of 22 pieces; and SG&A expenses, 20 hours at $40.75 per hour. This estimate will also include a 26% additional markup based on the total of the estimated job costs for the entire project. A competing bid has been returned with a flat rate of $18.50 per square foot of carpet installation that would cover the whole project. Using Activity-Based Costing (ABC), what is the final bid price for the first bid?

A) $18,824.00
B) $23,125.00
C) $23,730.84
D) $29,137.50

Question 73

David owns a small boutique that sells products created by local vendors and artisans. He would very much like to update his store and will be hiring a contractor to complete the work. The contractor has informed him that the project will entail the following activities: Store design, 15 hours at $137 per hour; Carpet installation, 1,250 square feet at $10.80 per square foot; Fixture construction, $112 per piece with a total of 22 pieces; and SG&A expenses, 20 hours at $40.75 per hour. This estimate will also include a 26% additional markup based on the total of the estimated job costs for the entire project. A competing bid has been returned with a flat rate of $18.50 per square foot of carpet installation that would cover the whole project. Which estimate would save David the most money?

A) ABC rate, since it will cost David $4,291.00 less than the flat-billed rate
B) ABC rate, since it will cost David $605.84 less than the flat-billed rate
C) Flat-billed rate, since it will cost David $4,291.00 less than the ABC rate
D) Flat-billed rate, since it will cost David $605.84 less than the ABC rate

Question 74

Charles has been compiling year-end financial data for the painting business where he works. The company specializes in the painting of both residential and commercial properties. Charles would like to determine what division is more profitable for the company so that they can shift costs appropriately. Charles used activity-based costing based on support costs to allocate the Manufacturing Overhead (MOH) costs. He performed calculations and allocations and determined the following division information:
Based upon the information provided by Charles, use vertical analysis to determine which division is using support costs more effectively as a percentage of sales.

A) The residential division, as it is using 0.97% less support cost than the commercial division.
B) The residential division, as it is using 0.97% more support cost than the commercial division.
C) The residential division, as it is using 2.35% less support cost than the commercial division.
D) The residential division, as it is using 2.35% more support cost than the commercial division.

Question 75

Charles has been compiling year-end financial data for the painting business where he works. The company specializes in the painting of both residential and commercial properties. Charles would like to determine which division is more profitable for the company so that they can shift costs appropriately. Charles used activity-based costing based on support costs to allocate the Manufacturing Overhead (MOH) costs. He performed calculations and allocations and determined the following division information:
Based upon the information provided by Charles, use vertical analysis to determine the profitability of each division using percentage of sales as the indicator.

A) Residential, 7.53%; Commercial, 20.86%
B) Residential, 11.06%; Commercial, 14.20%
C) Residential, 14.20%; Commercial, 11.06%
D) Residential, 20.86%; Commercial, 7.53%

Question 76

Eugene is the manager for Levy Corp, an HVAC company, and he is debating the implementation of Time-Driven Activity-Based Costing (TDABC). After meeting with management, he realized that the company may not be fully utilizing their available capacity, and he believes this method will shed some light on their current state of affairs. Eugene will begin his analysis with the customer service center. This department stays very busy, and handled the following volume of activities: cold sales calls, 7,490 calls; repeat service calls, 5,806 calls; and customer concerns and complaints calls, 1,300 calls. They incurred $65,000.00 last year to operate these activities. Eugene has performed an analysis and determined the following:
How much total cost would be allocated to these key activities? (If required, round calculations to two decimal places.)

A) $57,148.92
B) $65,000.00
C) $66,404.92
D) $69,325.80

Question 77

Eugene is the manager for Levy Corp, an HVAC company, and he is debating the implementation of Time-Driven Activity-Based Costing (TDABC). After meeting with management, he has realized that the company may not be fully utilizing their available capacity, and he believes this method will better shed some light on their current state of affairs. Eugene will begin his analysis with the customer service center. This department stays very busy and handled the following volume of activities: cold sales calls, 7,490 calls; repeat service calls, 5,806 calls; and customer concerns and complaints calls, 1,300 calls. They spent $65,000.00 last year to operate these activities. Eugene has performed an analysis and determined the following:
When you compare actual costs incurred to operate the activities to the allocated costs, what is the difference, and is that amount therefore over- or underallocated? (If required, round calculations to two decimal places.)

A) $1,404.92, overallocated
B) $1,404.92, underallocated
C) $4,325.80, overallocated
D) $4,325.80, underallocated

Question 78

As a company is determining which costing system they wish to implement, they will have a variety of methods from which to choose including Activity-Based Costing (ABC) and traditional costing. Which of the following would be considered a characteristic of a traditional costing system and not of ABC?

A) Being able to calculate the total cost driver for each activity through estimation
B) Being able to determine the departmental rate that the product or service passes through
C) Being able to serve customers by organizing costs into key activities
D) Being able to use each customer as a means to allocate customer service

Question 79

Stevie has been allocating Manufacturing Overhead (MOH) costs to her products using a single plant-wide rate of $14.00 per Direct Labor (DL) hour. A recent job required 347 DL hours, 42 production runs, 25 quality inspections, and 20 factory supervisor hours. Based on the increased activity, the accountants are suggesting a transition to Activity-Based Costing (ABC) and have suggested the following rates:
Materials Handling: $9.75 per direct labor hour
Production Setup: $18.50 per production run
Quality Inspections: $6 per inspection
Factory Supervisor Wages: $12.30 per supervisor hour
Assuming that Stevie makes the switch to ABC, what is the difference in MOH costs that would be reported under the previous plant-wide rate compared to the ABC rates?

A) $301.75 less costs allocated under ABC
B) $301.75 more costs allocated under ABC
C) $2,210.25 less costs allocated under ABC
D) $2,210.25 more costs allocated under ABC

Question 80

In order to operate its customer support activity, Lucky's Amusement Park incurred $325,000 in annual costs (spread evenly amongst the four quarters of the year). Due to the large number of visitors to the park each year, Lucky has been debating whether or not they can afford to bring on additional customer support staff members. While having an annual capacity of 525,000 minutes, Lucky is going to be utilizing Time-Driven Activity-Based Costing (TDABC). They have identified the following as their key activities within the customer support function: ticket sales, park admittance, customers assistance (once they enter the park), and processing customer refunds. Management has compiled information pertaining to the first two quarters of the year:
Using TDABC, what are the total costs allocated to the first quarter? Also, what was the over or underallocation of costs? (If required, round calculations to two decimal places.)

A) $74,579.80 in total costs allocated; with $6,670.20 overallocated
B) $74,579.80 in total costs allocated; with $6,670.20 underallocated
C) $81,250.00 in total costs allocated; with $6,670.20 overallocated
D) $81,250.00 in total costs allocated; with $6,670.20 underallocated