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

Question 1

Tungsten,Inc.manufactures both normal and premium tube lights.The company allocates manufacturing overhead using a single plantwide rate with machine hours as the allocation base.Estimated overhead costs for the year are $102,000.Additional estimated information is given below. $$\begin{array} { | l | r | r | } \hline & \text { Normal } & \text { Premium } \\\hline \text { Machine hours } ( \mathrm { MHr } ) & 24,000 & 39,000 \\\hline \text { Direct materials } & \$ 51,000 & \$ 480,000 \\\hline\end{array}$$ Calculate the predetermined overhead allocation rate.(Round your answer to the nearest cent.)

A)$4.25 per direct labor hour
B)$1.62 per machine hour
C)$2.62 per machine hour
D)$0.19 per direct labor hour

Answer 1

$1.62 per machine hour

Question 2

When a manufacturer changes from using a single plantwide predetermined overhead rate to multiple predetermined overhead allocation rates,the product unit cost may be more accurate.

Answer 2

True

Question 3

In selecting machine usage as the primary cost driver of overhead costs 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.

Answer 3

True

Question 4

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

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

Question 5

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

Question 6

Manufacturing overhead costs,which are also known as indirect costs,cannot be cost-effectively traced to products.

Question 7

A radial tire manufacturer produces products in two departments-Divisions A and B.The company uses separate predetermined overhead allocation rates for each department to allocate its overhead.Divisions A and B have estimated manufacturing overhead costs of $160,000 and $360,000,respectively.Division A uses machine hours as the allocation base,and Division B uses direct labor hours as the allocation base.The total estimated machine hours were 31,000,and direct labor hours were 22,000 for the year.Calculate the departmental predetermined overhead allocation rates.(Round your answer to the nearest cent.)

A)Division A-$5.16,Division B-$16.36
B)Division A-$16.36,Division B-$5.16
C)Division A-$7.27,Division B-$11.61
D)Division A-$11.61,Division B-$7.27

Question 8

Why is using multiple predetermined overhead allocation rates more accurate than using a single plantwide allocation rate?

Question 9

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

Question 10

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

Question 11

Fill in the blanks:
Direct materials cost and direct labor cost can be ________ ________ to products.Manufacturing overhead costs are ________ in cost pools and then ________ to products.

Question 12

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

Question 13

Bella,Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $25,750.Additional estimated information is given below. $$\begin{array} { | l | r | r | } \hline & \text { Totes } & \text { Satchels } \\\hline \text { Direct materials cost per unit } & \$ 33 & \$ 44 \\\hline \text { Direct labor cost per unit } & \$ 52 & \$ 60 \\\hline \text { Number of units } & 520 & 370 \\\hline\end{array}$$ Calculate the predetermined overhead allocation rate.(Round your answer to two decimal places.)

A)95.23%
B)52.29%
C)86.21%
D)1.49%

Question 14

A furniture corporation manufactures two models of furniture-Standard and Deluxe.The total estimated manufacturing overhead costs are $64,200.The following estimates are available: $$\begin{array} { | l | r | r | } \hline & \text { Standard } & \text { Deluxe } \\\hline \text { Direct materials cost per unit } & \$ 250 & \$ 290 \\\hline \text { Direct labor cost per unit } & \$ 125 & \$ 140 \\\hline \text { Number of units } & 240 & 600 \\\hline\end{array}$$ The company uses direct labor costs as the base to allocate manufacturing overhead.Calculate the predetermined overhead rate.(Round your answer to two decimal places.)

A)27.44%
B)29.23%
C)191.07%
D)56.32%

Question 15

Which of the following statements is true?

A)Indirect costs must be allocated based on a single plant wide rate.
B)Manufacturing overhead costs are accumulated in cost pools and then assigned to products.
C)Managers cannot wait until the end of the accounting period for product cost information.
D)Managers can choose to wait until the end of the accounting period to allocate manufacturing overhead costs.

Question 16

The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Question 17

Treasurers,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 $6,000,000.Estimated machine hours are 29,000.During the year,the actual machine hours used were 50,000.Calculate the predetermined overhead allocation rate.(Round your answer to the nearest dollar.)

A)$120
B)$88
C)$207
D)$63

Question 18

Bag Ladies,Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $25,500.Additional estimated information is given below. $$\begin{array} { | l | r | r | } \hline & \text { Totes } & \text { Satchels } \\\hline \text { Direct materials cost per unit } & \$ 33 & \$ 40 \\\hline \text { Direct labor cost per unit } & \$ 53 & \$ 61 \\\hline \text { Number of units } & 530 & 360 \\\hline\end{array}$$ Calculate the amount of overhead to be allocated to Totes.(Round any percentages to two decimal places and your final answer to the nearest dollar.)

A)$481
B)$327
C)$11,189
D)$14,312

Question 19

Drive Safe,Inc.a leading manufacturer of car spare parts,divided its manufacturing process into two
Departments - Production and Packing.The estimated overhead costs for the Production and Packing
departments amounted to $14,000,000 and $20,000,000,respectively.The company produces two types of parts - Part 1 and Part 2.The total estimated labor hours for the year were 40,000,and estimated machine hours were 35,000.The Production department is mechanized,whereas the Packing department is labor oriented.Calculate the amount of manufacturing overhead costs allocated to Part 1.
$$\begin{array} { | c | c | c | } \hline & \textbf { Production } & \textbf { Packing } \\\hline & \text { Machine hours } & \text { Labor hours } \\\hline \textbf { Part1 } & 10,000 & 30,000 \\\hline \textbf { Part 2 } & \underline { 25,000 } & \underline { 10,000 }_{_{}} \\\hline & \underline { 35,000 } & \underline { 40,000 }_{} \\\hline\end{array}$$

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?

A)With multiple overhead rates,there are multiple cost pools.
B)Management must analyze the expected overhead costs and separate them into a cost pool for each department.
C)With multiple overhead rates,there is one cost pool and multiple allocation bases.
D)The use of multiple predetermined overhead allocation rates is more complex,but it may be more accurate.

Question 21

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

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

Question 22

Use of a single plantwide overhead rate assumes that there is a direct relationship between the allocation base and overhead costs in all plant activities.

Question 23

Activity-based costing uses a common allocation base for all activities.

Question 24

Made Well Tool,Inc.,a manufacturer of cutting tools,divided its manufacturing process into two Departments - Machining and Finishing.The estimated overhead costs for the Machining and Finishing departments amounted to $400,000 and $1,000,000,respectively.The company produces two types of tools - Standard and Deluxe.The total estimated labor hours for the year were 4,000,and total estimated machine hours were 2,000.The Machining department is mechanized,whereas the Finishing department is labor oriented.Calculate departmental predetermined overhead allocation rates.
$$\begin{array} { | l | r | r | } \hline & { \textbf { Machining } } & \textbf { Finishing } \\\hline & \text { Machine hours } & \text { Labor hours } \\\hline \textbf { Standard } & 500 & 1,800 \\\hline \textbf { Deluxe } & \underline { 1,500 } & \underline { 2,200 } \\\hline & \underline { 2,000 } & \underline { 4,000 } \\\hline\end{array}$$

Question 25

Why is using a single plantwide predetermined overhead allocation rate not always accurate?

Question 26

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.

Question 27

Why is activity-based costing used? What is an activity? Give an example of an activity.

Question 28

An activity-based costing system is developed in four steps: a.Compute the predetermined overhead allocation rate for each activity.
B.Identify activities and estimate their total indirect costs.
C.Identify the allocation base for each activity and estimate the total quantity of each allocation base.
D.Allocate indirect costs to the cost object.
Which of the following is the correct order for performing these steps?

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

Question 29

What is activity-based management? How is it different from activity-based costing?

Question 30

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 product and period costs.

Question 31

Stealth,Inc.produces two types of drones,rotary and fixed wing.Stealth estimated $765,000 of manufacturing overhead,and 51,000 machine hours for the year.The allocation base for overhead costs is machine hours.The rotary model actually consumed 21,000 machine hours,and the fixed wing type consumed 30,000 machine hours.How much overhead is allocated to the fixed wing model?

A)$315,000
B)$450,000
C)$210,000
D)$150,000

Question 32

Stealth,Inc.produces two types of drones,rotary and fixed wing.Stealth estimated $1,210,000 of manufacturing overhead,and 55,000 machine hours for the year.The allocation base for overhead costs is machine hours.The rotary model actually consumed 26,000 machine hours,and the fixed wing type consumed 29,000 machine hours.How much overhead is allocated to the rotary model?

A)$572,000
B)$638,000
C)$260,000
D)$212,667

Question 33

Reliable Car Parts,a manufacturer of spare parts,has two production departments-Assembling and Packaging.The Assembling Department is mechanized,while the Packaging Department is labor oriented.Estimated manufacturing overhead costs for the year were $17,400,000 for Assembling and $11,700,000 for Packaging.Calculate the department predetermined overhead allocation rates for the Assembling and Packaging Departments,respectively,if the total estimated machine hours were 35,000 and labor hours were 21,000 for the year.(Round your answer to the nearest cent.)

A)$828.57,$334.29
B)$497.14,$557.14
C)$334.29,$828.57
D)$497.14,$828.57

Question 34

Managers are able to set an accurate selling price without knowing product cost information.

Question 35

Allen Manufacturing has three departments that differ significantly in their manufacturing processes.A single plantwide rate will give the company the best estimate of overhead costs.

Question 36

For each of the following activities,indicate an appropriate allocation base:
$$\begin{array} { | l | l | } \hline \textbf { Activity } & \textbf { Allocation Base } \\\hline \text { Warranty Services - Providing service } & \\\text { for defective products } & \\\hline \text { Setup - Setting up machines for } & \\\text { production } & \\\hline \text { Shipping-Shipping finished } & \\\text { products to customers } & \\\hline \text { Machining - Machine usage } & \\\hline \text { Purchasing - Purchasing raw } \\\text { materials } & \\\hline\end{array}$$

Question 37

In the first step in developing an activity-based costing system,the management team must think about how each activity for a product or service might be improved or whether is it necessary at all.

Question 38

The costs most easily traced to each product manufactured are ________.

A)direct materials and direct labor
B)direct materials and indirect materials
C)direct labor and manufacturing overhead
D)indirect materials and indirect labor

Question 39

Restoration,Inc.,a leading manufacturer of antique car parts,divided its manufacturing process into two
Departments - Production and Packing.The estimated overhead costs for the Production and Packing
departments amounted to $14,000,000 and $20,000,000,respectively.The company produces two types of parts - Part 1 and Part 2.The total estimated labor hours for the year were 40,000,and estimated machine hours were 35,000.The Production department is mechanized,whereas the Packing department is labor oriented.Calculate departmental predetermined overhead allocation rates.
$$\begin{array} { | c | c | c | } \hline & \text { Production } & \text { Packing } \\\hline & \text { Machine hours } & \text { Labor hours } \\\hline \text { Part1 } & 10,000 & 30,000 \\\hline \text { Part 2 } & \underline { 25,000 } & \underline { 10,000 } \\\hline & \underline { 35,000 } & \underline { 40,000 } \\\hline\end{array}$$

Question 40

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

Question 41

Activity-based costing refines the cost allocation process even more than traditional allocation costing systems.

Question 42

Tranquility Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan has 20 separate parts.The direct materials cost is $95 and each ceiling fan requires 2.50 hours of machine time to manufacture.There is no direct labor.Additional information is as follows: $$\begin{array} { | l | l | r | } \hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } \text { Predetermined Overhead } \\\text { Allocation Rate }\end{array} \\\hline \text { Materials handling } & \text { Number of parts } & \$ 0.07 \\\hline \text { Machining } & \text { Machine hours } & 7.40 \\\hline \text { Assembling } & \text { Number of parts } & 0.40 \\\hline \text { Packaging } & \text { Number of finished units } & 2.50 \\\hline\end{array}$$ What is the total manufacturing cost per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)

A)$106.90
B)$114.90
C)$122.90
D)$125.40

Question 43

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

Question 44

The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation base for each activity.

Question 45

Whirlwind Fan Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan has 20 separate parts.The direct material cost is $90,and each ceiling fan requires 2.50 hours of machine time to manufacture.Additional information is as follows: $$\begin{array} { | l | l | r | } \hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } \text { Predetermined Overhead } \\\text { Allocation Rate }\end{array} \\\hline \text { Materials handling } & \text { Number of parts } & \$ 0.04 \\\hline \text { Machining } & \text { Machine hours } & 6.00 \\\hline \text { Assembling } & \text { Number of parts } & 0.20 \\\hline \text { Packaging } & \text { Number of finished units } & 2.50 \\\hline\end{array}$$ What is the cost of materials handling per ceiling fan? (Round any intermediate calculations and your final answer to two decimal places.)

A)$0.80
B)$6.00
C)$2.50
D)$6.25

Question 46

For a pharmaceutical company,the most suitable base for allocating research and development costs to the finished products would be the ________.

A)direct labor hours
B)cost of raw materials purchased
C)number of new patents filed
D)number of set ups

Question 47

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

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

Question 48

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?

A)number of employees
B)number of materials purchased
C)number of machine hours
D)number of service calls

Question 49

Hernandez Company has the following activities in its manufacturing process:
$$\begin{array} { | l | l | l | l | } \hline \text { Activity } & \text { Annual Overhead Cost } & \text { Expected Annual Use } & \text { Overhead Rate } \\\hline \text { Materials handling } & \$ 60,000 & 600 \text { purchase orders } & \\\hline \text { Machine set-ups } & \$ 15,000 & 60 \text { batches } & \\\hline \text { Product testing } & \$ 28,000 & 875 \text { tests } & \\\hline\end{array}$$ Calculate the overhead rate for each activity.

Question 50

In ABC systems,the best allocation base is the primary factor that causes the cost to increase or decrease.

Question 51

Which of the following is the last step in developing an activity-based costing system?

A)estimating the total quantity of the cost driver
B)estimating the total indirect costs of each activity
C)identifying the activities
D)allocating indirect costs to the cost object

Question 52

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.

Question 53

Which of the following statements is true of an activity-based costing system?

A)It uses separate predetermined overhead allocation rates for each activity.
B)It is not as accurate or precise as traditional costing systems.
C)It accumulates overhead costs by processing departments.
D)It is not as complex or as costly as traditional systems.

Question 54

Room Chill Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan has 20 separate parts.The direct materials cost is $85,and each ceiling fan requires 2.50 hours of machine time to manufacture.Additional information is as follows: $$\begin{array} { | l | l | r | } \hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } \text { Predetermined Overhead } \\\text { Allocation Rate }\end{array} \\\hline \text { Materials handling } & \text { Number of parts } & \$ 0.04 \\\hline \text { Machining } & \text { Machine hours } & 6.80 \\\hline \text { Assembling } & \text { Number of parts } & 0.40 \\\hline \text { Packaging } & \text { Number of finished units } & 2.50 \\\hline\end{array}$$ What is the cost of assembling per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)

A)$85.00
B)$8.00
C)$17.00
D)$34.00

Question 55

Blade Breeze Company manufactures ceiling fans and uses an activity-based costing system.Each ceiling fan has 20 separate parts.The direct materials cost is $70,and each ceiling fan requires 2.50 hours of machine time to manufacture.Additional information is as follows: $$\begin{array} { | l | l | r | } \hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } \text { Predetermined Overhead } \\\text { Allocation Rate }\end{array} \\\hline \text { Materials handling } & \text { Number of parts } & \$ 0.08 \\\hline \text { Machining } & \text { Machine hours } & 7.20 \\\hline \text { Assembling } & \text { Number of parts } & 0.35 \\\hline \text { Packaging } & \text { Number of finished units } & 2.80 \\\hline\end{array}$$ What is the cost of machining per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)

A)$18.00
B)$70.00
C)$144.00
D)$196.00

Question 56

Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

Question 57

Flannery Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \\\hline \text { Account inquiry (hours) } & \$ 79,000 & 3000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 31,000 & 17,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$ 12,000 & 25,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$ 11,000 & 1400 \text { letters } \\\hline\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 120 \text { hours } & 300 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7000 \text { lines } \\\hline \text { Account verification (accounts) } & 1500 \text { accounts } & 700 \text { accounts } \\\hline \text { Correspondence (letters) } & 60 \text { letters } & 110 \text { letters } \\\hline\end{array}$$ What is the cost per letter for the correspondence activity? (Round your answer to the nearest cent.)

A)$7.86
B)$22.14
C)$3.67
D)$0.48

Question 58

Galley Company,a manufacturer of small kitchen appliances,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \\\hline \text { Account inquiry (hours) } & \$ 66,000 & 2000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 47,000 & 15,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$ 17,000 & 23,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$ 14,000 & 1400 \text { letters } \\\hline\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 250 \text { hours } \\\hline \text { Account billing (lines) } & 12,000 \text { lines } & 8000 \text { lines } \\\hline \text { Account verification (accounts) } & 1500 \text { accounts } & 700 \text { accounts } \\\hline \text { Correspondence (letters) } & 40 \text { letters } & 100 \text { letters } \\\hline\end{array}$$ What is the cost per line for the account billing activity? (Round your answer to the nearest cent.)

A)$3.13
B)$33.00
C)$4.40
D)$23.50

Question 59

Goldberg Company,a manufacturer of small appliances,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \\\hline \text { Account inquiry (hours) } & \$ 73,000 & 2100 \text { hours } \\\hline \text { Account billing (lines) } & \$ 42,000 & 16,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$ 19,000 & 29,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$ 13,000 & 1400 \text { letters } \\\hline\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 160 \text { hours } & 250 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 9000 \text { lines } \\\hline \text { Account verification (accounts) } & 1800 \text { accounts } & 650 \text { accounts } \\\hline \text { Correspondence (letters) } & 40 \text { letters } & 100 \text { letters } \\\hline\end{array}$$ What is the cost per account for the account verification activity? (Round your answer to the nearest cent.)

A)$34.76
B)$4.56
C)$9.29
D)$0.66

Question 60

For each of the following activities,indicate an appropriate allocation base:

Question 61

Activity-based management (ABM)uses activity-based costs to make decisions that increase profits while meeting customer needs.

Question 62

Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.

Question 63

Companies with diverse products can obtain better costing information by using a single plantwide rate for allocating manufacturing costs.

Question 64

The activity-based costing system improves the allocation of ________.

A)indirect manufacturing costs
B)direct labor
C)direct materials
D)sales commissions

Question 65

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

Question 66

Aviatrix 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 Aviatrix has adopted an activity-based costing system.Direct materials costs per unit for each model are as follows: $\begin{array}{ll}\text { Model A } & \$ 22 \\\text { Model B } & \$ 31 \\\text { Model C } & \$ 38\end{array}$ Aviatrix 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:
$$\begin{array} { | l | c | c | c | } \hline & \text { Total cost } & \begin{array} { c } \text { Allocation } \\\text { Base }\end{array} & \text { Cost Driver } \\\hline \text { Assembly } & \$ 784,000 & 122,500 & \text { Machine hours } \\\hline \text { Materials management } & \$ 132,000 & 88,000 & \text { Parts } \\\hline \text { Testing } & \$ 26,000 & 5200 & \text { Units } \\\hline\end{array}$$ 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.)

A)$168
B)$45
C)$151
D)$173

Question 67

You are concerned that your current single plantwide allocation rate is giving inaccurate results and would like to switch to an activity-based costing method.Why is activity-based costing considered more accurate than traditional costing methods?

Question 68

Stampout Plastics produces different kinds of products,all in one manufacturing facility.They have identified four activities for their costing system:
Materials management-allocated by number of purchase orders
Chemical processing-allocated on metric tons
Molding-allocated on direct labor hours
Packaging-allocated by number of units produced
The activity rates are as follows:
$$\begin{array} { l l l } \text { Materials management } & \$ 12.00 & \text { Per purchape order } \\\text { Chemical processing } & \$ 7.50 & \text { Per metric ton } \\\text { Molding } & \$ 24.00 & \text { Per direct labor hour } \\\text { Parkaging } & \$ 0.10 & \text { Per unit }\end{array}$$ Engineering design shows that the order will require direct materials that cost $540; direct labor cost will be $90.The order will also require four purchase orders to be placed,use two metric tons of chemical base,and need eight direct labor hours.The size of the order is to produce 3,000 units of product.Calculate the total production of the order.

Question 69

Because Activity-Based Costing considers the resources each product actually uses,it

A)results in product costs being calculated more accurately.
B)computes allocation rates based primarily on direct labor rates.
C)ultimately calculates a single plantwide allocation rate.
D)can only be used in companies which have process costing.

Question 70

Activity-based management (ABM)can be used to make pricing and product mix decisions.

Question 71

Atomic Microwave Company,a manufacturer of microwave ovens,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \\\hline \text { Account inquiry (hours) } & \$ 62,000 & 2400 \text { hours } \\\hline \text { Account billing (lines) } & \$ 49,000 & 16,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$ 17,000 & 29,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$ 14,000 & 1600 \text { letters } \\\hline\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 120 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 16,000 \text { lines } & 8000 \text { lines } \\\hline \text { Account verification (accounts) } & 1600 \text { accounts } & 600 \text { accounts } \\\hline \text { Correspondence (letters) } & 80 \text { letters } & 150 \text { letters } \\\hline\end{array}$$ How much of the account verification costs will be assigned to the Northeast Office? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)

A)$354
B)$89
C)$944
D)$71

Question 72

Activity-based costing allows managers to evaluate overall production capacity and focus on producing the mix of products that is most profitable.

Question 73

Bean Brewers,Inc.,a manufacturer of coffee makers,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \\\hline \text { Account inquiry (hours) } & \$ 67,000 & 2000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 37,000 & 18,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$ 10,000 & 24,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$ 12,000 & 1600 \text { letters } \\\hline\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 250 \text { hours } \\\hline \text { Account billing (lines) } & 16,000 \text { lines } & 9000 \text { lines } \\\hline \text { Account verification (accounts) } & 1200 \text { accounts } & 600 \text { accounts } \\\hline \text { Correspondence (letters) } & 30 \text { letters } & 120 \text { letters } \\\hline\end{array}$$ 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.)

A)$225
B)$9000
C)$900
D)$4500

Question 74

Compass Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy.The standard bearings require $200 of direct materials per unit (per crate),and the heavy bearings require $245 of direct materials per unit.The operation is mechanized,and there is no direct labor.Previously Compass used a single plantwide allocation rate for manufacturing overhead,which was $1.55 per machine hour.Based on the single rate,gross profit was as follows:
$\begin{array}{lll}\textbf { Per unit } & \textbf { Standard } & \textbf { Heavy } \\\text { Direct materials cost } & \$ 200.00 & \$ 245.0 \\\text { Manufacturing overhead cost } & \underline{124.00} & \underline{93.00} \\\text { Total manufacturing cost } & \$ 324.00 & \$ 338.0\end{array}$ $\begin{array}{lll}\text { Sales price per unit } & \underline{350.00} & \underline{370.00} \\\text { Gross profit per unit } & \$ 26.00 & \$ 32.00\end{array}$ Although the data showed that the heavy bearings were more profitable than the standard bearings,the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings,and that this factor was not adequately reflected in the single plantwide allocation rate.He suspected that it was distorting the profit data.He suggested adopting an activity-based costing approach.
Working together,the engineers and accountants identified the following three manufacturing activities and broke down the annual overhead costs as shown below:
$\begin{array}{ll}\text { Activities: } &{\text { Estimated Cost }} \\\text { Metal fabrication } & \$ 420,000 \\\text { Machine processing } & 152,000 \\\text { Packaging } & \underline{17,000} \\\text { Total overhead cost } & \$ 589,000\end{array}$ Engineers believed that metal fabrication costs should be allocated by weight and estimated that the plant processed 12,000 kilos of metal per year.Machine processing costs were correlated to machine hours,and the engineers estimated a total of 380,000 machine hours for the year.Packaging costs were the same for both types of products,and so they could be allocated simply by the number of units produced.The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year.Additional data on a per unit basis were as given below:
$\begin{array}{lll} &{\text { Standard }} & \text { Heavy } \\\text { Kilos per unit } & 2.00 & 4.00 \\\text { Machine hours per unit } & 80.00 & 60.00\end{array}$ Using the data above,calculate the predetermined overhead allocation rates using activity-based costing.Then,following the activity-based costing methodology,calculate the production cost and gross profit for one unit of standard bearings.(Round your intermediate calculations to two decimal places.)

Question 75

Fidelity Stereo Company has provided the following information regarding its activity-based costing system: • Purchasing department costs are allocated based on purchase orders,and the predetermined overhead allocation rate is $77 per purchase order.
• Assembly department costs are allocated based on the number of parts used,and the predetermined overhead allocation rate is $2 per part.
• Packaging department costs are allocated based on the number of units produced,and the predetermined overhead allocation rate is $4 per unit produced.
Each stereo produced has 50 parts,and the direct materials cost per unit is $60.There are no direct labor costs.Fidelity Stereo has an order for 1400 stereos,which will require 40 purchase orders in all.What is the total cost for the 1400 stereos?

A)$232,680
B)$148,000
C)$143,080
D)$229,600

Question 76

Skipper Company manufactures toy boats and uses an activity-based costing system.The following information is provided for the month of May: $$\begin{array} { | l | c | c | c | } \hline \text { Activity } & \begin{array} { c } \text { Estimated Indirect } \\\text { Activity Costs }\end{array} & \text { Allocation Base } & \begin{array} { c } \text { Estimated } \\\text { Quantity of } \\\text { Allocation Base }\end{array} \\\hline \text { Materials handling } & \$ 3000 & \text { Number of parts } & 3000 \text { parts } \\\hline \text { Assembling } & \$ 5200 & \text { Number of parts } & 3000 \text { parts } \\\hline \text { Packaging } & \$ 5650 & \text { Number of boats } & 1200 \text { boats } \\\hline\end{array}$$ Each boat consists of four parts,and the direct materials cost per boat is $7.21.There is no direct labor.What is the total manufacturing cost per boat? (Round any intermediate calculations and your final answer to the nearest cent.)

A)$15.63
B)$22.84
C)$4.43
D)$18.13

Question 77

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

Question 78

Royal Rotisserie Company,a manufacturer of kitchen ovens,had the following activities,allocated costs,and allocation bases: $$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \\\hline \text { Account inquiry (hours) } & \$ 74,000 & 2400 \text { hours } \\\hline \text { Account billing (lines) } & \$ 38,000 & 19,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$ 15,000 & 24,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$ 12,000 & 1600 \text { letters } \\\hline\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 140 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 14,000 \text { lines } & 8000 \text { lines } \\\hline \text { Account verification (accounts) } & 1600 \text { accounts } & 700 \text { accounts } \\\hline \text { Correspondence (letters) } & 30 \text { letters } & 120 \text { letters } \\\hline\end{array}$$ 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.)

A)$21,581
B)$73,992
C)$49,328
D)$6166

Question 79

Which of the following statements is true of costing systems?

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

Question 80

Which of the following decisions will most likely involve the use of activity-based management?

A)decisions related to the financing of an investment using equity or debt
B)decisions related to the expansion operations in a particular geographic location
C)decisions related to the pricing of a product
D)decisions related to the payment of dividends