Deck 27: Activity-Based Costing

Question 1

An activity-based costing system usually involves a fewer number of allocation bases compared with a traditional cost allocation system.

Answer 1

False

Question 2

When using a plantwide overhead rate method to assign overhead costs, the cost object is always the unit of product.

Answer 2

True

Question 3

A plantwide overhead rate method is adequate when a company produces only one product or has multiple products that use about the same amount of indirect resources.

Answer 3

True

Question 4

After all activity costs are accumulated in an activity cost pool account, overhead rates are computed and costs are allocated to cost objects based on:

A) Indirect factors.
B) Opportunity cost principles.
C) Cost drivers.
D) Joint cost principles.
E) Direct factors.

Question 5

In activity-based costing, low-volume complex products are usually undercosted and high volume simpler products are overcosted, because the method fails to reflect the different uses of indirect resources.

Question 6

A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

A) Plantwide overhead costing.
B) A cost center accounting system.
C) Controllable costing.
D) Performance costing.
E) Activity-based costing.

Question 7

In activity-based costing, costs are traced to individual activities and then allocated to cost objects.

Question 8

Activity-based costing can be especially effective in situations where many different types of products are manufactured in the same department or departments.

Question 9

Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing.

Question 10

In activity-based costing, there are a number of activity cost pools, which consist of activities that belong to the same process and/or are caused by the same cost driver.

Question 11

In traditional costing, all overhead is lumped together and a predetermined overhead rate per unit of an allocation base is computed and used to assign overhead to jobs and processes.

Question 12

Activity-based costing generally requires less effort to implement and maintain than a traditional cost system.

Question 13

Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.

Question 14

An activity-based cost allocation system:

A) Traces costs to products on the basis of activities performed on them.
B) Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods.
C) Does not provide total unit cost data.
D) Does not provide for the allocation of any cost to products that cannot be directly traced to those products.
E) Is one form of a direct or variable costing system.

Question 15

A factor that causes the cost of an activity to go up or down is a(n):

A) Contribution factor.
B) Cost driver.
C) Direct factor.
D) Indirect factor.
E) Product cost.

Question 16

In activity-based costing, all overhead is lumped together and a predetermined overhead rate per unit of an allocation base, is computed and used to assign overhead to jobs and processes.

Question 17

Activity-based costing uses pre-determined overhead rates to allocate costs.

Question 18

Activity-based costing can improve costing activity for:

A) Service companies only.
B) Merchandising companies only.
C) Any company in any industry.
D) Manufacturing companies only.
E) Government entities only.

Question 19

With activity-based costing, complex products are assigned a larger portion of overhead.

Question 20

Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.

Question 21

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing. $$\begin{array} { l c c } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\ & & \\\text { Factory overhead costs } & & \\\text { Rent and utilities } & & \$ 21,700 \\\text { Indirect labor } & & 17,300\\\text { Depreciation - Equipment } & &14,000 \\\end{array}$$ Total factory overhead $ 53,000

A) $11,795.
B) $14,092.
C) $25,887.
D) $27,112.
E) $26,500.

Question 22

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.


-
Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for
Product B is:

A) $12.00 per unit
B) $75.60 per unit
C) $70.00 per unit
D) $14.00 per unit
E) $13.40 per unit

Question 23

Quantum Corporation has provided the following data from its activity-based costing system: $\begin{array}{lcrl}\text { Activity Cost Pool }&&\text { Overhead Cost }&\text { Total Activity }\\\text { Assembly } & \$ & 1,114,920 & 57,000 \text { machine hours } \\\text { Processing orders } & \$ & 47,016 & 1,800 \text { orders } \\\text { Inspection } & \$ & 107,328 & 1,560 \text { inspection hours }\end{array}$

The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit.

-According to the activity-based costing system, the product margin for product R32E is:

A) $29,132.50
B) $4,116.50
C) $5,161.30
D) $6,180.50
E) $4,981.00

Question 24

Borden Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: $\begin{array}{lr}\text { Overhead Costs: }\\\text { Indirect labor } & \$ 260,000 \\\text { Depreciation } & 220,000 \\\text { Utilities } & 140,000 \\\text { Total}& \$ 620,000\end{array}$
Distribution of resource consumption:
Activity Cost Pools
$$\begin{array} { l r c c c } & \text { Assembly } & \text { Setting up} & \text { Other } & \text { Total } \\\text { Indirect labor } & 50 \% & 25 \% & 25 \% & 100 \% \\\text { Depreciation } & 20 \% & 30 \% & 50 \% & 100 \% \\\text { Utilities } & 25 \% & 45 \% & 30 \% & 100 \%\end{array}$$ How much overhead cost, in total, would be allocated to the Assembly activity cost pool?

A) $209,000
B) $310,000
C) $196,333
D) $200,000
E) $155,000

Question 25

Which of the following is not a limitation of activity-based costing?

A) More accurate product costs may result in increasing the selling prices of some products.
B) Complex products are assigned a larger portion of overhead.
C) Changing from a traditional direct labor-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers. Such changes are often resisted by managers.
D) Maintaining an activity-based costing system is more costly than maintaining a traditional direct labor-based costing system.
E) In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system. This results in overstated costs.

Question 26

The following is taken from Jeffers Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 1 using activity-based costing. $\begin{array} { | l | r | r | } \hline & \text { Direct Labor } & \text { Machine Use Hours } \\\hline \text { Operating Dept. 1 } & \$ 11,800 & 2,300 \\\hline \text { Operating Dept. 2 } & \underline { 25,600 } & \underline { 1,500 } \\\hline \text { Totals } & \$ 37,400 & \underline { 3,800 } \\\hline & & \\\hline \text { Factory overhead costs } & & \\\hline \text { Rent and utilities } & & \$ 12,900 \\ \hline \text { Indirect labor } & & 11,220\\\hline \text { Depreciation - Equipment } & &18,000 \\\hline \text { Total factory overhead } & & \$ 42,120 \\\hline\end{array}$

A) $22,069.
B) $22,243.
C) $47,512.
D) $19,877.
E) $18,703.

Question 27

Quantum Corporation has provided the following data from its activity-based costing system: $\begin{array}{lcrl}\text { Activity Cost Pool }&&\text { Overhead Cost }&\text { Total Activity }\\\text { Assembly } & \$ & 1,114,920 & 57,000 \text { machine hours } \\\text { Processing orders } & \$ & 47,016 & 1,800 \text { orders } \\\text { Inspection } & \$ & 107,328 & 1,560 \text { inspection hours }\end{array}$

The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit.

- According to the activity-based costing system, the total overhead cost for producing the 340 units of the J71B product is:

A) $17,957.92
B) $30,972.72
C) $15,504.00
D) $21,622.72
E) $37,126.72

Question 28

Quantum Corporation has provided the following data from its activity-based costing system: $\begin{array}{lcrl}\text { Activity Cost Pool }&&\text { Overhead Cost }&\text { Total Activity }\\\text { Assembly } & \$ & 1,114,920 & 57,000 \text { machine hours } \\\text { Processing orders } & \$ & 47,016 & 1,800 \text { orders } \\\text { Inspection } & \$ & 107,328 & 1,560 \text { inspection hours }\end{array}$

The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit.

- According to the activity-based costing system, the total cost for producing the 340 units of the J71B product is:

A) $37,126.72
B) $15,504.00
C) $30,972.72
D) $17,957.92
E) $21,622.72

Question 29

The following is taken from Jeffers Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing. $\begin{array} { | l | r | r | } \hline & \text { Direct Labor } & \text { Machine Use Hours } \\\hline \text { Operating Dept. 1 } & \$ 11,800 & 2,300 \\\hline \text { Operating Dept. 2 } & \underline { 25,600 } & \underline { 1,500 } \\\hline \text { Totals } & \$ 37,400 & \underline { 3,800 } \\\hline & & \\\hline \text { Factory overhead costs } & & \\\hline \text { Rent and utilities } & & \$ 12,900 \\ \hline \text { Indirect labor } & & 11,220\\\hline \text { Depreciation - Equipment } & &18,000 \\\hline \text { Total factory overhead } & & \$ 42,120 \\\hline\end{array}$

A) $73,600.
B) $28,830.
C) $16,392.
D) $22,243.
E) $19,877.

Question 30

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of rent, utilities, and depreciation allocated to Dept. 1 using activity-based costing. $$\begin{array} { l c r } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\\\\text { Factory overhead costs } & & \\\text { Rent and utilities } & & \$ 21,700 \\\text { Indirect labor } & & 17,300 \\\text { Depreciation - Equipment } & & 14,000\end{array}$$ Total factory overhead $ 53,000

A) $21,608.
B) $11,795.
C) $13,134.
D) $14,092.
E) $5,505.

Question 31

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.


-
Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is:

A) $12.00 per unit
B) $13.40 per unit
C) $70.00 per unit
D) $14.00 per unit
E) $75.60 per unit

Question 32

Quantum Corporation has provided the following data from its activity-based costing system: $\begin{array}{lcrl}\text { Activity Cost Pool }&&\text { Overhead Cost }&\text { Total Activity }\\\text { Assembly } & \$ & 1,114,920 & 57,000 \text { machine hours } \\\text { Processing orders } & \$ & 47,016 & 1,800 \text { orders } \\\text { Inspection } & \$ & 107,328 & 1,560 \text { inspection hours }\end{array}$
The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit.

-According to the Activity-based costing system, the total overhead cost allocated to product R32E is:

A) $5,161.30
B) $1,044.80
C) $2,064.00
D) $25,016.00
E) $21,907.20

Question 33

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.


-
Using activity-based costing for assigning overhead costs, the activity rate for machine setups is:

A) $60 per setup
B) $100 per setup
C) $120 per setup
D) $240 per setup
E) $80 per setup

Question 34

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead cost allocated to Dept. 1 using activity-based costing. $$\begin{array} { l c c } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\& & \\\text { Factory overhead costs } & &\\ \text { Rent and utilities } & & \$ 21,700 \\\text { Indirect labor } & & 17,300\\\text { Depreciation - Equipment } & & 14,000 \\\text { Total factory overhead } & & \$ 53,000\end{array}$$

A) $25,888.
B) $27,113.
C) $14,092.
D) $21,608.
E) $5,505.

Question 35

If a firm uses activity-based costing to allocate costs, it does all but which of the following?

A) Combine homogeneous costs in appropriate pools.
B) Calculate an appropriate rate for each pool.
C) Select appropriate cost drivers.
D) Apply a volume-related measure per unit of product.
E) Allocate costs based on predetermined rates for cost pools.

Question 36

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of rent and utilities allocated to Dept. 2 using activity-based costing. $$\begin{array} { l c r } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\& & \\\text { Factory overhead costs } & &\\\text { Rent and utilities } & & \$ 21,700 \\ \text { Indirect labor } & & 17,300\\\text { Depreciation - Equipment } & &14,000\\\text { Total factory overhead }&& \$ 53,000\end{array}$$

A) $8,566.
B) $14,152.
C) $6,000.
D) $13,134.
E) $14,092.

Question 37

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of indirect labor allocated to Dept. 2 using activity-based costing. $$\begin{array} { l c r } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\& & \\\text { Factory overhead costs } & &\\\text { Rent and utilities } & & \$ 21,700 \\ \text { Indirect labor } & & 17,300\\\text { Depreciation - Equipment } & &14,000\\\text { Total factory overhead }&& \$ 53,000\end{array}$$

A) $13,134.
B) $8,566.
C) $5,505.
D) $11,795.
E) $8,474.

Question 38

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of indirect labor allocated to Dept. 1 using activity-based costing. $$\begin{array} { l c c } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\ & & \\\text { Factory overhead costs } & & \\\text { Rent and utilities } & &\$ 21,700 \\ \text { Indirect labor } & & 17,300\\\text { Depreciation - Equipment } & & 14,000 \\\text { Total factory overhead } & &\$ 53,000\end{array}$$

A) $54,371.
B) $8,073.
C) $16,864.
D) $5,505.
E) $10,471.

Question 39

Zephyr Corporation has provided the following data from its activity-based costing system: $$\begin{array} { l l l } \text { Activity Cost Pool } & \text { Overhead Cost } & \text { Total Activity } \\\text { Assembly } & \$ 383,180 & 23,000 \text { machine hours } \\\text { Processing orders } & \$ 50,798 & 1,100 \text { orders } \\\text { Inspection } & \$ 106,110 & 1,620 \text { inspection hours }\end{array}$$ Data concerning one of the company's products, Product LM41, appear below.
$\begin{array}{llr} \text { Selling price per unit } &\$124.60\\ \text { Direct materials cost per unit} &\$22.08\\ \text { Direct labor cost per unit } &\$45.77\\ \text {Annual unit production and sales } &210\\ \text {Orders processed } &80\\ \text { Annual machine hours } &320\\ \text {Annual inspection hours } &10\\\end{array}$

According to the activity-based costing system, the product margin for product LM41 is:

A) $3,178.20
B) $11,917.50
C) $5,931.30
D) $2,891.90
E) $2,236.90

Question 40

Borden Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: $\begin{array}{l}\text { Overhead Costs: }\\\begin{array} { l r } \text { Indirect labor } & \$ 260,000 \\\text { Depreciation } & 220,000 \\\text { Utilities } & \underline{140,000} \\\text { Total }& \underline{\$ 620,000} \\\end{array}\end{array}$
Distribution of resource consumption:
Activity Cost Pools
$\begin{array} { l r c c c } & \text { Assembly } & \text { Setting up } & \text { Other } & \text { Total } \\ \text { Indirect labor } & 50 \% & 25 \% & 25 \% & 100 \% \\ \text { Depreciation } & 20 \% & 30 \% & 50 \% & 100 \% \\ \text { Utilities } & 25 \% & 45 \% & 30 \% & 100 \% \end{array}$


How much overhead cost, in total, would be allocated to the Setting Up activity cost pool?

A) $206,000
B) $194,000
C) $279,000
D) $217,000
E) $155,000

Question 41

Activity rates from Hilliard Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products: $\begin{array}{llr}\text {Activity Cost Pools}&\text {Activity Rate}\\\text { Processing customer orders } & \$ 92.86 \text { per customer order } \\\text { Assembling products } & \$ 1.78 \text { per assembly hour } \\\text { Setting up batches } & \$ 52.09 \text { per batch }\end{array}$

Last year, Product XL91 involved 2 customer orders, 434 assembly hours, and 20 batches. How much overhead cost would be assigned to Product XL91 using the activity-based costing system?

A) $1,041.80
B) $772.52
C) $2,000.04
D) $66,908.88
E) $146.73

Question 42

Arial Company has two products: A and B. The company uses activity-based costing. The total cost and activity for each of the company's three activity cost pools are as follows: The activity rate under the activity-based costing system for Activity 3 is closest to:

A) $28.87
B) $19.47
C) $58.40
D) $32.55
E) $70.45

Question 43

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.


-
Using activity-based costing for assigning overhead costs, the activity rate for quality inspections is:

A) $60 per inspection
B) $80 per inspection
C) $120 per inspection
D) $240 per inspection
E) $100 per inspection

Question 44

Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: $\begin{array}{llr}\text { Activity Cost Pools }&\text { Activity Rate }\\\text { Assembling products } & \$ 6.56 \text { per assembly hour } \\\text { Processing customer orders } & \$ 65.38 \text { per customer order } \\\text { Setting up batches } & \$ 82.84 \text { per batch }\end{array}$

Data for one of the company's products follow:

$\begin{array} { l l l } & & \text { Product P59G } \\ \text { Number of assembly hours } & 240 & \\ \text { Number of customer orders } & 48 & \\ \text { Number of batches } & 64 \end{array}$

- The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. What is the cost per unit of Product P59G using the
Activity-based costing system?

A) $167.53
B) $12.75
C) $9.80
D) $15.25
E) $2.50

Question 45

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.


- Using activity-based costing for assigning overhead costs, the total product cost per unit for Product A is:

A) $78.85 per unit
B) $14.60 per unit
C) $13.40 per unit
D) $12.75 per unit
E) $75.60 per unit

Question 46

Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: $\begin{array}{llr}\text { Activity Cost Pools }&\text { Activity Rate }\\\text { Assembling products } & \$ 6.56 \text { per assembly hour } \\\text { Processing customer orders } & \$ 65.38 \text { per customer order } \\\text { Setting up batches } & \$ 82.84 \text { per batch }\end{array}$

Data for one of the company's products follow:

$\begin{array} { l l l } & & \text { Product P59G } \\ \text { Number of assembly hours } & 240 & \\ \text { Number of customer orders } & 48 & \\ \text { Number of batches } & 64 \end{array}$

-How much overhead cost would be assigned to Product P59G using the activity-based costing system?

A) $54,482.56
B) $5,301.76
C) $10,014.40
D) $3,138.24
E) $154.78

Question 47

Kozlov Corporation has provided the following data from its activity-based costing system: $$\begin{array} { l l l } \text { Activity Cost Pool } & \text { Total Cost } & \text { Total Activity } \\\text { Assembly } & \$ 942,480 & 66,000 \text { machine hours } \\\text { Processing orders } & \$ 85,050 & 1,800 \text { orders } \\\text { Inspection } & \$ 126,854 & 1,820 \text { inspection hours }\end{array}$$ The company makes 430 units of product A21W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit.

- According to the activity-based costing system, the average cost of product A21W is closest to:

A) $89.72 per unit
B) $65.18 per unit
C) $64.99 per unit
D) $92.49 per unit
E) $94.11 per unit

Question 48

Naples Corporation has provided the following data from its activity-based costing accounting system: $\begin{array}{lrl}\text { Indirect factory wages } & \$ 520,000 \\\text { Factory equipment depreciation } & \$ 260,000\end{array}$

$\begin{array}{llr}\text {Activity Cost Pools}&\text {Activity Rate}\\\text { Processing customer orders } & \$ 92.86 \text { per customer order } \\\text { Assembling products } & \$ 1.78 \text { per assembly hour } \\\text { Setting up batches } & \$ 52.09 \text { per batch }\end{array}$



-
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool?

A) $214,500
B) $247,000
C) $208,000
D) $780,000
E) $390,000

Question 49

Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: $$\begin{array} { l l l } \text { Activity Cost Pool } & \text { Activity Measure } & \text { Estimated Cost } \\\text { Adminstrative service } & \% \text { of time devoted to branch } & \$ 700,000 \\\text { Development service } & \text { Computer time } & \$ 140,000\end{array}$$ Estimated branch data for next year is as follows:
$$\begin{array} { l c r } & \text { Time to branch } & \text { Computer time } \\\text { Nashville } & 60 \% & 150,000 \text { minutes } \\\text { Atlanta } & 30 \% & 200,000 \text { minutes } \\\text { Louisville } & 10 \% & 50,000 \text { minutes } \\\text { Total } & 100 \% & 400,000 \text { minutes }\end{array}$$

- How much of the headquarters cost allocation should Nashville expect to receive next year?

A) $280,000
B) $472,500
C) $560,000
D) $504,000
E) $409,500

Question 50

Superior Fasteners, Co. is considering switching from traditional allocation of overhead based on direct labor hours to an activity-based costing system. The manager has accumulated the following information on engineering changes for two of the company's major products:
$$\begin{array} { l | l | l } & \begin{array} { l } \text { Autom otive } \\\text { Fasteners }\end{array} & \begin{array} { l } \text { Computer } \\\text { Fasteners }\end{array} \\\hline \text { Total units produced } & 5,000 & 2,500 \\\hline \text { Cost per engineering change } & \$ 400 & \$ 400 \\\hline \text { Number of engineering changes } & 5 & 25 \\\hline \text { Direct labor hours per unit } & 4 & 4\end{array}$$ Compute the cost per unit using:
(1) The traditional allocation of the costs of engineering changes based on direct labor hours.
(2) The activity-based cost allocation of the costs of engineering changes.

Question 51

Briefly describe the process of activity-based costing.

Question 52

Portofino Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: $\begin{array}{llr}\text { Activity Cost Pools } & \text {Activity Rate }\\ \text { Setting up batches} & \text {\$ 79.50 per batch}\\ \text {Processing customer orders } & \text {\( \$ 71.31 \) per customer order}\\ \text { Assembling products } & \text {\( \$ 7.06 \) per assembly hour}\\\end{array}$


$\text { Data concerning two products appear below: }$

$\begin{array}{lrr}&\text { Product KJ22}&\text { Product KL 37}\\\text { Number of batches } & 69 & 12 \\\text { Number of customer orders } & 20 & 9 \\\text { Number of assembly orders } & 492 & 697\end{array}$

- How much overhead cost would be assigned to Product KL37 using the activity-based costing
System?

A) $5,874.82
B) $10,385.22
C) $6,516.61
D) $5,562.61
E) $1,595.79

Question 53

Portofino Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: $\begin{array}{llr}\text { Activity Cost Pools } & \text {Activity Rate }\\ \text { Setting up batches} & \text {\$ 79.50 per batch}\\ \text {Processing customer orders } & \text {\( \$ 71.31 \) per customer order}\\ \text { Assembling products } & \text {\( \$ 7.06 \) per assembly hour}\\\end{array}$


$\text { Data concerning two products appear below: }$

$\begin{array}{lrr}&\text { Product KJ22}&\text { Product KL 37}\\\text { Number of batches } & 69 & 12 \\\text { Number of customer orders } & 20 & 9 \\\text { Number of assembly orders } & 492 & 697\end{array}$

-How much overhead cost would be assigned to Product KJ22 using the activity-based costing
System?

A) $157.87
B) $16,640.87
C) $10,385.22
D) $5,485.50
E) $91,722.47

Question 54

Kozlov Corporation has provided the following data from its activity-based costing system: $$\begin{array} { l l l } \text { Activity Cost Pool } & \text { Total Cost } & \text { Total Activity } \\\text { Assembly } & \$ 942,480 & 66,000 \text { machine hours } \\\text { Processing orders } & \$ 85,050 & 1,800 \text { orders } \\\text { Inspection } & \$ 126,854 & 1,820 \text { inspection hours }\end{array}$$ The company makes 430 units of product A21W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit.

- According to the activity-based costing system, the total overhead cost of producing 430 units of A21W is:

A) $13,338.20
B) $11,121.40
C) $12,440.20
D) $12,215.70
E) $32,370.00

Question 55

Why would a firm use activity-based costing (ABC) rather than traditional methods of cost allocation for overhead?

Question 56

Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: $\begin{array}{llr}\text { Activity Cost Pools }&\text { Activity Rate }\\\text { Assembling products } & \$ 6.56 \text { per assembly hour } \\\text { Processing customer orders } & \$ 65.38 \text { per customer order } \\\text { Setting up batches } & \$ 82.84 \text { per batch }\end{array}$

Data for one of the company's products follow:

$\begin{array} { l l l } & & \text { Product P59G } \\ \text { Number of assembly hours } & 240 & \\ \text { Number of customer orders } & 48 & \\ \text { Number of batches } & 64 \end{array}$

- The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. How much total cost would be assigned to the 4,000 units of Product P59G using the activity-based costing system?

A) $31,814.40
B) $51,000.00
C) $10,014.40
D) $39,214.40
E) $61,014.40

Question 57

Winterland, Inc., produces two types of skis, downhill skis and cross country skis. Product and production information about the two items is shown below:
$\begin{array}{|l|l|l|}\hline&\text { Downhill skis } & \text { Cross country skis }\\\hline\text { Number of sets sold........... } & 75,000 & 125,000 \\\hline \text { Number of setups............. } & 200 & 50 \\\hline \text { Total direct labor hours...... } & 150,000 \text { hours } & 250,000 \text { hours } \\\hline \text { Direct labor hours per unit.. } & 2 \text { hours } & 2 \text { hours } \\\hline \text { Total machine hours............... } & 25,000 \text { hours } & 100,000 \text { hours } \\\hline \text { Machine hours per unit...... } & 0.333 \text { hours } & 0.08 \text { hours }\\\hline\end{array}$

$\text { Indirect costs consist of the following: }$
$\begin{array}{|l|c|}\hline \text { Depreciation of factory equipment. } & \$ 2,000,000 \\\hline \text { Setup costs. } & 1,500,000 \\\hline \text { Miscellaneous indirect costs..... } & 1,000,000 \\\hline \text { Total... } & \$ 4,500,000 \\\hline\end{array}$
Required:
1. If Winterland uses the traditional method of allocating overhead costs based on direct labor hours, what is the amount of indirect costs per set of skis for each of the two types of skis?
2. If Winterland uses activity based costing, what is the total amount of indirect costs per set of skis for each of the two types of skis? Assume that depreciation is allocated based on machine hours, setup costs based on the number of setups, and miscellaneous costs based on the number of direct labor hours.

Question 58

Naples Corporation has provided the following data from its activity-based costing accounting system: $\begin{array}{lrl}\text { Indirect factory wages } & \$ 520,000 \\\text { Factory equipment depreciation } & \$ 260,000\end{array}$

$\begin{array}{llr}\text {Activity Cost Pools}&\text {Activity Rate}\\\text { Processing customer orders } & \$ 92.86 \text { per customer order } \\\text { Assembling products } & \$ 1.78 \text { per assembly hour } \\\text { Setting up batches } & \$ 52.09 \text { per batch }\end{array}$



-
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Product Processing activity cost pool?

A) $780,000
B) $260,000
C) $169,000
D) $351,000
E) $429,000

Question 59

Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: $$\begin{array} { l l l } \text { Activity Cost Pool } & \text { Activity Measure } & \text { Estimated Cost } \\\text { Adminstrative service } & \% \text { of time devoted to branch } & \$ 700,000 \\\text { Development service } & \text { Computer time } & \$ 140,000\end{array}$$ Estimated branch data for next year is as follows:
$$\begin{array} { l c r } & \text { Time to branch } & \text { Computer time } \\\text { Nashville } & 60 \% & 150,000 \text { minutes } \\\text { Atlanta } & 30 \% & 200,000 \text { minutes } \\\text { Louisville } & 10 \% & 50,000 \text { minutes } \\\text { Total } & 100 \% & 400,000 \text { minutes }\end{array}$$

- How much of the headquarters cost allocation should Atlanta expect to receive next year?

A) $280,000
B) $560,000
C) $409,500
D) $472,500
E) $504,000

Question 60

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.


-
Using activity-based costing for assigning overhead costs, the total product cost per unit for Product B is:

A) $78.85 per unit
B) $12.75 per unit
C) $75.60 per unit
D) $13.40 per unit
E) $14.60 per unit

Question 61

Cleveland Company manufactures two products, Product A-33 and Product C-17. Product C-17 is the more complex of the two products, requiring 1.5 hours of direct labor per unit to manufacture compared to 1.0 hour of direct labor time for Product A-33. Product C-17 is produced on an automated production line.
The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product C-17 and 40,000 units of Product A-33 during the current year.
Unit costs for materials and labor are:
$$\begin{array} { l l l } & \text { Product A-33 } & \text { Produet C-17 } \\\text { Direct material } & \$ 13 & \$ 21 \\\text { Direct labor } & \$ 6 & \$ 9\end{array}$$ Required:
The company is considering the use of activity-based costing as an alternative to its current traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:
$$\begin{array} { l l l l l } \text { Activity cost pool } & \text { Total cost } & \text { Product A-33 } & \text { Product C-17 } & \text { Total } \\\text { Machine setups required } & \$ 253,000 & 800 & 1,600 & 2,400 \\\text { Purchase orders issued } & 72,500 & 500 & 100 & 600 \\\text { Machine-hours required } & \underline { 184,500 } & 7,000 & 10,500 & 17,500 \\\text { Total } & & & & \$ 510,000 \\\end{array}$$ Using the data above, determine the unit product cost of Product A-33 for the current year.

Question 62

Dover Company manufactures two products, Product J-9 and Product M-6. Product M-6 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product J-9. Product M-6 is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product J-9. Product M-6 is produced on an automated production line.
Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product M-6 and 40,000 units of Product J-9 during the current year.
Unit costs for materials and labor are:
$$\begin{array} { l l l } & \text { Product J-9 } & \text { Product M-6 } \\\text { Direct material } & \$ 11 & \$ 24 \\\text { Direct labor } & \$ 6 & \$ 12\end{array}$$ Required:
a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.
b. The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:
$$\begin{array} { l l l l l } \text { Activity cost pool } & \text { Total cost } & \text { Product J-9 } & \text { Product M-6 } & \text { Total } \\\text { Machine setups required } & \$ 204,000 & 800 & 1,600 & 2,400 \\\text { Purchase orders issued } & 43,500 & 500 & 100 & 600 \\\text { Machine-hours required } & 105,000 & 7,000 & 10,500 & 17,500 \\\text { Maintenance requests issued } & \underline { 1 5 7 , 5 0 0 } & 650 & 8 5 0 & 1,500 \\\text { Total } & \underline { \$ 5 1 0 , 0 0 0 } & & &\end{array}$$ Using the data above, determine the unit product cost of each product for the current year.
c. What items of overhead cost make Product M-6 so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product M-6?

Question 63

Bangor Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year:
Total Activity
Activity Cost PoolTotal Cost Product F Product G Total
Machine setups $\$ 10,800 \quad 80$ setups 100 setups 180 setups
Purchases orders $\$77,520 \quad 510$ orders 1,010 orders 1,520 orders
General Factory $\$ 75,920 \quad 2,240$ hours 3,600 hours 5,840 hours Required: Using the activity-based costing approach, determine the overhead cost per unit for each product.

Question 64

Melbourne Resources provides the following data to enable you to calculate overhead rates: Machining Department Overhead is $15,000, which is to be allocated on estimated machine hours of 25,000. The rate per Machine Hour would be ________. If Machining cost is to be allocated to three jobs which consumed A = 3,000 hours, B = 4,000 hours, and C = 1,000 hours respectively; then Job A should be charged $ ________ Job B should be charged $ ________; and Job C $
________.

Question 65

A ________ is a factor that causes the cost of an activity to go up and down.

Question 66

Under traditional cost allocation methods, low-volume complex products are often ________ and high-volume simpler products are likely to be ________.

Question 67

Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.
$\begin{array}{|l|l|l|l|}\hline & \text { Flat } & \text { Round } & \text { Total } \\\hline \text { Direct materials } & \$ 12,000 & \$ 24,000 & \$ 36,000 \\\hline \text { Direct labor } & 6,000 & 18,000 & 24,000 \\\hline \text { Overhead }(250 \% \text { of direct labor cost) } & \underline{15,000} & \underline{45,000} & \underline{60,000} \\\hline \text { Total cost } & \underline{\$ 33,000} & \underline{\$ 87,000} & \underline{\$ 120,000} \\\hline \text { Units produced } & 10,000 & 15,000 & \\\hline \text { Average cost per unit } & \$ 3.30 & \$ 5.80 & \\\hline\end{array}$
Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of
overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.
$\begin{array}{|l|l|l}\hline\text { Overhead Cost Category (Activity Cost Pool) }&\text { Cost }\\\hline \text { Supervision } & \$ 12,600 \\\hline \text { Depreciation of machinery } & 30,600 \\\hline \text { Assembly line preparation } & 16,800 \\\hline \text { Total overhead } & \$ 60,000\\\hline\end{array}$

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.
Assign these three overhead cost pools to flat using ABC and determine average cost per unit for the product. (Round your answer to 2 decimal places.

Question 68

Stormer Corporation has provided the following data from its activity-based costing accounting system:
Indirect factory wages $27,000
Factory equipment depreciation $243,000
Distribution of resource consumption across Activity Cost Pools:
$$\begin{array} { l l l l l } & \text { Customer } & \text { Product } & \\& \text { Orders } & \text { Processing } & \text { Other } & \text { Total } \\\hline \text { Indirect factor wages } & 27 \% & 68 \% & 5 \% & 100 \% \\\text { Factory equipment depreciation } & 20 \% & 67 \% & 13 \% & 100 \%\end{array}$$ The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work!
b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!

Question 69

An activity ________ is a temporary account accumulating the costs a company incurs to support an identified set of activities.

Question 70

Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.
$\begin{array}{|l|c|c|c|}\hline& \text { Flat } & \text { Round } & \text { Total }\\ \hline \text { Direct materials } & \$ 12,000 & \$ 24,000 & \$ 36,000 \\\hline \text { Direct labor } & 6,000 & 18,000 & 24,000 \\\hline \text { Overhead ( } 250 \% \text { of direct labor cost) } & 15,000 & 45,000 & 60,000 \\\hline \text { Total cost } & \$ 33,000 & \$ 87,000 & \$ 120,000 \\\hline \text { Units produced } & 10,000 & 15,000 & \\\hline \text { Average cost per unit } & \$ 3.30 & \$ 5.80 & \\\hline\end{array}$
Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.
$\begin{array}{|l|l|l}\hline\text { Overhead Cost Category (Activity Cost Pool) }&\text { Cost }\\\hline \text { Supervision } & \$ 12,600 \\\hline \text { Depreciation of machinery } & 30,600 \\\hline \text { Assembly line preparation } & 16,800 \\\hline \text { Total overhead } & \$ 60,000\\\hline\end{array}$

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.
Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller?