Deck 9: Activity-Based Costing

Question 1

Before using activity-based costing (ABC),managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.

Answer 1

True

Question 2

When overhead is applied based on the volume of output,high-volume products tend to "subsidize" low-volume products.

Answer 2

True

Question 3

Predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.

Answer 3

False

Question 4

Direct labor cost (DLC)and direct labor hours (DLH)are examples of volume-related cost drivers in the cost hierarchy.

Question 5

It is possible to apply activity-based costing (ABC)to segments of an organization without applying it to the entire organization.

Question 6

Activity-based costing (ABC)provides more detailed measures of costs than do plant wide or department allocation methods.

Question 7

In general,variable costs are allocated using a first-stage cost allocation system and fixed costs are allocated using a second-stage cost allocation system.

Question 8

Using direct labor costs to allocate overhead costs in an activity-based costing (ABC)system will encourage management to reduce labor costs.

Question 9

The basic difference between the department cost allocation method and activity-based costing (ABC)is the number of stages involved in allocating costs to products.

Question 10

The single-stage cost allocation system uses a plant wide rate because the cost pool is the entire plant.

Question 11

In general,low-volume products (and services)have a lower degree of complexity associated with them.

Question 12

The department cost allocation method provides more accurate product cost information for managerial decision-making than the plant wide cost allocation method.

Question 13

In general,traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).

Question 14

Activity-based costing (ABC)is a two-stage cost allocation system that (1)allocates costs to activities and (2)then to products based on their use of the activities.

Question 15

The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.

Question 16

Activity-based costing (ABC)can be applied to administrative activities (e.g.,purchasing)but not to marketing activities.

Question 17

The plant wide cost allocation method should be used by companies that manufacture products that are similar and use the same resources.

Question 18

The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.

Question 19

Traditional product costing systems (e.g.,job and process costing)are designed primarily to accumulate cost information for financial reporting.

Question 20

The number of products produced is an example of a facility-related cost driver in the cost hierarchy.

Question 21

Volume-based costing allocates indirect product costs based on the volume of output,using such allocation bases as direct labor hours,machine hours,or the amount of direct material used in the production process.Activity-based costing (ABC)has consistently shown that Volume-based costing ___________ the cost of high volume products and ______________ the cost of low volume products.

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

Question 22

Which of the following statements is (are)true? (1)Activity-based costs per unit are always greater than volume-based costs per unit.
(2)Volume-based costing has typically resulted in lower gross margins for high volume products and higher gross margins for low volume products.

A)Only (1)is true.
B)Only (2)is true.
C)Both (1)and (2)are true.
D)Neither (1)nor (2)are true.

Question 23

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

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

Question 24

Which one of the following accounts is not used in an activity-based costing (ABC)system?

A)Materials Inventory
B)Work-in-Process Inventory
C)Finished Goods Inventory
D)Overhead Applied
E)Allocations Incurred

Question 25

The number of services provided by an accounting firm would be classified as a(n)

A)volume-related activity.
B)batch-related activity.
C)product-related activity.
D)facility-related activity.

Question 26

The electricity used for production machinery would be classified as a

A)volume-related activity.
B)batch-related activity.
C)product-related activity.
D)facility-related activity.

Question 27

If Smelly changes its overhead allocation to departmental rates,what is the product cost per case for Product X assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

A)$79.50
B)$80.48
C)$74.00
D)$78.50

Question 28

If Smelly changes its allocation basis to machine hours,what is the total product cost per case for Product P?

A)$163.50
B)$144.00
C)$138.15
D)$117.15

Question 29

If Smelly changes its overhead allocation to departmental rates,what is the product cost per case for Product J assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

A)$169.30
B)$161.50
C)$166.00
D)$182.44

Question 30

Which of the following statements is true?

A)One of the lessons learned from activity-based costing (ABC)is that all costs are really a function of volume.
B)The primary purpose of the plant wide and department allocation methods is allocating direct costs to specific products.
C)A problem with activity-based costing (ABC)is that it requires more recordkeeping than other methods.
D)Direct cost allocations are required for the plant wide and department allocation methods.

Question 31

Which of the following should not be used as the allocation base in a company that appropriately uses a single plant wide rate?

A)Sales volume
B)Machine hours
C)Material costs
D)Direct labor cost
E)Direct labor hours

Question 32

Which of the following statements is (are)true regarding the potential effects of using reported product costs for decision making? (A)Traditional product costing systems (e.g.,job and process costing)are designed primarily to accumulate cost information for financial reporting.
(B)If a single cost driver is used as the allocation base,applied manufacturing overhead for product costing purposes may lead to inappropriate managerial decisions.

A)Only A is true
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 33

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

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

Question 34

Which of the following measures is used by activity-based costing (ABC)systems as an allocation base for allocating overhead costs to the units produced?

A)Volume-related activities
B)Batch-related activities
C)Product-related activities
D)Facility-related activities
E)All of these are used by ABC systems

Question 35

Activity-based costing (ABC)is a costing technique that uses a two stage allocation process.Which of the following statements best describes these two stages?

A)The costs are assigned to activities,and then to the products based upon their use of the activities.
B)The costs are assigned to departments,and then to the products based upon their use of activity resources.
C)Service department costs are allocated to the production departments,and then to the products based upon their use of the activities.
D)Indirect costs are assigned to activities,and then to the products based upon the direct cost resources used by the activities.

Question 36

Which of the following costs is not related to a batch-related activity?

A)Material handling
B)Machine setups
C)Shipping costs
D)Compliance costs

Question 37

If Smelly changes its allocation basis to machine hours,what is the total product cost per case for Product J?

A)$161.50
B)$169.30
C)$182.44
D)$183.36

Question 38

Cost pools are used with

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

Question 39

Which of the following statements is (are)false regarding first-stage and second-stage cost allocation methods? (A)The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.
(B)Predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.

A)Only A is false.
B)Only B is false.
C)Neither A and B nor false.
D)Both A and B are false.

Question 40

If Smelly changes its allocation basis to machine hours,what is the total product cost per case for Product X?

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

Question 41

Department D has recently purchased and installed new computerized equipment for Product X.This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings)in Department D by $3.00 per case.Machine hours will not change.If Smelly uses a plantwide rate based on direct labor hours,what is the revised product cost per case for Product J?

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

Question 42

Under a traditional costing system that allocates overhead on the basis of direct labor hours,the materials handling costs allocated to one unit of specialty windows would be

A)$1,500
B)$500
C)$2,000
D)$5,000

Question 43

Department D has recently purchased and installed new computerized equipment for Product X.This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings)in Department D by $3.00 per case.Machine hours will not change.If Smelly uses a plantwide rate based on machine hours,what is the revised product cost per case for Product X?

A)$74.00
B)$82.50
C)$69.50
D)$79.50

Question 44

How much overhead costs were applied to the Work-in-Process Inventory during April using activity-based costing?

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

Question 45

If Smelly changes its overhead allocation to departmental rates,what is the product cost per case for Product P assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

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

Question 46

Department D has recently purchased and installed new computerized equipment for Product X.This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings)in Department D by $3.00 per case.Machine hours will not change.If Smelly uses a plantwide rate based on direct labor hours,what is the revised product cost per case for Product X?

A)$82.50
B)$74.00
C)$79.50
D)$69.50

Question 47

What is the total overhead per unit allocated to Product R using activity-based costing (ABC)?

A)$2.60
B)$2.27
C)$2.00
D)$1.83

Question 48

What is the total overhead per unit allocated to Product S using activity-based costing (ABC)?

A)$2.60
B)$2.27
C)$2.00
D)$1.83

Question 49

A major client has requested bookkeeping service.However,Martin is already billing 100% of her capacity (i.e.,2,000 hours per year)and would need to shift 100 hours from her tax services to meet this client's request.What is the minimum fee per hour that Martin could charge this client for bookkeeping services and be no worse off than last year?

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

Question 50

Martin wants her hourly fees for the tax services to be 160% of their activity-based costs.What is the fee per hour for tax services in the upcoming year?

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

Question 51

Department D has recently purchased and installed new computerized equipment for Product X.This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings)in Department D by $3.00 per case.Machine hours will not change.If Smelly uses departmental rates,what are the product costs per case for Product X assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

A)$80.00
B)$74.00
C)$69.50
D)$79.50

Question 52

Under a traditional costing system that allocates overhead on the basis of direct labor hours,the materials handling costs allocated to one unit of wall mirrors would be

A)$1,000
B)$500
C)$2,000
D)$5,000

Question 53

Department D has recently purchased and installed new computerized equipment for Product X.This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings)in Department D by $3.00 per case.Machine hours will not change.If Smelly uses a plantwide rate based on machine hours,what is the revised product cost per case for Product J?

A)$161.50
B)$169.30
C)$172.00
D)$183.36

Question 54

Martin cannot change the hourly fee for the bookkeeping services because of the number of competing firms in the area.If Martin wants to earn $60,000 pre-tax in the upcoming year,how much will she charge per hour for tax services?

A)$74
B)$90
C)$95
D)$106

Question 55

What is the total cost allocated to the bookkeeping services using activity-based costing?

A)$24,000
B)$33,000
C)$35,000
D)$44,000

Question 56

What is the total overhead allocated to Product S using the current system?

A)$113,600
B)$100,000
C)$146,400
D)$160,000

Question 57

Under an activity-based costing (ABC)system,the materials handling costs allocated to one unit of specialty windows would be

A)$1,875.00
B)$937.50
C)$312.50
D)$1,500.00

Question 58

Under an activity-based costing (ABC)system,the materials handling costs allocated to one unit of wall mirrors would be

A)$625.00
B)$312.50
C)$833.33
D)$1,000.00

Question 59

If Muskego uses a bankwide rate based on direct labor hours,what would be the indirect costs allocated to the Consumer Department?

A)$100,000
B)$150,000
C)$250,000
D)$350,000

Question 60

How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing?

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

Question 61

If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job A-15?

A)$2,120
B)$11,200
C)$1,600
D)$2,050

Question 62

If the company uses activity-based costing (ABC),what is the cost of each unit of Job A-28?

A)$320.00
B)$30.40
C)$187.40
D)$350.40

Question 63

Management estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $250,000 of indirect costs.How much of the $250,000 indirect costs should be allocated to the Consumer Department?

A)$50,000
B)$90,000
C)$160,000
D)$200,000

Question 64

If Muskego uses a bankwide rate based on direct labor hours,what would be the indirect costs allocated to the Commercial Department?

A)$100,000
B)$150,000
C)$250,000
D)$350,000

Question 65

If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job B-32?

A)$4,200
B)$2,600
C)$2,960
D)$3,480

Question 66

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

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

Question 67

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

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

Question 68

If the company uses activity-based costing (ABC),what is the cost of each unit of Job 102?

A)$340
B)$392
C)$440
D)$520

Question 69

If Muskego uses a bankwide rate based on the number of loans processed,what would be the total costs for the Consumer Department?

A)$50,000
B)$150,000
C)$200,000
D)$400,000

Question 70

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

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

Question 71

Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC)system?

A)Number of production runs per year
B)Number of components per completed unit
C)Amount of time required to produce one unit
D)Amount of overhead applied to each completed unit

Question 72

Management estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $250,000 of indirect costs.How much of the $250,000 indirect costs should be allocated to the Commercial Department?

A)$40,000
B)$50,000
C)$90,000
D)$120,000

Question 73

If Muskego uses a bankwide rate based on the number of loans processed,what would be the total costs for the Commercial Department?

A)$50,000
B)$150,000
C)$200,000
D)$250,000

Question 74

If the company uses traditional costing and allocates overhead using direct labor cost,what is the cost of each unit of Job 102?

A)$340
B)$392
C)$440
D)$520

Question 75

The company prices its products at 150% of cost.If the company uses activity-based costing (ABC),the price of each unit of Job B-32 would be

A)$96.53
B)$144.80
C)$130.00
D)$226.53

Question 76

If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job 101?

A)$1,300
B)$2,000
C)$5,000
D)$5,600

Question 77

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

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

Question 78

If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job 103?

A)$1,300
B)$2,000
C)$5,000
D)$5,600

Question 79

If the company uses traditional costing and allocates overhead using direct labor cost,how much overhead cost should be assigned to Job 101?

A)$1,300
B)$2,000
C)$5,000
D)$5,600

Question 80

The company prices its products at 140% of cost.If the company uses activity-based costing (ABC),the price of each unit of Job 103 would be

A)$98
B)$100
C)$116
D)$140