Deck 4: Activity-Based Costing and Cost Management

Question 1

A just-in-time (JIT)system is a demand-push system.

Answer 1

False

Question 2

A volume-based allocation measure is directly related to the number of units produced or the number of customers served.

Answer 2

True

Question 3

In a traditional volume-based cost system,total manufacturing costs are calculated by:

A)adding manufacturing overhead cost,direct materials cost,and direct labor cost.
B)subtracting manufacturing overhead from selling price.
C)adding direct material cost and direct labor cost.
D)adding activity cost,direct material cost,and direct labor cost.

Answer 3

A

Question 4

The gross margin is calculated by subtracting total nonmanufacturing cost per unit from the unit sales price.

Question 5

Activity-based management is a method of assigning indirect costs to products or services based on the activities they require.

Question 6

A volume-based cost system is likely to assign more manufacturing overhead costs to products:

A)that are more complex or difficult to manufacture than others.
B)that sell more units than others.
C)with higher per-unit materials costs than others.
D)with more activity costs than others.

Question 7

A value-added activity is one that enhances the perceived value of the product or service to the customer.

Question 8

Each individual indirect cost should be assigned to one activity when forming activity cost pools.

Question 9

Target costing involves determining what the product price must be in order to meet the target cost and still provide a profit for the company's shareholders.

Question 10

Activity Based Costing divides activities into two categories: unit-level activities and facility level activities.

Question 11

When forming activity cost pools,the goal is to create as few cost pools as possible,while still capturing major activities.

Question 12

The cost measurement system can impact how indirect costs are spread among product lines,which may affect decisions managers make.

Question 13

Prevention costs are incurred to prevent quality problems from occurring in the first place.

Question 14

Activity-based costing is not appropriate for service providers since they do not have manufacturing overhead that needs to be assigned to products.

Question 15

The gross margin does not take into account:

A)sales price.
B)nonmanufacturing cost.
C)manufacturing overhead.
D)direct materials and direct labor.

Question 16

Internal failure costs result from defects that are caught during the inspection process.

Question 17

Which of the following would not be directly related to a volume-based allocation measure?

A)The number of activities.
B)The number of units produced.
C)The number of customers served.
D)Direct materials cost.

Question 18

Activity-based costing systems include non-volume-based cost drivers.

Question 19

A volume-based allocation measure would vary proportionately with:

A)the number of activities.
B)nonmanufacturing costs.
C)the number of units produced.
D)the number of cost drivers.

Question 20

To assign activity costs using the activity proportion method,multiply the activity rate by the activity requirements of each individual product.

Question 21

An activity that is performed to support a specific product line is a(n):

A)batch-level activity.
B)facility-level activity.
C)product-level activity.
D)unit-level activity.

Question 22

Lincoln,Inc. ,which uses a volume-based cost system,produces cat condos that sell for $90 each.Direct materials cost $15 per unit,and direct labor costs $10 per unit.Manufacturing overhead is applied at a rate of 200% of direct labor cost.Nonmanufacturing costs are $27 per unit.What is the gross profit margin for the cat condos?

A)20.0%
B)50.0%
C)62.5%
D)80.0%

Question 23

An activity that is performed for a group of units all at once is a(n):

A)batch-level activity.
B)product-level activity.
C)facility-level activity.
D)unit-level activity.

Question 24

Monroe,Inc.randomly selects ten units from each production run to be inspected for quality,regardless of the size of the production run.The inspection of these units would most likely be classified as a:

A)facility or companywide activity.
B)product-level activity.
C)batch-level activity.
D)unit-level activity.

Question 25

An activity that is performed for each individual unit is a ________ level activity.

A)batch
B)facility
C)product
D)unit

Question 26

Which of the following is the best example of a unit-level activity?

A)Human resources
B)Research and development
C)Painting a final product
D)Product testing

Question 27

A large company that uses activity based costing would do which of the following?

A)Use a volume-based cost driver for each activity.
B)Form a cost pool for each activity performed by the company.
C)Use a single cost pool.
D)Group activities together to simplify the number of activities.

Question 28

Which of the following best defines a batch-level activity?

A)An activity that is performed for a specific customer
B)An activity that is performed to support a specific product line
C)An activity that is performed for each individual unit
D)An activity that is performed for a group of units all at once

Question 29

Which of the following best defines a product-level activity?

A)An activity that is performed for a specific customer
B)An activity that is performed to support a specific product line
C)An activity that is performed for each individual unit
D)An activity that is performed for a group of units all at once

Question 30

The first step in ABC is:

A)to calculate a manufacturing overhead rate.
B)to form activity cost pools.
C)to select a cost driver for each activity cost pool.
D)to identify and classify activities.

Question 31

Linden,Inc.uses a 5,000 square foot factory space that it rents for $2,500 a month for all its manufacturing activities.Linden has decided to switch to an activity-based costing system,and has identified its activities as follows: Preparation and Setup,Machining,Finishing,and Quality Control.500 square feet of the factory are used for machining,while 2,000 square feet (each)are used for Preparation and Setup and Quality Control.Finishing uses 500 square feet.When assigning indirect costs to each activity,how much factory rent should be assigned to the Preparation and Setup cost pool?

A)$250
B)$500
C)$1,000
D)$2,000

Question 32

An activity cost driver is:

A)a measure of the underlying activity that occurs in each activity cost pool.
B)a measure of the volume of units produced or customers sold.
C)a number of activities combined into one cost pool.
D)the cost assigned to an activity.

Question 33

Which of the following best defines a facility-level activity?

A)An activity that is performed to support the entire company
B)An activity that is performed to support a specific product line
C)An activity that is performed for each individual unit
D)An activity that is performed for a group of units all at once

Question 34

An activity that is performed to benefit the organization as a whole is a(n):

A)batch-level activity.
B)product-level activity.
C)facility-level activity.
D)unit-level activity.

Question 35

Portland,Inc.has formed four activity cost pools: Product Design,Machining and Production,Machine Setup,and Inspection.Gina Taylor,Production Manager at Portland,oversees processes that are considered part of Machining and Production,Machine Setup,and Inspection.Taylor's salary should be:

A)assigned to the activity she spends the most time on.
B)considered as a separate activity.
C)expensed in the period incurred.
D)allocated among Machining and Production,Machine Setup,and Inspection.

Question 36

How is the cost of a batch-level activity similar to the cost of a unit-level activity?

A)Both are incurred for each individual unit.
B)Both decrease as production volume increases.
C)Both increase as production volume increases.
D)Both are incurred for a group of units all at once.

Question 37

Largo,Inc. ,which uses a volume-based cost system,produces cat condos,and has a gross profit margin of 50%.Direct materials cost $15 per unit,and direct labor costs $10 per unit.Manufacturing overhead is applied at a rate of 200% of direct labor cost.Nonmanufacturing costs are $27 per unit.How much does each cat condo sell for?

A)$50
B)$72
C)$90
D)$144

Question 38

Which of the following is the best example of a facility-level activity?

A)Human resources
B)Research and development
C)Painting a final product
D)Product testing

Question 39

The purpose of Stage 1 allocations is to:

A)assign indirect manufacturing costs to activity cost pools.
B)assign the indirect costs of each activity to products and services.
C)assign direct manufacturing costs to activity cost pools.
D)assign the direct costs of each activity to products and services.

Question 40

An activity that is performed for a specific customer is a(n):

A)batch-level activity.
B)product-level activity.
C)facility-level activity.
D)unit-level activity.

Question 41

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.The activity drivers are used as follows: What is the amount of Machining cost assigned to Product X?

A)$22,500
B)$125,000
C)$375,000
D)$500,000

Question 42

Which of the following is the correct formula to compute an activity rate?

A)Divide the total activity cost by the total activity driver
B)Divide the total activity driver by the total activity cost
C)Multiply the total activity cost by the total activity driver
D)Add the total activity driver to the total activity cost

Question 43

The activity-rate method involves:

A)dividing the total activity driver by the total activity cost.
B)calculating the proportion of each activity driver used by each product.
C)calculating an activity rate that is similar to the predetermined overhead rate.
D)multiplying the total activity cost by the total activity driver.

Question 44

Using the activity-proportion method results in:

A)higher cost allocations than the activity rate method.
B)lower cost allocations than the activity rate method.
C)the same cost allocations as the activity rate method.
D)higher or lower cost allocations than the activity rate method,depending on the circumstances.

Question 45

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.The activity drivers are used as follows: What is the amount of Inspection cost assigned to Product A?

A)$7,500
B)$22,500
C)$30,000
D)$125,000

Question 46

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.The activity drivers are used as follows: What is the amount of Machining cost assigned to Product A?

A)$7,500
B)$125,000
C)$375,000
D)$500,000

Question 47

Which of the following is not true of activity cost drivers?

A)They are measures of the underlying activity that occurs in each activity cost pool.
B)They ideally have a cause and effect relationship with underlying activities.
C)They are strictly volume-based allocation measures.
D)They are used in Stage 2 cost allocations.

Question 48

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.The activity drivers are used as follows: What proportion of Inspection activity is used by Product Z?

A)25%
B)33%
C)67%
D)75%

Question 49

Culver,Inc.produces two different products (Product V3 and Product G8)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity drivers are used as follows: The activity rate for Machining is $67.50 per machine hour.What is the total cost of Machining?

A)$274,050
B)$67,500
C)$202,500
D)$270,000

Question 50

Which of the following would be considered a non-volume-based cost driver?

A)Number of units produced
B)Number of batches
C)Number of machine hours
D)Direct materials cost

Question 51

If the total activity cost were unknown,it could be calculated by:

A)dividing the total activity driver by the activity rate.
B)multiplying the total activity driver by the activity rate.
C)adding the total activity driver to the activity rate.
D)subtracting the activity rate from the total activity driver.

Question 52

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.The activity drivers are used as follows: What is the amount of Inspection cost assigned to Product X?

A)$7,500
B)$22,500
C)$30,000
D)$125,000

Question 53

Culver,Inc.produces two different products (Product V3 and Product G8)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity drivers are used as follows: The activity rate for Inspection is $750 per batch.What is the total cost of Inspection?

A)$11,250
B)$33,750
C)$45,000
D)$75,000

Question 54

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.The activity drivers are used as follows: What proportion of Machining activity is used by Product Z?

A)25%
B)33%
C)67%
D)80%

Question 55

Washington,Inc.produces two different products (Product C and Product 2)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $750,000,while the cost of Inspection is $90,000.The activity drivers are used as follows: What is the activity rate for Inspection?

A)$45,000 per batch
B)$1,500 per batch
C)$6,000 per batch
D)$2,000 per batch

Question 56

Using non-volume-based activity drivers allows activity-based costing to:

A)assign more indirect costs to products whose production volume is higher.
B)assign more direct costs to products whose production volume is higher.
C)assign more indirect costs to products whose complexity is higher.
D)assign more direct costs to products whose complexity is higher.

Question 57

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.The activity drivers are used as follows: What proportion of Machining activity is used by Product 5?

A)20%
B)33%
C)67%
D)75%

Question 58

Which of the following statements is correct about the differences between a volume-based cost system and an ABC system?

A)The only difference is how the methods assign indirect costs to products.
B)The only difference is how the methods assign direct costs to products.
C)The methods assign both direct and indirect costs differently to products.
D)There is no difference in how the methods assign direct or indirect costs to products.

Question 59

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.The activity drivers are used as follows: What proportion of Inspection activity is used by Product 5?

A)25%
B)33%
C)67%
D)75%

Question 60

Washington,Inc.produces two different products (Product C and Product 2)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $750,000,while the cost of Inspection is $90,000.The activity drivers are used as follows: What is the activity rate for Machining?

A)$187.50 per machine hour
B)$166.67 per machine hour
C)$250.00 per machine hour
D)$5750.00 per machine hour

Question 61

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product 5 uses 20% of total machine hours and 75% of total batches.What is the total Inspection cost assigned to Product 5?

A)$7,500
B)$22,500
C)$125,000
D)$375,000

Question 62

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product 5 uses 20% of total machine hours and 75% of total batches.What is the total Machining cost assigned to Product 5?

A)$7,500
B)$22,500
C)$100,000
D)$375,000

Question 63

Sherman,Inc.manufactures chainsaws that sell for $58.Each chainsaw uses $10 in direct materials and $3 in direct labor per unit.Sherman has two activities: Machining,which is applied at the rate of $2 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Sherman made 200 chainsaws,using 1,000 machine hours in 40 batches.What is the total manufacturing cost for one chainsaw?

A)$13
B)$14
C)$27
D)$30

Question 64

Parsons and Sons Woodworks manufactures baseball bats and wooden tops.Currently,Parsons and Sons makes 5,000 baseball bats each month.Each bat uses $1.00 in direct materials and $0.50 in direct labor.Parsons and Sons uses two activities in manufacturing the baseball bats: Cutting and Finishing.The cost associated with Cutting is $7,500 a month,allocated on the basis of direct labor hours.The cost associated with Finishing is $12,000 a month,allocated on the basis of batches.Baseball bats use 1/3 of the direct labor hours,and 40% of total batches.What is the total manufacturing cost for one baseball bat?

A)$1.46
B)$1.50
C)$2.96
D)$3.94

Question 65

Yallow,Inc.manufactures teddy bears and dolls.Currently,Yallow makes 2,000 teddy bears each month.Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor.Yallow uses two activities in manufacturing the teddy bears: Sewing and Processing.The cost associated with Sewing is $15,000 a month,allocated on the basis of direct labor hours.The cost associated with Processing is $10,000 a month,allocated on the basis of batches.The activity drivers are used as follows: What is the total manufacturing cost for one teddy bear?

A)$2.50
B)$4.50
C)$7.00
D)$8.00

Question 66

Hadley,Inc.manufactures a product that uses $15 in direct materials and $5 in direct labor per unit.Under the traditional costing system Hadley uses,manufacturing overhead applied to each unit is $12.However,Hadley is considering switching to an ABC system.Under the ABC system,the total activity cost would be $25.What is the total manufacturing cost per unit for Hadley under the ABC system?

A)$20
B)$25
C)$32
D)$45

Question 67

Sherman,Inc.manufactures chainsaws that sell for $58.Each chainsaw uses $10 in direct materials and $3 in direct labor per unit.Sherman has two activities: Machining,which is applied at the rate of $2 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Sherman made 200 chainsaws,using 1,000 machine hours in 40 batches.What is the gross profit for one chainsaw?

A)$13
B)$27
C)$31
D)$47

Question 68

Yuma,Inc.manufactures teddy bears and dolls.Currently,Yuma makes 2,000 teddy bears each month.Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor.Yuma uses two activities in manufacturing the teddy bears: Sewing and Processing.The cost associated with Sewing is $15,000 a month,allocated on the basis of direct labor hours.The cost associated with Processing is $10,000 a month,allocated on the basis of batches.Teddy bears use 1/2 of the direct labor hours,and 35% of total batches.What is the total manufacturing cost for one teddy bear?

A)$2.50
B)$4.50
C)$7.00
D)$8.00

Question 69

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Inspection activity is used by Standard?

A)25%
B)33%
C)67%
D)75%

Question 70

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product 5 uses 20% of total machine hours and 75% of total batches.What is the total Machining cost assigned to Product Z?

A)$7,500
B)$22,500
C)$375,000
D)$400,000

Question 71

Pima,Inc.manufactures calculators that sell for $40 each.Each calculator uses $15 in direct materials and $5 in direct labor per unit.Pima has two activities: Machining,which is applied at the rate of $4 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Pima made 400 calculators,using 1,000 machine hours in 40 batches.What is the gross profit for one calculator?

A)$8
B)$20
C)$25
D)$35

Question 72

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Machining activity is used by Standard?

A)30%
B)33%
C)67%
D)75%

Question 73

Pima,Inc.manufactures calculators that sell for $40 each.Each calculator uses $15 in direct materials and $5 in direct labor per unit.Pima has two activities: Machining,which is applied at the rate of $4 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Pima made 400 calculators,using 1,000 machine hours in 40 batches.What is the total manufacturing cost for one calculator?

A)$20
B)$25
C)$27
D)$32

Question 74

Cottonwood,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard uses 30% of total machine hours and 70% of total batches.What is the total activity cost assigned to Luxury?

A)$7,500
B)$171,000
C)$375,000
D)$359,000

Question 75

Volume-based cost systems tend to:

A)under-cost low-volume products and under-cost high-volume products.
B)under-cost low-volume products and over-cost high-volume products.
C)over-cost low-volume products and under-cost high-volume products.
D)over-cost low-volume products and over-cost high-volume products.

Question 76

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Machining activity is used by Luxury?

A)30%
B)33%
C)67%
D)70%

Question 77

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product 5 uses 20% of total machine hours and 75% of total batches.What is the total Inspection cost assigned to Product Z?

A)$7,500
B)$22,500
C)$125,000
D)$375,000

Question 78

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Inspection activity is used by Luxury?

A)25%
B)33%
C)67%
D)75%

Question 79

Parker Woodworks manufactures baseball bats and wooden tops.Currently,Parker makes 5,000 baseball bats each month.Each bat uses $1.00 in direct materials and $0.50 in direct labor.Parker uses two activities in manufacturing the baseball bats: Cutting and Finishing.The cost associated with Cutting is $7,500 a month,allocated on the basis of direct labor hours.The cost associated with Finishing is $12,000 a month,allocated on the basis of batches.The activity drivers are used as follows: What is the total manufacturing cost for one baseball bat?

A)$1.46
B)$1.50
C)$2.96
D)$3.94

Question 80

Cottonwood,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard uses 30% of total machine hours and 70% of total batches.What is the total activity cost assigned to Standard?

A)$22,500
B)$125,000
C)$171,000
D)$359,000