Deck 5: Activity-Based Costing and Activity-Based Management

Question 1

Demand for refinements to the costing system has accelerated due to ________.

A) increase in direct costs
B) decrease in product diversity
C) decrease in indirect costs
D) competition in product markets

Answer 1

D

Question 2

Explain how a top-selling product may actually result in losses for the company.

Answer 2

If indirect costs are not properly allocated to the products,a product may appear to cost less than it actually does cost to produce.If the selling price is based on these lower costs,the selling price may actually be lower than the costs needed to produce the product resulting in losses for the company.

Question 3

Which of the following statements is true of a peanut-butter costing system?

A) A peanut-butter costing system typically has more-homogeneous indirect cost pools.
B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects.
C) A peanut-butter costing system assumes that all costs are variable.
D) In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume.

Answer 3

B

Question 4

An accelerated need for refined cost systems is due to ________.

A) global monopolies
B) rising prices
C) intense competition
D) a shift toward increased direct costs

Question 5

Collin Inc.produces hospital equipment and the setup requirements vary from product to product.Collin produces its products based on customer orders and uses ABC costing.In one of its indirect cost pools,setup costs and distribution costs are pooled together.Costs in this pool are allocated using number of customer orders for the easiness of costing operations.Based on the information provided,which of the following arguments is valid?

A) Collin has clearly failed to identify as many direct costs as is economically feasible.
B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect relationship with the single cost driver that is used as the cost-allocation base for Collin.
C) Collin has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as direct costs.
D) Collin has failed to use the correct cost driver as the cost-allocation base for setup costs.

Question 6

For a company with diverse products,undercosting overhead of a product will lead to ________.

A) misallocating direct labor costs of the product.
B) misallocating direct material costs of the product
C) misallocating indirect costs of another product
D) misallocating direct costs of another product

Question 7

When refining a costing system,a company should classify as many costs as possible as indirect costs,thereby minimizing the extent to which costs have to be traced rather than allocated.

Question 8

A refined costing system provides better measurement of the costs of indirect resources used by different cost objects,no matter how differently various cost objects use indirect resources.

Question 9

Product-cost cross-subsidization is very common when costs are uniformly spread across various products.

Question 10

Overcosting a particular product may result in ________.

A) loss of market share
B) pricing the product too low
C) operating efficiencies
D) understating total product costs

Question 11

If companies increase market share in a given product line because their reported costs are less than their actual costs,they will become more profitable in the long run.

Question 12

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called ________.

A) activity-based costing
B) uniform costing
C) peanut-butter costing
D) department costing

Question 13

Which of the following is true of refinement of a costing system?

A) While refining a costing system, companies should identify as many indirect costs as is economically feasible.
B) A homogeneous cost pool will use multiple cost drivers to allocate costs.
C) It reduces the use of broad averages for assigning the cost of resources to cost objects.
D) It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs.

Question 14

Peanut-butter costing system is a more refined costing system compared to activity-based costing system.

Question 15

Refining a cost system includes ________.

A) classifying as many costs as indirect costs as is feasible
B) creating as many cost pools as possible
C) identifying the activities involved in a process
D) seeking a lesser level of detail

Question 16

Companies that overcost products will most likely lose market share.

Question 17

As product diversity and indirect costs increase,it is usually best to switch away from a broad averaging system to an activity-based cost system.

Question 18

Which of the following is a reason that has accelerated the demand for refinements to the costing system?

A) The declining demand for customized products has led managers to decrease the variety of products and services their companies offer.
B) The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.
C) The increased of automated processes has led to the increase in direct manufacturing cost leading to a decrease in breakeven point.
D) The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of breakeven point.

Question 19

Aqua Company produces two products-Alpha and Beta.Alpha has a high market share and is produced in bulk.Production of Beta is based on customer orders and is custom designed.Also,55% of Beta's cost is shared between design and setup costs,while Alpha's major portions of costs are direct costs.Alpha is using a single cost pool to allocate indirect costs.Which of the following statements is true of Aqua?

A) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs.
B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs.
C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
D) Aqua will overcost Beta's indirect costs because beta has high indirect costs.

Question 20

Product-cost cross-subsidization ________.

A) exists when one overcosted product results in more than one other product being overcosted
B) means that if a company undercosts more than one of its products, it will overcost more than one of its other products
C) means that if a company undercosts one of its products, it will overcost at least one of its other products
D) exists only when one overcosted product results in all other products being overcosted

Question 21

A single indirect-cost rate distort product costs because ________.

A) there is an assumption that all support activities affect all products
B) it recognizes specific activities that are required to produce a product
C) competitive pricing is ignored
D) it assumes all costs are product costs

Question 22

Extracts from cost information of Hebar Corp.: $\begin{array}{|l|l|l|l|}\hline& \text { Simple L3 } & \\&\text { Pack } & \text { Complex L7 Pack } & \text { Total }\\\hline \text { Setup cost allocated using direct labor-hours } & \$ 18,750 & \$ 6,250 & \$ 25,000 \\\hline \text { Setup cost allocated using setup-hours } & \$ 13,200 & \$ 11,800 & \$ 25,000\\\hline\end{array}$ Which of the following statement is true of Hebar's setup costs under traditional costing?

A) L3 pack is undercosted by $5,550
B) L7 pack is undercosted by $5,450
C) L3 pack is overcosted by $5,550
D) L7 pack is overcosted by $5,550

Question 23

Premium Company provides the following ABC costing information:
$$\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$$ The above activities are used by Departments A and B as follows:
$$\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$$

-How much of the account inquiry cost will be assigned to Department A?

A) $50,000
B) $200,000
C) $60,000
D) $80,000

Question 24

ABC systems ________.

A) highlight the different levels of activities
B) limit cost drivers to units of output
C) allocate costs based on the overall level of activity
D) generally undercost complex products

Question 25

Premium Company provides the following ABC costing information:
$$\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$$ The above activities are used by Departments A and B as follows:
$$\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$$

-How much of the account billing cost will be assigned to Department B?

A) $8,500
B) $8,250
C) $8,750
D) $8,540

Question 26

Premium Company provides the following ABC costing information:
$$\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$$ The above activities are used by Departments A and B as follows:
$$\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$$

-How much of correspondence costs will be assigned to Department A?

A) $4,000
B) $6,250
C) $7,500
D) $10,000

Question 27

Direct tracing of costs reduces the amount of costs classified as indirect costs.

Question 28

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

A) Activity-based costing ignores the allocation of marketing and distribution costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C) Activity-based costing classifies some of the indirect costs as direct costs.
D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.

Question 29

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

A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs.
B) Activity based costing is more suited to companies with high product diversity than companies with single product line.
C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.
D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.

Question 30

Indirect labor and distribution costs would most likely be in the same activity-cost pool.

Question 31

A cost-allocation base is a necessary element when using a strategy that will refine a costing system.

Question 32

What are the factors that are causing many companies to refine their costing systems to obtain more accurate measures of the costs of their products?

Question 33

Premium Company provides the following ABC costing information:
$$\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$$ The above activities are used by Departments A and B as follows:
$$\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$$

-How much of the total costs will be assigned to Department A?

A) $90,250
B) $90,650
C) $90,350
D) $90,750

Question 34

Activity-based costing (ABC)can eliminate cost distortions because ABC systems ________.

A) establish a cause-and-effect relationship with the activities performed
B) use single cost pool for all overhead costs, thereby enabling simplicity
C) use a broad average to allocate all overhead costs
D) never consider interactions between different departments in assigning support costs

Question 35

Premium Company provides the following ABC costing information:
$$\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$$ The above activities are used by Departments A and B as follows:
$$\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$$

-How much of account verification costs will be assigned to Department A?

A) $15,000
B) $18,750
C) $75,000
D) $5,000

Question 36

Product lines that produce different variations (models,styles,or colors)often require specialized manufacturing activities that translate into ________.

A) fewer indirect costs for each product line
B) decisions to drop product variations
C) a greater number of direct manufacturing labor cost allocation rates
D) greater overhead costs for each product line

Question 37

Dalrymple Company produces a special spray nozzle.The budgeted indirect total cost of inserting the spray nozzle is $80,000.The budgeted number of nozzles to be inserted is 40,000.What is the budgeted indirect cost allocation rate for this activity?

A) $0.50
B) $1.00
C) $1.50
D) $2.00

Question 38

Premium Company provides the following ABC costing information:
$$\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$$ The above activities are used by Departments A and B as follows:
$$\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$$

-How much of the total costs will be assigned to Department B?

A) $117,350
B) $113,250
C) $113,750
D) $112,350

Question 39

ABC systems create ________.

A) one large cost pool
B) homogenous activity-related cost pools
C) activity-cost pools with a broad focus
D) activity-cost pools containing many direct costs

Question 40

Activity based costing system differs from traditional costing systems in the treatment of ________.

A) direct labor costs
B) direct material costs
C) prime costs
D) indirect costs

Question 41

Teecorp Company provides the following ABC costing information:
$$\begin{array} { l c c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Labor } & \$ 320,000 & 8,000 \text { hours } \\\text { Gas } & \$ 36,000 & 6,000 \text { gallons } \\\text { Invoices } & \$ 40,000 & 2,500 \text { invoices } \\\quad \text { Total costs } & \$ 396,000 &\end{array}$$ The above activities used by their three departments are:
$$\begin{array} { c c c } &\text { Lawn Department } & \text { Bush Department } & \text { Plowing Department } \\\text { Labor } & 2,500 \text { hours } & 1,200 \text { hours } & 4,300 \text { hours } \\\text { Gas } & 1,700 \text { gallons } & 800 \text { gallons } & 3,500 \text { gallons } \\\text { Invoices } & 1,600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }\end{array}$$

-How much of the labor cost will be assigned to the Bush Department?

A) $42,000
B) $48,000
C) $40,000
D) $50,000

Question 42

An activity-based costing system with many activities can become overly detailed and unwieldy to operate.

Question 43

________ is an example of an output unit-level cost in the cost hierarchy.

A) Factory rent expense
B) Building security costs
C) Top management compensation costs
D) Machine depreciation

Question 44

In activity based costing systems,limiting cost-allocation bases to only units of output strengthens the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool.

Question 45

Activity-based costing attempts to identify the most relevant cause-and-effect relationship for each activity pool without restricting the cost driver to only units of output or variables related to units of output.

Question 46

Answer the following questions using the information below:
Gregory Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:
$$\begin{array} { l r l r } \text { Cost Pool } & \text { Overhead Costs } & \text { Costdriver } & \text { Activity level } \\\text { Supervision of direct labor } & \$ 326,000 & \text { Direct labor-hours } & 900,000 \\\text { Machine maintenance } & \$ 132,000 & \text { Machine-hours } & 960,000 \\\text { Facility rent } & \$ 217,000 & \text { Square feet of area } & 100,000 \\\text { Total overhead costs } & \$ 675,000 & &\end{array}$$ The accounting records show the Mossman Job consumed the following resources:
$$\begin{array}{ll}\text { Cost driver } & \text { Actual level } \\\text { Direct labor-hours } & 200 \\\text { Machine-hours } & 1,500 \\\text { Square feet of area } & 70\end{array}$$

-If direct labor-hours are considered the only overhead cost driver,what is the single cost driver rate for Gregory?

A) $1.33 per direct labor-hour
B) $0.80 per direct labor-hour
C) $0.75 per direct labor-hour
D) $1.25 per direct labor-hour

Question 47

Teecorp Company provides the following ABC costing information:
$$\begin{array} { l c c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Labor } & \$ 320,000 & 8,000 \text { hours } \\\text { Gas } & \$ 36,000 & 6,000 \text { gallons } \\\text { Invoices } & \$ 40,000 & 2,500 \text { invoices } \\\quad \text { Total costs } & \$ 396,000 &\end{array}$$ The above activities used by their three departments are:
$$\begin{array} { c c c } &\text { Lawn Department } & \text { Bush Department } & \text { Plowing Department } \\\text { Labor } & 2,500 \text { hours } & 1,200 \text { hours } & 4,300 \text { hours } \\\text { Gas } & 1,700 \text { gallons } & 800 \text { gallons } & 3,500 \text { gallons } \\\text { Invoices } & 1,600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }\end{array}$$

-How much of invoice cost will be assigned to the Bush Department?

A) $6,400
B) $8,000
C) $25,600
D) $40,000

Question 48

Answer the following questions using the information below:
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2015 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
$$\begin{array} { l r r } \text { Cost pool } & \text { Manufacturing overhead costs } & \text { Activity level } \\\text { Design changes } & \$ 120,000 & 300 \text { design changes } \\\text { Setups } & 640,000 & 5,000 \text { setups } \\\text { Inspections } & 80,000 & 8,000 \text { inspections } \\\text { Total manufacturing overhead costs } & \$ 840,000 &\end{array}$$ During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
$$\begin{array} { l r r } \text { Activity } & \text { Money Managers } & \text { Hospital Systems } \\\text { Pages } & 60,000 & 76,000 \\\text { Design changes } & 10 & 0 \\\text { Setups } & 20 & 10 \\\text { Inspections } & 30 & 38\end{array}$$

-What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?

A) $0.10 per page
B) $0.07 per page
C) $0.70 per page
D) $0.05 per page

Question 49

Answer the following questions using the information below:
Gregory Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:
$$\begin{array} { l r l r } \text { Cost Pool } & \text { Overhead Costs } & \text { Costdriver } & \text { Activity level } \\\text { Supervision of direct labor } & \$ 326,000 & \text { Direct labor-hours } & 900,000 \\\text { Machine maintenance } & \$ 132,000 & \text { Machine-hours } & 960,000 \\\text { Facility rent } & \$ 217,000 & \text { Square feet of area } & 100,000 \\\text { Total overhead costs } & \$ 675,000 & &\end{array}$$ The accounting records show the Mossman Job consumed the following resources:
$$\begin{array}{ll}\text { Cost driver } & \text { Actual level } \\\text { Direct labor-hours } & 200 \\\text { Machine-hours } & 1,500 \\\text { Square feet of area } & 70\end{array}$$

-Under activity-based costing,what is the amount of machine maintenance costs allocated to the Mossman Job?

A) $206.00
B) $206.25
C) $206.75
D) $206.50

Question 50

Activity-based costing is most likely to yield benefits for companies ________.

A) with complex product design processes
B) with operations that remain fairly consistent
C) in a monopolistic market
D) having nominal percentage of indirect costs

Question 51

Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems.

Question 52

An activity-based costing system is necessary for costing services that are similar.

Question 53

Teecorp Company provides the following ABC costing information:
$$\begin{array} { l c c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Labor } & \$ 320,000 & 8,000 \text { hours } \\\text { Gas } & \$ 36,000 & 6,000 \text { gallons } \\\text { Invoices } & \$ 40,000 & 2,500 \text { invoices } \\\quad \text { Total costs } & \$ 396,000 &\end{array}$$ The above activities used by their three departments are:
$$\begin{array} { c c c } &\text { Lawn Department } & \text { Bush Department } & \text { Plowing Department } \\\text { Labor } & 2,500 \text { hours } & 1,200 \text { hours } & 4,300 \text { hours } \\\text { Gas } & 1,700 \text { gallons } & 800 \text { gallons } & 3,500 \text { gallons } \\\text { Invoices } & 1,600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }\end{array}$$

-How much of the gas cost will be assigned to the Lawn Department?

A) $12,000
B) $10,200
C) $10,020
D) $10,000

Question 54

Answer the following questions using the information below:
Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 10 million pages.
For 2015, Xylon decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
$\begin{array}{lrc}\text { Cost pool }&\text { Manufacturing overhead costs }&\text { Activity level }\\\text { Design changes } & \$ 160,000 & 200 \text { design changes } \\\text { Setups } & 670,000 & 4,000 \text { setups } \\\text { Inspections } & \underline{80,000} & 16,000 \text { inspections } \\\text { Total manufacturing overhead costs } & \$ 910,000 &\end{array}$ During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
$$\begin{array} { l r r } \text { Activity } & \text { Money Managers } & \text { Hospital Systems } \\\text { Pages } & 60,000 & 76,000 \\\text { Design changes } & 10 & 2 \\\text { Setups } & 20 & 10 \\\text { Inspections } & 30 & 38\end{array}$$

-If manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity,what is the cost driver rate?

A) $0.750 per page
B) $0.240 per page
C) $0.670 per page
D) $0.091 per page

Question 55

Answer the following questions using the information below:
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2015 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
$$\begin{array} { l r r } \text { Cost pool } & \text { Manufacturing overhead costs } & \text { Activity level } \\\text { Design changes } & \$ 120,000 & 300 \text { design changes } \\\text { Setups } & 640,000 & 5,000 \text { setups } \\\text { Inspections } & 80,000 & 8,000 \text { inspections } \\\text { Total manufacturing overhead costs } & \$ 840,000 &\end{array}$$ During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
$$\begin{array} { l r r } \text { Activity } & \text { Money Managers } & \text { Hospital Systems } \\\text { Pages } & 60,000 & 76,000 \\\text { Design changes } & 10 & 0 \\\text { Setups } & 20 & 10 \\\text { Inspections } & 30 & 38\end{array}$$

-Using pages printed as the only overhead cost driver,what is the manufacturing overhead cost estimate for Money Managers during 2015?

A) $5,000
B) $3,500
C) $4,200
D) $6,000

Question 56

Answer the following questions using the information below:
Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 10 million pages.
For 2015, Xylon decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
$\begin{array}{lrc}\text { Cost pool }&\text { Manufacturing overhead costs }&\text { Activity level }\\\text { Design changes } & \$ 160,000 & 200 \text { design changes } \\\text { Setups } & 670,000 & 4,000 \text { setups } \\\text { Inspections } & \underline{80,000} & 16,000 \text { inspections } \\\text { Total manufacturing overhead costs } & \$ 910,000 &\end{array}$ During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
$$\begin{array} { l r r } \text { Activity } & \text { Money Managers } & \text { Hospital Systems } \\\text { Pages } & 60,000 & 76,000 \\\text { Design changes } & 10 & 2 \\\text { Setups } & 20 & 10 \\\text { Inspections } & 30 & 38\end{array}$$

-Under ABC costing,what is the inspection cost allocated to Xylon Corp.?

A) $190
B) $160
C) $150
D) $180

Question 57

Teecorp Company provides the following ABC costing information:
$$\begin{array} { l c c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Labor } & \$ 320,000 & 8,000 \text { hours } \\\text { Gas } & \$ 36,000 & 6,000 \text { gallons } \\\text { Invoices } & \$ 40,000 & 2,500 \text { invoices } \\\quad \text { Total costs } & \$ 396,000 &\end{array}$$ The above activities used by their three departments are:
$$\begin{array} { c c c } &\text { Lawn Department } & \text { Bush Department } & \text { Plowing Department } \\\text { Labor } & 2,500 \text { hours } & 1,200 \text { hours } & 4,300 \text { hours } \\\text { Gas } & 1,700 \text { gallons } & 800 \text { gallons } & 3,500 \text { gallons } \\\text { Invoices } & 1,600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }\end{array}$$

-If labor hours are used to allocate the non-labor,overhead costs,what is the overhead allocation rate?

A) $49.50 per hour
B) $24 per hour
C) $4.60 per hour
D) $9.50 per hour

Question 58

Teecorp Company provides the following ABC costing information:
$$\begin{array} { l c c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Labor } & \$ 320,000 & 8,000 \text { hours } \\\text { Gas } & \$ 36,000 & 6,000 \text { gallons } \\\text { Invoices } & \$ 40,000 & 2,500 \text { invoices } \\\quad \text { Total costs } & \$ 396,000 &\end{array}$$ The above activities used by their three departments are:
$$\begin{array} { c c c } &\text { Lawn Department } & \text { Bush Department } & \text { Plowing Department } \\\text { Labor } & 2,500 \text { hours } & 1,200 \text { hours } & 4,300 \text { hours } \\\text { Gas } & 1,700 \text { gallons } & 800 \text { gallons } & 3,500 \text { gallons } \\\text { Invoices } & 1,600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }\end{array}$$

-How much of the total cost will be assigned to the Plowing Department?

A) $396,000
B) $201,000
C) $134,600
D) $172,000

Question 59

Which of the following statements is true of ABC systems?

A) ABC systems are time-driven cost systems.
B) ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs.
C) ABC systems provide valuable information to managers beyond accurate product costs.
D) ABC systems assume all costs are variable costs.

Question 60

Teecorp Company provides the following ABC costing information:
$$\begin{array} { l c c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Labor } & \$ 320,000 & 8,000 \text { hours } \\\text { Gas } & \$ 36,000 & 6,000 \text { gallons } \\\text { Invoices } & \$ 40,000 & 2,500 \text { invoices } \\\quad \text { Total costs } & \$ 396,000 &\end{array}$$ The above activities used by their three departments are:
$$\begin{array} { c c c } &\text { Lawn Department } & \text { Bush Department } & \text { Plowing Department } \\\text { Labor } & 2,500 \text { hours } & 1,200 \text { hours } & 4,300 \text { hours } \\\text { Gas } & 1,700 \text { gallons } & 800 \text { gallons } & 3,500 \text { gallons } \\\text { Invoices } & 1,600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }\end{array}$$

-How much of the total costs will be assigned to the Lawn Department?

A) $134,500
B) $135,600
C) $135,800
D) $134,600

Question 61

Management accountants use the cost hierarchy to first calculate the ________.

A) labor costs of each product and then they compute material costs
B) overhead costs of each product and then they compute prime costs
C) factory costs of each product and then they compute labor costs
D) total costs of each product and then they compute per-unit costs

Question 62

With traditional costing systems,products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.

A) overcosted
B) fairly costed
C) undercosted
D) ignored

Question 63

Put the following ABC implementation steps in order ________.
A Compute the allocation rates.
B Compute the total cost of the products.
C Identify the products that are the cost objects.
D Select the cost allocation bases.

A) DACB
B) DBCA
C) BADC
D) CDAB

Question 64

Answer the following questions using the information below:
Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8.
According to an ABC system,S5 uses a disproportionately ________.

A) smaller amount of unit-level costs
B) larger amount of unit-level costs
C) smaller amount of batch-level costs
D) larger amount of batch-level costs

Question 65

Service-sustaining costs are the costs of activities that managers cannot trace to individual services but that support the organization as a whole.

Question 66

________ is considered while choosing a cost allocation base for activity costs in ABC costing.

A) Marketing strategy and material price level
B) Availability of reliable data and measures
C) Product price level
D) Market share of a product

Question 67

Facility-sustaining costs are the costs of activities ________.

A) undertaken to support individual products or services regardless of the number of units or batches in which the units are produced
B) related to a group of units of a product or service rather than each individual unit of product or service
C) that managers cannot trace to individual products or services but that support the organization as a whole
D) performed on each individual unit of a product or service such as the cost of energy, machine depreciation, and repair

Question 68

For a company which produce its products in batches,the CEO's salary is a(n)________ cost.

A) batch-level
B) output unit-level
C) facility-sustaining
D) product-sustaining

Question 69

It is usually difficult to find good cause-and-effect relationships between ________ and a cost allocation base.

A) unit-level costs
B) batch-level costs
C) product-sustaining costs
D) facility-sustaining costs

Question 70

Unit-level cost drivers are most appropriate as an overhead assignment base when ________.

A) several complex products are manufactured
B) only one product is manufactured
C) direct material costs are low
D) prime costs are low

Question 71

Is it advisable to ignore facility-sustaining cost drivers during product costing?

Question 72

Top management compensation cost is an example of ________ in the cost hierarchy.

A) unit-level costs
B) batch-level costs
C) product-sustaining costs
D) facility-sustaining costs

Question 73

Misleading cost numbers are larger when only unit-level cost drivers are used for allocating overheads of multiple complex products.

Question 74

Quality-inspection costs is an example of batch-level costs.

Question 75

________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced.

A) Unit-level costs
B) Batch-level costs
C) Product-sustaining costs
D) Facility-sustaining costs

Question 76

Which of the following cost and cost allocation base have a strong cause and effect relationship?

A) administration costs and cubic feet
B) setup costs and square feet
C) machine depreciation and output units
D) machine maintenance and setup hours

Question 77

Answer the following questions using the information below:
Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8.
According to an ABC system,CP8 is ________ under the traditional system.

A) undercosted
B) overcosted
C) fairly costed
D) accurately costed

Question 78

What are the four parts of the cost hierarchy.Briefly explain each part,and contrast this cost hierarchy to the fixed-variable dichotomy?

Question 79

An effective activity-based cost system always ignores facility-sustaining cost drivers.

Question 80

________ costs support the organization as a whole.

A) Unit-level
B) Batch-level
C) Product-sustaining
D) Facility-sustaining