Deck 4: Activity-Based Costing

Question 1

The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.

Answer 1

False

Question 2

An activity-based costing system traces costs to activities and then to products and other cost objects.

Answer 2

True

Question 3

A list of the activities identified in the design of an activity-based system is called an activity inventory.

Answer 3

True

Question 4

Product classification attributes define and describe activities and are the basis for product classification.

Question 5

The difference between actual overhead and applied overhead is an underapplied overhead.

Question 6

Overhead assignments should reflect the amount of overhead demanded by each product.

Question 7

Activity-based costing uses only unit-level drivers for costing.

Question 8

The first step in designing an activity-based costing system is to identify activities.

Question 9

The activity-based cost assignment is the most accurate method of costing because it follows a cause-and-effect pattern of overhead consumption.

Question 10

Unit-based product costing assigns manufacturing and selling costs to products.

Question 11

Classifying activities into four general categories facilitates product costing by associating the response to different types of activity drivers.

Question 12

After identifying and describing activities, the next step is to determine the cost of the performance of each activity.

Question 13

Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.

Question 14

Activity attributes are nonfinancial and financial information items that describe individual activities.

Question 15

Unit-level drivers are factors that measure the demands placed on unit-level activities by products.

Question 16

If applied overhead is greater than actual overhead it is called overapplied overhead.

Question 17

If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.

Question 18

Management information systems can be divided into a unit-based type and activity-based type.

Question 19

Non-unit-based drivers are factors that measure the demands that cost objects place on activities.

Question 20

Predetermined overhead rates are calculated at the end of each year using the formula: overhead rate = budgeted annual driver level/budgeted annual driver level.

Question 21

There are many two-driver combinations that may be used to reduce the ABC system without sacrificing accuracy.

Question 22

The formula Budgeted annual overhead/Budgeted annual driver level is used to calculate a __________ rate.

Question 23

An __________costing database is the collected data sets that are organized and interrelated for use in a company's ABC information system.
or

Question 24

Efforts to simplify activity-based costing systems (ABC) involve either before-the-fact simplification or after-the-fact simplification.

Question 25

After-the-fact simplification includes two approaches: the approximately relevant reduced ABC system and the equally accurate enhanced ABC system.

Question 26

For labor-intensive operations, the most appropriate activity driver would be the __________ hours.

Question 27

The use of __________ activity drivers to assign costs tends to __________ high-volume products.
or

Question 28

Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.

Question 29

A(n) __________ method first traces costs to a department and then to products.
or

Question 30

In the __________ ABC systems, managers directly estimate the resource demands imposed by each product.
or

Question 31

The proportion of an overhead activity consumed by a product is the __________ ratio.

Question 32

A(n) __________ costing system first traces costs to activities and then to products.
or

Question 33

Activity __________ are nonfinancial and financial data that describe individual activities.

Question 34

A(n) __________ is a grouping of logically related information.

Question 35

Materials handling would be classified as a __________ activity when using activity-level costing.
or

Question 36

Offering greater product accuracy than an activity-based costing system is not a characteristic of a __________ costing system.
or

Question 37

__________ drivers create distortions when different products utilize resources differently.
or

Question 38

The activity __________ is a simple list of activities identified in an ABC system.

Question 39

Time driven activity-based costing (TDABC) requires the need to identify resource drivers to assign costs to activities.

Question 40

Activity __________ helps management achieve objectives such as product or customer costing and continuous improvement.

Question 41

All of the following are non-unit-based activity drivers EXCEPT

A) number of direct labor hours.
B) number of inspections.
C) number of setups.
D) number of material moves.

Question 42

A predetermined overhead rate is calculated using which of the following formulas?

A) Actual annual overhead / budgeted annual driver level
B) Budgeted annual overhead / budgeted annual driver level
C) Budgeted annual overhead / actual annual driver level
D) Actual annual overhead / actual annual driver level

Question 43

Figure 4-1 The Foremost Company predicted factory overhead for 2013 and 2014 would be $120,000 for each year. The predicted activity for 2013 and 2014 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2013 and 2014 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-1. When the annual estimated factory overhead rate is used, the gross profits for 2013 and 2014, respectively, are

A) $150,000 and $150,000.
B) $150,000 and $100,000.
C) $250,000 and $250,000.
D) $100,000 and $150,000.

Question 44

A department that is capital-intensive most likely would use a predetermined departmental overhead rate based on which of the following activity bases?

A) units of direct material used
B) direct labor hours
C) direct labor cost
D) machine hours

Question 45

In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?

A) units produced
B) direct labor hours
C) machine hours
D) number of batches

Question 46

The overhead rates of the traditional functional-based product costing use

A) non-unit-based activity drivers.
B) unit-based activity drivers.
C) process costing.
D) job order costing.

Question 47

Which is NOT a characteristic of a unit-based costing system?

A) It uses traditional product costing definitions.
B) It uses unit-based activity drivers to assign overhead to products.
C) It offers greater product costing accuracy than an activity-based costing system.
D) It is cheaper than an activity-based costing system.

Question 48

For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?

A) machine hours
B) direct labor hours
C) number of employees
D) units of output

Question 49

Figure 4-2 The following information is provided by the Sandman Corporation for the year:
Refer to Figure 4-2. The actual overhead rate for applying manufacturing overhead is

A) $ 7.14.
B) $ 7.50.
C) $10.00.
D) $10.50.

Question 50

Unit-level product costing assigns

A) direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
B) direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
C) direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.
D) direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.

Question 51

If unit-based product costing is used, which of the following would be traced directly to the product?

A) setup costs
B) direct labor
C) maintenance of machinery
D) inspection costs

Question 52

Common measures of production activity include

A) units produced.
B) direct labor hours.
C) machine hours.
D) all of these.

Question 53

The method that first traces costs to a department and then to products is called:

A) direct costing
B) absorption costing
C) unit-based costing
D) indirect costing

Question 54

A costing system that uses actual costs for direct materials and labor and predetermined overhead rates to apply overhead is called a(n)

A) actual costing system.
B) standard costing system.
C) normal costing system.
D) activity-based costing system.

Question 55

Figure 4-1 The Foremost Company predicted factory overhead for 2013 and 2014 would be $120,000 for each year. The predicted activity for 2013 and 2014 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2013 and 2014 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-1. When the normal factory overhead rate is used, the gross profits for 2013 and 2014, respectively, are

A) $80,000 and $80,000.
B) $200,000 and $200,000.
C) $120,000 and $140,000.
D) $100,000 and $100,000.

Question 56

Product costs can be distorted if a unit-based activity driver is used and

A) non-unit-based overhead costs are a significant proportion of total overhead.
B) the consumption ratios differ between unit-based and non-unit-based input categories.
C) both a and b.
D) neither a nor b.

Question 57

Unit-based product costing uses which of the following procedures?

A) All overhead costs are expensed as incurred.
B) Overhead costs are traced to departments, then costs are traced to products.
C) Overhead costs are traced directly to products.
D) Overhead costs are traced to activities, then costs are traced to products.

Question 58

Figure 4-2 The following information is provided by the Sandman Corporation for the year:
Refer to Figure 4-2. If normal costing is used, the amount of overhead applied for the year is

A) $414,000.
B) $400,000.
C) $480,000.
D) $460,000.

Question 59

Avatar Corporation uses a predetermined rate to apply overhead. At the beginning of the year, Avatar estimated its overhead costs at $240,000, direct labor hours at 40,000, and machine hours at 10,000. Actual overhead costs incurred were $249,280, actual direct labor hours were 41,000, and actual machine hours were 11,000. What is the predetermined overhead rate per machine hour for Avatar?

A) $ 6.08
B) $ 5.85
C) $22.66
D) $24.00

Question 60

All of the following are unit-based activity drivers EXCEPT

A) number of setups.
B) machine hours.
C) number of units.
D) direct labor hours.

Question 61

Figure 4 - 3 The records of Family Manufacturing show the following information:
Refer to Figure 4-3. The company uses a predetermined overhead rate to apply overhead. Manufacturing overhead applied is

A) $750,000.
B) $700,000.
C) $690,000.
D) $648,000.

Question 62

Figure 4-6 The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:
Refer to Figure 4-6. How much overhead is applied to the planes?

A) $ 60,000
B) $250,000
C) $219,500
D) $225,000

Question 63

Material amounts of underapplied or overapplied overhead should be

A) treated as an adjustment to cost of goods sold.
B) treated as an adjustment to work in process.
C) allocated to direct materials, work in process, and finished goods.
D) allocated to work in process, finished goods, and cost of goods sold.

Question 64

Figure 4 - 3 The records of Family Manufacturing show the following information:
Refer to Figure 4-3. The amount of overapplied or underapplied overhead is

A) $10,000 underapplied. .
B) $50,000 overapplied.
C) $60,000 overapplied.
D) $65,200 underapplied

Question 65

Figure 4-5 The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. What is the predetermined overhead rate? (round to 2 decimal places)

A) $0.62
B) $0.65
C) $0.67
D) $0.70

Question 66

Figure 4-4 Mannitou Company made the following predictions for 2014:
Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is

A) $69,000.
B) $75,000.
C) $63,000.
D) $66,000.

Question 67

Figure 4-6 The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:
Refer to Figure 4-6. What is the overhead per unit for race cars? (round to 3 decimal places)

A) $0.50
B) $0.505
C) $0.32
D) $1.40

Question 68

Bear Claw Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year: The following information was available for Job No. 7-29, which was started and completed during August:
The predetermined overhead rate for the molding department is

A) $100.
B) $83.
C) $70.
D) $50.

Question 69

The following information is provided for the year: If normal costing is used, the amount of overhead applied for the year is

A) $568,750.00.
B) $441,031.25.
C) $481,250.00.
D) $525,000.00.

Question 70

Account balances from the Boilermakers Company are as follows: If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of

A) $ 960,000.
B) $ 640,000.
C) $1,040,000.
D) $1,440,000.

Question 71

The following information is provided by the Sutton Corporation for the year: If normal costing is used, budgeted overhead used to calculate the predetermined rate would be

A) $443,250.
B) $450,000.
C) $487,500.
D) $536,250.

Question 72

Figure 4-5 The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. If the accounts had the following balances, how much will cost of goods sold be adjusted?

A) debit $12,500
B) debit $21,250
C) credit $26,562.50
D) none of these

Question 73

The Magnanimous Company uses a predetermined overhead rate of $12 per direct labor hour to apply overhead. During the year, 30,000 direct labor hours were worked. Actual overhead costs for the year were $320,000. The overhead variance is

A) $40,000 underapplied.
B) $35,560 underapplied.
C) $36,000 overapplied.
D) none of the above.

Question 74

Figure 4-4 Mannitou Company made the following predictions for 2014:
Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on direct labor hours, the cost of Job A2 for the Mannitou Company is

A) $60,000.
B) $75,000.
C) $63,000.
D) $66,000.

Question 75

Assume the following: Actual overhead costs equaled estimated overhead. Actual direct labor hours exceeded estimated direct labor hours used to calculate the predetermined overhead rate. If overhead is applied using the predetermined overhead rate, then overhead is

A) $-0-.
B) underapplied.
C) overapplied.
D) indeterminable from the information given.

Question 76

The following information pertains to Whitestone Industries for 2014: What is the predetermined overhead rate for Whitestone Industries for 2014?

A) 66.7%
B) 150%
C) 160%
D) 62.5%

Question 77

Figure 4-6 The Fast & Furious Company produces two products: toy planes and toy race cars. They use departmental overhead rates for the two production departments: molding and finishing. Molding uses machine hours to assign overhead and Finishing uses direct labor hours. 50,000 planes and 250,000 race cars are produced. Please find the following data:
Refer to Figure 4-6. What are the departmental overhead rates for the molding and finishing department respectively?

A) $25; $2.50
B) $8.33; $2
C) $25; $10
D) $12.50; $2.50

Question 78

Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 2014: Factory overhead rate is $18 per direct labor hour.
What is the amount of under- or overapplied overhead for Lonestar Corporation in 2014?

A) $40,000 overapplied
B) $20,000 overapplied
C) $40,000 underapplied
D) $20,000 underapplied

Question 79

Figure 4-5 The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. How much overhead is applied to each 9 volt batteries and AAA batteries respectively? (round to 2 decimal places)

A) $87,500; $280,000
B) $70,000; $280,00
C) $81,250; $260,000
D) none of these

Question 80

Figure 4-5 The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Refer to Figure 4-5. How much was overhead over/underapplied?

A) $25,000
B) $17,500
C) $42,500
D) none of these