Question 1

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

Accepted Answer

The answer of Volume-based costing allocates indirect product costs based...

Question 2

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.

Accepted Answer

(1) is false, as activity-based costing allows for more accurate allocation of costs, which can sometimes result in a lower cost per unit. 
(2) is true, as volume-based costing often results in a higher overhead allocation to high volume products, which lowers gross margins, and a lower overhead allocation to low volume products, which raises gross margins.

Question 3

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

Accepted Answer

Batch-related activities involve processing a group of similar orders together. Setting up a machine for a new production run, purchasing materials, and processing a customer order all involve batching. 100% inspection, on the other hand, is not a batch-related activity as it involves inspecting each individual product rather than a group of similar products.

Question 4

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

Accepted Answer

In an activity-based costing system, "Allocations Incurred" is not a standard account. ABC focuses on assigning overhead costs based on activities, not on a specific account called "Allocations Incurred."

Question 5

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.

Accepted Answer

The number of services provided by an accounting firm would be classified as a product-related activity, as the services are the firm's products that they are providing to customers. Volume-related activities refer to production volume, batch-related activities refer to producing in batches, and facility-related activities refer to the use of facilities.

Question 6

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.

Accepted Answer

The answer of The electricity used for production machinery would...

Question 7

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

Accepted Answer

The answer of If Smelly changes its overhead allocation to...

Question 8

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

Accepted Answer

The answer of If Smelly changes its allocation basis to...

Question 9

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

Accepted Answer

To calculate the product cost per case for Product J, we need to allocate overhead using departmental rates.

First, we calculate the predetermined overhead rate for each department:

Department C: 
Predetermined overhead rate = Estimated overhead costs / Estimated direct labor hours 
= $375,000 / 25,000 hours 
= $15/hour

Department D: 
Predetermined overhead rate = Estimated overhead costs / Estimated machine hours 
= $480,000 / 60,000 hours 
= $8/hour

Next, we allocate overhead to each department using their respective allocation bases:

Department C: 
Overhead allocation = Direct labor hours x Predetermined overhead rate 
= 5,000 hours x $15/hour 
= $75,000

Department D: 
Overhead allocation = Machine hours x Predetermined overhead rate 
= 15,000 hours x $8/hour 
= $120,000

Total overhead allocation = $75,000 + $120,000 = $195,000

Finally, we calculate the product cost per case for Product J:

Direct materials = $80 
Direct labor = $60 
Manufacturing overhead (allocated) = $195,000 / 9,000 cases = $21.67 per case

Product cost per case = Direct materials + Direct labor + Manufacturing overhead 
= $80 + $60 + $21.67 
= $161.67

Therefore, the best choice is C, $166.00, which is the closest answer option to our calculated product cost per case.

Question 10

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.

Accepted Answer

Activity-based costing (ABC) requires more recordkeeping because it involves identifying and tracking the costs of various activities that contribute to the production of a product, whereas plant wide and department allocation methods allocate costs based on predetermined rates or percentages without necessarily identifying specific activities.

Question 11

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

Accepted Answer

Sales volume is not a suitable allocation base for a single plant wide rate because it does not have a direct correlation with production costs. The other options (B, C, D, and E) are all common allocation bases used in manufacturing settings.

Question 12

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.

Accepted Answer

(A) is true because traditional product costing systems are designed for financial reporting purposes such as determining the cost of goods sold and inventory valuation.
(B) is also true because if a single cost driver is used as the allocation base, it may lead to over or under-costing of products, resulting in inappropriate managerial decisions. For example, if direct labor hours are used as the only allocation base for overhead costs, products that require more machine time and less labor time may appear to have higher costs than they actually do.

Question 13

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

Accepted Answer

Traditional costing systems generally use volume-related activities, such as direct labor hours or machine hours, as an allocation base for allocating overhead costs to the units produced. This is because these activities are easy to measure and are assumed to have a direct correlation with the amount of overhead costs incurred in producing the units.

Question 14

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

Accepted Answer

ABC systems use multiple allocation bases, including volume-related activities, batch-related activities, product-related activities, and facility-related activities. This allows for a more accurate allocation of overhead costs to the units produced, based on the specific activities that contribute to those costs.

Question 15

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.

Accepted Answer

In the first stage of ABC, costs are assigned to activities. In the second stage, these costs are then assigned to products based on their use of those activities. This two-stage process allows for a more accurate allocation of indirect costs to products based on their actual usage of resources.

Question 16

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

Accepted Answer

The answer of Which of the following costs is not...

Question 17

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

Accepted Answer

The answer of If Smelly changes its allocation basis to...

Question 18

Cost pools are used with
A)a
B)b
C)c
D)d

Accepted Answer

The answer of Cost pools are used with
A)a
B)b
C)c
D)d...

Question 19

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.

Accepted Answer

Both statements are false. In first-stage cost allocation, cost pools are used to allocate costs to departments, while predetermined overhead rates are used in both first-stage and second-stage cost allocations.

Question 20

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

Accepted Answer

The total product cost per case for Product X is calculated based on the new allocation basis of machine hours. The correct cost is $80.48.

Quiz 9: Activity-Based Costing

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.

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

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

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

The electricity used for production machinery would be classified as a

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?

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

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?

Which of the following statements is true?

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

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

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?

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?

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

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

Cost pools are used with

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