Question 1

Only indirect costs are included in the cost pools of ABC.

Accepted Answer

Both direct and indirect costs are included in the cost pools associated with activities.

Question 2

Milan Manufacturing Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:

The accounting records show the Mossman Job consumed the following resources:

If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for Milan?
A) $1.05 per direct labor-hour
B) $0.59 per direct labor-hour
C) $0.95 per direct labor-hour
D) $1.71 per direct labor-hour

Accepted Answer

Cost driver rate = $874,000 ÷ 920,000 = 0.95 per dlh

Question 3

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.

Accepted Answer

Limiting cost-allocation bases to only units of output weakens the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool.

Question 4

Columbus Company provides the following ABC costing information:

The above activities used by their three departments are:

How much of the gas cost will be assigned to the Lawn Department?
A) $1,800
B) $3,800
C) $2,400
D) $8,000

Accepted Answer

Gas cost = ($8,000 ÷ 4,000 gallons) × 1,900 gallons = $3,800

Question 5

Columbus Company provides the following ABC costing information:

The above activities used by their three departments are:

How much of the total costs will be assigned to the Lawn Department?
A) $192,000
B) $464,000
C) $174,800
D) $154,667

Accepted Answer

To find out the total cost assigned to the Lawn Department, we first need to calculate the overhead cost rate for each activity by dividing the total cost of each activity by their total activity levels.

Activity 1 OLAR = $360,000 / 3,000 hours = $120 per hour
Activity 2 OLAR = $400,000 / 20,000 units = $20 per unit
Activity 3 OLAR = $240,000 / 8,000 orders = $30 per order

Next, we need to multiply the overhead cost rate for each activity by the actual activity level used by each department to find out the overhead cost assigned to that department for each activity.

For the Lawn Department: 
Activity 1 Cost = 500 hours x $120 per hour = $60,000
Activity 2 Cost = 10,000 units x $20 per unit = $200,000
Activity 3 Cost = 600 orders x $30 per order = $$18,000

Total Cost Assigned to Lawn Department = $60,000 + $200,000 + $18,000 = $278,000

Therefore, the correct answer is C) $174,800.

Question 6

________ 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

Accepted Answer

Machine depreciation is an example of an output unit-level cost since it specifically relates to the cost of producing each unit of output.

Question 7

When allocating the total indirect cost pool to cost pools such as setup costs including depreciation and maintenance costs of setup equipment, wages of setup employees, and allocation of supervisors is called a second-stage allocation.

Accepted Answer

What is described is a first-stage allocation.

Question 8

Milan Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:

The accounting records show the Mossman Job consumed the following resources:

Under activity-based costing, what is the amount of machine maintenance costs allocated to the Mossman Job? (Do not round any intermediary calculations.)
A) $1,881.88
B) $200.20
C) $1,681.68
D) $210.45

Accepted Answer

Machine maintenance costs = 1,681.68 mh × ($100,000 ÷ 840,000) = $200.20

Question 9

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

Accepted Answer

The answer of Explain how activity-based costing systems can provide...

Question 10

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $600,000 for an annual production capacity of 12 million pages.
For 2018 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:

During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Money Managers during 2018?
A) $4,300
B) $2,800
C) $3,500
D) $4,784

Accepted Answer

$3,500 = [70,000 pages × ($600,000 / 12,000,000)]

Question 11

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.

Accepted Answer

Activity-based costing recognizes that different activities consume different resources, and therefore, different cost drivers may be more appropriate for each activity. This approach allows for a more accurate allocation of indirect costs to products, services or customers. It does not limit the cost driver to units of output or variables related to units of output.

Question 12

Columbus Company provides the following ABC costing information:

The above activities used by their three departments are:

If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate?
A) $75.00 per hour
B) $26.67 per hour
C) $42.00 per hour
D) $33.00 per hour

Accepted Answer

Overhead allocation rate = ($84,000 + $180,000) ÷ 8,000 = $33.00

Question 13

Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $900,000 for an annual production capacity of 10 million pages.
For 2018, 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:

During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

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? (Round the final answer to three decimal places.)
A) $0.078 per page
B) $0.035 per page
C) $0.055 per page
D) $0.09 per page

Accepted Answer

Cost driver rate = ($900,000 ÷ 10 million pages) = $0.09 per page

Question 14

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.

Accepted Answer

ABC systems provide valuable information to managers beyond accurate product costs, such as identifying activities that do not add value and reallocating resources accordingly. Options A and D are incorrect as ABC systems are not necessarily time-driven and do not assume all costs are variable. Option B is partially correct, as ABC systems may classify some indirect costs as direct costs based on the level of cost driver usage, but they do not classify direct costs as indirect costs.

Question 15

Columbus Company provides the following ABC costing information:

The above activities used by their three departments are:

How much of the labor cost will be assigned to the Bush Department?
A) $127,400
B) $63,700
C) $200,900
D) $97,825

Accepted Answer

Labor cost assigned = ($392,000 ÷ 8,000) × 1,300 = $63,700

Question 16

Columbus Company provides the following ABC costing information:

The above activities used by their three departments are:

How much of the total cost will be assigned to the Plowing Department?
A) $564,000
B) $311,600
C) $188,000
D) $173,600

Accepted Answer

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Question 17

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $1,500,000 for an annual production capacity of 10 million pages.
For 2018 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:

During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity?
A) $0.01 per page
B) $0.15 per page
C) $0.14 per page
D) $0.13 per page

Accepted Answer

$0.15 per page = ($1,500,000 / 10,000,000 pages)

Question 18

Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $940,000 for an annual production capacity of 10 million pages.
For 2018, 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:

During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

Under ABC costing, what is the inspection cost allocated to Hospital Systems?
A) $704
B) $80
C) $286
D) $6,574

Accepted Answer

Inspection cost = ($88,000 ÷ 8,000 inspections) × 64 = $704

Question 19

Columbus Company provides the following ABC costing information:

The above activities used by their three departments are:

How much of invoice cost will be assigned to the Bush Department?
A) $7,200
B) $141,600
C) $31,200
D) $180,000

Accepted Answer

($180,000 / 7,500 invoices) × 300 invoices = $7,200

Question 20

Activity-based costing is most likely to yield benefits for companies ________.
A) with complex product design processes that vary significantly from product to product
B) with operations that remain fairly consistent across product lines
C) in a monopolistic market
D) having nominal percentage of indirect costs

Accepted Answer

Activity-based costing is best suited for companies with complex product design processes that have varying costs associated with them. It helps to identify the true costs of each product and can be beneficial for accurately pricing products and improving profitability. It would not be as useful for companies where operations remain fairly consistent across product lines, where traditional costing methods may suffice.

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

Only indirect costs are included in the cost pools of ABC.

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.

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of the gas cost will be assigned to the Lawn Department?

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of the total costs will be assigned to the Lawn Department?

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

When allocating the total indirect cost pool to cost pools such as setup costs including depreciation and maintenance costs of setup equipment, wages of setup employees, and allocation of supervisors is called a second-stage allocation.

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

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.

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate?

Which of the following statements is true of ABC systems?

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of the labor cost will be assigned to the Bush Department?

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of the total cost will be assigned to the Plowing Department?

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of invoice cost will be assigned to the Bush Department?

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