Question 1

Direct labor hours would be the most appropriate cost allocation base for a Machining Department that uses machine robotics extensively.

Accepted Answer

Since machine robotics are extensively used in the Machining Department, it would be appropriate to allocate costs based on the usage of the robotics rather than the direct labor hours. A more appropriate cost allocation base for this department would be machine hours or the number of parts produced.

Question 2

It is easier to allocate indirect costs to the products that caused those costs if you use the ABC
system rather than traditional costing systems.

Accepted Answer

The answer of  It is easier to allocate indirect...

Question 3

The four categories of activity costs in cost hierarchy are determined by the underlying factor that drives its costs.

Accepted Answer

The four categories of activity costs in cost hierarchy are based on the underlying factor that drives its costs, such as the setup cost of a machine, the cost of ordering materials, the cost of inspecting finished products, and the cost of designing new products or modifying the current ones. These costs are organized in a hierarchy depending on their level of complexity and the degree of influence they have on the cost of the final product or service.

Question 4

Plantwide overhead rates typically do a better job of matching each department's overhead costs to the products that use the department's resources than do departmental overhead rates.

Accepted Answer

Plantwide overhead rates apply a single overhead rate across the entire plant, which may not accurately reflect the specific overhead costs incurred by individual departments, unlike departmental overhead rates that are tailored to each department's specific activities and costs.

Question 5

Companies that use ABC trace direct materials and direct labor to cost objects just as in traditional costing systems.

Accepted Answer

ABC still traces direct materials and direct labor to cost objects, but it also incorporates additional cost drivers and indirect costs that traditional systems may not fully capture.

Question 6

Cost distortion results in the:
A)overcosting of all products.
B)undercosting of all products.
C)overcosting of some products and undercosting of other products.
D)accurate costing of all products.

Accepted Answer

Cost distortion occurs when the actual costs incurred for a product or service are not accurately assigned to that product or service. This can result in overcosting for some products and undercosting for others. Consequently, choice C is the best answer.

Question 7

The use of departmental overhead rates will generally result in the use of a:
A)single cost allocation base.
B)separate cost allocation base for each department in the factory.
C)single overhead cost pool for the factory.
D)separate cost allocation base for each activity in the factory.

Accepted Answer

Departmental overhead rates result in assigning overhead costs to each department separately based on its own cost allocation base. This means each department will have its own separate cost allocation base, unlike a single cost allocation base used in traditional costing.

Question 8

Bond Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs.The company has two departments: Assembly and Sanding.The Assembly Department uses a departmental overhead rate of $20 per machine hour,while the Sanding Department uses a departmental overhead rate of $15 per direct labor hour.Job 542 used the following direct labor hours and machine hours in the two departments: $$\begin{array} { | l | c | c | } 
\hline \text { Actual results } & \begin{array} { c } 
\text { Assembly } \
\text { Department }
\end{array} & \begin{array} { c } 
\text { Sanding } \
\text { Department }
\end{array} \
\hline \text { Direct labor hours used } & 4 & 3 \
\hline \text { Machine hours used } & 9 & 5 \
\hline
\end{array}$$ The cost for direct labor is $25 per direct labor hour and the cost of the direct materials used by Job 542 is $1,200.
-
What was the total cost of Job 542 if Bond Industries used the departmental overhead rates to allocate manufacturing overhead?
A)$1,375
B)$1,425
C)$1,500
D)$1,600

Accepted Answer

The total cost of Job 542 includes direct materials, direct labor, and allocated overhead. Direct materials cost $1,200. Direct labor cost is (4 hours * $25) + (3 hours * $25) = $175. Overhead for Assembly is 9 machine hours * $20 = $180. Overhead for Sanding is 3 direct labor hours * $15 = $45. Total cost = $1,200 + $175 + $180 + $45 = $1,600.

Question 9

The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool.

Accepted Answer

The allocation base selected should be the cost driver for the departmental overhead pool to ensure accurate allocation of costs to products, services, or activities. This allows for better cost analysis and helps in making informed business decisions.

Question 10

Which of the following condition(s)favors using departmental overhead rates in place of a plantwide overhead rate?
A)Different departments incur different amounts and types of manufacturing overhead.
B)Different jobs or products use the departments to a different extent.
C)Both of the above are true.
D)Neither of the above are true.

Accepted Answer

When different departments incur different amounts and types of manufacturing overhead, departmental overhead rates are more appropriate as they ensure that the overhead costs are allocated to products more accurately. Similarly, when different jobs or products use the departments to a different extent, departmental overhead rates help allocate overhead costs more accurately. Thus, both conditions favor using departmental overhead rates.

Question 11

Bond Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs.The company has two departments-Assembly and Sanding.The Assembly Department uses a departmental overhead rate of $20 per machine hour,while the Sanding Department uses a departmental overhead rate of $15 per direct labor hour.Job 542 used the following direct labor hours and machine hours in the two departments: $$\begin{array} { | l | c | c | } 
\hline \text { Actual results } & \begin{array} { c } 
\text { Assembly } \
\text { Department }
\end{array} & \begin{array} { c } 
\text { Sanding } \
\text { Department }
\end{array} \
\hline \text { Direct labor hours used } & 4 & 3 \
\hline \text { Machine hours used } & 9 & 5 \
\hline
\end{array}$$ The cost for direct labor is $25 per direct labor hour and the cost of the direct materials used by Job 542 is $1,200.
-
How much manufacturing overhead would be allocated to Job 542 using the departmental overhead rates?
A)$125
B)$175
C)$225
D)$245

Accepted Answer

The answer of  Bond Industries uses departmental overhead rates...

Question 12

The cost allocation rate for each activity is equal to the estimated total manufacturing overhead costs of the activity multiplied by the estimated total quantity of the cost allocation base.

Accepted Answer

The cost allocation rate is calculated by dividing the estimated total manufacturing overhead costs of the activity by the estimated total quantity of the cost allocation base, not multiplying them.

Question 13

Green Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers.Green Bags Company sells the bags in cases of 1,000 bags.The bags come in three sizes: Large,Medium,and Small.Currently,Green Bags Company uses a single plantwide overhead rate to allocate its $7,141,100 of annual manufacturing overhead.Of this amount,$1,875,000 is associated with the Large Bag line,$2,992,500 is associated with the Medium Bag line,and $2,273,000 is associated with the Small Bag line.Green Bags Company is currently running a total of 37,000 machine hours: 12,500 in the Large Bag line,13,300 in the Medium Bag line,and 11,200 in the Small Bag line.Green Bags Company uses machine hours as the cost driver for manufacturing overhead costs. 
-
Which product line(s)have been overcosted or undercosted by using the plantwide manufacturing overhead rate?
A.Large Bags has been overcosted; Medium and Small have been undercosted.
B.Large,Medium,and Small Bags have all been overcosted.
C.Large,Medium,and Small Bags have all been undercosted.
D.Large Bags has been undercosted; Medium and Small have been overcosted.

Accepted Answer

The answer of  Green Bags Company manufactures cloth grocery...

Question 14

Green Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers.Green Bags Company sells the bags in cases of 1,000 bags.The bags come in three sizes-Large,Medium,and Small.Currently,Green Bags Company uses a single plant-wide overhead rate to allocate its $7,141,100 of annual manufacturing overhead.Of this amount,$1,875,000 is associated with the Large Bag line,$2,992,500 is associated with the Medium Bag line,and $2,273,000 is associated with the Small Bag line.Green Bags Company is currently running a total of 37,000 machine hours-12,500 in the Large Bag line,13,300 in the Medium Bag line,and 11,200 in the Small Bag line.Green Bags Company uses machine hours as the cost driver for manufacturing overhead costs.
-
The plant-wide manufacturing overhead rate would be closest to:
A)$ 50.68 per machine hour.
B)$150.00 per machine hour.
C)$193.00 per machine hour.
D)$225.00 per machine hour.

Accepted Answer

The plant-wide overhead rate is calculated by dividing the total manufacturing overhead cost by the total machine hours.

Total manufacturing overhead cost = $7,141,100

Total machine hours = 12,500 + 13,300 + 11,200 = 37,000

Plant-wide overhead rate = Total manufacturing overhead cost / Total machine hours = $7,141,100 / 37,000 = $193.00 per machine hour.

Therefore, the best choice is C.

Question 15

Unit-level activities and costs are incurred once for every batch.

Accepted Answer

Unit-level activities and costs are incurred for every unit, not for every batch. Batch-level activities and costs are incurred once for every batch.

Question 16

When calculating a departmental overhead rate,the numerator should be the:
A)total estimated departmental overhead cost pool.
B)total estimated amount of the departmental allocation base.
C)total estimated amount of manufacturing overhead for the factory.
D)actual quantity of the departmental allocation base used by the job.

Accepted Answer

The numerator in a departmental overhead rate calculation is the total estimated departmental overhead cost pool, which represents the total overhead costs that need to be allocated to products or jobs within that department.

Question 17

When calculating the total amount of manufacturing overhead to allocate to a particular job,the company would multiply each departmental overhead rate by ___________ and then _________ together the allocated amounts from each department.
A)the actual amount of the departmental allocation based used by the job; add
B)the actual amount of the plantwide allocation based used by the job; add
C)the actual amount of the departmental allocation based used by the job; multiply
D)the actual amount of the plantwide allocation based used by the job; multiply

Accepted Answer

The correct approach is to multiply each departmental overhead rate by the actual amount of the departmental allocation base used by the job, and then add the allocated amounts from each department.

Question 18

Two main benefits of ABC are (1)more accurate product cost information and (2)more detailed information on the costs of activities and the drivers of those costs.

Accepted Answer

ABC helps to allocate overhead costs more accurately to products based on the activities that actually drive those costs, resulting in more accurate product cost information. It also provides more detailed information on the costs of activities and the drivers of those costs, allowing for more targeted cost reduction efforts.

Question 19

Clearview Display Company manufactures display cases to be sold to retail stores.The cases come in three sizes-Large,Medium,and Small.Currently,Clearview Display Company uses a single plant-wide overhead rate to allocate its $7,141,100 of annual manufacturing overhead.Of this amount,$1,875,000 is associated with the Large Case line,$2,992,500 is associated with the Medium Case line,and $2,273,000 is associated with the Small Case line.Clearview Display Company is currently running a total of 37,000 machine hours: 12,500 in the Large Case line,13,300 in the Medium Case line,and 11,200 in the Small Case line.Clearview Display Company uses machine hours as the cost driver for manufacturing overhead costs.
Required:
a.Calculate the plant-wide manufacturing overhead rate.
b.Calculate the departmental overhead rate for each of the three departments listed.
c.Which product line(s)have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s)have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour?

Accepted Answer

The answer of  Clearview Display Company manufactures display cases...

Question 20

Green Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers.Green Bags Company sells the bags in cases of 1,000 bags.The bags come in three sizes: Large,Medium,and Small.Currently,Green Bags Company uses a single plantwide overhead rate to allocate its $7,141,100 of annual manufacturing overhead.Of this amount,$1,875,000 is associated with the Large Bag line,$2,992,500 is associated with the Medium Bag line,and $2,273,000 is associated with the Small Bag line.Green Bags Company is currently running a total of 37,000 machine hours: 12,500 in the Large Bag line,13,300 in the Medium Bag line,and 11,200 in the Small Bag line.Green Bags Company uses machine hours as the cost driver for manufacturing overhead costs. 
-The departmental manufacturing overhead rate for the Small Bag line would be closest to:
A)$203.00 per machine hour
B)$150.00 per machine hour
C)$193.00 per machine hour
D)$225.00 per machine hour

Accepted Answer

The answer of  Green Bags Company manufactures cloth grocery...

Quiz 4: Activity-Based Costing, lean Production, and the Costs of Quality

Direct labor hours would be the most appropriate cost allocation base for a Machining Department that uses machine robotics extensively.

It is easier to allocate indirect costs to the products that caused those costs if you use the ABC system rather than traditional costing systems.

The four categories of activity costs in cost hierarchy are determined by the underlying factor that drives its costs.

Plantwide overhead rates typically do a better job of matching each department's overhead costs to the products that use the department's resources than do departmental overhead rates.

Companies that use ABC trace direct materials and direct labor to cost objects just as in traditional costing systems.

Cost distortion results in the:

The use of departmental overhead rates will generally result in the use of a:

The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool.

Which of the following condition(s) favors using departmental overhead rates in place of a plantwide overhead rate?

The cost allocation rate for each activity is equal to the estimated total manufacturing overhead costs of the activity multiplied by the estimated total quantity of the cost allocation base.

Unit-level activities and costs are incurred once for every batch.

When calculating a departmental overhead rate,the numerator should be the:

When calculating the total amount of manufacturing overhead to allocate to a particular job,the company would multiply each departmental overhead rate by ___ and then _ together the allocated amounts from each department.

Two main benefits of ABC are (1)more accurate product cost information and (2)more detailed information on the costs of activities and the drivers of those costs.