Question 1

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

Accepted Answer

The answer of Teecorp Company provides the following ABC costing...

Question 2

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

Accepted Answer

This is because a large number of activities increase the complexity of the system and require more resources to manage and maintain. It can also lead to confusion and errors in the allocation of costs, making the system less reliable and useful for decision-making. Therefore, it is important to carefully select and prioritize the activities included in the costing system to ensure its effectiveness and practicality.

Question 3

________ 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, which is directly related to the production of each unit. The cost is incurred for each unit that is produced, and the amount of the cost varies based on the number of units produced. Factory rent expense, building security costs, and top management compensation costs are examples of batch-level, facility-level, and organization-sustaining costs, respectively, which are not directly related to the production of each unit.

Question 4

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 may not always strengthen the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool. Other factors such as machine hours, direct labor hours, or number of setups may also have a strong cause-and-effect relationship with the costs in a cost pool. Therefore, a more accurate statement would be that limiting cost-allocation bases to only those that have a strong cause-and-effect relationship with the costs in a cost pool strengthens the cause-and-effect relationship.

Question 5

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 seeks to identify the most relevant cost driver for each activity pool, which may not be limited to units of output or related variables.

Question 6

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

Accepted Answer

The answer of Answer the following questions using the information...

Question 7

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

Accepted Answer

The invoice cost per invoice is $40,000 / 2,500 invoices = $16 per invoice. The Bush Department uses 400 invoices, so the cost assigned is 400 invoices * $16/invoice = $6,400.

Question 8

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

Accepted Answer

The answer of Answer the following questions using the information...

Question 9

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

Accepted Answer

The machine maintenance cost per machine-hour is calculated as $132,000 / 960,000 machine-hours = $0.1375 per machine-hour. For the Mossman Job, the cost allocated is 1,500 machine-hours * $0.1375 = $206.25.

Question 10

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

Accepted Answer

Activity-based costing is designed to accurately allocate indirect costs to specific products, services, or activities. It is most beneficial for companies with complex product design processes because they have a high degree of indirect costs that are difficult to allocate accurately using traditional costing methods. It may not be as useful for companies with operations that remain fairly consistent or in a monopolistic market where pricing power is already high. Additionally, companies with a nominal percentage of indirect costs may not see a significant benefit from implementing activity-based costing.

Question 11

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 12

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

Accepted Answer

Activity-based costing is more beneficial for services that are diverse and complex, as it provides more accurate cost information by tracing costs to specific activities. For similar services, traditional costing methods may suffice.

Question 13

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

Accepted Answer

The answer of Teecorp Company provides the following ABC costing...

Question 14

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

Accepted Answer

The cost driver rate is calculated by dividing the total manufacturing overhead costs ($910,000) by the total production capacity (10 million pages), resulting in $0.091 per page.

Question 15

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

Accepted Answer

The answer of Answer the following questions using the information...

Question 16

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

Accepted Answer

The inspection cost allocated to Xylon Corp. is $190. This is calculated by multiplying the total inspection cost of $80,000 by the activity level for inspections of 16,000 and dividing by the total activity level for all three cost pools of 20,000.

Question 17

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

Accepted Answer

The answer of Teecorp Company provides the following ABC costing...

Question 18

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

Accepted Answer

The answer of Teecorp Company provides the following ABC costing...

Question 19

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 can be streamlined or eliminated to reduce costs. Option A is incorrect as ABC systems are activity-driven cost systems. Option B is incorrect as ABC systems classify indirect costs as indirect costs and direct costs as direct costs. Option D is incorrect as ABC systems assume that not all costs are variable costs.

Question 20

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

Accepted Answer

The answer of Teecorp Company provides the following ABC costing...

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

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

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

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.

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.

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

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

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

Which of the following statements is true of ABC systems?