Deck 4: Activity-Based Costing and Cost Management

Question 1

Activity-based costing is not appropriate for service providers since they do not have manufacturing overhead that needs to be assigned to products.Although service providers do not have manufacturing overhead,they incur many indirect costs,such as rent,supplies,supervision,advertising,and administrative expenses.ABC can be used to assign these costs to different services and customers.

Answer 1

False

Question 2

The first step in ABC is to calculate a manufacturing overhead rate.The first step in ABC is to identify the activities required to make the product or provide the service,so indirect costs can be assigned to them.

Answer 2

False

Question 3

The only difference between a volume-based cost system and an ABC system is how the methods assign indirect costs to products.Both systems trace direct costs to products;the only difference is how they treat indirect costs.

Answer 3

True

Question 4

In target costing,the target cost should be determined before manufacturing ever starts.Determining cost before manufacturing starts enables the firm to better plan manufacturing costs.

Question 5

A volume-based allocation measure is directly related to the number of units produced or the number of customers served.Units produced and customers served are measures of volume.

Question 6

To compute an activity rate,divide the total activity cost by the total activity driver.This is the formula for an activity rate.

Question 7

Life cycle cost management involves analyzing the functionality of the product to determine which functions add value to the customer and then finding ways to deliver those functions while meeting the target cost.Value engineering involves analyzing the functionality of the product to determine which functions add value to the customer and then finding ways to deliver those functions while meeting the target cost.

Question 8

Internal failure costs result from defects that are caught before the product is shipped to the customer.This is the definition of internal failure costs.

Question 9

When forming activity cost pools,the goal is to create as few cost pools as possible,while still capturing major activities.Minimizing cost pools while still capturing major activities keeps the cost system manageable.

Question 10

A just-in-time (JIT)system is a demand-push system.JIT is a demand-pull system in which materials and products are pulled through the manufacturing system based on customer demand.

Question 11

To assign activity costs using the activity proportion method,multiply the activity rate by the activity requirements of each individual product.To assign activity costs using the activity proportion method,multiply the total activity cost by the activity proportion for each product.

Question 12

Activity based costing systems include non-volume-based cost drivers.ABC systems should also include measures that capture factors other than volume,or non-volume based cost drivers.

Question 13

Target costing involves determining what the product price must be in order to meet the target cost and still provide a profit for the company's shareholders.Target costing involves determining what the product's cost must be,given its market price and desired profit.

Question 14

A value-added activity is one that enhances the perceived value of the product or service to the customer.This is the definition of a value-added activity.

Question 15

The gross margin is calculated by subtracting total nonmanufacturing cost per unit from the unit sales price.The gross margin is calculated by subtracting the total manufacturing cost per unit from the unit sales price.

Question 16

Prevention costs are incurred to prevent quality problems from occurring in the first place.This is the definition of prevention costs.

Question 17

Each individual indirect cost should be assigned to one activity when forming activity cost pools.Some costs will need to be allocated among several activities.

Question 18

Activity based management is a method of assigning indirect costs to products or services based on the activities they require.This describes activity based costing,not activity based management.

Question 19

External failure costs occur before a defective product makes its way into the hands of the customer.External failure costs occur after a defective product makes its way into the hands of the customer.

Question 20

Activity Based Costing divides activities into two categories: unit-level activities and facility level activities.Activity Based Costing divides activities into four categories.

Question 21

In a traditional volume-based cost system,total manufacturing costs are calculated by

A)adding manufacturing overhead cost,direct material cost,and direct labor cost.
B)subtracting manufacturing overhead from selling price.
C)adding direct material cost and direct labor cost.
D)adding activity cost,direct material cost,and direct labor cost.

Question 22

An activity that is performed for a specific customer is a(n)

A)batch-level activity.
B)product-level activity.
C)facility level activity.
D)unit-level activity.

Question 23

Which of the following is the best example of a facility-level activity?

A)Human resources
B)Research and development
C)Painting a final product
D)Product testing

Question 24

An activity that is performed to support a specific product line is a(n)

A)batch-level activity.
B)facility-level activity.
C)product-level activity.
D)unit-level activity.

Question 25

Which of the following best defines a batch-level activity?

A)An activity that is performed for a specific customer
B)An activity that is performed to support a specific product line
C)An activity that is performed for each individual unit
D)An activity that is performed for a group of units all at once

Question 26

A volume-based cost system is likely to assign more manufacturing overhead costs to products

A)that are more complex or difficult to manufacture than others.
B)that sell more units than others.
C)with higher per-unit materials costs than others.
D)with more activity costs than others.

Question 27

An activity that is performed for each individual unit is a ___________ level activity.

A)batch
B)facility
C)product
D)unit

Question 28

An activity that is performed to benefit the organization as a whole is a(n)

A)batch-level activity.
B)product-level activity.
C)facility level activity.
D)unit-level activity.

Question 29

Which of the following is the best example of a unit-level activity?

A)Human resources
B)Research and development
C)Painting a final product
D)Product testing

Question 30

The purpose of Stage 1 allocations is to

A)assign indirect manufacturing costs to activity cost pools.
B)assign the indirect costs of each activity to products and services.
C)assign direct manufacturing costs to activity cost pools.
D)assign the direct costs of each activity to products and services.

Question 31

An activity that is performed for a group of units all at once is a(n)

A)batch-level activity.
B)product-level activity.
C)facility level activity.
D)unit-level activity.

Question 32

Lincoln,Inc. ,which uses a volume-based cost system,produces cat condos that sell for $90 each.Direct materials cost $15 per unit,and direct labor costs $10 per unit.Manufacturing overhead is applied at a rate of 200% of direct labor cost.Nonmanufacturing costs are $27 per unit.What is the gross profit margin for the cat condos?

A)20.0%
B)50.0%
C)62.5%
D)80.0%

Question 33

Which of the following would not be directly related to a volume-based allocation measure?

A)The number of activities.
B)The number of units produced.
C)The number of customers served.
D)Direct materials cost.

Question 34

How is the cost of a batch-level activity similar to the cost of a unit-level activity?

A)Both are incurred for each individual unit.
B)Both decrease as production volume increases.
C)Both increase as production volume increases.
D)Both are incurred for a group of units all at once.

Question 35

Largo,Inc. ,which uses a volume-based cost system,produces cat condos,and has a gross profit margin of 50%.Direct materials cost $15 per unit,and direct labor costs $10 per unit.Manufacturing overhead is applied at a rate of 200% of direct labor cost.Nonmanufacturing costs are $27 per unit.How much does each cat condo sell for?

A)$50
B)$72
C)$90
D)$144

Question 36

Which of the following best defines a facility-level activity?

A)An activity that is performed to support the entire company
B)An activity that is performed to support a specific product line
C)An activity that is performed for each individual unit
D)An activity that is performed for a group of units all at once

Question 37

Monroe,Inc.randomly selects ten units from each production run to be inspected for quality,regardless of the size of the production run.The inspection of these units would most likely be classified as a

A)facility or companywide activity.
B)product-level activity.
C)batch-level activity.
D)unit-level activity.

Question 38

A volume-based allocation measure would vary proportionately with

A)the number of activities.
B)nonmanufacturing costs.
C)the number of units produced.
D)the number of cost drivers.

Question 39

The gross margin does not take into account

A)sales price.
B)nonmanufacturing cost.
C)manufacturing overhead.
D)direct materials and direct labor.

Question 40

Which of the following best defines a product-level activity?

A)An activity that is performed for a specific customer
B)An activity that is performed to support a specific product line
C)An activity that is performed for each individual unit
D)An activity that is performed for a group of units all at once

Question 41

Which of the following is not true of activity cost drivers?

A)They are measures of the underlying activity that occurs in each activity cost pool.
B)They ideally have a cause and effect relationship with underlying activities.
C)They are strictly volume-based allocation measures.
D)They are used in Stage 2 cost allocations.

Question 42

Washington,Inc.produces two different products (Product C and Product 2)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $750,000,while the cost of Inspection is $90,000.Usage of the activity drivers are as follows: What is the activity rate for Machining?

A)$187.50 per machine hour
B)$166.67 per machine hour
C)$250.00 per machine hour
D)$5750.00 per machine hour

Question 43

Culver,Inc.produces two different products (Product V3 and Product G8)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.Usage of the activity drivers are as follows: The activity rate for Machining is $67.50 per machine hour.What is the total cost of Machining?

A)$274,050
B)$67,500
C)$202,500
D)$270,000

Question 44

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Usage of the activity drivers are as follows: What proportion of Machining activity is used by Product 5?

A)20%
B)33%
C)67%
D)75%

Question 45

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.Usage of the activity drivers are as follows: What is the amount of Machining cost assigned to Product A?

A)$7,500
B)$125,000
C)$375,000
D)$500,000

Question 46

An activity cost driver is

A)a measure of the underlying activity that occurs in each activity cost pool.
B)a measure of the volume of units produced or customers sold.
C)a number of activities combined into one cost pool.
D)the cost assigned to an activity.

Question 47

The activity-rate method involves

A)dividing the total activity driver by the total activity cost.
B)calculating the proportion of each activity driver used by each product.
C)calculating an activity rate that is similar to the predetermined overhead rate.
D)multiplying the total activity cost by the total activity driver.

Question 48

A large company that uses activity based costing would do which of the following?

A)Use a volume-based cost driver for each activity.
B)Form a cost pool for each activity performed by the company.
C)Use a single cost pool.
D)Group activities together to simplify the number of activities.

Question 49

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.Usage of the activity drivers are as follows: What is the amount of Machining cost assigned to Product X?

A)$22,500
B)$125,000
C)$375,000
D)$500,000

Question 50

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Usage of the activity drivers are as follows: What proportion of Machining activity is used by Product Z?

A)25%
B)33%
C)67%
D)80%

Question 51

Which of the following would be considered a non-volume-based cost driver?

A)Number of units produced
B)Number of batches
C)Number of machine hours
D)Direct materials cost

Question 52

Culver,Inc.produces two different products (Product V3 and Product G8)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.Usage of the activity drivers are as follows: The activity rate for Inspection is $750 per batch.What is the total cost of Inspection?

A)$11,250
B)$33,750
C)$45,000
D)$75,000

Question 53

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.Usage of the activity drivers are as follows: What is the amount of Inspection cost assigned to Product X?

A)$7,500
B)$22,500
C)$30,000
D)$125,000

Question 54

Washington,Inc.produces two different products (Product C and Product 2)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $750,000,while the cost of Inspection is $90,000.Usage of the activity drivers are as follows: What is the activity rate for Inspection?

A)$45,000 per batch
B)$1,500 per batch
C)$6,000 per batch
D)$2,000 per batch

Question 55

Lynwood,Inc.produces two different products (Product A and Product X)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The activity rate for Machining is $125 per machine hour,and the activity rate for Inspection is $500 per batch.Usage of the activity drivers are as follows: What is the amount of Inspection cost assigned to Product A?

A)$7,500
B)$22,500
C)$30,000
D)$125,000

Question 56

Using non-volume-based activity drivers allows activity based costing to

A)assign more indirect costs to products whose production volume is higher.
B)assign more direct costs to products whose production volume is higher.
C)assign more indirect costs to products whose complexity is higher.
D)assign more direct costs to products whose complexity is higher.

Question 57

If the total activity cost were unknown,it could be calculated by

A)Dividing the total activity driver by the activity rate.
B)Multiplying the total activity driver by the activity rate.
C)Adding the total activity driver to the activity rate.
D)Subtracting the activity rate from the total activity driver.

Question 58

Portland,Inc.has formed four activity cost pools: Product Design,Machining and Production,Machine Setup,and Inspection.Gina Taylor,Production Manager at Portland,oversees processes that are considered part of Machining and Production,Machine Setup,and Inspection.Taylor's salary should be

A)assigned to the activity she spends the most time on.
B)considered as a separate activity.
C)expensed in the period incurred.
D)allocated among Machining and Production,Machine Setup,and Inspection.

Question 59

Linden,Inc.uses a 5,000 square foot factory space that it rents for $2,500 a month for all its manufacturing activities.Linden has decided to switch to an activity based costing system,and has identified its activities as follows: Preparation and Setup,Machining,Finishing,and Quality Control.500 square feet of the factory are used for machining,while 2,000 square feet (each)are used for Preparation and Setup and Quality Control.Finishing uses 500 square feet.When assigning indirect costs to each activity,how much factory rent should be assigned to the Preparation and Setup cost pool?

A)$250
B)$500
C)$1,000
D)$2,000

Question 60

Using the activity-proportion method results in

A)higher cost allocations than the activity rate method.
B)lower cost allocations than the activity rate method.
C)the same cost allocations as the activity rate method.
D)higher or lower cost allocations than the activity rate method,depending on the circumstances.

Question 61

Hadley,Inc.manufactures a product that uses $15 in direct materials and $5 in direct labor per unit.Under the traditional costing system Hadley uses,manufacturing overhead applied to each unit is $12.However,Hadley is considering switching to an ABC system.Under the ABC system,the total activity cost would be $25.What is the total manufacturing cost per unit for Hadley under the ABC system?

A)$20
B)$25
C)$32
D)$45

Question 62

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Inspection activity is used by Luxury?

A)25%
B)33%
C)67%
D)75%

Question 63

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Machining activity is used by Luxury?

A)30%
B)33%
C)67%
D)70%

Question 64

Parsons and Sons Woodworks manufactures baseball bats and wooden tops.Currently,Parsons and Sons makes 5,000 baseball bats each month.Each bat uses $1.00 in direct materials and $0.50 in direct labor.Parsons and Sons uses two activities in manufacturing the baseball bats: Cutting and Finishing.The cost associated with Cutting is $7,500 a month,allocated on the basis of direct labor hours.The cost associated with Finishing is $12,000 a month,allocated on the basis of batches.Baseball bats use 1/3 of the direct labor hours,and 40% of total batches.What is the total manufacturing cost for one baseball bat?

A)$1.46
B)$1.50
C)$2.96
D)$3.94

Question 65

Sherman,Inc.manufactures chainsaws that sell for $58.Each chainsaw uses $10 in direct materials and $3 in direct labor per unit.Sherman has two activities: Machining,which is applied at the rate of $2 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Sherman made 200 chainsaws,using 1,000 machine hours in 40 batches.What is the total manufacturing cost for one chainsaw?

A)$13
B)$14
C)$27
D)$30

Question 66

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product 5 uses 20% of total machine hours and 75% of total batches.What is the total Inspection cost assigned to Product Z?

A)$7,500
B)$22,500
C)$125,000
D)$375,000

Question 67

Cottonwood,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard uses 30% of total machine hours and 70% of total batches.What is the total activity cost assigned to Standard?

A)$22,500
B)$125,000
C)$171,000
D)$359,000

Question 68

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product uses 20% of total machine hours and 75% of total batches.What is the total Inspection cost assigned to Product 5?

A)$7,500
B)$22,500
C)$125,000
D)$375,000

Question 69

Pima,Inc.manufactures calculators that sell for $40 each.Each calculator uses $15 in direct materials and $5 in direct labor per unit.Pima has two activities: Machining,which is applied at the rate of $4 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Pima made 400 calculators,using 1,000 machine hours in 40 batches.What is the gross profit for one calculator?

A)$8
B)$20
C)$25
D)$35

Question 70

Sherman,Inc.manufactures chainsaws that sell for $58.Each chainsaw uses $10 in direct materials and $3 in direct labor per unit.Sherman has two activities: Machining,which is applied at the rate of $2 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Sherman made 200 chainsaws,using 1,000 machine hours in 40 batches.What is the gross profit for one chainsaw?

A)$13
B)$27
C)$31
D)$47

Question 71

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Machining activity is used by Standard?

A)30%
B)33%
C)67%
D)75%

Question 72

Cottonwood,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard uses 30% of total machine hours and 70% of total batches.What is the total activity cost assigned to Luxury?

A)$7,500
B)$171,000
C)$375,000
D)$359,000

Question 73

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Usage of the activity drivers are as follows: What proportion of Inspection activity is used by Product Z?

A)25%
B)33%
C)67%
D)75%

Question 74

Pima,Inc.manufactures calculators that sell for $40 each.Each calculator uses $15 in direct materials and $5 in direct labor per unit.Pima has two activities: Machining,which is applied at the rate of $4 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Pima made 400 calculators,using 1,000 machine hours in 40 batches.What is the total manufacturing cost for one calculator?

A)$20
B)$25
C)$27
D)$32

Question 75

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product 5 uses 20% of total machine hours and 75% of total batches.What is the total Machining cost assigned to Product 5?

A)$7,500
B)$22,500
C)$100,000
D)$375,000

Question 76

Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product 5 uses 20% of total machine hours and 75% of total batches.What is the total Machining cost assigned to Product Z?

A)$7,500
B)$22,500
C)$375,000
D)$400,000

Question 77

Calverton,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard is assigned $150,000 in Machining cost,and $22,500 in Inspection cost.What proportion of Inspection activity is used by Standard?

A)25%
B)33%
C)67%
D)75%

Question 78

Yuma,Inc.manufactures teddy bears and dolls.Currently,Yuma makes 2,000 teddy bears each month.Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor.Yuma uses two activities in manufacturing the teddy bears: Sewing and Processing.The cost associated with Sewing is $15,000 a month,allocated on the basis of direct labor hours.The cost associated with Processing is $10,000 a month,allocated on the basis of batches.Teddy bears use 1/2 of the direct labor hours,and 35% of total batches.What is the total manufacturing cost for one teddy bear?

A)$2.50
B)$4.50
C)$7.00
D)$8.00

Question 79

Jefferson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Usage of the activity drivers are as follows: What proportion of Inspection activity is used by Product 5?

A)25%
B)33%
C)67%
D)75%

Question 80

Yallow,Inc.manufactures teddy bears and dolls.Currently,Yallow makes 2,000 teddy bears each month.Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor.Yallow uses two activities in manufacturing the teddy bears: Sewing and Processing.The cost associated with Sewing is $15,000 a month,allocated on the basis of direct labor hours.The cost associated with Processing is $10,000 a month,allocated on the basis of batches.Usage of the activity drivers are as follows: What is the total manufacturing cost for one teddy bear?

A)$2.50
B)$4.50
C)$7.00
D)$8.00