Deck 26: Cost Allocation and Activity-Based Costing

Question 1

The selection of the factory overhead allocation method is important because the method selected determines the accuracy of the product cost.

Answer 1

True

Question 2

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the amount of factory overhead to be allocated is $38,525 if the allocation is based on direct labor hours).

Answer 2

True

Question 3

When a plantwide factory overhead rate is used, overhead costs are applied to all products by a single rate.

Answer 3

True

Question 4

Multiple production department factory overhead rates are most useful when production departments significantly differ in their manufacturing processes.

Question 5

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the factory overhead rate for the month is $68.65 if the allocation is based on direct labor hours).

Question 6

Multiple production department factory overhead rates are less accurate than are plantwide factory overhead rates.

Question 7

Managers depend on product costing to make decisions regarding continuing operations and product mix.

Question 8

A single plantwide overhead rate method is very expensive to apply.

Question 9

Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are different across different departments and products.

Question 10

A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plantwide allocation base.

Question 11

Bob's Biscuit Corporation budgeted $1,200,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Bob's plantwide factory overhead rate is $12.00 per machine hour.

Question 12

Multiple production department factory overhead rates are more accurate than are plantwide factory overhead rates.

Question 13

Managers depend on accurate factory overhead allocation to make decisions regarding product mix and product price.

Question 14

A plantwide factory overhead rate assumes that all overhead is directly related to one activity representing the entire plant.

Question 15

Zorn Co. budgeted $600,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Zorn's plantwide factory overhead rate is $6.00 per unit.

Question 16

Multiple production department factory overhead rates are most useful when production departments are very similar in their manufacturing processes.

Question 17

Product costing consists of only direct materials and direct labor.

Question 18

If the activities causing overhead costs are different across different departments and products, use of a plantwide factory overhead rate will cause distorted product costs.

Question 19

When a plantwide factory overhead rate is used, the total overhead costs allocated to all products are the same.

Question 20

Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are the same across all departments and products.

Question 21

Activity rates are computed by dividing the cost budgeted for each activity pool by the estimated activity base for that pool.

Question 22

Activity-based costing can only be used to allocate manufacturing factory overhead.

Question 23

In a service organization, the multiple department overhead rate method is the most effective in providing information about the cost of services.

Question 24

Which of the following does not rely on managerial decisions involving accurate product costing?

A) product constraints
B) emphasis of a product line
C) product mix
D) product price

Question 25

Estimated activity-base usage quantities are the total activity-base quantities related to each product.

Question 26

Activity-based costing can be used to allocate period costs to various products that the company sells.

Question 27

Service companies can effectively use activity-based costing to compute product service) costs.

Question 28

Activity-based costing is much easier to apply than single plantwide factory overhead allocation.

Question 29

Activity cost pools are assigned to products, using factory overhead rates for each activity.

Question 30

Activity cost pools are cost accumulations associated with a given activity.

Question 31

In an effort to simplify the multiple production department factory overhead rate method, the same rate can be used for all departments.

Question 32

ABC is used to allocate selling and administrative expenses to each product based on the product's individual differences in consuming these activities.

Question 33

Direct labor hours is not a cost pool that is regularly used in the activity-based costing method.

Question 34

Service companies can effectively use multiple department overhead rate costing to compute product service) costs.

Question 35

Use of a plantwide factory overhead rate distorts product costs when there are differences in the factory overhead rates across different production departments and when products require different ratios of allocation-base usage in each production department.

Question 36

Service companies can effectively use single facility-wide overhead costing to compute product service) costs.

Question 37

Service organizations can use activity-based costing to allocate selling and administrative costs to services provided.

Question 38

Use of a plantwide factory overhead rate does not distort product costs when there are differences in the factory overhead rates across different production departments.

Question 39

Use of a plantwide factory overhead rate does not distort product costs when products require different ratios of allocation-base usage in each production department.

Question 40

When production departments differ significantly in their manufacturing process, it is recommended that the single plantwide factory overhead rate be used for allocating factory overhead.

Question 41

Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Blackwelder Factory allocate to small lamp production if actual direct hours for the period is 285,000?

A) $275,000
B) $285,000
C) $440,000
D) $456,000

Question 42

Which of the following is not a factory overhead allocation method?

A) single plantwide rate
B) multiple departmental rates
C) factory costing
D) activity-based costing

Question 43

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000.
The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the overhead cost per unit for Dinks?

A) $77.00
B) $39.00
C) $19.50
D) $59.92

Question 44

Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Blackwelder Factory allocate to desk lamp production if actual direct hours for the period is 118,000?

A) $118,000
B) $200,000
C) $188,800
D) $125,000

Question 45

Adirondak Marketing Inc. manufactures two products, A and B. Presently; the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead.
Calculate the overhead rate per unit for Product A in the painting department of Adirondack Marketing Inc.

A) $236.32 per unit
B) $325.00 per unit
C) $147.70 per unit
D) $161.00 per unit

Question 46

The Botosan Factory has determined that its budgeted factory overhead budget for the year is $13,500,000 and budgeted direct labor hours are 10,000,000. If the actual direct labor hours for the period are 350,000, how much overhead would be allocated to the period?

A) $675,000
B) $470,630
C) $472,500
D) $236,250

Question 47

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently; the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.
Using a single plantwide rate, determine the overhead rate per unit for Blue Ridge Marketing Inc.'s Product B.

A) $496.00
B) $144.00
C) $640.00
D) $320.00

Question 48

Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Challenger Factory allocate to regular widget production if budgeted production for the period is 75,000 units and actual production for the period is 72,000 units?

A) $168,750
B) $324,000
C) $162,000
D) $337,500

Question 49

The Roget Factory has determined that its budgeted factory overhead budget for the year is $15,500,000. They plan to produce 2,000,000 units. Budgeted direct labor hours are 1,050,000 and budgeted machine hours are 750,000. Using the single plantwide factory overhead rate based on direct labor hours, calculate the factory overhead rate for the year.

A) $14.76
B) $20.67
C) $7.75
D) $77.50

Question 50

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.
Determine the overhead rate in the Painting Department for each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system.

A) $49.60 per unit
B) $99.20 per unit
C) $28.80 per unit
D) $64.00 per unit

Question 51

Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Challenger Factory allocate to deluxe widget production if budgeted production for the period is 50,000 units and actual production for the period is 58,000 units?

A) $391,500
B) $225,000
C) $261,000
D) $337,500

Question 52

Everest Co. uses a plantwide factory overhead rate based on direct labor hours. Overhead costs would be overcharged to which of the following departments?

A) A labor-intensive department
B) A capital-intensive department
C) A materials-intensive department
D) All of the above

Question 53

Adirondak Marketing Inc. manufactures two products, A and B. Presently; the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead.
Calculate the plantwide factory overhead rate for Adirondack Marketing Inc.

A) $25.00 per dlh
B) $0.07 per dlh
C) $14.77 per dlh
D) $ 6.25 per dlh

Question 54

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000.
The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the overhead cost per unit for Blinks?

A) $78.00
B) $19.50
C) $37.45
D) $56.00

Question 55

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.
Determine the overhead from both production departments allocated to each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system.

A) $425.60 per unit
B) $115.20 per unit
C) $214.40 per unit
D) $320.00 per unit

Question 56

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000.
The Ramapo Company uses a single overhead rate to apply all overhead costs. What would the single plantwide rate be if it was based on machine hours instead of labor hours?

A) $9.00 per machine hour
B) $19.50 per machine hour
C) $7.43 per machine hour
D) $4.00 per machine hour

Question 57

Pinacle Corp. budgeted $700,000 of overhead cost for the current year. Actual overhead costs for the year were $650,000. Pinacle's plantwide allocation base, machine hours, was budgeted at 100,000 hours. Actual machine hours were 80,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually produced. Pinacle's plantwide factory overhead rate for the current year is:

A) $8.13 per machine hour
B) $7.00 per machine hour
C) $6.50 per machine hour
D) $8.75 per machine hour

Question 58

The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000.
Common allocation bases are

A) direct labor dollars, direct labor hours, direct material dollars
B) direct labor dollars, direct labor hours, machine hours
C) direct labor dollars, direct labor hours, machine dollars
D) machine dollars, direct labor dollars, direct labor hours

Question 59

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.
Determine the overhead from both production departments allocated to each unit of Product A if Blue Ridge Marketing Inc. uses a multiple department rate system.

A) $396.80 per unit
B) $425.60 per unit
C) $320.00 per unit
D) $214.40 per unit

Question 60

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.
Determine the overhead rate in the Finishing Department for each unit of Product A if Blue Ridge Marketing Inc. uses a multiple department rate system.

A) $99.20 per unit
B) $49.60 per unit
C) $64.00 per unit
D) $28.80 per unit

Question 61

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below. $\begin{array}{llll}&&\text { Pabor Hours } & \text { Machine Hours } \\\text { Product } & \text { Number of Units } & \text { Per Unit } & \text { Per Unit }\\\text { Rings } & 1,000 & 4 & 6 \\\text { Dings } & 2,000 & 3 & 9\end{array}$ All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.

-What is the overhead cost per unit for Dings?

A) $65.25
B) $56.75
C) $23.25
D) $64.50

Question 62

Which of the following are the two most common allocation bases for factory overhead?

A) Total overhead dollars and machine hours
B) Direct labor hours and machine hours
C) Direct labor hours and factory expenses
D) Machine hours and factory expenses

Question 63

If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, what is the total amount of factory overhead the Kaumajet Factory will allocate to desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 26,000 units are produced?

A) $540,000
B) $187,200
C) $475,000
D) $288,600

Question 64

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$


-Determine the activity-based cost for each wire drive unit.

A) $204.13
B) $173.51
C) $744.06
D) $394.12

Question 65

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$


-Determine the activity rate for production per machine hour.

A) $62.50
B) $150.00
C) $75.00
D) $176.47

Question 66

Using multiple department factory overhead rates instead of a single plantwide factory overhead rate:

A) results in more accurate product costs
B) results in distorted product costs
C) is simpler and less expensive to compute than a plantwide rate
D) applies overhead costs to all departments equally

Question 67

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below. $\begin{array}{llll}&&\text { Pabor Hours } & \text { Machine Hours } \\\text { Product } & \text { Number of Units } & \text { Per Unit } & \text { Per Unit }\\\text { Rings } & 1,000 & 4 & 6 \\\text { Dings } & 2,000 & 3 & 9\end{array}$ All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.

-What is the Assembly Department overhead rate per labor hour?

A) $10.50
B) $19.50
C) $3.75
D) $4.38

Question 68

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$


-Determine the activity-based cost for each disk drive unit.

A) $92.25
B) $130.69
C) $394.12
D) $279.57

Question 69

If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, how much factory overhead will the Kaumajet Factory allocate to each unit of desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours?

A) $11.10
B) $4.91
C) $5.00
D) $7.20

Question 70

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$


-Determine the activity rate for materials handling per move.

A) $58.82
B) $50.00
C) $20.83
D) $80.65

Question 71

If the budget estimates that a table lamp will require 2 hours of finishing and 1 hours of production, what is the total amount of factory overhead the Kaumajet Factory will allocate to table lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 75,000 units are produced?

A) $368,250
B) $540,000
C) $832,500
D) $475,000

Question 72

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below. $\begin{array}{llll}&&\text { Pabor Hours } & \text { Machine Hours } \\\text { Product } & \text { Number of Units } & \text { Per Unit } & \text { Per Unit }\\\text { Rings } & 1,000 & 4 & 6 \\\text { Dings } & 2,000 & 3 & 9\end{array}$ All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.

-What is the overhead cost per unit for Rings?

A) $65.25
B) $23.25
C) $44.10
D) $64.50

Question 73

Using a plantwide factory overhead rate distorts product costs when:

A) products require different ratios of allocation-base usage in each production department
B) significant differences exist in the factory overhead rates used across different production departments
C) both A and B are true
D) neither A nor B are true

Question 74

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.
If the budget estimates that a table lamp will require 2 hours of finishing and 1 hours of production, how much factory overhead will the Kaumajet Factory allocate to each unit of table lamp using the multiple production department factory overhead rate method with an allocation base of direct labor hours?

A) $6.33
B) $4.91
C) $5.00
D) $7.20

Question 75

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$


-Determine the activity rate for product development per change.

A) $73,000
B) $8,588
C) $30,417
D) $16,222

Question 76

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$


-Determine the activity rate for procurement per purchase order.

A) $43.53
B) $18.50
C) $15.42
D) $37.00

Question 77

Scoresby Co. uses 6 machine hours and 2 direct labor hours to produce Product X. It uses 8 machine hours and 16 direct labor hours to produce Product Y. Scoresby's Assembly and Finishing departments have factory overhead rates of $240 per machine hour and $160 per direct labor hour, respectively. How much overhead cost will be charged to the two products?

A) Product X = $3,200; Product Y = $9,600
B) Product X = $800; Product Y = $800
C) Product X = $1,760; Product Y = $4,480
D) Product X = $1,440; Product Y = $2,560

Question 78

All of the following can be used as an allocation base for calculating factory overhead rates except:

A) direct labor dollars
B) direct labor hours
C) machine hours
D) total units produced

Question 79

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below. $\begin{array}{llll}&&\text { Pabor Hours } & \text { Machine Hours } \\\text { Product } & \text { Number of Units } & \text { Per Unit } & \text { Per Unit }\\\text { Rings } & 1,000 & 4 & 6 \\\text { Dings } & 2,000 & 3 & 9\end{array}$ All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.

-What is the Fabrication Department overhead rate per machine hour?

A) $10.50
B) $9.00
C) $8.12
D) $3.75

Question 80

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. $\begin{array}{lrl}&\text { Activity }\\&\text { Cost }&\text { Activity Base }\\\hline\text { Frocurement } & \$ 370,000 & \text { Number of purchase orders } \\\text { Scheduling } & 250,000 & \text { Number of production orders } \\\text { Materials handling } & 500,000 & \text { Number of moves } \\\text { Product devel opment } & 730,000 & \text { Number of engineering changes } \\\text { Production } & 1,500,000 & \text { Machine hours }\end{array}$


-Determine the activity rate per production order for scheduling.

A) $200.00
B) $20.00
C) $29.41
D) $10.42