Question 1

Which of the following activity cost pools and activity measures likely has the lowest degree of correlation?

Accepted Answer

The answer of Which of the following activity cost pools...

Question 2

Dreyson Manufacturing sells a number of goods whose selling price is heavily influenced by cost.A recent study of product no.519 revealed a traditionally-derived total cost of $1,019,a selling price of $1,850 based on that figure,and a newly computed activity-based total cost of $1,215.Which of the following statements is true?

Accepted Answer

The company may have been extremely competitive in the marketplace from a price perspective because the traditional costing method showed a lower cost than the activity-based costing method, potentially leading to a lower selling price than competitors using more accurate costing methods.

Question 3

Assuming the use of activity-based costing,the proper percentage to use in allocating staff support costs to tax planning services is:

Accepted Answer

The answer of Assuming the use of activity-based costing,the proper...

Question 4

Consumption ratios are useful in determining:

Accepted Answer

The answer of Consumption ratios are useful in determining:
...

Question 5

Widely varying consumption ratios:

Accepted Answer

Widely varying consumption ratios can be a result of the diverse range of products offered by a company. This is because different products can require different levels or types of resources, leading to varying ratios of resource consumption across the product line. Therefore, option A is the correct choice. Options B, C, D, and E are incorrect as they do not accurately reflect the relationship between consumption ratios and product-line diversity.

Question 6

If Kelly and Logan switched from its current accounting method to an activity-based costing system,the amount of administrative cost chargeable to consulting services would:

Accepted Answer

Under activity-based costing, administrative costs are allocated to activities based on their consumption of those activities. Consulting services would likely consume more of the administrative activities than under the current accounting method, resulting in a higher allocation of administrative costs to consulting services.

Question 7

Jackson manufactures products X and Y,applying overhead on the basis of labor hours.X,a low-volume product,requires a variety of complex manufacturing procedures.Y,on the other hand,is both a high-volume product and relatively simplistic in nature.What would an activity-based costing system likely disclose about products X and Y as a result of Jackson's current accounting procedures?

Accepted Answer

The answer of Jackson manufactures products X and Y,applying overhead...

Question 8

Storch Corporation takes eight hours to complete the setup process for a certain electrical component,with the setup cost averaging $150 per hour.If the company's competitor can accomplish the same process in six hours,Stanley's non-value-added cost would be:

Accepted Answer

The non-value-added cost is the extra cost incurred due to the inefficiency of the process. In this case, Storch Corporation takes 8 hours to complete the setup process while the competitor takes 6 hours. 
Therefore, the non-value-added cost for Storch Corporation is the cost of the additional 2 hours taken, which is 2 x $150 = $300. 
Hence, the answer is C.

Question 9

Johnson manufactures products X and Y,applying overhead on the basis of labor hours.X is a high-volume product and relatively simplistic in nature.Y is both a low-volume product and requires a variety of complex manufacturing procedures.What would an activity-based costing system likely disclose about products X and Y as a result of Johnson's current accounting procedures?

Accepted Answer

Johnson's current accounting procedure of applying overhead on the basis of labor hours does not accurately reflect the resources consumed by each product. An activity-based costing system would likely reveal that Y consumes more resources than X due to its varied and complex manufacturing procedures, resulting in a higher cost per unit for Y. This information may prompt Johnson to consider adjusting the price of Y or exploring ways to streamline its manufacturing process to reduce costs.

Question 10

Activity-based costing systems:

Accepted Answer

Activity-based costing systems often reveal products that were under- or over-costed by traditional costing systems due to their use of multiple cost drivers and consideration of non-volume based costs.

Question 11

Successful adoptions of activity-based costing typically occur when companies rely heavily on:

Accepted Answer

Activity-based costing involves identifying and analyzing the various activities involved in a company's operations, which requires input from multiple departments and perspectives. Successful adoptions typically involve the use of multidisciplinary project teams to ensure a comprehensive understanding and implementation of the system. Therefore, option E, multidisciplinary project teams, is the best choice.

Question 12

Vanguilder combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours.Activity-based costing would likely show that with Vanguard's current procedures

Accepted Answer

Allocating all manufacturing overhead into a single cost pool and allocating it based on machine hours assumes that high-volume products use a proportionate amount of overhead to low-volume products, which is not always true. Activity-based costing allocates overhead based on the actual activities that drive costs, which would likely show that high-volume products are overcosted with Vanguard's current procedures.

Question 13

Koski manufactures products J and K,applying overhead on the basis of labor hours.J,a low-volume product,requires a variety of complex manufacturing procedures.K,on the other hand,is both a high-volume product and relatively simplistic in nature.What would an activity-based costing system likely disclose about products J and K as a result of Koski's current accounting procedures?

Accepted Answer

The answer of Koski manufactures products J and K,applying overhead...

Question 14

Consider the following factors:
I.The degree of correlation between consumption of an activity and consumption of a particular cost driver.
II.The likelihood that a particular cost driver will induce a desired behavioral effect.
III.The likelihood that a particular cost driver will cause an increase in the cost of measurement.
Which of these factors should be considered in the selection of a cost driver?

Accepted Answer

All three factors are important in selecting a cost driver. Factor I ensures that the cost driver accurately reflects the consumption of resources. Factor II ensures that the cost driver can influence behavior in a desired way, such as encouraging efficiency. Factor III considers the practical aspect of whether the cost driver will make the measurement process more expensive or complex, which is also an important consideration in its selection.

Question 15

During a recent accounting period,Marty's shipping department processed 26 orders.Each order typically takes four hours to complete;however,the average time increased to five hours because of various departmental inefficiencies.If shipping labor is paid $14 per hour,the company's non-value-added cost would be:

Accepted Answer

The non-value-added cost is the additional cost incurred due to inefficiencies and wastage of resources. In this case, the inefficiencies increased the completion time for each order by 1 hour (from 4 hours to 5 hours). Therefore, the additional time spent on each order is 1 hour x 26 orders = 26 hours.

The labor cost for this additional time is $14 per hour x 26 hours = $364. Hence, the non-value-added cost for the accounting period is $364.

Choice A is incorrect as there is a non-value-added cost incurred due to the inefficiencies.

Choice B is incorrect as $56 is not sufficient to cover the additional labor cost incurred due to inefficiencies.

Choice D and E are incorrect as the values are too high and do not reflect the additional labor cost incurred due to inefficiencies.

Question 16

Consider the following statements:
I.Product diversity creates costing problems because diverse products tend to utilize manufacturing activities in different ways.
II.Overhead costs that are not incurred at the unit level create costing problems because such costs do not vary with traditional application bases such as direct labor hours or machine hours.
III.Product diversity typically exists when a single product (e.g. ,a ballpoint pen)is made in different colors.
Which of the above statements is (are)true?

Accepted Answer

Statement I is true because diverse products may have different setup times, material requirements, and labor skills, which affect the utilization of manufacturing activities differently. This can lead to different overhead costs, making it challenging to allocate costs accurately.
Statement II is also true because overhead costs such as rent, property taxes, and salaries of supervisors are non-unit-level costs and cannot be traced to a specific unit of production accurately. Traditional application bases such as direct labor or machine hours may not properly allocate such overhead costs.
Statement III is false because product diversity refers to the situation where a company produces different products or different groups of products that require different manufacturing processes. The same product made in different colors is an example of product variation, not product diversity.

Question 17

Drake Manufacturing sells a number of goods whose selling price is heavily influenced by cost.A recent study of product no.520 revealed a traditionally-derived total cost of $1,623 and a selling price of $1,850 based on that figure.A newly computed activity-based total cost is $1,215.Which of the following statements is true?

Accepted Answer

The newly computed activity-based total cost is significantly lower than the traditionally-derived total cost, indicating that the product was overcosted by Drake's traditional costing procedures. Therefore, Drake should consider revising its costing procedures to ensure more accurate pricing decisions in the future. The other options are not supported by the information provided in the question.

Question 18

Martin and Beasley,an accounting firm,provides consulting and tax planning services.For many years,the firm's total administrative cost (currently $270,000)has been allocated to services on this basis of billable hours to clients.A recent analysis found that 55% of the firm's billable hours to clients resulted from tax planning services,while 45% resulted from consulting services.
The firm,contemplating a change to activity-based costing,has identified three components of administrative cost,as follows: 
A recent analysis of staff support found a strong correlation with the number of clients served.In contrast,in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions,respectively.Consulting clients served totaled 35% of the total client base,consumed 30% of the firm's computer hours,and accounted for 20% of the total client transactions.
If Martin and Beasley switched from its current accounting method to an activity-based costing system,the amount of administrative cost chargeable to consulting services would:

Accepted Answer

The answer of Martin and Beasley,an accounting firm,provides consulting and...

Question 19

Grist Enterprises is converting to an activity-based costing system and needs to depict the various activities in its manufacturing process along with the activities' relationships.Which of the following is a possible tool that the company can use to accomplish this task?

Accepted Answer

The answer of Grist Enterprises is converting to an activity-based...

Question 20

Which of the following statements is (are)true about non-value-added activities?
I.Non-value-added activities are often unnecessary and dispensable.
II.Non-value-added activities may be necessary but are being performed in an inefficient and improvable manner.
III.Non-value-added activities can be eliminated without deterioration of product quality,performance,or perceived value.

Accepted Answer

All three statements are true about non-value-added activities. Non-value-added activities are often unnecessary and can be eliminated without any negative impact on the product or its perceived value. However, there may be some non-value-added activities that are necessary, but they may be performed in an inefficient and improvable manner. Therefore, it is essential to identify and eliminate all non-value-added activities to increase efficiency and productivity.

Quiz 5: Activity-Based Costing and Management