Question 1

Dunby Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $150,000.The company is expected to work for 5,000 direct labor hours during the year.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Last month,Dunby's consultants spent 175 hours on Xyme Inc.Calculate the total cost assigned to Xyme.

Accepted Answer

Indirect cost rate = $150,000/5,000 DLH = $30 per DLHTotal cost assigned to Xyme = (175 DLH * $250 DLH rate) + (175 DLH * $30 indirect cost rate)= $43,750 + $5,250= $49,000

Question 2

Dunby Inc.,a law consulting firm,has been using a single plantwide rate with direct labor hours as the allocation base to allocate overhead costs.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Chandler Massey,the president of Dunby,decided to develop an ABC system to accurately allocate the indirect costs.He identified two activities that amount to the total indirect costs-travel and information technology support.The other relevant details are given below:  The predetermined overhead allocation rate for travel will be ________.

Accepted Answer

The answer of Dunby Inc.,a law consulting firm,has been using...

Question 3

Activity-based costing can be used in determining the cost of services as well as products.

Accepted Answer

Activity-based costing is a method that assigns costs to products or services based on the activities and resources that are required to produce them. Therefore, it can be used to determine the cost of services as well as products.

Question 4

While using an activity-based costing in service companies,the allocation of indirect costs to the cost object is the last step of the process.

Accepted Answer

This statement is true. In activity-based costing, the last step is to allocate indirect costs to the cost object after determining the cost pools and activity rates.

Question 5

An inventory management system in which a company produces just in time to satisfy customer needs is known as just-in-time management.

Accepted Answer

Just-in-time management is a system where a company produces and supplies goods as per the demand of the customer to reduce inventory costs. It is a type of inventory management system.

Question 6

Vincent Jardine,a CPA,has a firm in the state of New York.Vincent uses ABC to allocate overhead costs and has computed the following predetermined overhead allocation rates:
  Vincent has important contacts in the northeastern parts of New York.During the past month,Vincent completed a job for Nurix Inc.The job required 135 labor hours and 4,000 photocopies.Determine the amount of indirect costs to be allocated to the job.

Accepted Answer

The answer of Vincent Jardine,a CPA,has a firm in the...

Question 7

Dunby Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $150,000.The company is expected to work for 5,000 direct labor hours during the year.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Last month,Dunby's consultants spent 175 hours on Xyme Inc.Calculate the operating income from Xyme.

Accepted Answer

The answer of Dunby Inc.is a consulting firm that offers...

Question 8

The steps of an activity-based costing for a service firm are significantly different from that used for a manufacturing firm.

Accepted Answer

The steps of activity-based costing (ABC) are generally similar for both service and manufacturing firms, involving identifying activities, assigning costs to activities, and allocating costs to products or services based on their use of activities. The main difference lies in the specific activities and cost drivers used.

Question 9

Dunby Inc.,a law consulting firm,has been using a single plantwide rate with direct labor hours as the allocation base to allocate overhead costs.The direct labor rate is $250 per hour.Chandler Massey,the president of Dunby,decided to develop an ABC system to accurately allocate the indirect costs.He identified two activities that amount to the total indirect costs- travel and information technology support.The other relevant details are given below:  During the current month,Dunby's consultants spent 175 labor hours for Xyme Inc.The job required the professionals to travel 30 miles in total.Determine the total cost of the consulting job using the ABC system.

Accepted Answer

The answer of Dunby Inc.,a law consulting firm,has been using...

Question 10

Jetz Inc.manufactures water bottles for children.Similar water bottles are available in the market for $5.Jetz desires a 20% net profit margin.Jetz's target cost is ________.

Accepted Answer

The answer of Jetz Inc.manufactures water bottles for children.Similar water...

Question 11

J-Time Inc.is planning to launch a new brand of watches for kids.Similar watches are available in the market for $50.In order to penetrate the market,the company plans to use target pricing and desires a 20% net profit markup on total cost.Calculate the target cost.

Accepted Answer

Target cost = Market price x (1 - Desired net profit margin)

Market price = $50

Desired net profit margin = 20%

Target cost = $50 x (1 - 0.20) = $40

Therefore, the target cost for J-Time Inc. to achieve a 20% net profit markup on total cost is $40.20. However, since the answer choices don't include this exact amount, the closest option is C) $41.67, which is the rounded up value of $40.20.

Question 12

Activity-based management is not suitable for service companies as it deals with the proper allocation of manufacturing overhead.

Accepted Answer

Activity-based management can be applied to service companies as well as manufacturing companies. In service companies, the focus is on the proper allocation of service-related costs instead of manufacturing overhead.

Question 13

Ferrero Corp.manufactures gourmet dips along with potato chips flavored with Cajun spices.The market price for similar chips is $7.The management of the company desires a 30% net profit margin.
The current costing data relating to this product are as follows.
  Determine if Ferrero's current full-product costs meet its target cost.

Accepted Answer

The answer of Ferrero Corp.manufactures gourmet dips along with potato...

Question 14

Just-in-time management systems typically help reduce direct labor costs of a company.

Accepted Answer

Just-in-time management systems focus on efficient production, which can reduce the need for excess labor and ultimately lower direct labor costs.

Question 15

The just-in-time management system results in an increase in the inventory carrying costs of a company.

Accepted Answer

The just-in-time management system is focused on reducing inventory levels and operating with minimal inventory. Therefore, it results in a decrease in inventory carrying costs.

Question 16

Cilia Corp.specializes in the production of finials which is mostly sold within the territory.The selling price for each finial is $15.Using the traditional allocation method to allocate manufacturing overhead,the full-product cost is determined to be $10.The company recently introduced activity-based costing method to allocate its overhead.The refinement of costs shows that the full-product cost is less by $2.50 from the traditional estimate.
Requirement:
1.Calculate and analyze the change in net profit percentage as a result of introduction of activity-based costing.
2.The desired net profit margin of the company is 60%.If the production costs cannot be reduced,by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing.)

Accepted Answer

The answer of Cilia Corp.specializes in the production of finials...

Question 17

Dunby Inc.is a consulting firm that offers optimal legal solutions.It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base.The estimated indirect costs for this year amount to $150,000.The company is expected to work for 5,000 direct labor hours during the year.The direct labor rate is $250 per hour.Clients are billed at 140% of direct labor cost.Last month,Dunby's consultants spent 175 hours on Xyme Inc.What is the predetermined overhead allocation rate per direct labor hour?

Accepted Answer

To calculate the predetermined overhead allocation rate per direct labor hour, we need to divide the estimated indirect costs by the estimated direct labor hours:
$150,000 ÷ 5,000 = $30 per direct labor hour

Therefore, the correct answer is B. The direct labor rate and the billing rate are not relevant to this calculation.

Question 18

Webster Inc.has received a bid for 12,000 units.The costing estimates show that the average cost per unit for this bid will be $600.The company uses cost-based pricing and adds 25% markup to total costs.What total price will Webster ask for the entire order?

Accepted Answer

The total cost for 12,000 units is 12,000 * $600 = $7,200,000. With a 25% markup, the total price is $7,200,000 + (0.25 * $7,200,000) = $9,000,000.

Question 19

Phoenix Inc.manufactures widgets.The target sales price is $400 per unit.The company desires a 30% net profit margin on its products.What is the company's target full-product cost per unit using target pricing?

Accepted Answer

To find the target full-product cost per unit, calculate 70% of the sales price (100% - 30% profit margin). 70% of $400 is $280.

Question 20

The just-in-time costing system waits until the units are completed to record the cost of production.

Accepted Answer

The answer of The just-in-time costing system waits until the...

Quiz 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems