Question 1

What is activity-based management? How is it different from activity-based costing?

Accepted Answer

The answer of What is activity-based management? How is it...

Question 2

An activity-based costing system is developed in four steps:
A.Compute the predetermined overhead allocation rate for each activity.
B.Identify activities and estimate their total indirect costs.
C.Identify the allocation base for each activity and estimate the total quantity of each allocation base.
D.Allocate indirect costs to the cost object.
Which of the following is the correct order for performing these steps?

Accepted Answer

The correct order is to first identify activities and estimate their total indirect costs (b), then identify the allocation base for each activity and estimate the total quantity of each allocation base (c), compute the predetermined overhead allocation rate for each activity (a), and finally allocate indirect costs to the cost object (d).

Question 3

In the first step in developing an activity-based costing system,the management team must think about how each activity for a product or service might be improved or whether is it necessary at all.

Accepted Answer

In the first step of developing an activity-based costing system, the management team must consider how each activity for a product or service might be improved or eliminated to increase efficiency and reduce costs. This process is known as activity analysis.

Question 4

In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Accepted Answer

In order to implement an activity-based costing system, the management team must first identify the activities that consume overhead costs. This is a crucial step in accurately allocating costs to products or services based on their consumption of resources.

Question 5

Made Well Tool,Inc. ,a manufacturer of cutting tools,divided its manufacturing process into two
Departments - Machining and Finishing.The estimated overhead costs for the Machining and Finishing
departments amounted to $400,000 and $1,000,000,respectively.The company produces two types of tools - Standard and Deluxe.The total estimated labor hours for the year were 4,000,and total estimated machine hours were 2,000.The Machining department is mechanized,whereas the Finishing department is labor oriented.Calculate departmental predetermined overhead allocation rates.

Accepted Answer

The answer of Made Well Tool,Inc. ,a manufacturer of cutting...

Question 6

In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the product and period costs.

Accepted Answer

In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Question 7

Allen Manufacturing has three departments that differ significantly in their manufacturing processes.A single plantwide rate will give the company the best estimate of overhead costs.

Accepted Answer

If the three departments have significantly different manufacturing processes, using a single plantwide rate to estimate overhead costs would not be accurate. It would be better to use departmental overhead rates to allocate overhead costs to the different departments based on their individual cost drivers.

Question 8

Which of the following would most likely be treated as an activity in an activity-based costing system?

Accepted Answer

In an activity-based costing system, machine processing is most likely to be treated as an activity, as it involves the use of equipment and resources to perform a specific task or process. Direct labor cost and direct materials cost may also be considered activities, but they are often accounted for separately in traditional costing systems. Sales revenues are not considered activities, as they represent the results of business operations and not the underlying activities themselves.

Question 9

Restoration,Inc. ,a leading manufacturer of antique car parts,divided its manufacturing process into two
Departments - Production and Packing.The estimated overhead costs for the Production and Packing
departments amounted to $14,000,000 and $20,000,000,respectively.The company produces two types of parts - Part 1 and Part 2.The total estimated labor hours for the year were 40,000,and estimated machine hours were 35,000.The Production department is mechanized,whereas the Packing department is labor oriented.Calculate departmental predetermined overhead allocation rates.

Accepted Answer

The answer of Restoration,Inc. ,a leading manufacturer of antique car...

Question 10

The costs most easily traced to each product manufactured are ________.

Accepted Answer

Direct materials and direct labor are the most easily traced costs to each product manufactured because they are directly used in the production process and can be attributed to a specific product. Indirect materials and indirect labor are not easily traced to each product and are instead allocated to the overall manufacturing overhead.

Question 11

Why is activity-based costing used? What is an activity? Give an example of an activity.

Accepted Answer

The answer of Why is activity-based costing used? What is...

Question 12

For each of the following activities,indicate an appropriate allocation base:

Accepted Answer

The answer of For each of the following activities,indicate an...

Question 13

Use of a single plantwide overhead rate assumes that there is a direct relationship between the allocation base and overhead costs in all plant activities.

Accepted Answer

A single plantwide overhead rate assumes that all activities have a similar allocation base and that there is a direct relationship between the allocation base and overhead costs in all plant activities. This assumption may not be accurate in all cases, leading to inaccurate cost allocations.

Question 14

Why is using a single plantwide predetermined overhead allocation rate not always accurate?

Accepted Answer

The answer of Why is using a single plantwide predetermined...

Question 15

Activity-based costing uses a common allocation base for all activities.

Accepted Answer

Activity-based costing uses different allocation bases for different activities based on their unique cost drivers.

Question 16

Stealth,Inc.produces two types of drones,rotary and fixed wing.Stealth estimated $765,000 of manufacturing overhead,and 51,000 machine hours for the year.The allocation base for overhead costs is machine hours.The rotary model actually consumed 21,000 machine hours,and the fixed wing type consumed 30,000 machine hours.How much overhead is allocated to the fixed wing model?

Accepted Answer

B)Predetermined overhead rate = $765,000/51,000 = $15
Overhead allocated = 30,000 hours × $15 = $450,000

Question 17

Managers are able to set an accurate selling price without knowing product cost information.

Accepted Answer

Managers need to have information about the product cost in order to accurately set a selling price that covers the cost and generates profit. Without an understanding of the cost, managers may set a selling price that is too low and ultimately results in financial loss.

Question 18

Stealth,Inc.produces two types of drones,rotary and fixed wing.Stealth estimated $1,210,000 of manufacturing overhead,and 55,000 machine hours for the year.The allocation base for overhead costs is machine hours.The rotary model actually consumed 26,000 machine hours,and the fixed wing type consumed 29,000 machine hours.How much overhead is allocated to the rotary model?

Accepted Answer

A)
Predetermined overhead rate = $1,210,000/55,000 = $22
Overhead allocated = 26,000 hours × $22 = $572,000

Question 19

Reliable Car Parts,a manufacturer of spare parts,has two production departments-Assembling and Packaging.The Assembling Department is mechanized,while the Packaging Department is labor oriented.Estimated manufacturing overhead costs for the year were $17,400,000 for Assembling and $11,700,000 for Packaging.Calculate the department predetermined overhead allocation rates for the Assembling and Packaging Departments,respectively,if the total estimated machine hours were 35,000 and labor hours were 21,000 for the year.(Round your answer to the nearest cent. )

Accepted Answer

B)Calculation of department wide allocation rates:
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Question 20

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

Accepted Answer

This statement is false. Activity-based costing provides more detailed information on costs of activities and the drivers of these costs than traditional costing. Activity-based costing allocates costs based on the specific activities that drive them, while traditional costing allocates costs based on broad, indirect factors such as direct labor hours or machine hours.

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

What is activity-based management? How is it different from activity-based costing?

In the first step in developing an activity-based costing system,the management team must think about how each activity for a product or service might be improved or whether is it necessary at all.

In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the manufacturing overhead costs.

In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the product and period costs.

Allen Manufacturing has three departments that differ significantly in their manufacturing processes.A single plantwide rate will give the company the best estimate of overhead costs.

Which of the following would most likely be treated as an activity in an activity-based costing system?

The costs most easily traced to each product manufactured are ________.

Why is activity-based costing used? What is an activity? Give an example of an activity.

For each of the following activities,indicate an appropriate allocation base:

Use of a single plantwide overhead rate assumes that there is a direct relationship between the allocation base and overhead costs in all plant activities.

Why is using a single plantwide predetermined overhead allocation rate not always accurate?

Activity-based costing uses a common allocation base for all activities.

Managers are able to set an accurate selling price without knowing product cost information.

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.