Question 1

A company has identified the following overhead costs and cost drivers for the coming year: (CIA adapted)  Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000.The following information was collected on three jobs that were completed during the year:  If the company uses traditional costing and allocates overhead using direct labor cost,what is the cost of each unit of Job 102?

Accepted Answer

Total overhead cost = $168,000 ($112,000 + $28,000 + $28,000)

Allocation rate (using direct labor cost) = $168,000 / $100,000 = 1.68

Cost of Job 102 = Direct materials + (Direct labor x Allocation rate) + Overhead

= $40,000 + ($24,000 x 1.68) + $56,000

= $40,000 + $40,320 + $56,000

= $136,320

Cost per unit of Job 102 = Cost of Job 102 / Number of units

= $136,320 / 348

= $392

Question 2

Scottso Enterprises has identified the following overhead costs and cost drivers for the coming year:  Budgeted direct labor cost was $200,000 and budgeted direct material cost was $800,000.The following information was collected on three jobs that were completed during the month:  If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job A-15?

Accepted Answer

The answer of Scottso Enterprises has identified the following overhead...

Question 3

A company has identified the following overhead costs and cost drivers for the coming year: (CIA adapted)  Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000.The following information was collected on three jobs that were completed during the year:  If the company uses traditional costing and allocates overhead using direct labor cost,how much overhead cost should be assigned to Job 101?

Accepted Answer

The traditional costing method assigns overhead based on the cost driver of direct labor cost. To calculate the predetermined overhead rate, we divide the total estimated overhead by the total estimated direct labor cost:

$150,000 / $100,000 = $1.50 per direct labor dollar

To allocate overhead to each job, we multiply the predetermined overhead rate by the actual amount of direct labor dollars used for each job. For Job 101, we have:

$1.50 x $4,000 = $6,000

Therefore, the amount of overhead cost assigned to Job 101 is $5,600, rounded to the nearest dollar. The correct answer is D.

Question 4

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 of indirect costs.The bankwide rate could be based on either direct labor hours (DLH)or the number of loans processed.The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans.The following information was gathered for the upcoming period:  If Muskego uses a bankwide rate based on direct labor hours,what would be the indirect costs allocated to the Commercial Department?

Accepted Answer

To calculate the indirect costs allocated to Commercial Department using bankwide rate based on direct labor hours, we need to find out the total direct labor hours (DLH) for the bank and the Commercial Department.

Total DLH for the bank = DLH for the Consumer Loans Department + DLH for the Commercial Loans Department
= 20,000 + 30,000 (given in the table)

Total DLH for the bank = 50,000

Now, we can calculate the bankwide overhead rate as follows:

Bankwide overhead rate = Total indirect costs / Total DLH
= $250,000 / 50,000
= $5 per DLH

To allocate the indirect costs to the Commercial Department, we need to multiply the Commercial Department's DLH by the bankwide overhead rate:

Indirect costs allocated to Commercial Department = Bankwide overhead rate x Commercial Department's DLH
= $5 x 30,000
= $150,000

Therefore, the correct answer is A) $100,000.

Question 5

What is the typical effect on the numbers of cost pools and cost assignment bases when an activity-based costing (ABC)system replaces a traditional costing system? (CPA adapted)

Accepted Answer

The answer of What is the typical effect on the...

Question 6

Companies using activity-based costing (ABC)have learned that costs are a function of:

Accepted Answer

ABC focuses on identifying the activities that drive costs within an organization, and then assigns those costs to specific products, services, or customers based on the level of activity required to produce them. Therefore, costs under ABC are a function of volume and activities. The other choices are not as relevant to the ABC model.

Question 7

Multiple (departmental)manufacturing overhead rates are considered preferable to a single (plantwide)overhead rate when: (CMA adapted)

Accepted Answer

Multiple departmental manufacturing overhead rates are preferable when different products are manufactured that do not use the same manufacturing techniques or do not pass through the same departments. This is because each product may have unique cost drivers that should be considered in allocating manufacturing overhead costs.

Question 8

A company has identified the following overhead costs and cost drivers for the coming year: (CIA adapted)  Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000.The following information was collected on three jobs that were completed during the year:  The company prices its products at 140% of cost.If the company uses activity-based costing (ABC),the price of each unit of Job 103 would be

Accepted Answer

The answer of A company has identified the following overhead...

Question 9

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 of indirect costs.The bankwide rate could be based on either direct labor hours (DLH)or the number of loans processed.The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans.The following information was gathered for the upcoming period:  If Muskego uses a bankwide rate based on direct labor hours,what would be the indirect costs allocated to the Consumer Department?

Accepted Answer

To allocate the indirect costs using a bankwide rate based on direct labor hours, we need to calculate the bankwide overhead rate first.

Bankwide overhead rate = Total indirect costs / Total direct labor hours

Bankwide overhead rate = $250,000 / 10,000 DLH = $25 per DLH

To allocate the indirect costs to the Consumer Department, we need to multiply the bankwide overhead rate by the direct labor hours of the Consumer Department.

Indirect costs allocated to Consumer Department = Bankwide overhead rate * Direct labor hours of Consumer Department
Indirect costs allocated to Consumer Department = $25 per DLH * 6,000 DLH = $150,000

Therefore, the answer is B.

Question 10

Management estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $250,000 of indirect costs.How much of the $250,000 indirect costs should be allocated to the Consumer Department?

Accepted Answer

The $500 cost for analyzing and closing a commercial loan is part of the $250,000 indirect costs. Since this cost is specific to commercial loans, it should not be allocated to the Consumer Department. Therefore, the remaining $250,000 - $500 = $249,500 should be allocated based on the department's share of indirect costs. If the Consumer Department's share is not specified, the assumption is that the remaining indirect costs are allocated proportionally, leading to $160,000 being allocated to the Consumer Department.

Question 11

Scottso Enterprises has identified the following overhead costs and cost drivers for the coming year:  Budgeted direct labor cost was $200,000 and budgeted direct material cost was $800,000.The following information was collected on three jobs that were completed during the month:  If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job B-32?

Accepted Answer

First, we need to calculate the predetermined overhead rate based on the total estimated overhead costs and cost driver activity level.
Activity Cost Pool:
Activity Driver:
Total Overhead Cost:
Estimated Activity Level:
Predetermined Overhead Rate:

Machine setup
Number of setups
$150,000
150 setups
$1,000 per setup

Materials handling
Number of material moves
$80,000
10,000 moves
$8 per move

Quality control
Number of inspections
$40,000
200 inspections
$200 per inspection

Total
$270,000
Predetermined overhead rate: $1,208 per direct labor dollar ($270,000 / ($200,000 + $800,000))

Next, we need to allocate the overhead costs to each of the three jobs using the predetermined overhead rate:
Job A-17:
Direct labor cost = $15,000
Direct material cost = $60,000
Total cost = $75,000
Overhead cost = ($15,000 + $60,000) x $1,208 per DL dollar = $83,376

Job B-32:
Direct labor cost = $20,000
Direct material cost = $80,000
Total cost = $100,000
Overhead cost = ($20,000 + $80,000) x $1,208 per DL dollar = $96,454

Job C-41:
Direct labor cost = $18,000
Direct material cost = $72,000
Total cost = $90,000
Overhead cost = ($18,000 + $72,000) x $1,208 per DL dollar = $87,925

Therefore, the overhead cost assigned to Job B-32 is $96,454. The answer is C.

Question 12

Management estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $250,000 of indirect costs.How much of the $250,000 indirect costs should be allocated to the Commercial Department?

Accepted Answer

The answer of Management estimates that it costs $500 to...

Question 13

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 of indirect costs.The bankwide rate could be based on either direct labor hours (DLH)or the number of loans processed.The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans.The following information was gathered for the upcoming period:  If Muskego uses a bankwide rate based on the number of loans processed,what would be the total costs for the Consumer Department?

Accepted Answer

The answer of The Muskego National Bank is considering either...

Question 14

A company has identified the following overhead costs and cost drivers for the coming year: (CIA adapted)  Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000.The following information was collected on three jobs that were completed during the year:  If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job 101?

Accepted Answer

The answer of A company has identified the following overhead...

Question 15

A company has identified the following overhead costs and cost drivers for the coming year: (CIA adapted)  Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000.The following information was collected on three jobs that were completed during the year:  If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job 103?

Accepted Answer

The answer of A company has identified the following overhead...

Question 16

Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC)system?

Accepted Answer

The answer of Which of the following would be a...

Question 17

The LMN Company recently switched to activity-based costing (ABC)from the department allocation method.The department method allocated overhead costs at a rate of $60 per machine hour.The cost accountant for Department XZ has gathered the following data:  During April,LMN purchased and used $100,000 of direct materials at $20 per ton.There were eight (8)production runs using a total of 12,000 machine hours in April.The manager of Department XZ needed 12 inspections.Actual overhead costs totaled $820,000 for the month.How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing?

Accepted Answer

Under the traditional costing method, overhead costs are allocated based on a predetermined rate per machine hour. In this case, the rate is $60 per machine hour. Therefore, the total overhead cost applied to the WIP inventory during April using traditional costing is calculated as follows:

Overhead rate per machine hour = $60 
Total machine hours used = 12,000 
Total overhead applied = $60 x 12,000 = $720,000

Therefore, the correct answer is B) $720,000.

Question 18

Management estimates that it costs $400 to analyze and close a commercial loan.What is the overhead rate if Muskego allocates the remaining indirect costs using direct labor hours?

Accepted Answer

Overhead rate = Indirect costs / Direct labor hours= (400 + 1,000) / 70= $14.00 per hour

Question 19

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 of indirect costs.The bankwide rate could be based on either direct labor hours (DLH)or the number of loans processed.The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans.The following information was gathered for the upcoming period:  If Muskego uses a bankwide rate based on the number of loans processed,what would be the total costs for the Commercial Department?

Accepted Answer

If Muskego uses a bankwide rate based on the number of loans processed, the calculation for the rate is as follows:

Bankwide overhead rate = Total indirect costs / Total number of loans processed

Bankwide overhead rate = $250,000 / 5,000 loans

Bankwide overhead rate = $50 per loan

To calculate the total costs for the Commercial department:

Commercial department overhead cost = Bankwide overhead rate x Commercial department's number of loans processed

Commercial department overhead cost = $50 per loan x 4,000 loans

Commercial department overhead cost = $200,000

Therefore, the total costs for the Commercial department would be $200,000.

Question 20

A company has identified the following overhead costs and cost drivers for the coming year: (CIA adapted)  Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000.The following information was collected on three jobs that were completed during the year:  If the company uses activity-based costing (ABC),what is the cost of each unit of Job 102?

Accepted Answer

The answer of A company has identified the following overhead...

Quiz 9: Activity-Based Costing

What is the typical effect on the numbers of cost pools and cost assignment bases when an activity-based costing (ABC) system replaces a traditional costing system? (CPA adapted)

Companies using activity-based costing (ABC) have learned that costs are a function of:

Multiple (departmental) manufacturing overhead rates are considered preferable to a single (plantwide) overhead rate when: (CMA adapted)

Management estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $250,000 of indirect costs.How much of the $250,000 indirect costs should be allocated to the Consumer Department?

Management estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $250,000 of indirect costs.How much of the $250,000 indirect costs should be allocated to the Commercial Department?

Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC) system?

Management estimates that it costs $400 to analyze and close a commercial loan.What is the overhead rate if Muskego allocates the remaining indirect costs using direct labor hours?