Question 1

If a cost object such as a product or customer has a negative red margin, then:

Accepted Answer

The green margin can vary independently of the red margin, so it can be positive, negative, or zero.

Question 2

If a cost object such as a product or customer has a positive red margin, then:

Accepted Answer

A

Question 3

What would be the total overhead cost per customer according to the activity based costing system? In other words, what would be the overall activity rate for the customer support activity cost pool? (Round to the nearest whole dollar.)

Accepted Answer

The total overhead cost per customer is $13,650. This is calculated by dividing the total customer support activity cost pool ($1,092,000) by the total number of customers (80).

Question 4

What would be the total overhead cost per order according to the activity based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.)

Accepted Answer

The total overhead cost per order in the filling orders activity cost pool can be calculated as follows:

Activity rate = Total cost of filling orders activity pool / Total number of orders 
Activity rate = $148,000 / 2,975 
Activity rate = $49.67

Therefore, the correct answer is C, $49.67.

Question 5

If a cost object such as a product or customer has a negative green margin, then:

Accepted Answer

The yellow margin represents the contribution margin, which is the revenue minus the variable costs. If the green margin (revenue minus all costs) is negative, then it means the cost of producing the product or serving the customer is higher than the revenue generated. Therefore, the contribution margin will also be negative, resulting in a negative yellow margin.

Question 6

Jackson Painting paints the interiors and exteriors of homes and commercial buildings. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its activity-based costing system.  The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centers. The results are listed below:  Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Support activity cost pools. Round off all calculations to the nearest whole cent.
b. Prepare an action analysis report in good form of a job that involves painting 63 square meters and has direct materials and direct labor cost of $2,070. The sales revenue from this job is $2,500.
For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; production overhead as a Red cost; and office expense as a Yellow cost.

Accepted Answer

The answer of Jackson Painting paints the interiors and exteriors...

Question 7

To the nearest whole dollar, how much wages and salaries cost would be allocated to a customer who made 8 orders in a year?

Accepted Answer

We need to know the cost per order to calculate the total cost for 8 orders. Without this information, we can use the average cost per order based on the given options. 
Option A: $1,848 per order ($14,784 divided by 8 orders) 
Option B: $1,463 per order ($11,704 divided by 8 orders) 
Option C: $924 per order ($7,392 divided by 8 orders) 
Option D: $1,194 per order ($9,548 divided by 8 orders)

Therefore, the closest option to the calculated average cost of wages and salaries per order would be option B. Allocating $1,463 per order for 8 orders would give a total cost of approximately $11,704.

Question 8

An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labor.

Accepted Answer

The answer of An action analysis report reconciles activity-based costing...

Question 9

Suppose an action analysis report is prepared for the function mentioned above. What would be the "yellow margin" in the action analysis report? (Round to the nearest whole dollar.)

Accepted Answer

The answer of Suppose an action analysis report is prepared...

Question 10

According to the activity-based costing system, what was the total cost (including the costs of raw ingredients) of the function mentioned above? (Round to the nearest whole dollar.)

Accepted Answer

The total cost of the function is the sum of the costs of raw ingredients and the costs of the activity. The cost of raw ingredients is $650. The cost of the activity is $910. Therefore, the total cost is $650 + $910 = $1,560.

Question 11

Suppose an action analysis report is prepared for the function mentioned above. What would be the "red margin" in the action analysis report? (Round to the nearest whole dollar.)

Accepted Answer

The answer of Suppose an action analysis report is prepared...

Question 12

Hasty Hardwood Floors installs oak and other hardwood floors in homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:   The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:  A "square" is a measure of area that is roughly equivalent to 1,000 square feet.
Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:  b. Compute the activity rates (i.e., cost per unit of activity) for the Installing Floors and Job Support activity cost pools by filling in the table below:  c. Compute the overhead cost, according to the activity-based costing system, of a job that involves installing 3.4 squares.

Accepted Answer

The answer of Hasty Hardwood Floors installs oak and other...

Question 13

Phoenix Company makes custom covers for air conditioning units for homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity cost pools:   The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:  Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:  b. Compute the activity rates (i.e., cost per unit of activity) for the Making Awnings and Job Support activity cost pools by filling in the table below:  c. Prepare an action analysis report in good form of a job that involves making 50 yards of covers and has direct materials and direct labor cost of $1,500. The sales revenue from this job is $2,500.
For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; production overhead as a Red cost; and office expense as a Yellow cost.

Accepted Answer

The answer of Phoenix Company makes custom covers for air...

Question 14

If a cost object such as a product or customer has a negative yellow margin, then:

Accepted Answer

The yellow margin represents the difference between the revenue and the variable costs associated with producing a product or serving a customer. When the yellow margin is negative, it means that the revenue generated is not enough to cover the variable costs incurred. In such a case, the red margin, which represents the difference between the revenue and the total cost (both variable and fixed costs), is likely to be negative as well. This is because fixed costs, which are not linked to the level of production or sales, will further reduce the profitability of the cost object. Therefore, the correct choice is C: its red margin will be negative.

Question 15

Ingersol Draperies makes custom draperies for homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity cost pools.   The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:  Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:  b. Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support activity cost pools by filling in the table below:  c. Prepare an action analysis report in good form of a job that involves making 71 yards of drapes and has direct materials and direct labor cost of $2,510. The sales revenue from this job is $4,400.
For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; production overhead as a Red cost; and office expense as a Yellow cost.

Accepted Answer

The answer of Ingersol Draperies makes custom draperies for homes...

Question 16

Goel Company, a wholesale distributor, uses activity-based costing for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:   The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:  Required:
Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and Product Support activity cost pools:

Accepted Answer

The answer of Goel Company, a wholesale distributor, uses activity-based...

Quiz 14: Abc Action Analysis