Appendix C Activity-Based Costing – Test Bank | Edition 24

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Fundamental Accounting Principles, 24e (Wild)

Appendix C Activity-Based Costing

1) Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.

2) In activity-based costing, costs are traced to individual activities and then allocated to cost objects.

3) An activity-based costing system usually involves a fewer number of allocation bases compared with a traditional cost allocation system.

4) Activity-based costing can be especially effective in situations where many different types of products are manufactured in the same department or departments.

5) Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing.

6) Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.

7) Activity-based costing generally requires less effort to implement and maintain than a traditional cost system.

8) Activity-based costing uses pre-determined overhead rates to allocate costs.

9) In activity-based costing, there are a number of activity cost pools, which consist of activities that belong to the same process and/or are caused by the same cost driver.

10) When using a plantwide overhead rate method to assign overhead costs, the cost object is always the unit of product.

11) A plantwide overhead rate method is adequate when a company produces only one product or has multiple products that use about the same amount of indirect resources.

12) In activity-based costing, all overhead is lumped together and a predetermined overhead rate per unit of an allocation base, is computed and used to assign overhead to jobs and processes.

13) In traditional costing, all overhead is lumped together and a predetermined overhead rate per unit of an allocation base is computed and used to assign overhead to jobs and processes.

14) In activity-based costing, low-volume complex products are usually undercosted and high volume simpler products are overcosted, because the method fails to reflect the different uses of indirect resources.

15) With activity-based costing, complex products are assigned a larger portion of overhead.

16) Activity-based costing can improve costing activity for:

A) Manufacturing companies only.

B) Service companies only.

C) Merchandising companies only.

D) Any company in any industry.

E) Government entities only.

17) A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

A) Plantwide overhead costing.

B) A cost center accounting system.

C) Controllable costing.

D) Activity-based costing.

E) Performance costing.

18) A factor that causes the cost of an activity to go up or down is a(n):

A) Direct factor.

B) Indirect factor.

C) Cost driver.

D) Product cost.

E) Contribution factor.

19) An activity-based cost allocation system:

A) Is one form of a direct or variable costing system.

B) Does not provide total unit cost data.

C) Traces costs to products on the basis of activities performed on them.

D) Does not provide for the allocation of any cost to products that cannot be directly traced to those products.

E) Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods.

20) After all activity costs are accumulated in an activity cost pool account, overhead rates are computed and costs are allocated to cost objects based on:

A) Direct factors.

B) Indirect factors.

C) Cost drivers.

D) Joint cost principles.

E) Opportunity cost principles.

21) If a firm uses activity-based costing to allocate costs, it does all but which of the following?

A) Combine homogenous costs in appropriate pools.

B) Select appropriate cost drivers.

C) Calculate an appropriate rate for each pool.

D) Allocate costs based on predetermined rates for cost pools.

E) Apply a volume-related measure per unit of product.

22) The following is taken from Jeffers Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 1 using activity-based costing.

A) $22,069.

B) $19,877.

C) $47,512.

D) $22,243.

E) $18,703.

23) The following is taken from Jeffers Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing.

A) $16,392.

B) $19,877.

C) $28,830.

D) $22,243.

E) $73,600.

24) The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of indirect labor allocated to Dept. 1 using activity-based costing.

A) $5,505.

B) $54,371.

C) $16,864.

D) $10,471.

E) $8,073.

25) The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of rent, utilities, and depreciation allocated to Dept. 1 using activity-based costing.

A) $14,092.

B) $21,608.

C) $5,505.

D) $11,795.

E) $13,134.

26) The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead cost allocated to Dept. 1 using activity-based costing.

A) $5,505.

B) $21,608.

C) $14,092.

D) $25,888.

E) $27,113.

27) The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of rent and utilities allocated to Dept. 2 using activity-based costing.

A) $6,000.

B) $13,134.

C) $8,566.

D) $14,092.

E) $14,152.

28) The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of indirect labor allocated to Dept. 2 using activity-based costing.

A) $5,505.

B) $11,795.

C) $8,474.

D) $8,566.

E) $13,134.

29) The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing.

A) $11,795.

B) $14,092.

C) $27,112.

D) $25,887.

E) $26,500.

30) Which of the following is not a disadvantage of activity-based costing? 

A) Maintaining an activity-based costing system is more costly than maintaining a traditional costing system.

B) Activity-based costing requires more effort to implement than a traditional costing system.

C) Activity-based costing cannot be used for external reporting.

D) More accurate product costs may result in increasing the selling prices of some products.

E) It can be hard to identify relevant activity cost drivers.

31) Borden Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

Distribution of resource consumption:

How much overhead cost, in total, would be allocated to the Assembly activity cost pool?

A) $196,333

B) $209,000

C) $310,000

D) $155,000

E) $200,000

32) Borden Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

Distribution of resource consumption:

How much overhead cost, in total, would be allocated to the Setting Up activity cost pool?

A) $155,000

B) $279,000

C) $206,000

D) $217,000

E) $194,000

33) Quantum Corporation has provided the following data from its activity-based costing system:

The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit. According to the activity-based costing system, the total overhead cost allocated to product R32E is:

A) $1,044.80

B) $25,016.00

C) $2,064.00

D) $5,161.30

E) $21,907.20

34) Quantum Corporation has provided the following data from its activity-based costing system:

The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit. According to the activity-based costing system, the profit for product R32E is:

A) $4,116.50

B) $29,132.50

C) $6,180.50

D) $5,161.30

E) $4,981.00

35) Quantum Corporation has provided the following data from its activity-based costing system:

The company makes 340 units of product J71B a year, requiring a total of 980 machine-hours, 36 orders, and 22 inspection-hours per year. The product's direct materials cost is $27.50 per unit and its direct labor cost is $18.10 per unit. According to the activity-based costing system, the total overhead cost for producing the 340 units of the J71B product is:

A) $15,504.00

B) $30,972.72

C) $37,126.72

D) $21,622.72

E) $17,957.92

36) Quantum Corporation has provided the following data from its activity-based costing system:

The company makes 340 units of product J71B a year, requiring a total of 980 machine-hours, 36 orders, and 22 inspection-hours per year. The product's direct materials cost is $27.50 per unit and its direct labor cost is $18.10 per unit. According to the activity-based costing system, the total cost for producing the 340 units of the J71B product is:

A) $15,504.00

B) $30,972.72

C) $37,126.72

D) $21,622.72

E) $17,957.92

37) Zephyr Corporation has provided the following data from its activity-based costing system:

Data concerning one of the company's products, Product LM41, appear below.

According to the activity-based costing system, the profit for product LM41 is:

A) $2,891.90

B) $5,931.30

C) $11,917.50

D) $2,236.90

E) $3,178.20

38) The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.

Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is:

A) $12.00 per unit

B) $13.40 per unit

C) $70.00 per unit

D) $75.60 per unit

E) $14.00 per unit

39) The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.

Using direct labor hours to assign overhead costs, the total product cost per unit for Product B is:

A) $12.00 per unit

B) $13.40 per unit

C) $70.00 per unit

D) $75.60 per unit

E) $14.00 per unit

40) The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.

Using activity-based costing to assign overhead costs, the activity rate for machine setups is:

A) $240 per setup

B) $80 per setup

C) $60 per setup

D) $100 per setup

E) $120 per setup

41) The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.

Using activity-based costing to assign overhead costs, the activity rate for quality inspections is:

A) $240 per inspection

B) $80 per inspection

C) $60 per inspection

D) $100 per inspection

E) $120 per inspection

42) The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.

Using activity-based costing to assign overhead costs, the total product cost per unit for Product A is:

A) $12.75 per unit

B) $13.40 per unit

C) $75.60 per unit

D) $78.85 per unit

E) $14.60 per unit

43) The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period.

Using activity-based costing to assign overhead costs, the total product cost per unit for Product B is:

A) $12.75 per unit

B) $13.40 per unit

C) $75.60 per unit

D) $78.85 per unit

E) $14.60 per unit

44) Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows:

Estimated branch data for next year is as follows:

How much of the headquarters cost allocation should Nashville expect to receive next year?

A) $280,000

B) $409,500

C) $472,500

D) $504,000

E) $560,000

45) Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows:

Estimated branch data for next year is as follows:

How much of the headquarters cost allocation should Atlanta expect to receive next year?

A) $280,000

B) $409,500

C) $472,500

D) $504,000

E) $560,000

46) Kozlov Corporation has provided the following data from its activity-based costing system:

The company makes 430 units of product A21W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit. According to the activity-based costing system, the average cost of product A21W is closest to:

A) $94.11 per unit

B) $89.72 per unit

C) $65.18 per unit

D) $92.49 per unit

E) $64.99 per unit

47) Kozlov Corporation has provided the following data from its activity-based costing system:

The company makes 430 units of product A21W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit. According to the activity-based costing system, the total overhead cost of producing 430 units of A21W is:

A) $11,121.40

B) $13,338.20

C) $32,370.00

D) $12,440.20

E) $12,215.70

48) Arial Company has two products: A and B. The company uses activity-based costing. The total cost and activity for each of the company's three activity cost pools are as follows:

The activity rate under the activity-based costing system for Activity 3 is:

A) $70.45

B) $28.87

C) $19.47

D) $58.40

E) $32.55

49) Portofino Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data concerning two products appear below:

How much overhead cost would be assigned to Product KJ22 using the activity-based costing system?

A) $157.87

B) $91,722.47

C) $10,385.22

D) $5,485.50

E) $16,640.87

50) Portofino Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data concerning two products appear below:

How much overhead cost would be assigned to Product KL37 using the activity-based costing system?

A) $1,595.79

B) $5,874.82

C) $10,385.22

D) $5,562.61

E) $6,516.61

51) Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data for one of the company's products follow:

The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. How much overhead cost would be assigned to Product P59G using the activity-based costing system?

A) $54,482.56

B) $3,138.24

C) $10,014.40

D) $154.78

E) $5,301.76

52) Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data for one of the company's products follow:

The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. How much total cost would be assigned to the 4,000 units of Product P59G using the activity-based costing system?

A) $61,014.40

B) $39,214.40

C) $10,014.40

D) $51,000.00

E) $31,814.40

53) Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data for one of the company's products follow:

The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. What is the cost per unit of Product P59G using the activity-based costing system?

A) $167.53

B) $12.75

C) $2.50

D) $15.25

E) $9.80

54) Activity rates from Hilliard Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products:

Last year, Product XL91 involved 2 customer orders, 434 assembly hours, and 20 batches. How much overhead cost would be assigned to Product XL91 using the activity-based costing system?

A) $1,041.80

B) $2,000.04

C) $66,908.88

D) $146.73

E) $772.52

55) Naples Corporation has provided the following data from its activity-based costing accounting system:

Distribution of resource consumption across activity cost pools:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool?

A) $247,000

B) $390,000

C) $214,500

D) $780,000

E) $208,000

56) Naples Corporation has provided the following data from its activity-based costing accounting system:

Distribution of resource consumption across activity cost pools:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Product Processing activity cost pool?

A) $260,000

B) $429,000

C) $169,000

D) $780,000

E) $351,000

57) Briefly describe the process of activity-based costing.

58) Why would a firm use activity-based costing (ABC) rather than traditional methods of cost allocation for overhead?

59) Superior Fasteners, Co. is considering switching from traditional allocation of overhead based on direct labor hours to an activity-based costing system. The manager has accumulated the following information on engineering changes for two of the company's major products:

Compute the cost per unit using:

(1) The traditional allocation of the costs of engineering changes based on direct labor hours.

(2) The activity-based cost allocation of the costs of engineering changes.

60) Winterland, Inc., produces two types of skis, downhill and cross country. Product and production information about the two items is shown below:

Required:

1. If Winterland uses the traditional method of allocating overhead costs based on direct labor hours, what is the amount of indirect costs per set of skis for each of the two types of skis?

2. If Winterland uses activity based costing, what is the total amount of indirect costs per set of skis for each of the two types of skis? Assume that depreciation is allocated based on machine hours, setup costs based on the number of setups, and miscellaneous costs based on the number of direct labor hours.

61) Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.

Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.

Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller?

62) Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.

Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.

Assign these three overhead cost pools to flat using ABC and determine average cost per unit for the product. (Round your answer to 2 decimal places.)

63) Stormer Corporation has provided the following data from its activity-based costing accounting system:

Indirect factory wages $27,000

Factory equipment depreciation $243,000

Distribution of resource consumption across Activity Cost Pools:

Customer Product

Orders Processing Other Total

Indirect factor wages 27% 68% 5% 100%

Factory equipment depreciation 20% 67% 13% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

Required:

a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work!

b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!

64) Dover Company manufactures two products, Product J-9 and Product M-6. Product M-6 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product J-9. Product M-6 is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product J-9. Product M-6 is produced on an automated production line.

Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product M-6 and 40,000 units of Product J-9 during the current year.

Unit costs for materials and labor are:

Product J-9 Product M-6

Direct material $11 $24

Direct labor $6 $12

Required:

a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.

b. The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:

Activity cost pool Total cost Product J-9 Product M-6 Total

Machine setups required $204,000 800 1,600 2,400

Purchase orders issued 43,500 500 100 600

Machine-hours required 105,000 7,000 10,500 17,500

Maintenance requests issued 157,500 650 850 1,500

Total $510,000

Using the data above, determine the unit product cost of each product for the current year.

c. What items of overhead cost make Product M-6 so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product M-6?

65) Cleveland Company manufactures two products, Product A-33 and Product C-17. Product C-17 is the more complex of the two products, requiring 1.5 hours of direct labor per unit to manufacture compared to 1.0 hour of direct labor time for Product A-33. Product C-17 is produced on an automated production line.

The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product C-17 and 40,000 units of Product A-33 during the current year.

Unit costs for materials and labor are:

Product A-33 Product C-17

Direct material $13 $21

Direct labor $6 $9

Required:

The company is considering the use of activity-based costing as an alternative to its current traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:

Activity cost pool Total cost Product A-33 Product C-17 Total

Machine setups required……. $253,000 800 1,600 2,400

Purchase orders issued……… 72,500 500 100 600

Machine-hours required……... 184,500 7,000 10,500 17,500

Total $510,000

Using the data above, determine the unit product cost of Product A-33 for the current year.

66) Bangor Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year:

Total Activity

Activity Cost Pool Total Cost Product F Product G Total

Machine setups…….. $10,800 80 setups 100 setups 180 setups

Purchases orders……. $77,520 510 orders 1,010 orders 1,520 orders

General Factory…….. $75,920 2,240 hours 3,600 hours 5,840 hours

Required: Using the activity-based costing approach, determine the overhead cost per unit for each product.

67) Melbourne Resources provides the following data to enable you to calculate overhead rates: Machining Department Overhead is $15,000, which is to be allocated on estimated machine hours of 25,000. The rate per Machine Hour would be ________. If Machining cost is to be allocated to three jobs which consumed A = 3,000 hours, B = 4,000 hours, and C = 1,000 hours respectively; then Job A should be charged $ ________; Job B should be charged $________; and Job C $________.

68) A ________ is a factor that causes the cost of an activity to go up and down.

69) An activity ________ is a temporary account accumulating the costs a company incurs to support an identified set of activities.

70) Under traditional cost allocation methods, low-volume complex products are often ________ and high-volume simpler products are likely to be ________.