Test Bank Ch4 Activity-Based Costing And Cost Management - Managerial Accounting 4e Complete Test Bank by Whitecotton. DOCX document preview.
Managerial Accounting, 4e (Whitecotton)
Chapter 4 Activity-Based Costing and Cost Management
1) A volume-based allocation measure is directly related to the number of units produced or the number of customers served.
2) The gross margin is calculated by subtracting total nonmanufacturing cost per unit from the unit sales price.
3) Activity Based Costing divides activities into two categories: unit-level activities and facility level activities.
4) When forming activity cost pools, the goal is to create as few cost pools as possible, while still capturing major activities.
5) Each individual indirect cost should be assigned to one activity when forming activity cost pools.
6) Activity-based costing systems include non-volume-based cost drivers.
7) To assign activity costs using the activity proportion method, multiply the activity rate by the activity requirements of each individual product.
8) The cost measurement system can impact how indirect costs are spread among product lines, which may affect decisions managers make.
9) Activity-based costing is not appropriate for service providers since they do not have manufacturing overhead that needs to be assigned to products.
10) Activity-based management is a method of assigning indirect costs to products or services based on the activities they require.
11) A value-added activity is one that enhances the perceived value of the product or service to the customer.
12) Prevention costs are incurred to prevent quality problems from occurring in the first place.
13) Internal failure costs result from defects that are caught during the inspection process.
14) Target costing involves determining what the product price must be in order to meet the target cost and still provide a profit for the company's shareholders.
15) A just-in-time (JIT) system is a demand-push system.
16) A volume-based allocation measure would vary proportionately with:
A) the number of activities.
B) nonmanufacturing costs.
C) the number of units produced.
D) the number of cost drivers.
17) Which of the following would not be directly related to a volume-based allocation measure?
A) The number of activities.
B) The number of units produced.
C) The number of customers served.
D) Direct materials cost.
18) A volume-based cost system is likely to assign more manufacturing overhead costs to products:
A) that are more complex or difficult to manufacture than others.
B) that sell more units than others.
C) with higher per-unit materials costs than others.
D) with more activity costs than others.
19) In a traditional volume-based cost system, total manufacturing costs are calculated by:
A) adding manufacturing overhead cost, direct materials cost, and direct labor cost.
B) subtracting manufacturing overhead from selling price.
C) adding direct material cost and direct labor cost.
D) adding activity cost, direct material cost, and direct labor cost.
20) The gross margin does not take into account:
A) sales price.
B) nonmanufacturing cost.
C) manufacturing overhead.
D) direct materials and direct labor.
21) Lincoln, Inc., which uses a volume-based cost system, produces cat condos that sell for $90 each. Direct materials cost $15 per unit, and direct labor costs $10 per unit. Manufacturing overhead is applied at a rate of 200% of direct labor cost. Nonmanufacturing costs are $27 per unit. What is the gross profit margin for the cat condos?
A) 20.0%
B) 50.0%
C) 62.5%
D) 80.0%
22) Largo, Inc., which uses a volume-based cost system, produces cat condos, and has a gross profit margin of 50%. Direct materials cost $15 per unit, and direct labor costs $10 per unit. Manufacturing overhead is applied at a rate of 200% of direct labor cost. Nonmanufacturing costs are $27 per unit. How much does each cat condo sell for?
A) $50
B) $72
C) $90
D) $144
23) The first step in ABC is:
A) to calculate a manufacturing overhead rate.
B) to form activity cost pools.
C) to select a cost driver for each activity cost pool.
D) to identify and classify activities.
24) An activity that is performed to support a specific product line is a(n):
A) batch-level activity.
B) facility-level activity.
C) product-level activity.
D) unit-level activity.
25) An activity that is performed to benefit the organization as a whole is a(n):
A) batch-level activity.
B) product-level activity.
C) facility-level activity.
D) unit-level activity.
26) An activity that is performed for a group of units all at once is a(n):
A) batch-level activity.
B) product-level activity.
C) facility-level activity.
D) unit-level activity.
27) An activity that is performed for a specific customer is a(n):
A) batch-level activity.
B) product-level activity.
C) facility-level activity.
D) unit-level activity.
28) An activity that is performed for each individual unit is a ________ level activity.
A) batch
B) facility
C) product
D) unit
29) Which of the following best defines a batch-level activity?
A) An activity that is performed for a specific customer
B) An activity that is performed to support a specific product line
C) An activity that is performed for each individual unit
D) An activity that is performed for a group of units all at once
30) Which of the following best defines a product-level activity?
A) An activity that is performed for a specific customer
B) An activity that is performed to support a specific product line
C) An activity that is performed for each individual unit
D) An activity that is performed for a group of units all at once
31) Which of the following best defines a facility-level activity?
A) An activity that is performed to support the entire company
B) An activity that is performed to support a specific product line
C) An activity that is performed for each individual unit
D) An activity that is performed for a group of units all at once
32) Which of the following is the best example of a facility-level activity?
A) Human resources
B) Research and development
C) Painting a final product
D) Product testing
33) Which of the following is the best example of a unit-level activity?
A) Human resources
B) Research and development
C) Painting a final product
D) Product testing
34) How is the cost of a batch-level activity similar to the cost of a unit-level activity?
A) Both are incurred for each individual unit.
B) Both decrease as production volume increases.
C) Both increase as production volume increases.
D) Both are incurred for a group of units all at once.
35) Monroe, Inc. randomly selects ten units from each production run to be inspected for quality, regardless of the size of the production run. The inspection of these units would most likely be classified as a:
A) facility or companywide activity.
B) product-level activity.
C) batch-level activity.
D) unit-level activity.
36) The purpose of Stage 1 allocations is to:
A) assign indirect manufacturing costs to activity cost pools.
B) assign the indirect costs of each activity to products and services.
C) assign direct manufacturing costs to activity cost pools.
D) assign the direct costs of each activity to products and services.
37) A large company that uses activity based costing would do which of the following?
A) Use a volume-based cost driver for each activity.
B) Form a cost pool for each activity performed by the company.
C) Use a single cost pool.
D) Group activities together to simplify the number of activities.
38) Portland, Inc. has formed four activity cost pools: Product Design, Machining and Production, Machine Setup, and Inspection. Gina Taylor, Production Manager at Portland, oversees processes that are considered part of Machining and Production, Machine Setup, and Inspection. Taylor's salary should be:
A) assigned to the activity she spends the most time on.
B) considered as a separate activity.
C) expensed in the period incurred.
D) allocated among Machining and Production, Machine Setup, and Inspection.
39) Linden, Inc. uses a 5,000 square foot factory space that it rents for $2,500 a month for all its manufacturing activities. Linden has decided to switch to an activity-based costing system, and has identified its activities as follows: Preparation and Setup, Machining, Finishing, and Quality Control. 500 square feet of the factory are used for machining, while 2,000 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 500 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool?
A) $250
B) $500
C) $1,000
D) $2,000
40) An activity cost driver is:
A) a measure of the underlying activity that occurs in each activity cost pool.
B) a measure of the volume of units produced or customers sold.
C) a number of activities combined into one cost pool.
D) the cost assigned to an activity.
41) Which of the following is not true of activity cost drivers?
A) They are measures of the underlying activity that occurs in each activity cost pool.
B) They ideally have a cause and effect relationship with underlying activities.
C) They are strictly volume-based allocation measures.
D) They are used in Stage 2 cost allocations.
42) Using non-volume-based activity drivers allows activity-based costing to:
A) assign more indirect costs to products whose production volume is higher.
B) assign more direct costs to products whose production volume is higher.
C) assign more indirect costs to products whose complexity is higher.
D) assign more direct costs to products whose complexity is higher.
43) Which of the following is the correct formula to compute an activity rate?
A) Divide the total activity cost by the total activity driver
B) Divide the total activity driver by the total activity cost
C) Multiply the total activity cost by the total activity driver
D) Add the total activity driver to the total activity cost
44) Which of the following would be considered a non-volume-based cost driver?
A) Number of units produced
B) Number of batches
C) Number of machine hours
D) Direct materials cost
45) Which of the following statements is correct about the differences between a volume-based cost system and an ABC system?
A) The only difference is how the methods assign indirect costs to products.
B) The only difference is how the methods assign direct costs to products.
C) The methods assign both direct and indirect costs differently to products.
D) There is no difference in how the methods assign direct or indirect costs to products.
46) The activity-rate method involves:
A) dividing the total activity driver by the total activity cost.
B) calculating the proportion of each activity driver used by each product.
C) calculating an activity rate that is similar to the predetermined overhead rate.
D) multiplying the total activity cost by the total activity driver.
47) Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows:
| Product A | Product X | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
What is the amount of Machining cost assigned to Product X?
A) $22,500
B) $125,000
C) $375,000
D) $500,000
48) Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows:
| Product A | Product X | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
What is the amount of Machining cost assigned to Product A?
A) $7,500
B) $125,000
C) $375,000
D) $500,000
49) Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows:
| Product A | Product X | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
What is the amount of Inspection cost assigned to Product A?
A) $7,500
B) $22,500
C) $30,000
D) $125,000
50) Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows:
| Product A | Product X | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
What is the amount of Inspection cost assigned to Product X?
A) $7,500
B) $22,500
C) $30,000
D) $125,000
51) If the total activity cost were unknown, it could be calculated by:
A) dividing the total activity driver by the activity rate.
B) multiplying the total activity driver by the activity rate.
C) adding the total activity driver to the activity rate.
D) subtracting the activity rate from the total activity driver.
52) Washington, Inc. produces two different products (Product C and Product 2) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $750,000, while the cost of Inspection is $90,000. The activity drivers are used as follows:
| Product C | Product 2 | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
What is the activity rate for Machining?
A) $187.50 per machine hour
B) $166.67 per machine hour
C) $250.00 per machine hour
D) $5750.00 per machine hour
53) Washington, Inc. produces two different products (Product C and Product 2) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $750,000, while the cost of Inspection is $90,000. The activity drivers are used as follows:
| Product C | Product 2 | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
What is the activity rate for Inspection?
A) $45,000 per batch
B) $1,500 per batch
C) $6,000 per batch
D) $2,000 per batch
54) Culver, Inc. produces two different products (Product V3 and Product G8) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity drivers are used as follows:
| Product V3 | Product G8 | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
The activity rate for Machining is $67.50 per machine hour. What is the total cost of Machining?
A) $274,050
B) $67,500
C) $202,500
D) $270,000
55) Culver, Inc. produces two different products (Product V3 and Product G8) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity drivers are used as follows:
| Product V3 | Product G8 | Total |
Machine hours | 1,000 | 3,000 | 4,000 |
Number of batches | 45 | 15 | 60 |
The activity rate for Inspection is $750 per batch. What is the total cost of Inspection?
A) $11,250
B) $33,750
C) $45,000
D) $75,000
56) Using the activity-proportion method results in:
A) higher cost allocations than the activity rate method.
B) lower cost allocations than the activity rate method.
C) the same cost allocations as the activity rate method.
D) higher or lower cost allocations than the activity rate method, depending on the circumstances.
57) Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows:
| Product 5 | Product Z | Total |
Machine hours | 1,200 | 4,800 | 6,000 |
Number of batches | 60 | 20 | 80 |
What proportion of Machining activity is used by Product 5?
A) 20%
B) 33%
C) 67%
D) 75%
58) Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows:
| Product 5 | Product Z | Total |
Machine hours | 1,200 | 4,800 | 6,000 |
Number of batches | 60 | 20 | 80 |
What proportion of Machining activity is used by Product Z?
A) 25%
B) 33%
C) 67%
D) 80%
59) Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows:
| Product 5 | Product Z | Total |
Machine hours | 1,200 | 4,800 | 6,000 |
Number of batches | 60 | 20 | 80 |
What proportion of Inspection activity is used by Product 5?
A) 25%
B) 33%
C) 67%
D) 75%
60) Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows:
| Product 5 | Product Z | Total |
Machine hours | 1,200 | 4,800 | 6,000 |
Number of batches | 60 | 20 | 80 |
What proportion of Inspection activity is used by Product Z?
A) 25%
B) 33%
C) 67%
D) 75%
61) Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Machining cost assigned to Product 5?
A) $7,500
B) $22,500
C) $100,000
D) $375,000
62) Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Inspection cost assigned to Product 5?
A) $7,500
B) $22,500
C) $125,000
D) $375,000
63) Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Machining cost assigned to Product Z?
A) $7,500
B) $22,500
C) $375,000
D) $400,000
64) Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Inspection cost assigned to Product Z?
A) $7,500
B) $22,500
C) $125,000
D) $375,000
65) Cottonwood, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard uses 30% of total machine hours and 70% of total batches. What is the total activity cost assigned to Standard?
A) $22,500
B) $125,000
C) $171,000
D) $359,000
66) Cottonwood, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard uses 30% of total machine hours and 70% of total batches. What is the total activity cost assigned to Luxury?
A) $7,500
B) $171,000
C) $375,000
D) $359,000
67) Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Machining activity is used by Standard?
A) 30%
B) 33%
C) 67%
D) 75%
68) Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Machining activity is used by Luxury?
A) 30%
B) 33%
C) 67%
D) 70%
69) Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Inspection activity is used by Standard?
A) 25%
B) 33%
C) 67%
D) 75%
70) Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Inspection activity is used by Luxury?
A) 25%
B) 33%
C) 67%
D) 75%
71) Hadley, Inc. manufactures a product that uses $15 in direct materials and $5 in direct labor per unit. Under the traditional costing system Hadley uses, manufacturing overhead applied to each unit is $12. However, Hadley is considering switching to an ABC system. Under the ABC system, the total activity cost would be $25. What is the total manufacturing cost per unit for Hadley under the ABC system?
A) $20
B) $25
C) $32
D) $45
72) Pima, Inc. manufactures calculators that sell for $40 each. Each calculator uses $15 in direct materials and $5 in direct labor per unit. Pima has two activities: Machining, which is applied at the rate of $4 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Pima made 400 calculators, using 1,000 machine hours in 40 batches. What is the total manufacturing cost for one calculator?
A) $20
B) $25
C) $27
D) $32
73) Pima, Inc. manufactures calculators that sell for $40 each. Each calculator uses $15 in direct materials and $5 in direct labor per unit. Pima has two activities: Machining, which is applied at the rate of $4 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Pima made 400 calculators, using 1,000 machine hours in 40 batches. What is the gross profit for one calculator?
A) $8
B) $20
C) $25
D) $35
74) Sherman, Inc. manufactures chainsaws that sell for $58. Each chainsaw uses $10 in direct materials and $3 in direct labor per unit. Sherman has two activities: Machining, which is applied at the rate of $2 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Sherman made 200 chainsaws, using 1,000 machine hours in 40 batches. What is the total manufacturing cost for one chainsaw?
A) $13
B) $14
C) $27
D) $30
75) Sherman, Inc. manufactures chainsaws that sell for $58. Each chainsaw uses $10 in direct materials and $3 in direct labor per unit. Sherman has two activities: Machining, which is applied at the rate of $2 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Sherman made 200 chainsaws, using 1,000 machine hours in 40 batches. What is the gross profit for one chainsaw?
A) $13
B) $27
C) $31
D) $47
76) Yuma, Inc. manufactures teddy bears and dolls. Currently, Yuma makes 2,000 teddy bears each month. Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor. Yuma uses two activities in manufacturing the teddy bears: Sewing and Processing. The cost associated with Sewing is $15,000 a month, allocated on the basis of direct labor hours. The cost associated with Processing is $10,000 a month, allocated on the basis of batches. Teddy bears use 1/2 of the direct labor hours, and 35% of total batches. What is the total manufacturing cost for one teddy bear?
A) $2.50
B) $4.50
C) $7.00
D) $8.00
77) Yallow, Inc. manufactures teddy bears and dolls. Currently, Yallow makes 2,000 teddy bears each month. Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor. Yallow uses two activities in manufacturing the teddy bears: Sewing and Processing. The cost associated with Sewing is $15,000 a month, allocated on the basis of direct labor hours. The cost associated with Processing is $10,000 a month, allocated on the basis of batches. The activity drivers are used as follows:
| Teddy Bears | Dolls |
Direct labor hours | 200 | 200 |
Batches | 35 | 65 |
What is the total manufacturing cost for one teddy bear?
A) $2.50
B) $4.50
C) $7.00
D) $8.00
78) Parsons and Sons Woodworks manufactures baseball bats and wooden tops. Currently, Parsons and Sons makes 5,000 baseball bats each month. Each bat uses $1.00 in direct materials and $0.50 in direct labor. Parsons and Sons uses two activities in manufacturing the baseball bats: Cutting and Finishing. The cost associated with Cutting is $7,500 a month, allocated on the basis of direct labor hours. The cost associated with Finishing is $12,000 a month, allocated on the basis of batches. Baseball bats use 1/3 of the direct labor hours, and 40% of total batches. What is the total manufacturing cost for one baseball bat?
A) $1.46
B) $1.50
C) $2.96
D) $3.94
79) Parker Woodworks manufactures baseball bats and wooden tops. Currently, Parker makes 5,000 baseball bats each month. Each bat uses $1.00 in direct materials and $0.50 in direct labor. Parker uses two activities in manufacturing the baseball bats: Cutting and Finishing. The cost associated with Cutting is $7,500 a month, allocated on the basis of direct labor hours. The cost associated with Finishing is $12,000 a month, allocated on the basis of batches. The activity drivers are used as follows:
| Baseball bats | Wooden tops |
Direct labor hours | 100 | 200 |
Batches | 4 | 6 |
What is the total manufacturing cost for one baseball bat?
A) $1.46
B) $1.50
C) $2.96
D) $3.94
80) Volume-based cost systems tend to:
A) under-cost low-volume products and under-cost high-volume products.
B) under-cost low-volume products and over-cost high-volume products.
C) over-cost low-volume products and under-cost high-volume products.
D) over-cost low-volume products and over-cost high-volume products.
81) When a traditional, volume-based costing system is used, which of the following products is most likely to suffer from cost distortion?
A) A high-volume, medium-complexity product
B) A low-volume, low-complexity product
C) A low-volume, medium-complexity product
D) A low-volume, high-complexity product
82) Which of the following is most likely to be true of the manufacturing overhead costs assigned to a product with relatively low volume and high complexity?
A) An ABC system will assign more manufacturing overhead costs to the product than a volume-based system.
B) A volume-based system will assign more manufacturing overhead costs to the product than an ABC system.
C) An ABC system will assign the same manufacturing overhead costs to the product as a volume-based system.
D) An ABC system will assign manufacturing overhead costs to the product, while a volume-based system will not.
83) When is a volume-based cost system appropriate for a service company?
A) A volume-based cost system is always appropriate for a service company.
B) A volume-based cost system is never appropriate for a service company.
C) A volume-based cost system is appropriate for a service company when certain customers require more attention and a higher level of service than other customers.
D) A volume-based cost system is appropriate for a service company when every customer places a similar demand on the company's resources.
84) Garfield Personal Training Services is owned by Gina Garfield. Gina provides personal training and coaching to individuals or small groups using the local fitness facility and pool. Gina rents the group training room at the local fitness facility or the pool for scheduled classes. For one-on-one training, she meets clients at the fitness facility where she is a member. Gina is currently learning Zumba and plans to offer a Zumba class in the group training room on Wednesday mornings starting next month. The development of Zumba is considered a ________ activity for Garfield.
A) facility-level
B) service-level
C) group-level
D) customer-level
85) Garfield Personal Training Services is owned by Gina Garfield. Gina provides personal training and coaching to individuals or small groups using the local fitness facility and pool. Gina rents the group training room at the local fitness facility or the pool for scheduled classes. For one-on-one training, she meets clients at the fitness facility where she is a member. Gina is currently learning Zumba and plans to offer a Zumba class in the group training room on Wednesday mornings starting next month. The first scheduled Zumba class is considered a ________ activity for Garfield.
A) facility-level
B) service-level
C) group-level
D) customer-level
86) GG's Personal Training Services is owned by Gina Garfield. Gina provides personal training and coaching to individuals or small groups using the local fitness facility and pool. Gina rents the group training room at the local fitness facility or the pool for scheduled classes. For one-on-one training, she meets clients at the fitness facility where she is a member. Gina is currently learning Zumba and plans to offer a Zumba class in the group training room on Wednesday mornings starting next month. To advertise this class and all her other services, Gina developed a company Facebook page. The development of the Facebook page is considered a ________ activity for GG's.
A) facility-level
B) service-level
C) group-level
D) customer-level
87) Under activity based management, cost management is achieved by:
A) managing the underlying activities.
B) reducing production volume.
C) eliminating value-added activities.
D) assigning indirect costs to products based on their activities.
88) How is activity-based management related to activity-based costing?
A) Activity based management is another term for activity based costing.
B) Activity based management is used when activity based costing is not feasible.
C) Activity based management bases improvements to operations and reductions in costs on activity based costing data.
D) Activity based management is not related to activity based costing.
89) Which of the following statements is not correct about how an ABC system might be adapted to provide managers with sustainability-related information that would affect the triple bottom line?
A) The system could capture and report information about workplace safety, then allocate it to activities, then to various products produced.
B) The system could capture and report information about greenhouse gas emissions, then allocate it to activities, then services provided.
C) The system can only capture and report cost information, so it only affects the "profit" part of the triple bottom line.
D) The system can capture and report information about employee retention, particularly for diversity initiatives, then allocate it to activities, products, and services.
90) In target costing, the target cost should be determined:
A) before manufacturing ever starts.
B) after initial manufacturing prototypes are created.
C) after customers provide feedback about critical features.
D) before goods are shipped to customers, but after manufacturing begins.
91) Managers who use activity-based management should begin by asking all of the following questions except:
A) "What activities does the company perform?"
B) "How much does it cost to perform each activity?"
C) "How am I evaluated annually based on these activities?"
D) "Does the activity add value to the customer?"
92) Which of the following should a manager using activity-based management attempt to reduce or eliminate?
A) Customer service in the warranty department
B) Sales team to respond to customer needs
C) Insurance division to process liability insurance payments
D) Professional development workshop for managers to improve customer service
93) Firms that use JIT often rely on:
A) fewer suppliers that must adhere to very strict quality standards.
B) more suppliers that must adhere to very strict quality standards.
C) fewer suppliers that have flexible quality standards.
D) more suppliers that have flexible quality standards.
94) One side benefit of JIT is that:
A) the accounting system is more complicated.
B) the company maintains more connections with suppliers since it uses more of them.
C) the accounting system is simplified.
D) it enables accountants to be measurement experts.
95) The approach to cost management that calls for setting cost reduction goals across numerous stages such as product introduction, growth, maturity, and decline is:
A) life cycle cost management.
B) total quality management.
C) target costing.
D) just-in-time inventory.
96) Life cycle cost management takes into consideration the fact that costs and revenues:
A) are higher in the early stages of the product life cycle than in later stages.
B) are not constant across different stages of the product's life cycle.
C) slow down in the maturity stage of the product life cycle.
D) are higher when products use more activities.
97) Which of the following is not a type of quality cost?
A) Development costs
B) Prevention costs
C) Internal failure costs
D) Appraisal or inspection costs
98) Prevention costs are costs that:
A) are incurred to prevent quality problems from occurring in the first place.
B) are incurred to identify defective products before products are shipped to the customer.
C) result from defects that are caught before the product is shipped to the customer.
D) occur when a defective product makes its way into the hands of the customer.
99) Appraisal or inspection costs are costs that:
A) are incurred to prevent quality problems from occurring in the first place.
B) are incurred to identify defective products before products are shipped to the customer.
C) result from defects that are caught before the product is shipped to the customer.
D) occur when a defective product makes its way into the hands of the customer.
100) Internal failure costs are costs that:
A) are incurred to prevent quality problems from occurring in the first place.
B) are incurred to identify defective products before products are shipped to the customer.
C) result from defects that are caught before the product is shipped to the customer.
D) occur when a defective product makes its way into the hands of the customer.
101) External failure costs are costs that:
A) are incurred to prevent quality problems from occurring in the first place.
B) are incurred to identify defective products before products are shipped to the customer.
C) result from defects that are caught before the product is shipped to the customer.
D) occur when a defective product makes its way into the hands of the customer.
102) Which type of quality cost would a firm most want to eliminate or reduce as much as possible?
A) Prevention costs
B) Appraisal or inspection costs
C) Internal failure costs
D) External failure costs
103) The cost of scrap and rework is an example of what type of quality cost?
A) Prevention costs
B) Appraisal or inspection costs
C) Internal failure costs
D) External failure costs
104) The cost of quality training is an example of what type of quality cost?
A) Prevention costs
B) Appraisal or inspection costs
C) Internal failure costs
D) External failure costs
105) External failure costs occur ________ a defective product makes its way to the customer, while internal failure costs occur ________ a defective product makes its way to the customer.
A) before, before
B) before, after
C) after, before
D) after, after
106) Total quality management aims to improve quality by doing all of the following except:
A) reducing and eliminating errors.
B) streamlining activities.
C) continuously improving the production process.
D) eliminating non-value-added costs.
107) Amy Andrews is a CPA who works as a managerial accounting consultant for a variety of firms. To determine her hourly rate, Amy uses a cost-plus pricing system, which she updates each year. The hourly cost of her assistant (including taxes and benefits) is $18, the hourly cost of her office space is $4, the hourly cost of her marketing and other overhead materials is $6, and Amy's own hourly salary (again, including taxes and benefits) is $62. Amy adds a 20% premium to her costs. What is her hourly rate using a cost-plus pricing strategy?
A) $90
B) $96
C) $108
D) $110
108) When target costing is used, the target cost is determined by:
A) finding the difference between the market price and the amount of profit needed to satisfy stakeholders.
B) adding the cost of direct materials, direct labor, and activity costs of a product.
C) subtracting all nonvalue-added costs from total manufacturing costs of a product.
D) adding the manufacturing and nonmanufacturing costs of the product.
109) Which of the following involves analyzing the market and estimating what consumers will be willing to pay for a product with specific features?
A) Just-in-time inventory
B) Target costing
C) Total quality management
D) Value engineering
110) Sonora, Inc. is launching a new product that it estimates will sell for $25 per unit. Annual demand is estimated to be 70,000 units. Sonora estimates that using its current manufacturing technology, it can manufacture the units for $23 per unit, but if it purchases a new machine, the units can be manufactured for $22 per unit. Sonora has a target profit of 20% return on sales. Under target costing, what is the target cost for the new product?
A) $20
B) $22
C) $23
D) $25
111) Which of the following sets just-in-time systems apart from traditional manufacturing systems?
A) Cost of goods sold includes all manufacturing cost.
B) Materials are purchased only as they are needed to manufacture goods.
C) Cost of goods sold is not calculated.
D) It can be used in conjunction with activity based costing.
112) Magnolia Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the amount of activity driver used for each of Magnolia's two products, the activity rate, and the activity cost assigned to each product. Fill in the blanks below:
Activity | Cost | Activity Driver | Driver Usage | Activity Rate | Activity Cost: Prod. 1 | Activity Cost: Prod. 2 | |
Prod. 1 | Prod. 2 | ||||||
Design | $60,000 | Design time | 800 hours | 1,200 hours | a. | b. | c. |
Preparation | $18,000 | Labor hours | 3,000 hours | d. | e. | $9,000 | f. |
Machining | $90,000 | Machine hours | g. | h. | $18.00/hour | $27,000 | i. |
Finishing | j. | Batches | 200 | 300 | $50/batch | k. | l. |
Inspection | m. | Units | n. | o. | $6/unit | $3,000 | $6,000 |
Packaging | p. | Orders | q. | 50 | $300/order | $13,500 | r. |
Shipping | $17,000 | Packages | 70 | s. | t. | u. | $3,000 |
113) Elmwood Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the amount of activity driver used for each of Elmwood's two products, the activity rate, and the activity cost assigned to each product. Fill in the blanks below:
Activity | Cost | Activity Driver | Driver Usage | Activity Rate | Activity Cost: Prod. 1 | Activity Cost: Prod. 2 | |
Prod. 1 | Prod. 2 | ||||||
Design | $20,000 | Design time | 1,600 hours | 2,400 hours | a. | b. | c. |
Preparation | $12,000 | Labor hours | 3,000 hours | d. | e. | $6,000 | f. |
Machining | $45,000 | Machine hours | g. | h. | $9.00/hour | $27,000 | i. |
Finishing | j. | Batches | 100 | 150 | $100/batch | k. | l. |
Inspection | m. | Units | n. | o. | $4/unit | $8,000 | $6,000 |
Packaging | p. | Orders | q. | 50 | $90/order | $13,500 | r. |
Shipping | $5,000 | Packages | 70 | s. | t. | u. | $1,500 |
114) Magenta Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the proportion of activity driver used for each of Magenta's two products, and the activity cost assigned to each product. Fill in the blanks below:
Activity |
Cost | Activity Driver | Proportion used by | Activity Cost: Prod. 1 | Activity Cost: Prod. 2 | |
Prod. 1 | Prod. 2 | |||||
Design | $60,000 | Design time | 40% | 60% | a. | b. |
Preparation | $18,000 | Labor hours | 50% | c. | $9,000 | d. |
Machining | $90,000 | Machine hours | e. | f. | $27,000 | g. |
Finishing | h. | Batches | 40% | i. | $10,000 | j. |
Inspection | k. | Units | l. | m. | $3,000 | $6,000 |
Packaging | n. | Orders | o. | 20% | $13,500 | p. |
Shipping | $17,000 | Packages | 70% | q. | r. | $5,100 |
115) Cricket Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drivers for each activity. The chart below lists the total cost of each activity, the proportion of activity driver used for each of Cricket's two products, and the activity cost assigned to each product. Fill in the blanks below:
Activity |
Cost | Activity Driver | Proportion used by | Activity Cost: Prod. 1 | Activity Cost: Prod. 2 | |
Prod. 1 | Prod. 2 | |||||
Design | $20,000 | Design time | 40% | 60% | a. | b. |
Preparation | $12,000 | Labor hours | 30% | c. | $3,600 | d. |
Machining | $45,000 | Machine hours | e. | f. | $27,000 | g. |
Finishing | h. | Batches | 40% | i. | $10,000 | j. |
Inspection | k. | Units | l. | m. | $9,000 | $6,000 |
Packaging | n. | Orders | o. | 25% | $13,500 | p. |
Shipping | $5,000 | Packages | 70% | q. | r. | $1,500 |
116) Chipman Inc. produces water pumps. Overhead costs have been identified as follows:
Activity Pool |
| Cost |
Material handling | $ | 65,000 |
Machine maintenance | $ | 95,000 |
Setups | $ | 75,000 |
Activity Driver | Activity |
Number of moves | 400 |
Number of machine hours | 38,000 |
Number of production runs | 60 |
Chipman makes 3 models of pumps with the following details:
| Economy | Standard | Premium |
Units produced | 10,000 | 20,000 | 3,500 |
Number of moves | 100 | 125 | 175 |
Machine hours | 9,000 | 22,000 | 7,000 |
Production runs | 5 | 20 | 35 |
Required:
a. Calculate the activity rate for each activity.
b. Determine the amount of indirect costs assigned to each of the products.
117) Pecan Inc. produces water valves. Overhead costs have been identified as follows:
Activity Pool | Cost | Activity Driver | Activity |
Quality control | $55,500 | Number of inspections | 185 |
Machine maintenance | $87,400 | Number of machine hours | 19,000 |
Setups | $75,000 | Number of production runs | 60 |
Pecan makes 3 models of valves with the following details:
Economy | Standard | Premium | |
Units produced | 20,000 | 40,000 | 7,000 |
Number of inspections | 5 | 40 | 140 |
Machine hours | 4,500 | 12,000 | 2,500 |
Production runs | 5 | 20 | 35 |
Required:
a. Calculate the activity rate for each activity.
b. Determine the amount of indirect costs assigned to each of the products.
118) Walnut Systems produces two different products, Product A, which sells for $120 per unit, and Product B, which sells for $180 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | |||||||
Design (Engineering Hours) | $ | 150,000 |
| 200 |
|
| 300 |
| ||
Machining (Machine Hours) | $ | 500,000 |
| 1,000 |
|
| 3,000 |
| ||
Inspection (Batches) | $ | 30,000 |
| 45 |
|
| 15 |
| ||
Walnut manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $50 of direct materials and $20 of direct labor, while each unit of Product B uses $75 of direct materials and $35 of direct labor.
Required:
a. Calculate the activity rate for Design.
b. Calculate the activity rate for Machining.
c. Calculate the activity rate for Inspection.
d. Determine the indirect costs assigned to Product A.
e. Determine the indirect costs assigned to Product B.
f. Determine the manufacturing cost per unit for Product A.
g. Determine the manufacturing cost per unit for Product B.
h. Determine the gross profit per unit for Product A.
i. Determine the gross profit per unit for Product B.
119) Atlanta Systems produces two different products, Product A, which sells for $250 per unit, and Product B, which sells for $400 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | |||||||
Design (Engineering Hours) | $ | 150,000 |
| 100 |
|
| 150 |
| ||
Machining (Machine Hours) | $ | 1,000,000 |
| 2,000 |
|
| 3,000 |
| ||
Inspection (Batches) | $ | 80,000 |
| 50 |
|
| 30 |
| ||
Atlanta manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $100 of direct materials and $45 of direct labor, while each unit of Product B uses $140 of direct materials and $75 of direct labor.
Required:
a. Calculate the activity rate for Design.
b. Calculate the activity rate for Machining.
c. Calculate the activity rate for Inspection.
d. Determine the indirect costs assigned to Product A.
e. Determine the indirect costs assigned to Product B.
f. Determine the manufacturing cost per unit for Product A.
g. Determine the manufacturing cost per unit for Product B.
h. Determine the gross profit per unit for Product A.
i. Determine the gross profit per unit for Product B.
120) Fremont Systems produces two different products, Product A, which sells for $1,000 per unit, and Product B, which sells for $2,000 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | ||||||||
Design (Engineering Hours) | $ | 1,500,000 |
| 400 |
|
| 600 |
| |||
Machining (Machine Hours) | $ | 5,000,000 |
| 2,000 |
|
| 6,000 |
| |||
Inspection (Batches) | $ | 300,000 |
| 90 |
|
| 30 |
| |||
Fremont manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $500 of direct materials and $200 of direct labor, while each unit of Product B uses $750 of direct materials and $350 of direct labor.
Required:
a. Calculate the activity rate for Design.
b. Calculate the activity rate for Machining.
c. Calculate the activity rate for Inspection.
d. Determine the indirect costs assigned to Product A.
e. Determine the indirect costs assigned to Product B.
f. Determine the manufacturing cost per unit for Product A.
g. Determine the manufacturing cost per unit for Product B.
h. Determine the gross profit per unit for Product A.
i. Determine the gross profit per unit for Product B.
121) Walnut Systems produces two different products, Product A, which sells for $120 per unit, and Product B, which sells for $180 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | |||||||
Design (Engineering hours) | $ | 150,000 |
| 200 |
|
| 300 |
| ||
Machining (Machine Hours) | $ | 500,000 |
| 1,000 |
|
| 3,000 |
| ||
Inspection (Batches) | $ | 30,000 |
| 45 |
|
| 15 |
| ||
Walnut manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $50 of direct materials and $20 of direct labor, while each unit of Product B uses $75 of direct materials and $35 of direct labor.
Required:
a. Calculate the Design activity proportions for Products A and B.
b. Calculate the Machining activity proportions for Products A and B.
c. Calculate the Inspection activity proportions for Products A and B.
d. Determine the indirect costs assigned to Product A.
e. Determine the indirect costs assigned to Product B.
f. Determine the manufacturing cost per unit for Product A.
g. Determine the manufacturing cost per unit for Product B.
h. Determine the gross profit per unit for Product A.
i. Determine the gross profit per unit for Product B.
122) Atlanta Systems produces two different products, Product A, which sells for $250 per unit, and Product B, which sells for $400 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | |||||||
Design (Engineering Hours) | $ | 150,000 |
| 100 |
|
| 150 |
| ||
Machining (Machine Hours) | $ | 1,000,000 |
| 2,000 |
|
| 3,000 |
| ||
Inspection (Batches) | $ | 80,000 |
| 50 |
|
| 30 |
| ||
Atlanta manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $100 of direct materials and $45 of direct labor, while each unit of Product B uses $140 of direct materials and $75 of direct labor.
Required:
a. Calculate the Design activity proportions for Products A and B.
b. Calculate the Machining activity proportions for Products A and B.
c. Calculate the Inspection activity proportions for Products A and B.
d. Determine the indirect costs assigned to Product A.
e. Determine the indirect costs assigned to Product B.
f. Determine the manufacturing cost per unit for Product A.
g. Determine the manufacturing cost per unit for Product B.
h. Determine the gross profit per unit for Product A.
i. Determine the gross profit per unit for Product B.
123) Fremont Systems produces two different products, Product A, which sells for $1,000 per unit, and Product B, which sells for $2,000 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | ||||||||
Design (Engineering Hours) | $ | 150,000 |
| 400 |
|
| 600 |
| |||
Machining (Machine Hours) | $ | 5,000,000 |
| 2,000 |
|
| 6,000 |
| |||
Inspection (Batches) | $ | 300,000 |
| 90 |
|
| 30 |
| |||
Fremont manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $500 of direct materials and $200 of direct labor, while each unit of Product B uses $750 of direct materials and $350 of direct labor.
Required:
a. Calculate the Design activity proportions for Products A and B.
b. Calculate the Machining activity proportions for Products A and B.
c. Calculate the Inspection activity proportions for Products A and B.
d. Determine the indirect costs assigned to Product A.
e. Determine the indirect costs assigned to Product B.
f. Determine the manufacturing cost per unit for Product A.
g. Determine the manufacturing cost per unit for Product B.
h. Determine the gross profit per unit for Product A.
i. Determine the gross profit per unit for Product B.
124) Carter, Inc. produces two different products, Product A and Product B. Carter uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design, Production, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.50/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows:
| Activity Rate | Usage by Product A | Usage by Product B | |||||||||
Design (Engineering Hours) | $ | 600 | /hour |
| 200 |
|
| 300 |
| |||
Production (Direct Labor Hours) | $ | 1.25 |
|
| 100,000 |
|
| 300,000 |
| |||
Inspection (Batches) | $ | 500 |
|
| 300 |
|
| 100 |
| |||
Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
125) Harwell, Inc. produces two different products, Product A and Product B. Harwell uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $400,000 across three activities: Setup, Production, and Finishing. Under the traditional volume-based costing system, the predetermined overhead rate is $4.00/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows:
| Activity Rate | Usage by Product A | Usage by Product B | |||||||||
Setup (Batches) | $ | 100 | /hour |
| 150 |
|
| 350 |
| |||
Production (Direct Labor Hours) | $ | 3.00 |
|
| 40,000 |
|
| 60,000 |
| |||
Finishing (Machine Hours) | $ | 500 |
|
| 20 |
|
| 80 |
| |||
Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
126) Hayden, Inc. produces two different products, Product A and Product B. Hayden uses a traditional volume-based costing system in which direct labor hours are the allocation base. Hayden is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,600,000 across three activities: Engineering, Manufacturing, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.00/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows:
| Activity Rate | Usage by Product A | Usage by Product B | ||||||||
Engineering (Engineering Hours) | $ | 60 | /hour |
| 2,000 |
|
| 8,000 |
| ||
Manufacturing (Direct Labor Hours) | $ | 1.00 |
|
| 400,000 |
|
| 400,000 |
| ||
Inspection (Batches) | $ | 40 |
|
| 4,000 |
|
| 1,000 |
| ||
Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
127) Carter, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter produces two different products: Product A, which uses 100,000 direct labor hours, and Product B, which uses 300,000 direct labor hours. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design, Production, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.50/direct labor hour. Under the ABC system, the cost of each activity and proportion of the activity drivers used by each product are as follows:
| Total Cost | Proportion used by Product A | Proportion used by Product B | ||||
Design (Engineering Hours) | $ | 300,000 | 40 | % | 60 | % | |
Production (Direct Labor Hours) | $ | 500,000 | 25 | % | 75 | % | |
Inspection (Batches) | $ | 200,000 | 75 | % | 25 | % | |
Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
128) Harwell, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell produces two different products: Product A, which uses 40,000 direct labor hours, and Product B, which uses 60,000 direct labor hours. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $400,000 across three activities: Setup, Production, and Finishing. Under the traditional volume-based costing system, the predetermined overhead rate is $4.00/direct labor hour. Under the ABC system, the cost of each activity and proportion of the activity drivers used by each product are as follows:
| Total Cost | Proportion used by Product A | Proportion used by Product B | |||||
Design (Engineering Hours) | $ | 50,000 | 30 | % | 70 | % | ||
Production (Direct Labor Hours) | $ | 300,000 | 40 | % | 60 | % | ||
Inspection (Batches) | $ | 50,000 | 20 | % | 80 | % | ||
Required:
a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
129) Carter, Inc. produces two different products, Product A and Product B. Carter uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Design, Production, and Inspection. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | ||||
Design (Engineering Hours) | $ | 300,000 | 200 | 300 | |||
Production (Direct Labor Hours) | $ | 500,000 | 100,000 | 300,000 | |||
Inspection (Batches) | $ | 200,000 | 300 | 100 | |||
Carter manufactures 10,000 units of Product A and 7,500 units of Product B per month.
Required:
a. Calculate the predetermined overhead rate under the traditional costing system.
b. Calculate the activity rate for Design.
c. Calculate the activity rate for Machining.
d. Calculate the activity rate for Inspection.
e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system.
f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system.
g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system.
h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system.
i. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
130) Harwell, Inc. produces two different products, Product A and Product B. Harwell uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Setup, Production, and Finishing. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | ||||
Setup (Batches) | $ | 50,000 | 150 | 350 | |||
Production (Direct Labor Hours) | $ | 300,000 | 40,000 | 60,000 | |||
Finishing (Machine Hours) | $ | 50,000 | 20 | 80 | |||
Harwell manufactures 10,000 units of Product A and 7,500 units of Product B per month.
Required:
a. Calculate the predetermined overhead rate under the traditional costing system.
b. Calculate the activity rate for Setup.
c. Calculate the activity rate for Production.
d. Calculate the activity rate for Finishing.
e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system.
f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system
g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system.
h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system.
i. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
131) Hayden, Inc. produces two different products, Product A and Product B. Hayden uses a traditional volume-based costing system in which direct labor hours are the allocation base. Hayden is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Engineering, Manufacturing, and Inspection. The cost of each activity and usage of the activity drivers are as follows:
| Cost | Usage by Product A | Usage by Product B | |||
Engineering (Engineering Hours) | $ | 600,000 | 2,000 | 8,000 | ||
Manufacturing (Direct Labor Hours) | $ | 800,000 | 400,000 | 400,000 | ||
Inspection (Batches) | $ | 200,000 | 4,000 | 1,000 | ||
Hayden manufactures 10,000 units of Product A and 5,000 units of Product B per month.
Required:
a. Calculate the predetermined overhead rate under the traditional costing system.
b. Calculate the activity rate for Engineering.
c. Calculate the activity rate for Manufacturing.
d. Calculate the activity rate for Inspection.
e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system.
f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system.
g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system.
h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system.
i. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
132) Dogs for Diabetes (DFD) is a not-for-profit organization focused on training dogs and handlers to assist young children with diabetes. The dogs are trained to detect low and high blood sugar levels, and ring an alarm to notify parents or other caregivers of the potentially dangerous condition. DFD provides both education for the dogs, and training for handlers (kids or parent). Currently there are 60 dogs being trained and there are 14,000 hours per year of training scheduled for these dogs. DFD also provides training for the children and families who will host a dog, and there are 2,000 hours of such training scheduled for the 20 families who will host a dog this year. DFD has just hired a new controller who wants to utilize ABC. The controller has identified 2 key activities performed by the organization as it trains dogs and handlers, and the cost of each of these activities:
• DFD has 1 building with a total of 30,000 square feet of space. Due to the large space requirements for kennels, dog runs, and other facilities for the dogs, the dog education service utilizes 20,000 square feet. The facility is rented at an annual cost of $60,000.
• Salaries for training personnel, $240,000 annually.
Required:
a. Select a cost driver and compute an activity rate for each of the activities identified by the controller.
b. Compute activity cost driver values and activity proportions for each of the two types of trainings (dogs & handlers).
c. Determine the amount of costs assigned to each type of training and the cost per student to UDH to provide these trainings.