Accounting (Part 2)
A job cost sheet will record the direct materials and direct labor used by the job but not the manufacturing overhead applied.
False A job cost sheet summarizes all of the costs incurred on a specific job, not just direct materials and direct labor.
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?
$100,000
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?
$15 + $5 + [($4 × 1,000)/400] + [($20 × 40)/400] = $32.
Blanchard, Inc., is considering introducing a new product and wants to earn a 15% return on sales. If the market price is estimated to be $200, the most the company can spend and still achieve the goal (the target cost) is $___ TO CALCULATE: 200-(200*15%)
$170
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?
$171,000
Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours? TO CALCULATE: 1.35000/5000=Per direct labor hour 2. PDLH*40
$280
Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.
$73,160 to Model XLT and $44,840 to Model TXT Rationale: 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT
Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product. TO CALCULATE: 1. 620/1000=x & 380/1000=y 2. x*118000 & y*118000
$73160 to Model XLT & $44840 to Model TXT
Non-Volume based cost drivers ___ -are used in traditional costing systems -are related to the number of units products or customers served -are used in ABC systems -allow more indirect costs to be allocated to products
-are used in ABC systems -allow more indirect costs to be allocated to products
Non-volume-based cost drivers may be more appropriate for activities ___ -that are performed for each unit -that are performed for each batch -related to individual products -related to the entire facility
-that are performed for each batch -related to individual products
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. Usage of the activity drivers are as follows: What is the amount of Machining cost assigned to Product A?
1,000 × $125 = $125,000.
A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $ ___ in total overhead.
1200
Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ________ % of the total setup cost.
30 %
Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 7,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ___% of the total setup cost.
30%
Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $ ___ per setup.
500
Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $______ per setup
500
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.
625,000/ (8,000x4) = 19.53
Which of the following statements best represents the controllability principle?
A profit center manager should be evaluated based on segment margin, not profit margin.
The formula to apply overhead to products is
Activity Rate x Activity
How is activity-based management related to activity-based costing?
Activity based management bases improvements to operations and reductions in costs on activity based costing data.
In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?
Activity rate
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?
An ABC system will assign more manufacturing overhead costs to the product than a volume-based system.
Which of the following best defines a batch-level activity?
An activity that is performed for a group of units all at once
Which of the following best defines a product-level activity?
An activity that is performed to support a specific product line
Which of the following best defines a facility-level activity?
An activity that is performed to support the entire company
Which of the following statements is true?
An existing ABC system can report sustainability-related information.
Which of the following is an example of how a service firm might turn unused capacity into revenue using incremental analysis?
An instructor agrees to add an additional student to a class.
True or false: When a manufacturing overhead cost relates to multiple activities, the cost should be allocated to the activity that has the highest total overhead cost.
False
Activity Based Costing divides activities into two categories: unit-level activities and facility level activities.
False Activity Based Costing divides activities into four categories: facility-level, product-level, batch-level, and unit-level activities.
Activity-based costing is not appropriate for service providers since they do not have manufacturing overhead that needs to be assigned to products.
False Although service providers do not have manufacturing overhead, they incur many indirect costs, such as rent, supplies, supervision, advertising, and administrative expenses. ABC can be used to assign these costs to different services and customers.
When manufacturing overhead is applied to a job, a credit is made to the Work in Process account.
False Applied manufacturing overhead is debited (not credited) to Work in Process inventory. The credit is to the Manufacturing Overhead account.
To eliminate underapplied overhead at the end of the year, Manufacturing Overhead would be debited and Cost of Goods Sold would be credited.
False If manufacturing overhead is underapplied during the year, Manufacturing Overhead will need to be credited to bring the account balance to zero, while Cost of Goods Sold would be debited.
Each individual indirect cost should be assigned to one activity when forming activity cost pools.
False Some costs will need to be allocated among several activities (not one activity).
To assign activity costs using the activity proportion method, multiply the activity rate by the activity requirements of each individual product.
False To assign activity costs using the activity proportion method, multiply the total activity cost by the activity proportion for each product.
Which of the following is the best example of a facility-level activity?
Human resources
Which of the following is not a step in the managerial decision-making process?
Identify the activity cost drivers.
Which of the following should a manager using activity-based management attempt to reduce or eliminate?
Insurance division to process liability insurance payments
Which of the following is the best example of a unit-level activity?
Painting a final product
Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?
Special-order
Which of the following is not a method used to determine transfer prices?
The balanced scorecard method There are three different ways to determine transfer prices: the market price method, the cost-based method, and negotiation.
Which of the following is not relevant to a sell-or-process further decision?
The cost of processing the product "as is."
A predetermined overhead rate is calculated by dividing estimated total manufacturing overhead cost by estimated total cost driver.
True A predetermined overhead rate is calculated by dividing estimated total manufacturing overhead cost by estimated total cost driver.
Volume-based cost systems tend to:
Under-cost low-volume products and over-cost high-volume products.
What level of activity is performed each time a single item is produced?
Unit
Which of the following involves analyzing the market and estimating what consumers will be willing to pay for a product with specific features?
Value engineering
A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.
activity based
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.
after, before
Non-volume-based cost drivers ______.
are used in ABC systems allow more indirect costs to be allocated to products
The purpose of Stage 1 allocations is to:
assign indirect manufacturing costs to activity cost pools.
Using non-volume-based activity drivers allows activity-based costing to:
assign more indirect costs to products whose complexity is higher.
What types of activities are performed each time a group of units is processed, regardless of how many units are in the group?
batch
An activity that is performed for a group of units all at once is a(n):
batch-level activity.
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:
batch-level activity.
Costs at the batch level depend on the number of ______
batches processed
Costs at the batch level depend on the number of ______.
batches processed
In target costing, the target cost should be determined:
before manufacturing ever starts.
Comparing the performance within an organization to that of other similar organizations is called _____
benchmarking
One of the most important concepts in responsibility accounting is the:
controllability principle. The controllability principle forms the basis of responsibility accounting, holding that managers should only be held responsible for what they control.
The formula to compute activity proportion is ______
cost driver for product / cost driver for all products
A unit-level activity to a manufacturer is the same as a(n) _______ -level activity to a service company.
customer
Making a single sale at a department store is an example of a ______-level activity.
customer
Costs that change across decision alternatives are:
differential costs. Differential costs is another term for relevant costs, which change depending on the alternative selected by the manager.
A ______________ is one that can be attributed to a specific segment of the business.
direct fixed cost
The first step in the managerial decision making process is to:
identify the decision problem.
Activity-based management focuses on ______.
improving operations increasing efficiency
A just-in-time (JIT) system ______
is a demand-pull system is used to help reduce costs
In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate ______
life cycle costs
All of the following are non-volume-based cost drivers except number of ______
machine hours
Which of the following is NOT a volume-based cost driver?
machine setups
Managerial decision makers must often consider non-economic factors as well. For example, when considering whether to outsource to another country, in addition to considering the cost of that decision, managerial accountants with an emphasis on sustainability should consider the human capital impact as well. This represents sustainability within a:
make-or-buy decision.
Under activity based management, cost management is achieved by:
managing the underlying activities.
The part of the organization for which managers are responsible is called a:
responsibility center.
Gross profit margin calculates gross margin as a percentage of
sales
A volume-based allocation measure would vary proportionately with:
the number of units produced.
Investment turnover is defined as:
the ratio of sales revenue to average invested assets.
Investment turnover is defined as:
the ratio of sales revenue to average invested assets. he formula for investment turnover is sales revenue divided by average invested assets. Net operating income divided by average invested assets is return on investment; net operating income divided by sales revenue is profit margin; and profit margin divided by return on investment is the inverse of investment turnover.
Using the activity-proportion method results in:
the same cost allocations as the activity rate method.
The first step in ABC is:
to identify and classify activities.
The activity rate is computed by dividing the ______ by the ______.
total activity cost; total cost driver
An approach that aims to improve products by reducing and eliminating errors, streamlining activities, and continuously making production processes better is called _______ _______ management
total quality
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 use 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?
$1,000
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 . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the activity rate for Inspection?
$1,500 per batch
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 . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Machining cost assigned to Product A?
$125,000
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 $270,000, while the cost of Inspection is $38,000. Product 5 uses 35% of total machine hours and 50% of total batches. What is the total Machining cost assigned to Product Z?
$175,500 Multiply the percentage of total machine hours used by Product Z by the total cost of machining: 65% × $270,000 = $175,500. (If product 5 uses 35% of the machine hours, then the remaining 65% of the hours must have been used on Product Z.)
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 . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the activity rate for Machining?
$187.50 per machine hour
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour. TO CALCULATE: 625000/(8000x4)
$19.53
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.
$19.53 Rationale: $625,000/(8,000 × 4) = $19.53
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?
$2.00 + $0.50 + [($15,000 × 1/2)/2,000] + [($10,000 × 35%)/2,000] = $8.00.
Using an ABC system, a company has estimated overhead of $2,100,000. They expect to use 1,000,000 machine hours and 500,000 labor hours. ABC has identified this as a machine-hour related activity. The activity rate for this activity is ___. TO CALCULATE: 2100000/1000000
$2.10
Using an ABC system, a company has estimated overhead of $2,100,000. They expect to use 1,000,000 machine hours and 500,000 labor hours. ABC has identified this as a machine-hour related activity. The activity rate for this activity is ______
$2.10 $2,100,000/1,000,000 = $2.10 per machine hour
A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. The activity rates are ______
$200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour
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?
$22,500
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?
$270,000
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 . 1000 . 3000 . 4000 number of batches . 45 15 . 60 The activity rate for Machining is $67.50 per machine hour. What is the total cost of Machining?
$270,000
Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours?
$280 Rationale: Predetermined overhead rate = $35,000/5,000 or $7 per direct labor hour × 40 hours = $280.
Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours?
$280 = 35,000/5000 or 7$ per direct labor hours x 40 hours
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 1000 machine hours in 40 batches. What is the total manufacturing cost for one calculator?
$32
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 the 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?
$359,000
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 . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Machining cost assigned to Product X?
$375,000
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?
$400,000
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?
$45
Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $___ per setup.
$500
A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______
$6,000 $2 × 3,000 = $6,000
A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______.
$6,000 Rationale: $2 × 3,000 = $6,000
A company wants to offer a new product, but only if it can earn a 20% return on sales. If the marketing department estimates that the new product will sell for $850, what is the most the company can spend on one unit and still achieve the goal (the target cost)? TO CALCULATE 850-(850*20%)
$680
A company wants to offer a new product, but only if it can earn a 20% return on sales. If the marketing department estimates that the new product will sell for $850, what is the most the company can spend on one unit and still achieve the goal (the target cost)?
$680 $850 - ($850 × 20%) = $680.
Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.
$73,160 to Model XLT and $44,840 to Model TXT 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT
Sherman, Inc. manufactures chainsaws that sell for $200. Each chainsaw uses $19 in direct materials and $5 in direct labor per unit. Sherman has two activities: Machining, which is applied at the rate of $5 per machine hour, and Finishing, which is applied at the rate of $28 per batch. This month, Sherman made 200 chainsaws, using 1,868 machine hours in 45 batches. What is the total manufacturing cost for one chainsaw?
$77 Total manufacturing costs include direct materials, direct labor, and overhead: $19 + $5 + [($5 × 1,868) / 200] + [($28 × 45) / 200] = $77.
A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. The activity rates are ______.
$8 per customer call and $15 per development hour Rationale: $200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour.
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?
$90
The activity proportion method uses ___ to assign overhead costs to products
%
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?
(2,000/5,000) × $2,500 = $1,000.
Indirect costs can be assigned to products or services using ______. -activity-based management -total quality management -the activity rate method -the activity proportion method -target costing
-the activity rate method -the activity proportion method
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. Usage of the activity drivers are as follows: What proportion of Machining activity is used by Product 5?
1,200/6,000 = 20%.
A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $______ in total overhead
1200
A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $_______ in total overhead
1200
Blanchard, Inc., is considering introducing a new product and wants to earn a 15% return on sales. If the market price is estimated to be $200, the most the company can spend and still achieve the goal (the target cost) is
170
SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $
2
SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $_________
2
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 . 1200 . 4800 6000 number of batches 60 20 . 80 What proportion of Machining activity is used by Product 5?
20%
Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ___% of the total setup cost.
30
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?
30%
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?
50.0%
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 P × $500,000 = $150,000; P = 30%. a number of batches as an activity driver. The cost of Machining is $500000, while the cost of Inspection is $30000. Standard is assigned $150,000 in Machining cost and $22,500 in Inspection cost. What proportion of Machining activity is used by Luxury?
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 Standard?
75%
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 . 1200 . 4800 6000 number of batches 60 20 . 80 What proportion of Inspection activity is used by Product 5?
75%
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 . 1200 . 4800 6000 number of batches 60 20 . 80 What proportion of Machining activity is used by Product Z?
80%
When a traditional, volume-based costing system is used, which of the following products is most likely to suffer from cost distortion?
A low-volume, high-complexity product
Which of the following statement is correct about the functions that fall within various responsibility centers?
A revenue center manager is responsible for fewer functions than a profit center manager is.
When is a volume-based cost system appropriate for a service company?
A volume-based cost system is appropriate for a service company when every customer places a similar demand on the company's resources.
You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Which of the following is not relevant to the decision?
Apartment rent Your lodging will not change based on which Excel course you choose. Thus, the amount you pay in apartment rent is irrelevant to the decision.
Which of the following statements are true?
Appraisal costs identify defective products before they get to the customer. Appraisal costs are also known as inspection costs.
The final step in ABC is ___. -Assigning indirect costs to products or services -Selecting cost drivers for each activity cost pool -Identifying and classifying activities -Assigning indirect costs to each activity pool
Assigning indirect costs to products or services
Which of the following statements are true?
Before implementing ABC, a company should weigh the benefits against the costs. The support of upper management is required for successful ABC implementation.
How is the cost of a batch-level activity similar to the cost of a unit-level activity?
Both increase as production volume increases.
Which of the following is the primary tool used by cost centers to manage costs?
Budgetary control system The budget is a primary tool used by cost centers to manage costs.
Which of the following is not a step in the managerial decision-making process?
Calculate the payback period.
Which of the following is not a step in the managerial decision-making process?
Choose the appropriate hurdle rate.
You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration If you earn a scholarship that covers 95% of your tuition costs at the college (but cannot be applied to other learning opportunities), which option would you choose (based on net enrollment cost)?
College course The net cost of the college course is $150 [$3,000 × (1 - 0.95) = $150], making it considerably less expensive than the community course.
You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration If you enroll in the community class, you will be unable to work at your regular job on weekends for the eight weekend days when the class meets. If you typically earn $500 per weekend shift, which option would you choose (considering enrollment cost and opportunity cost)?
College course The opportunity cost (lost wages) is $4,000 ($500 × 8). The sum of opportunity cost and actual cost is $5,000 ($4,000 + $1,000), making the community course more expensive than the college course. The college course is the preferred alternative based on cost.
Which of the following is irrelevant to the decision to eliminate an unprofitable segment?
Common fixed costs Common fixed costs will be incurred even if a segment is eliminated, therefore they are irrelevant to the decision.
You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Considering solely the enrollment cost of each alternative, which would you choose?
Community course If you consider only the cost of the two alternatives, you would choose the less expensive option. In this case, it is the community college.
You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Pretend transportation (gas, mileage, and parking) cost $200 per class session at the library. If you consider solely the cost - including transportation - of each alternative, which would you choose?
Community course The cost of the community course including transportation is $2,600, the sum of the tuition ($1,000) and the per-class transportation cost ($200 × 8 = $1,600). $2,600 is still less than the cost of the college course, making it the preferred alternative based solely on cost.
Which of the following types of decisions involves deciding whether to eliminate a particular division or segment of the business?
Continue-or-discontinue
Manufacturing overhead was estimated to be $397,100 for the year along with 20,900 direct labor hours. Actual manufacturing overhead was $418,600, and actual labor hours were 23,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct?
Cost of Goods Sold would be credited for $18,400 Calculate the predetermined overhead rate by dividing total estimated manufacturing overhead by total estimated direct labor hours. ($397,100 / 20,900 = $19.00). Apply manufacturing overhead by multiplying the predetermined overhead rate by the actual number of direct labor hours. ($19.00 × 23,000 = $437,000). The amount of overhead applied ($437,000) on the credit side of the manufacturing overhead account exceeded the actual overhead costs ($418,600) on the debit side of the manufacturing overhead account, so the overhead was overapplied with a credit balance of $18,400. ($437,000 - $$418,600 = $18,400) The most common way of correcting this is with a direct charge, in this case a debit to the manufacturing overhead account to close it out and an offsetting credit to cost of goods sold.
In what type of organization is decision-making authority spread throughout the organization?
Decentralized organization In a decentralized organization, decision-making authority is spread throughout the organization, and managers are given a great deal of autonomy to decide how to manage their individual units.
Which of the following is not a type of quality cost?
Development costs
Total manufacturing costs includes
Direct materials and direct labor
Which of the following is the correct formula to compute an activity rate?
Divide the total activity cost by the total activity driver
Which of the following steps in the managerial decision-making process involves differential analysis?
Evaluate the costs and benefits of the alternatives.
You wish to take an Excel course. (Step 1 of the decision-making process.) You may enroll at one within your school or you may take a community class at the local library. (Step 2 of the decision-making process.) You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration This information illustrates which step in the decision-making process?
Evaluate the costs and benefits of the alternatives.
Which type of quality cost would a firm most want to eliminate or reduce as much as possible?
External failure costs
An activity that is performed to benefit the organization as a whole is a(n)
Facility or companywide activities are performed to benefit the organization as a whole.
What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?
Facility-level
The total amount of cost assigned to jobs that were completed during the year is the cost of goods sold.
False The total amount of cost assigned to jobs that were completed during the year is the cost of goods manufactured, not the cost of goods sold.
Firms that use JIT often rely on:
Fewer suppliers that must adhere to very strict quality standards.
Which of the following balanced scorecard perspectives measures how an organization satisfies its stakeholders?
Financial
Which of the following costs is not relevant in a special-order decision?
Fixed Overhead Fixed overhead costs will be incurred whether or not the order is accepted so they are not relevant to the special-order decision.
___________ is/are excluded from the incremental analysis because they will be incurred regardless of whether or not the company accepts the special order.
Fixed overhead costs Fixed overhead costs are excluded from the incremental analysis because they will be incurred regardless of whether or not the company accepts the special order.
Which of the following is not a step in the managerial decision-making process?
Forecast the potential sales.
A large company that uses activity based costing would do which of the following?
Group activities together to simplify the number of activities.
Managers who use activity-based management should begin by asking all of the following questions except:
How am I evaluated annually based on these activities?"
Which of the following are facility-level activities?
Human resource hiring fairs Paying factory insurance
The cost of scrap and rework is an example of what type of quality cost?
Internal failure costs
Which of the following balanced scorecard perspectives measures an organization's ability to change?
Learning and growth
The balanced scorecard includes both leading and lagging indicators. Which of the following correctly places each indicator on the spectrum of most leading to most lagging?
Learning and growth → Internal business process → Customer → Financial
The approach to cost management that calls for setting cost reduction goals across numerous stages such as product introduction, growth, maturity, and decline is:
Life cycle cost management.
Which of the following is considered a disadvantage of decentralization?
Lower-level managers may have an opportunity to make decisions in their own best interest without considering the overall health of the company.
All of the following are non-volume-based cost drivers except number of ___. -inspections -machine hours -design changes -setups
Machine Hours
Which of the following is an ABC cost driver? -Direct Material Costs -Sales Revenue -Direct Labor Dollars -Machine Setups
Machine Setups
Which of the following is NOT a volume-based cost driver?
Machine setups
Which of the following types of decisions involves deciding whether to perform a particular activity in-house or purchase it from an outside supplier?
Make-or-buy
Which of the following statements are true?
Managing and reducing costs is the true benefit of ABC. Implementing an ABC system is not a trivial task.
Which of the following sets just-in-time systems apart from traditional manufacturing systems?
Materials are purchased only as they are needed to manufacture goods.
Which of the following statements are true?
Most experts believe that incurring prevention costs is the most effective way to manage quality costs. Quality training is an example of a prevention cost.
If the total activity cost were unknown, it could be calculated by:
Multiplying the total activity driver by the activity rate.
Which of the following would be considered a non-volume-based cost driver?
Number of batches
Residual income can be calculated as:
Operating income - (hurdle rate × average invested assets) The formula for residual income is operating income minus the result of the hurdle rate multiplied by average invested assets.
Which of the following is true of a firm that has reached the limit on its resources?
Opportunity costs are now relevant. A firm that has reached the limit on its resources must give up regular production to fill special orders, and therefore opportunity costs become relevant.
Which of the following is not a true statement about capacity?
Opportunity costs are relevant when capacity of a critical resource is unlimited.
Total manufacturing overhead under activity-based costing consists of all ___
Overhead assigned during Stage 2 allocations
Manufacturing overhead was estimated to be $406,000 for the year along with 20,300 direct labor hours. Actual manufacturing overhead was $423,400, and actual labor hours were 21,500. Which of the following would be correct?
Overhead is overapplied by $6,600 Calculate the predetermined overhead rate by dividing the estimated total manufacturing overhead by the estimated total direct labor hours. ($406,000 / 20,300 = $20.00). Apply manufacturing overhead by multiplying the predetermined rate by the actual total direct labor hours. ($20.00 × 21,500 = $430,000). Since the applied overhead ($430,000) on the credit side of the manufacturing overhead account is greater than the actual overhead ($423,400) on the debit side of the manufacturing overhead account, the $6,600 credit balance represents overapplied overhead.
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?
P × $500,000 = $150,000; P = 30%.
Which of the following are facility-level activities?
Paying factory insurance Human resource hiring fairs
Which of the following is a disadvantage of decentralization?
Potential duplication of resources
Which of the following is not an advantage of decentralization?
Potential duplication of resources
The cost of quality training is an example of what type of quality cost?
Prevention costs
Which of the following is not a limitation of return on investment?
ROI is a commonly used measure for financial performance.
Which of the following statements contrasting residual income with return on investment is correct?
ROI may lead to goal incongruence while residual income does not.
Which of the following is NOT part of the manufacturing cost per unit?
Sales commission
Which of the following types of decisions involves deciding whether to sell a product as is or continue to refine it so that it can be sold at a higher price?
Sell-or-process further
Which of the following is not a perspective used by the balanced scorecard?
Short-term
What is the term for the most constrained resource?
The Bottleneck
Which of the following statements is not correct about using the balanced scorecard for sustainability accounting?
The company could focus exclusively on short-term metrics, creating sustainability in its operations.
Which of the following would not be directly related to a volume-based allocation measure?
The number of activities.
Which of the following statements is correct about the differences between a volume-based cost system and an ABC system?
The only difference is how the methods assign indirect costs to products.
Which of the following responsibility centers will use a segmented income statement as an evaluation tool?
The profit center
The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision?
The selling price of the product The price Hampton charges for the product will not change across decision alternatives, so it is not relevant.
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?
The system can only capture and report cost information, so it only affects the "profit" part of the triple bottom line.
Which of the following is not true of activity cost drivers?
They are strictly volume-based allocation measures.
What are the decision alternatives in a special-order decision?
To accept or reject the offer. Special-order decisions involve an offer outside the scope of normal sales; managers must decide whether to accept or reject the offer.
Which of the following statements is false?
To be relevant, a cost must be an opportunity cost. It is not true that to be relevant a cost must be an opportunity cost. Cash costs can also be relevant.
Which costing system assigns overhead using volume-based cost drivers?
Traditional
You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Consider the transportation cost. At what point would you be indifferent between alternatives?
Transportation cost of $250 per class for the community course Solve for the transportation cost per class to determine the point of indifference. Subtract the cost of the community course ($1,000) from the college course ($3,000). Divide that result ($2,000) by the number of classes (8) to get the transportation cost per class that would make you indifferent between alternatives ($250). ($3,000 - $1,000 = $2,000/8 = $250)
Activity-based costing systems include non-volume-based cost drivers.
True ABC systems include both volume-based and non-volume-based measures that capture factors other than volume.
The cost measurement system can impact how indirect costs are spread among product lines, which may affect decisions managers make.
True The cost measurement system can impact how indirect costs are spread among product lines and thus the information that managers have about the profitability of those products.
The most common method for disposing of the balance in Manufacturing Overhead is to make a direct adjustment to Cost of Goods Sold.
True The most common method for disposing of the balance in Manufacturing Overhead is to make a direct adjustment to Cost of Goods Sold. Doing so makes sense as long as most of the jobs worked on during the period were completed and sold.
The total manufacturing cost for a job is based on the amount of applied overhead using the predetermined overhead rate.
True The total manufacturing cost is based on the amount of overhead applied using the predetermined overhead rate.
When an activity must be performed for each individual unit, an appropriate cost driver is ___
Volume-Based
The responsibility center in which the manager does not have responsibility and authority over revenues is:
a cost center.
A relevant cost is:
a cost that differs across decision alternatives. A relevant cost is one that will change depending on which alternative a manager selects.
An activity cost driver is:
a measure of the underlying activity that occurs in each activity cost pool.
The first step in implementing an ABC system is to identify the organization's major ___
activities
A technique that attempts to assign overhead costs to products based on the actions they require is called
activity based costing
A predetermined overhead rate in an activity-based costing system is called a(n)
activity rate
A predetermined overhead rate in an activity-based costing system is called a(n) ______ _______
activity rate
In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?
activity rate
The formula to apply overhead to products is ______
activity rate times activity
The formula to apply overhead to products is ______.
activity rate times activity
A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.
activity-based
Improving operations and reducing costs is the focus of ________ - _______ management
activity-based
The decision-making approach that focuses on factors that will change between alternatives is sometimes called all of the following except:
actual costing.
In a traditional volume-based cost system, total manufacturing costs are calculated by:
adding manufacturing overhead cost, direct materials cost, and direct labor cost.
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:
allocated among Machining and Production, Machine Setup, and Inspection.
Non-volume-based cost drivers ______
allow more indirect costs to be allocated to products are used in ABC systems
A predetermined overhead rate in an activity-based costing system is called ______.
an activity rate
A make-or-buy decision is the same as:
an outsourcing decision Both terms—make-or-buy and outsourcing—are used to describe decisions about whether to perform an activity in-house or purchase it from an outside supplier.
Costs incurred to identify defective products before they get to the customer are called ______ costs.
appraisal
Appraisal or inspection costs are costs that:
are incurred to identify defective products before products are shipped to the custome
Prevention costs are costs that:
are incurred to prevent quality problems from occurring in the first place.
Life cycle cost management takes into consideration the fact that costs and revenues:
are not constant across different stages of the product's life cycle.
Indirect costs ______.
are not easily traced to products or services
indirect costs _______
are not easily traced to products or services
The final step in activity-based costing is ______
assigning indirect costs to products or services
The final step in activity-based costing is ______.
assigning indirect costs to products or services
At a minimum, an ABC system should have ______
at least one non-unit-level activity cost pool
At a minimum, an ABC system should have ______.
at least one non-unit-level activity cost pool
A group-level activity for a service company is the same as a(n)______ -level activity for a manufacturing company.
batch
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___-level activities.
batch
ABC can be used in _______
both service and manufacturing companies
Activity-based costing systems typically include ___ cost drivers
both volume and non-volume based
Activity-based costing systems typically include ______ cost drivers
both volume- and non-volume-based
Activity-based costing systems typically include ______ cost drivers.
both volume- and non-volume-based
The activity-rate method involves:
calculating an activity rate that is similar to the predetermined overhead rate.
The formula to compute activity proportion is ______.
cost driver for product / cost driver for all products
An important part of TQM is a(n) ______ report that summarizes the costs incurred to prevent, deduct, and correct problems.
cost of quality
Target costing is in stark contrast to _______-______ pricing, in which the company adds a markup to expenses required to produce the product.
cost plus
A group of similar activities that have been combined together is an activity ______
cost pool
A group of similar activities that have been combined together is an activity ______.
cost pool
A group of similar activities that have been combined together is called an activity
cost pool
The transfer pricing method that uses either the variable cost or the full cost as the basis for setting the transfer price is the:
cost-based method.
Determining what a product costs and adding a markup is called ______
cost-plus pricing
Total quality management aims to improve quality by doing all of the following except:
eliminating non-value-added costs.
The worst type of quality costs for a firm are ______ costs.
external failure
Warranty and recall costs and product replacement are ______ costs.
external failure
Activities that occur regardless of how many products are produced or how many batches are run or units made are ___ - ___ activities
facility Level
Activities that occur regardless of how many products are produced or how many batches are run or units made are_____ - ______ activities
facility level
An activity that is performed to benefit the organization as a whole is a(n):
facility-level activity.
True or false: ABC is designed to provide managers with detailed information about the cost of activities and is therefore not useful in providing sustainability-related information.
false
True or false: Activity-based costing is appropriate for every company.
false
True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.
false
When target costing is used, the target cost is determined by:
finding the difference between the market price and the amount of profit needed to satisfy stakeholders.
Be cautious of __________ expressed on a per-unit basis when weighing make-or-buy decisions. The total value (instead of the per unit value) is relevant to the decision.
fixed costs Total fixed costs (and whether or not they change based on the decision) are relevant, not necessarily fixed costs per unit.
All of the following are non-value-added activities except ______, which is a value-added activity.
free delivery service to customers
If the ROI of a project is greater than the hurdle rate, the residual income will be:
greater than zero.
Sales price per unit - manufacturing cost per unit = ______ per unit.
gross profit per unit
A local tour company offers charter buses to corporations who have conventions or meetings in the city. Under activity-based costing, renting a bus to a corporation is a(n)________ -level activity.
group
When a company implements activity-based costing, overhead cost often shifts from ______-volume products to ______-volume products.
high; low
When a company implements activity-based costing, overhead cost often shifts from ______-volume products to ______-volume products.
high;low
The responsibility center in which the manager has responsibility and authority over revenues, costs and assets is the:
investment center.
A system that pulls materials and products through the manufacturing system based on customer demand is called _____
just-in-time
Managerial decision makers must often consider non-economic factors as well. For example, when considering whether to eliminate a product line, managerial accountants with an emphasis on sustainability should consider the employee job loss implications as well. This represents sustainability within a:
keep-or-drop decision.
To compute the per-unit manufacturing cost, add ___ ___to direct materials and direct labor.
manufacturing overhead
To compute the per-unit manufacturing cost, add ______ _______ to direct materials and direct labor.
manufacturing overhead
To calculate manufacturing overhead cost per unit using ABC, divide the total ______
manufacturing overhead cost by the number of units produced
To calculate manufacturing overhead cost per unit using ABC, divide the total ______.
manufacturing overhead cost by the number of units produced
Once Stage 2 allocation has been completed it is possible to compute total ______.
manufacturing overhead per product
The transfer pricing method that uses the price the company would charge external customers is the:
market price method. The market price is the price that a company would charge to external customers; using that price for internal sales is the market price method of transfer pricing
When negotiating a transfer price, the highest price the buyer will be willing to pay is the _____________, while the lowest price the seller will be willing to accept is the _______________.
market price; variable cost
Inspection costs ______.
may lead to internal failure costs
If the total activity cost were unknown, it could be calculated by:
multiplying the total activity driver by the activity rate.
Residual income is the difference between:
net operating income and the minimum acceptable profit.
The gross margin does not take into account:
non-manufacturing cost.
A ______ cost driver is not strictly related to the number of units produced or customers served
non-volume based
The gross margin does not take into account:
nonmanufacturing cost.
External failure costs are costs that:
occur when a defective product makes its way into the hands of the customer.
Activity-based costing ______
offers some advantages over costing systems
Return on investment can be calculated as:
operating income/average invested assets.
Profit margin can be calculated as:
operating income/sales revenue.
Which of the following is not another term for relevant costs?
opportunity costs Opportunity costs may be relevant, but the two are not synonymous. Differential, incremental, and avoidable costs are all synonymous to relevant costs.
The foregone benefit of choosing one alternative over another is measured by:
opportunity costs. An opportunity cost is the foregone benefit of choosing one alternative over another.
Indirect costs are also referred to as ___ costs
overhead
Total manufacturing overhead under activity-based costing consists of all ______
overhead assigned during Stage 2 allocations
Total manufacturing overhead under activity-based costing consists of all ______.
overhead assigned during Stage 2 allocations
The activity proportion method uses ______ to assign overhead costs to products.
percentages, %, or proportions
Comparing ______ is the basis of benchmarking
performance within the same industry
To keep quality problems from happening, companies incur _____ costs
prevention
Activities incurred for each product produced and not dependent on the number of units or batches are ________ -level activities.
product
Activities performed to design a new type of service to be offered are ______-level activities.
product
Research and development is a(n) ________ -level activity
product
Activities incurred for each product produced and not dependent on the number of units or batches are
product level activities
The duration of a product from its infancy through its eventual decline is represented by the _____ _______ ________
product life cycle
Research and development is a(n)
product-level activity
An activity that is performed to support a specific product line is a(n):
product-level activity.
The responsibility center in which the manager has responsibility and authority over revenues and costs, but not assets, is the:
profit center. A profit center manager has responsibility only for revenues and costs. Investment center managers have responsibility for revenues, costs, and the investment of assets.
Unit-level activities are ______
proportional to the number of units produced performed for specific customers
Implementing an ABC system ______
provides information for cost management
Implementing an ABC system ______.
provides information for cost management
Non-volume-based cost drivers may be more appropriate for activities ______
related to the entire facility that are performed for each batch related to individual products
internal failure costs
result from defects discovered during inspection are preferred over external failures
Internal failure costs are costs that:
result from defects that are caught before the product is shipped to the customer.
The responsibility center in which the manager does not have responsibility and authority over costs is the:
revenue center.
The final step in the decision making process is to:
review the results of the decision.
Gross profit margin calculates gross margin as a percentage of ______
sales
Investment turnover can be calculated as:
sales revenue/average invested assets.
The most common method of evaluating a profit center manager is the:
segmented income statement.
A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______-level activity
service
Under activity-based costing, a degree program at a university is considered a(n)_______ -level activity.
service
Non-value-added activities ______.
should be eliminated whenever possible do not enhance the product or service
Which of the following is NOT a value-added activity?
storing inventory
A network of organizations and activities that move goods and services from suppliers to customers is a(n) ______
supply chain
The network of organizations and activities needed to move goods and services from suppliers to customers is called a(n) _____
supply chain
A proactive approach managers use to determine what costs should be is called ______
target costing
The approach to determine what costs should be in order to earn an acceptable profit across a product's life cycle is called ______ _______ or cost planning
target costing
A volume-based cost system is likely to assign more manufacturing overhead costs to products:
that sell more units than others.
One side benefit of JIT is that:
the accounting system is simplified.
Indirect costs can be assigned to products or services using ______
the activity proportion method the activity rate method
Indirect costs can be assigned to products or services using ______.
the activity rate method the activity proportion method
When a firm has limited direct labor hours, it should prioritize the product with
the highest contribution margin per direct labor hour.
A management system that focuses on continually improving production processes is called ______
total quality management
Traditional costing systems tend to overcost high-volume products because ______
traditional costing systems don't allow for complex activities required by lower-volume products high-volume products use more labor and machine hours
A ________________ is the amount that one division charges when it sells goods or services to another division within the same company.
transfer price The definition of a transfer price is the price one division charges when it sells goods or services to another division within the same company.
True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.
true
An activity that is performed for each individual unit is a ________ level activity.
unit
An activity that is performed for each individual unit is a ___________ level activity.
unit
Installing parts on an automobile is a(n) ______ -level activity.
unit
An activity that is performed for a specific customer is a(n):
unit-level activity.
The perceived value of a product or service to the customer is enhanced by ______ - ______ activities
value added
The concept of the _____ _______ begins with the customer and works backward to ensure that activities deliver what matters to customers.
value chain
The linked set of activities required to design, produce, and deliver products and provide aftermarket service to customers is called the _________ ____________
value chain
Analyzing products to determine which functions add value and finding ways to deliver those functions while meeting the target cost is called ____
value engineering
Direct labor hours and machine hours are both examples of ___ -based cost drivers.
volume
Direct labor hours and machine hours are both examples of _____-based cost drivers.
volume
When an activity must be performed for each individual unit, an appropriate cost driver is ______
volume-based
ABC works best in service industries ______.
when different customers require different levels of services
SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $___ TO CALCULATE: 500000/250000
$2
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 . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Inspection cost assigned to Product A?
$22,500
Manufacturing overhead was estimated to be $489,600 for the year along with 20,400 direct labor hours. Actual manufacturing overhead was $470,220, actual labor hours were 21,800. The predetermined manufacturing overhead rate per direct labor hour would be:
$24.00 $489,600 / 20,400 = $24.00
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?
$45,000
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 . 1000 . 3000 . 4000 number of batches . 45 15 . 60 The activity rate for Inspection is $750 per batch. What is the total cost of Inspection?
$45,000
Manufacturing overhead was estimated to be $477,000 for the year along with 26,500 direct labor hours. Actual manufacturing overhead was $364,375, actual labor hours were 29,100. The amount of manufacturing overhead applied to production would be:
$523,800 Calculate the predetermined overhead rate of $18.00 by dividing total estimated manufacturing overhead by the estimated total cost driver for the year. ($477,000 / 26,500 = $18.00) Multiply the predetermined manufacturing overhead rate ($18.00) to the actual number of direct labor hours (29,100) to calculate applied manufacturing overhead. ($18.00 × 29,100 = $523,800).
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 $190 per machine hour, and the activity rate for Inspection is $530 per batch. The activity drivers are used as follows: Product A Product X Total Machine hours 1,300 3,100 4,400 Number of batches 55 24 79 What is the amount of Machining cost assigned to Product X?
$589,000 Multiply the number of machine hours for Product X by the activity rate per machine hour: 3,100 × $190 = $589,000
Which of the following statements is correct about the connection between cost centers and revenue?
Cost centers do not directly generate revenue from customers, but they may have an impact on revenue through customer satisfaction and overall quality.
Linden, Inc. uses a 8,150 square foot factory space that it rents for $3,900 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. 4,500 square feet of the factory are used for machining, while 1,450 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 750 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool?
$694 Divide the amount of square feet used by Preparation and Setup by the factory's total square feet, and multiply the result by the total cost of all manufacturing activities. (1,450 / 8,150) × $3,900 = $694
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?
$7,500
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 . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Inspection cost assigned to Product X?
$7,500
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?
(30% × $500,000) + (70% × $30,000) = $171,000.
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?
(70% × $500,000) + (30% × $30,000) = $359,000.
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 $500000, while the cost of Inspection is $30000. Standard is assigned $150000 in Machining cost, and $22500 in Inspection cost. What proportion of Inspection activity is used by Luxury?
25%
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 . 1200 . 4800 6000 number of batches 60 20 . 80 What proportion of Inspection activity is used by Product Z?
25%
Which of the following is NOT a volume-based cost driver? -Machine setups -Sales Revenue -Direct Material Costs -Direct Labor Dollars
Machine Setups
Which of the following is not something that should be compiled for each dimension of the balanced scorecard?
Strategic vision