ACCT 2020 Chapter 4

Which of the following statements is true of the activity-based management?

Activity-based management recognizes that not all indirect costs are driven by the number of units produced.

What is the last step in developing an ABC system?

Allocate costs to the cost object

The cost of inspection at various stages of production is an example of which of the following?

Appraisal cost

The first step in computing and using ABC is which of the​ following?

Identifying the​ company's primary activities

Which of the following is true of a backflush costing system?

In a backflush costing system, the production costs are not assigned to the units until they are finished, or even sold.

Which of the following distinguishes the traditional production system from a lean production system?

In a lean production system, no inventory is made until a customer order has been received; whereas in a traditional production system, inventory is pushed through production according to forecasted demand.

Which of the following is true of value-engineering?

It eliminates waste in the system by making a company's processes as effective and efficient as possible.

Lean operations are generally characterized by

JIT inventory systems. production in​ self-contained cells. employee empowerment.

Which of the following is not one of the​ "eight wastes" included in the acronym​ DOWNTIME?

Neglect

Which of the following is most likely to be the cost driver for the packaging and shipping activity?

Number of orders

The cost of training personnel is an example of which of the following types of cost?

Prevention cost

n​ ABC, how is the activity allocation rate​ computed?

The total estimated activity cost pool is divided by the total estimated activity allocation base.

Which of the following is not one of the costs of quality​ categories?

Transportation costs

An example of a prevention cost is the cost of redesigning the product to reduce its complexity.

True

As compared to traditional volumeminus−based costing using a single plantwide overhead​ rate, activity−based costing​ (ABC) is a more refined costing system that reduces cost distortion.

True

Batch−level activities and costs are incurred again each time a batch is produced.

True

External failure costs occur when poorminus−quality goods or services are not detected until after delivery to customers.

True

External failure costs occur when the company detects and corrects poorminus−quality goods or services after delivery to customers.

True

It is easier to allocate indirect costs to the products that actually caused those costs if an ABC system is used rather than a traditional costing system.

True

Product testing is an appraisal cost.

True

The cost of training employees would be classified as a prevention cost.

True

Two main benefits of ABC are​ (1) more accurate product cost information and​ (2) more detailed information on the costs of activities and the drivers of those costs.

True

Unit−level activities and costs are incurred for every single unit.

True

Which of the following would be considered an external failure​ cost?

Warranty costs

Facility-level activities are __________.

activities and costs incurred no matter how many units, batches, or products are produced in the plant

The first step in developing an ABC system is

identify the primary activities and estimate a total cost pool for each.

When products are the cost objects, typically the three major categories of manufacturing costs are direct materials, direct labor, and __________.

overhead costs

The potential benefits of​ ABC/ABM are generally higher for companies that

produce high volumes of some products and low volumes of other products.

A merchandising company forecasts $150,000 of sales for September. Its gross profit rate is 40% of sales and its August 31 merchandise inventory is $112,000. The company is moving to a JIT system and budgets inventory of $12,000 for the end of September. Compute the budgeted purchases for September.

$0

Hummingbird Manufacturing manufactures small parts and uses an activityminus−based costing system. Activity Est. Indirect Activity Costs Allocation base Cost allocation rate Materials $76,000 Material moves $4​/move Assembling $244,000 Direct labor hours $8​/dir. labor hour Packaging $100,000 ​# of finished units $3​/finished unit The following parts were produced in October with the following​ information: Part ​# Produced Materials Costs ​# Moves Dir. Labor Hrs. A 2,450 $3,200 1,000 150150 B 6,000 $5,500 1,800 225 C 4,650 $8,000 2,300 1,200 Total manufacturing overhead costs for part A is

$12,550 Overhead: Materials 1000 moves × $4 = 4,000 Assembling 150 hour × $8 = 1200 Packaging 2450 units × $3.00 = 7350 Total = $12,550

A labor-intensive service company budgeted for 20X3 a total of 40,000 direct-labor hours and $220,000 of overhead costs. However, the actual 20X3 amounts were 44,000 hours and $240,000 cost, respectively. Compute the proper rate for applying overhead to programs.

$5.50 $220,000 / 40,000 hours = $5.50 per hour

Activity analysis of indirect costs identified the following costs and rates: Materials handling: $0.50 per kilogram Engineering: $500 per engineering change Utilities: $0.40 per kilowatt-hour Distribution: $18 per unit shipped Order #77, shipped to the customer, consisted of 15 units of finished product, and consumed 200 kilograms of material and 300 kilowatt-hours of power. There were five engineering changes to the order before it was completed. The indirect cost of Order #77 was __________.

$2,990 The indirect cost traced to order #77 = (15 units × $18/unit) + (200 kg × $0.50/kg) + (300 kwh × $0.40/kwh) + (5 ECs × $500/ED) = $2,990

Kramer Company manufactures coffee tables and uses an activityminus−based costing system. Each coffee table consists of 20 separate parts totaling $210 in direct​ materials, and requires 33 hours of machine time to produce. Additional information​ follows: Activity Allocation Base Cost Allocation Rate Materials handling Number of parts $1 per part Machining Machine hours $2.90 per machine hour Assembling Number of parts $2 per part Packaging Number of finished units $4 per finished unit What is the cost of materials handling per coffee​ table?

$20 20 parts x $1 per part

A labor-intensive service company budgeted for 20X3 a total of 40,000 direct-labor hours and $220,000 of overhead costs. However, the actual 20X3 amounts were 44,000 hours and $240,000 cost, respectively. Overhead in 20X3 was __________.

$2000 overapplied

Given for Wye Co. (in thousands): sales, $80; direct material, $12; direct labor, $22; selling and administrative expenses, $15 (two-thirds fixed); factory overhead, $24 (three-fourths fixed); inventories negligible. Compute the amount of gross profit.

$22. Sales - Cost of goods sold = Gross profit $80 - ($12 + $22 + $24) = $22

A labor-intensive service company budgeted for 20X3 a total of 40,000 direct-labor hours and $220,000 of overhead costs. However, the actual 20X3 amounts were 44,000 hours and $240,000 cost, respectively. The applied overhead should be __________.

$242,000 Once the overhead rate is computed, it is used to determine allocated overhead by multiplying it by the actual activity of the allocation base: $5.50* × 44,000 = $242,000.

Cross Roads Manufacturing currently uses a traditional costing system. The company allocates overhead to its two​ products, Zips and​ Dees, using a predetermined manufacturing overhead rate based on direct labor hours. Here is data related to the​ company's two​ products: Zips Dees Direct materials per unit $156 $120 Direct labor per unit $53 $49 Direct labor hours per unit 1.5 3 Annual production 20,500 35,000 Information about the​ company's estimated manufacturing overhead for the year​ follows: Activities Activity measures Estimated overhead cost Supervision and maintenance Direct labor hours $3,217,250 Batch costs Number of batches $199,000 Engineering changes Number of engineering hours $191,950 Total estimated manufacturing overhead for the year $3,608,200 Total estimated direct labor hours for the company for the year are 135,750 hours. The company is evaluating whether it should use an activityminus−based costing system in place of its traditional costing system. Additional information about production needed for the activityminus−based costing system​ follows: Zips Dees Total Direct labor hours 30,750 105,000 135,750 Batches 2,250 300 2,550 Engineering hours 2,150 900 3,050 The amount of manufacturing overhead that would be allocated to one unit of Dees using an activityminus−based costing system would be closest to​ (Round all answers to two decimal​ places.)

$73.39 (3217250)/(135750) = 23.70 (199000)/(2550) = 78.04 (191950)/(3050) = 62.93 23.7 X 105000=2488500 78.04 X 300=23412 62.93 X 900=135299.50 ADD together=1039664.5 1039664.5/annual production

Carrol​ Company, which uses an activityminus−based costing​ system, produces travel trailers and boat trailers. The company allocates batch setup costs to the two products using the following basic​ data: Travel trailers Boat trailers Budgeted units to be produced 2,050 2,700 Budgeted number of setups 340 580 Budgeted number of direct labor hours per unit 70 50 Total budgeted setup costs for the year are $156,400. If the setup costs are allocated using direct labor​ hours, how much of the total setup costs would be allocated to boat​ trailers?

$75,813 Total budgeted number of travel trailers to be produced 2,050 Budgeted number of direct labor hours per unit Travel trailers direct labor hours 143,500 Total budgeted number of boat trailers to be produced 2,700 Budgeted number of direct labor hours per unit Boat trailers direct labor hours 135,000 Travel trailers direct labor hours 143,500 Boat trailers direct labor hours Total direct labor hours 278,500 $156,400/278500 × 135000 = $75,813

James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two​ departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $65 per machine​ hour, while the Sanding Department uses a departmental overhead rate of $15 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two​ departments: Actual results Assembly Department Sanding Department Direct labor hours used 7 7 Machine hours used 11 9 The cost for direct labor is $35 per direct labor hour and the cost of the direct materials used by Job 603 is $1,200. How much manufacturing overhead would be allocated to Job 603 using the departmental overhead​ rates?

$820 $65 x 11= $715 $15x 7= $105 715+105=820

Which of the following situation will have a high risk of cost distortion?

A company adopting plantwide allocation system and producing many different products that use different types and amounts of resources

Which of the following is​ true?

ABM refers to using​ activity-based cost information to make decisions.

Regarding activityminus−based costing​ systems, which of the following statements is true​?

ABC costing systems have separate indirect cost allocation rates for each activity.

All of the following describe an ABC system except

ABC systems may only be used by service companies.

Concerning lean​ operations, which of the following is false​?

Focus on internal and external waste

An example of an appraisal cost is the cost of automating the production process.

False

Inspection of incoming raw materials and production loss caused by downtime are examples of prevention costs.

False

Cost distortion is more likely to occur when

departments incur different types of overhead and the products or jobs use the departments to a different extent.

Activities incurred regardless of how many​ units, batches, or products are produced are called​ _____ activities.

facility-level

Appraisal costs are incurred to detect poorminus−quality goods or services.

true

The process of designing products that achieves cost targets and meets specified standards of quality and performance is referred to as __________.

value engineering