ch3 managerial acct

Any activity that causes resources to be consumed is called a

cost driver.

To assign overhead costs to an individual product, the activity-based overhead rate is multiplied by

the number of cost drivers used per product.

What is the primary barrier to using activity-based costing in a service company?

A large portion of overhead costs are company-wide costs.

Which of the following is a limitation of activity-based costing?

Activity-based costing can be expensive to use.

Which of the following is the third step in applying an activity-based costing system?

Compute the overhead rate for each cost driver.

Donatello Co. has identified an activity cost pool to which it has allocated estimated overhead of $9,600,000. It has determined the expected use of cost drivers for that activity to be 800,000 inspections. Widgets require 200,000 inspections, Gadgets 150,000 inspections, and Targets 450,000 inspections. How much is the overhead assigned to each product?

Correct! The activity-based overhead rate is $12 per inspection ($9,600,000/800,000 inspections) and the overhead assigned to each product is computed by multiplying this rate times the number of inspections per product. The result is overhead assigned to Widgets of $12 × 200,000 inspections, or $2,400,000; overhead assigned to Gadgets of $12 × 150,000 inspections or $1,800,000; and overhead assigned to Targets of $12 × 450,000 inspections or $5,400,000. Widgets $2,400,000, Gadgets $1,800,000, Targets $5,400,000

Theodore Company's overhead rate for machine setups is $115 per setup. A total of 105 setups are estimated for the period. At year-end, it was determined that Products A and B have 60 and 45 setups, respectively. How much is the overhead cost assigned to each product?

Correct! The overhead cost assigned to each product is the rate times the number of setups. The overhead assigned to product A is $115 x 60 setups, or $6,900 and the overhead assigned to product B is $115 x 45 setups, or $5,175. Answer: Product A $6,900, Product B $5,175

Which of the following would not be an overhead activity cost pool?

Direct materials

Which statement is true about activity-based costing (ABC)?

It focuses on activities performed to produce a product.

Which is an example of a product-level activity?

Making engineering changes on the assembly line.

Which of the following activities adds value to a product or service?

Shaping a piece of metal on a lathe.