ACCT QUIZ 4
The gross margin does not take into account:
nonmanufacturing cost. Gross margin is equal to unit sales price less total manufacturing cost per unit. It does not include nonmanufacturing costs.
A volume-based allocation measure would vary proportionately with:
the number of units produced. A volume-based allocation measure is directly related to the number of units produced.
The first step in ABC is:
to identify and classify activities.The first step in ABC is to identify the activities required to make the product or provide the service, so indirect costs can be assigned to them.
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: Machine hours: 1000 3000 total 4000 Number of batches : 45 15 total 60
ultiply the number of machine hours for Product A by the activity rate per machine hour: 1,000 × $125 = $125,000.
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. A volume-based system is more likely to assign lower costs to a low-volume product, while an ABC system will assign higher costs to a high-complexity product.
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: Machine hours 1200 4800 total 6000 Number of batches 60 20 total 80
Divide machine hours for Product 5 by total machine hours: 1,200/6,000 = 20%.
A large company that uses activity based costing would do which of the following?
Group activities together to simplify the number of activities.In an ABC system, the goal is to create as few cost pools as possible while still capturing major activities.
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: Machine hours 1000 3000 total 4000 Number of batches 45 15 total 60
Multiply the number of batches for Product X by the activity rate for Inspection: 15 × $500 = $7,500.
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?
Total manufacturing cost per unit = $15 + $10 + (200% × $10 or $20) = $45 per unit. Gross margin = $90 - $45 = $45; as a percentage of sales, this is $45/$90 = 50%.
An activity cost driver is:
a measure of the underlying activity that occurs in each activity cost pool. A measure of the underlying activity that occurs in each activity cost pool is an activity cost driver.