Cost Accounting Chapter 5

For service​ organizations, activity−based cost systems may be used to clarify appropriate cost assignments.

True

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $12,500. The budgeted number of nozzles to be inserted is 10,000. What is the budgeted indirect cost allocation rate for this​ activity?

$12,500/10,000=$1.25

Comfort Corporation manufactures two models of office​ chairs, a standard and a deluxe model. The following activity and cost information has been​ compiled: Product No. Setups No. Components No. DL Hours Standard 12 8 255 Deluxe 28 12 245 Overhead costs$52,000 ​$78,000 Number of setups and number of components are identified as activity−cost drivers for overhead. Assuming an activity−based costing system is​ used, what is the total amount of overhead costs assigned to the standard​ model?

$52,000/(12+28)=1,300 78,000/(8+12)=3,900 1,300*12=15,600 3,900*8=31,200 15,600+31,200=46,800

Stark Corporation has two​ departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental No. Vehicles in fleet 880 420 Number of employees 135 70 Sales $700,000 $380,000 If administrative expense of $64,575.00 is allocated on the basis of number of​ employees, the cost per cost driver rate would be​ ________.

$64575/205=$315.00

Is the following statement true or​ false? Why? ​"Department indirect-cost rates are never​ activity-cost rates."

(All of the Above) False. Department​ indirect-cost rates are similar to​ activity-cost rates if a single activity accounts for a sizable fraction of the​ department's costs. Your answer is not correct. False. Department​ indirect-cost rates are similar to​ activity-cost rates if significant costs are incurred on different activities within a department but each activity has the same​ cost-allocation base. False. Department​ indirect-cost rates are similar to​ activity-cost rates if significant costs are incurred on different activities with different​ cost-allocation bases within a department but different products use resources from the different activity areas in the same proportions.

Which of the following statements is true of activity−based ​costing?

Activity based costing is more suited to companies with high product diversity than companies with single product line.

What is an​ activity-based approach to designing a costing​ system?

An​ activity-based approach refines a costing system by focusing on individual activities as the fundamental cost objects. It uses the cost of these activities as the basis for assigning costs to other cost objects such as products or services

Refining a cost system includes​: A.seeking a lesser level of detail B.identifying the activities involved in a process C.classifying as many costs as indirect costs as is feasible D.creating as many cost pools as possible

B

Luzent Corporation has two​ departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Dept Large Dept Sq footage ​6,750 ​ 17,250 No.employees ​ 1,120 480 Sales ​$350,000 ​$1,750,000 If total advertising expense of​ $483,000 is allocated on the basis of​ sales, the amount allocated to the Large Department would be​ ________.

C) Amount allocated to the Large Department = $483,000 × ($1,750,000/$21,000,000) = $402,500

ABC costing systems cannot be used in marketing decisions.

False

An activity−based costing system is necessary for costing services that are similar

False

What are the four levels of a cost​ hierarchy?

Output​ unit-level costs ​Batch-level costs ​Product-sustaining costs or​ service-sustaining costs ​Facility-sustaining costs

Why should managers worry about product overcosting or​ undercosting?

Overcosting may result in competitors entering a market and taking market share for products that a company erroneously believes are​ low-margin or even unprofitable. Undercosting may result in companies selling products on which they are in fact losing​ money, when they erroneously believe them to be profitable

Select four decisions for which ABC information is useful

Pricing and product mix Cost reduction and process improvement Product design Decisions for planning and managing activities

Activity−based costing attempts to identify the most relevant cause−and−effect relationship for each activity pool without restricting the cost driver to only units of output or variables related to units of output

True

Aqua Company produces two products−Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed.​ Also, 55% of​ Beta's cost is shared between design and setup​ costs, while​ Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of​ Aqua? . A.Aqua will undercost​ Alpha's indirect costs because alpha has high direct costs. B.Aqua will overcost​ Beta's indirect costs because beta has high indirect costs. C.Aqua will overcost​ Alpha's indirect costs as it is using a single cost pool to allocate indirect costs. Your answer is correct. D.Aqua will overcost​ Beta's direct costs as it is using a single cost pool to allocate indirect costs.

c.