Cost Acct Chapter #4 Review

High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,550 17,600 Number of employees 1,040 400 Sales $350,000 $1,740,000 If total payroll processing costs of $34,560 are allocated on the basis of number of employees, the amount allocated to the Small Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $24,960 B) $28,560 C) $17,280 D) $9,600

A) $24,960 Explanation: Amount allocated to the Small Department = $34,560 × (1,040 ÷ (1,040 + 400)) = $24,960

Answer the following questions using the information below: Eagle Eye Company produces two types of lenses-L7 and L9. Single Indirect-Cost Pool System ABC System Total direct costs $77,000 $50,000 Total indirect costs $37,000 (a) Total costs assigned to L7 $68,000 $50,500 Total costs assigned to L9 (b) $32,500 What is the total costs assigned to L9 (b) under single indirect-cost pool system? A) $46,000 B) $64,000 C) $32,500 D) $45,500

A) $46,000 Explanation: A) The total costs assigned to L9 (b) under single indirect-cost pool system = $114,000 − $68,000 = $46,000

The fundamental cost objects of ABC are ________. A) activities B) cost drivers C) products D) services

A) activities

A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________. A) can be used to eliminate nonvalue-added activities B) is easy to analyze and interpret C) takes the choices and judgment challenges away from the managers D) emphasizes how managers can achieve higher sales

A) can be used to eliminate nonvalue-added activities

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $1,500,000 for an annual production capacity of 10 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $100,000 400 design changes Setups 1,300,000 3,000 setups Inspections 100,000 10,000 inspections Total manufacturing overhead costs $1,500,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 90,000 106,000 Design changes 13 0 Setups 18 8 Inspections 30 38 What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity? A) $0.01 per page B) $0.15 per page C) $0.14 per page D) $0.13 per page

B) $0.15 per page Explanation: $0.15 per page = ($1,500,000 / 10,000,000 pages)

High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,850 17,750 Number of employees 1,120 500 Sales $320,000 $1,740,000 If advertising expense of $432,600 is allocated on the basis of sales, the cost per cost driver rate would be ________. A) $0.2 per dollar of sales B) $0.21 per dollar of sales C) $0.23 per dollar of sales D) $0.22 per dollar of sales

B) $0.21 per dollar of sales Explanation: Cost per cost driver rate = $432,600 ÷ ($320,000 + $1,740,000) = $0.21

Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Cost driver Allocation Rate Material handling Number of parts $5 per part Assembly Labor hours $20 per hour Inspection Time at inspection station $10 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $20 per labor hour. What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 10 remote controls are produced? The batch requires 100 parts, 5 direct manufacturing labor hours, and 3 minutes of inspection time. A) $2.00 per remote control B) $63.00 per remote control C) $35.00 per remote control D) $630.00 per remote control

B) $63.00 per remote control Explanation: ($5 × 100) + ($20 × 5) + ($10 × 3) = $630 per batch / 10 units per batch = $63.00 per unit Diff: 2

ABC systems create ________. A) one large cost pool B) homogeneous activity-related cost pools C) activity-cost pools with a broad focus D) activity-cost pools containing many direct costs

B) homogeneous activity-related cost pools

Using activity-cost rates rather than department indirect-cost rates to allocate costs results in different product costs when ________. A) a single activity accounts for a sizable portion of department costs B) there are several homogeneous cost pools C) different activities have the same cost-allocation base D) different products use different resources in the same proportion

B) there are several homogeneous cost pools

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 Number of Vehicles in fleet 880 410 Number of employees 105 50 Sales $760,000 $380,000 If advertising expense of $456,000 is allocated on the basis of sales, the cost per cost driver rate would be ________. A) $0.60 B) $1.20 C) $0.40 D) $0.43

C) $0.40 Explanation: The cost per cost driver rate = $456,000 ÷ ($760,000 + $380,000)] = $0.40

With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers. A) overcosted B) fairly costed C) undercosted D) ignored

C) undercosted

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 180,000 units 24,000 units Selling price $20.00 $29.00 Direct material $1.80 $ 5.00 Direct labor $4.70 $ 7.20 Manufacturing overhead $6.00 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $4.30 $ 7.00 Operating profit $3.20 $ 6.80 Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Activity Activity cost Activity-cost driver Supervision $97,200 Direct labor hours (DLH) Inspection $164,050 Inspections Activities demanded T-SHIRTS SWEATSHIRTS 0.25 DLH/unit 1.50 DLH/unit 45,000 DLHs 36,000 DLHs 80,000 inspections 16,500 inspections Under the revised ABC system, the activity-cost driver rate for the supervision activity is ________. A) $1.70 B) $2.70 C) $2.16 D) $1.2

D) $1.2 Explanation: $97,200 / (45,000 dlh + 36,000 dlh) = $1.2 per dlh

When "available time" (i.e., setup-hours) is used to calculate a cost of a resource and to allocate costs to cost objects , the system is called: A) job costing B) process costing C) hybrid costing D) time-driven activity based costing

D) time-driven activity based costing

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 192,000 units 24,000 units Selling price $17.00 $29.00 Direct material $1.70 $ 5.00 Direct labor $4.30 $ 7.20 Manufacturing overhead $3.50 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $4.10 $ 7.00 Operating profit $3.40 $ 6.80 Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Activity Activity cost Activity-cost driver Supervision $123,480 Direct labor hours (DLH) Inspection $104,800 Inspections Activities demanded T-SHIRTS SWEATSHIRTS 0.25 DLH/unit 1.50 DLH/unit 48,000 DLHs 36,000 DLHs 50,000 inspections 15,500 inspections Under the revised ABC system, supervision costs allocated to Sweatshirts will be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $52,920 B) $104,800 C) $123,480 D) None of these answers are correct.

A) $52,920 Explanation: $123,480 / (48,000 dlh + 36,000 dlh) = $1.47 per dlh × 36,000 dlh = $52,920

Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $320,000 16,000 hours Account billing $200,000 4,000,000 lines Account verification accounts $173,250 70,000 accounts Correspondence letters $24,000 4,000 letters Total costs $717,250 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,700 hours 4,200 hours Account billing lines 900,000 lines 750,000 lines Account verification accounts 8,000 accounts 6,000 accounts Correspondence letters 1,400 letters 1,800 letters **How much of the account inquiry cost will be assigned to Department A?** A) $54,000 B) $320,000 C) $160,000 D) $84,000

A) $54,000 Explanation: Account inquiry costs - Department A = ($320,000 ÷ 16,000) × 2,700 = $54,000

Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $940,000 for an annual production capacity of 10 million pages. For 2018, Xylon decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $160,000 500 design changes Setups 692,000 2,000 setups Inspections 88,000 8,000 inspections Total manufacturing overhead costs $940,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 70,000 86,000 Design changes 11 3 Setups 19 9 Inspections 26 64 Under ABC costing, what is the inspection cost allocated to Hospital Systems? A) $704 B) $80 C) $286 D) $6,574

A) $704 Explanation: Inspection cost = ($88,000 ÷ 8,000 inspections) × 64 = $704

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $1,760,000 for an annual production capacity of 16 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $160,000 200 design changes Setups 1,530,000 5,000 setups Inspections 70,000 7,000 inspections Total manufacturing overhead costs $1,760,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 60,000 76,000 Design changes 14 0 Setups 16 6 Inspections 25 33 Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools? A) $800.00 per change, $306.00 per setup, $10.00 per inspection B) $800.00 per change, $14.00 per setup, $218.57 per inspection C) $32.00 per change, $10.00 per setup, $306.00 per inspection D) $22.86 per change, $306.00 per setup, $350 per inspection

A) $800.00 per change, $306.00 per setup, $10.00 per inspection Explanation: Design changes: $800.00 per change = ($160,000 / 200 design changes) Setups: $306.00 per setup = ($1,530,000 / 5,000 setups) Inspections: $10.00 per inspection = ($70,000 / 7,000 inspections)

Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $280,000 14,000 hours Account billing $350,000 7,000,000 lines Account verification accounts $93,750 50,000 accounts Correspondence letters $29,000 4,000 letters Total costs $752,750 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,100 hours 3,600 hours Account billing lines 500,000 lines 350,000 lines Account verification accounts 7,000 accounts 5,000 accounts Correspondence letters 1,200 letters 1,600 letters How much of the total costs will be assigned to Department A? A) $88,825 B) $118,825 C) $120,000 D) $85,075

A) $88,825 Explanation: Account inquiry costs = ($280,000 ÷ 14,000) × 2,100 = $42,000 Billing costs = ($350,000 ÷ 7,000,000) × 500,000 = $25,000 Account verification costs = ($93,750 ÷ 50,000) × 7,000 = $13,125 Correspondence costs = ($29,000 ÷ 4,000) × 1,200 = $8,700 $88,825

Using department indirect-cost rates to allocate costs will result in results similar to ABC if: A) a single activity accounts for a sizable portion of the costs of the department B) several activities cause a sizable portion of the costs of the department C) a single activity accounts for a small portion of the costs of the department D) several activities cause a small portion of the costs of the department

A) a single activity accounts for a sizable portion of the costs of the department

**Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.** A) establish a cause-and-effect relationship with the activities performed B) use single cost pool for all overhead costs, thereby enabling simplicity C) use a broad average to allocate all overhead costs D) never consider interactions between different departments in assigning support costs

A) establish a cause-and-effect relationship with the activities performed

Overcosting a particular product may result in: A) pricing the product too high B) pricing the product too low C) operating efficiencies D) understating total product costs

A) pricing the product too high

Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Cost driver Allocation Rate Material handling Number of parts $2 per part Assembly Labor hours $10 per hour Inspection Time at inspection station $20 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $600 per labor hour. What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 460 parts, 5 direct manufacturing labor hours, and 18 minutes of inspection time. A) $6.00 per remote control B) $13.30 per remote control C) $32.00 per remote control D) $1,330.00 per remote control

B) $13.30 per remote control Explanation: Cost per batch = ($2 × 460) + ($10 × 5) + ($20 × 18) = $1,330.00 per batch Cost per remote control = $1,330.00 per batch ÷ 100 units per batch = $13.30 per unit

Milan Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $624,000 Direct labor-hours 940,000 Machine maintenance $100,000 Machine-hours 840,000 Facility rent $216,000 Square feet of area 140,000 Total overhead costs $940,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 290 Machine-hours 1,681.68 Square feet of area 50 Under activity-based costing, what is the amount of machine maintenance costs allocated to the Mossman Job? (Do not round any intermediary calculations.) A) $1,881.88 B) $200.20 C) $1,681.68 D) $210.45

B) $200.20 Explanation: Machine maintenance costs = 1,681.68 mh × ($100,000 ÷ 840,000) = $200.20

Dartmouth Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 17 6 790 Deluxe 31 15 400 Overhead costs $18,240 $21,000 Assume a traditional costing system applies the $39,240 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $13,190 B) $26,050 C) $25,343 D) $13,898

B) $26,050 Explanation: [$39,240 / (790 + 400)] × 790 = $26,050

Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $490,000 10,000 hours Gas $18,000 3,000 gallons Invoices $56,000 3,500 invoices Total costs $564,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 2,800 hours 1,400 hours 5,800 hours Gas 1,800 gallons 900 gallons 300 gallons Invoices 1,600 invoices 300 invoices 1,600 invoices How much of the total cost will be assigned to the Plowing Department? A) $564,000 B) $311,600 C) $188,000 D) $173,600

B) $311,600 Explanation: ($490,000 / 10,000) × 5,800 = $284,200 ($18,000 / 3,000) × 300 = $1,800 ($56,000 / 3,500) × 1,600 = $25,600 $311,600

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 Number of Vehicles in fleet 900 460 Number of employees 145 55 Sales $700,000 $390,000 If administrative expense of $62,800.00 is allocated on the basis of number of employees, the cost per cost driver rate would be ________. A) $433.10 B) $314.00 C) $1,141.82 D) $46.18

B) $314.00 Explanation: Cost per cost driver rate = $62,800.00 ÷ (145 + 55) = $314.00

Extracts from cost information of Hebar Corp.: Simple L3 Pack Complex L7 Pack Total Setup cost allocated using direct labor-hours $19,250 $5,750 $25,000 Setup cost allocated using setup-hours $13,400 $11,600 $25,000 **Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours. Which of the following statements is true of Hebar's setup costs under traditional costing?** A) L3 pack is undercosted by $5,850 B) L7 pack is undercosted by $5,750 C) L3 pack is overcosted by $5,850 D) L7 pack is overcosted by $5,850

C) L3 pack is overcosted by $5,850 Explanation: Setup cost allocated using direct labor-hours - Setup cost allocated using setup-hours = $19,250 − $13,400 = $5,850

Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $304,000 Direct labor-hours 760,000 Machine maintenance $153,600 Machine-hours 960,000 Facility rent $165,000 Square feet of area 110,000 Total overhead costs $622,600 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 260 Machine-hours 1,500 Square feet of area 70 Using the three cost pools to allocate overhead costs, what is the total amount of overhead costs to be allocated to the Mossman Job? A) $442.00 B) $449.00 C) $10,071.67 D) $428.60

B) $449.00 Explanation: Supervision cost driver rate = 304,000 ÷ 760,000 dlh = $0.40 per dlh Machine maintenance cost driver rate = $153,600 ÷ 960,000 mh = $0.16 per mh Facility rent cost driver rate = $165,000 ÷ 110,000 sq ft = $1.50 per sq ft Total amount of overhead costs to be allocated to the Mossman Job = (260 × $0.40 per dlh) + (1,500 × $0.16 per mh) + (70 × $1.50 per sq ft) = $449.00

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 Number of Vehicles in fleet 880 450 Number of employees 125 60 Sales $700,000 $395,000 If administrative expense of $77,500 is allocated on the basis of number of employees, the amount allocated to the Car Rental Department would be ________. A) $38,750.00 B) $52,364.86 C) $25,135.14 D) $51,278.20

B) $52,364.86 Explanation: The amount allocated to the Car Rental Department = $77,500 × [125 ÷ (125 + 60)] =$52,364.86

Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $392,000 8,000 hours Gas $30,000 5,000 gallons Invoices $180,000 7,500 invoices Total costs $602,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 2,600 hours 1,300 hours 4,100 hours Gas 1,800 gallons 1,000 gallons 2,200 gallons Invoices 1,600 invoices 100 invoices 5,800 invoices How much of the labor cost will be assigned to the Bush Department? A) $127,400 B) $63,700 C) $200,900 D) $97,825

B) $63,700 Explanation: Labor cost assigned = ($392,000 ÷ 8,000) × 1,300 = $63,700

Which of the following statements is true of a peanut-butter costing system? A) A peanut-butter costing system typically has more-homogeneous indirect cost pools. B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects. C) A peanut-butter costing system assumes that all costs are variable. D) In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume.

B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects.

Which of the following statements is true of activity-based costing? A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs. B) Activity based costing is more suited to companies with high product diversity than companies with single product line. C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services. D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.

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

**Which of the following is a reason that has accelerated the demand for refinements to the costing system?** A) The declining demand for customized products has led managers to decrease the variety of products and services their companies offer. B) The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs. C) The increased of automated processes has led to the increase in direct manufacturing cost leading to a decrease in break even point. D) The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of break even point.

B) The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.

Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $474,000 Direct labor-hours 790,000 Machine maintenance $147,200 Machine-hours 920,000 Facility rent $243,000 Square feet of area 135,000 Total overhead costs $864,200 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 240 Machine-hours 1,700 Square feet of area 50 If Nile Corp. uses the three activity cost pools to allocate overhead costs, what are the activity-cost driver rates for supervision of direct labor, machine maintenance, and facility rent, respectively? A) $0.60 per dlh; $0.16 per mh; $1.70 per sq ft B) $1.67 per dlh; $6.25 per mh; $0.56 per sq ft C) $0.60 per dlh; $0.16 per mh; $1.80 per sq ft D) $0.50 per dlh; $0.16 per mh; $1.88 per sq ft

C) $0.60 per dlh; $0.16 per mh; $1.80 per sq ft Explanation: Supervision cost driver rate = 474,000 ÷ 790,000 dlh = $0.60 per dlh Machine maintenance cost driver rate = $147,200 ÷ 920,000 mh = $0.16 per mh Facility rent cost driver rate = $243,000 ÷ 135,000 sq ft = $1.80 per sq ft

Milan Manufacturing Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $539,000 Direct labor-hours 920,000 Machine maintenance $120,000 Machine-hours 1,000,000 Facility rent $215,000 Square feet of area 160,000 Total overhead costs $874,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 300 Machine-hours 1,675 Square feet of area 70 If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for Milan? A) $1.05 per direct labor-hour B) $0.59 per direct labor-hour C) $0.95 per direct labor-hour D) $1.71 per direct labor-hour

C) $0.95 per direct labor-hour Explanation: Cost driver rate = $874,000 ÷ 920,000 = 0.95 per dlh

Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $390,000 13,000 hours Account billing $275,000 5,000,000 lines Account verification accounts $130,500 60,000 accounts Correspondence letters $22,000 4,000 letters Total costs $817,500 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,500 hours 4,000 hours Account billing lines 800,000 lines 650,000 lines Account verification accounts 9,000 accounts 7,000 accounts Correspondence letters 2,000 letters 2,400 letters How much of correspondence costs will be assigned to Department A? A) $22,000 B) $49,500 C) $11,000 D) $11,242

C) $11,000 Explanation: Correspondence costs - Department A = ($22,000 ÷ 4,000) × 2,000 = $11,000 Diff: 2

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $600,000 for an annual production capacity of 12 million pages. For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $120,000 500 design changes Setups 380,000 4,000 setups Inspections 100,000 9,000 inspections Total manufacturing overhead costs $600,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 70,000 86,000 Design changes 12 0 Setups 17 7 Inspections 26 34 Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Money Managers during 2018? A) $4,300 B) $2,800 C) $3,500 D) $4,784

C) $3,500 Explanation: $3,500 = [70,000 pages × ($600,000 / 12,000,000)]

High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage 6,700 17,750 Number of employees 1,000 410 Sales $370,000 $1,800,000 If total advertising expense of $629,300 is allocated on the basis of sales, the amount allocated to the Large Department would be ________. A) $107,300 B) $558,000 C) $522,000 D) $314,650

C) $522,000 Explanation: Amount allocated to the Large Department = $629,300 × ($1,800,000 / $2,170,000) = $522,000

Canton's Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Cost Pool Overhead Costs Activity-cost driver Materials handling $42,000 96,000 orders Machine maintenance $360,000 16,000 maintenance hours Setups $236,600 45,500 setups Inspections $135,780 21,900 inspections Total support costs $774,380 Production Estimates Production units: Regular = 11,000,000 units Jumbo = 22,000,000 units Machine-hours = 300,000 mh Labor-hours = 600,000 dlh Expected direct costs amounts to $928,000 for the period. Support cost requirements of both products are substantially different from one another. Canton's uses an ABC costing system. The inspections activity-cost driver rate is ________. A) $0.44 B) $5.70 C) $6.20 D) $13.08

C) $6.20 Explanation: Inspections activity-cost driver rate = $135,780 ÷ 21,900 inspections = $6.20 per inspection

Dartmouth Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Product Setups | Number of Components | Number of DL Hours Standard 18 9 275 Deluxe 32 14 215 Overhead costs $75,000 $87,400 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? A) $81,200 B) $81,900 C) $61,200 D) $101,200

C) $61,200 Explanation: Setups: $75,000 ÷ (18 + 32) = $1,500 Components: $87,400 ÷ (9 + 14) = $3,800 Total amount of overhead costs = ($1,500 × 18) + ($3,800 × 9) = $61,200

Comfort Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 18 6 265 Deluxe 29 12 200 Overhead costs $61,100 $64,800 Assume a traditional costing system applies the overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $62,950 B) $54,151 C) $71,749 D) $36,929

C) $71,749 Explanation: Total amount of overhead costs = [($61,100 + $64,800) ÷ (265 + 200)] × 265 = $71,749

Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Cost driver Allocation Rate Material handling Number of parts $1 per part Assembly Labor hours $20 per hour Inspection Time at inspection station $10 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour. Nichols' management is considering to implement ABC system because ________. A) ABC system can be implemented cheaply B) ABC system provides more accurate direct cost figures C) ABC system is a highly refined costing system D) ABC system requires minimal expertise to operate

C) ABC system is a highly refined costing system

Which of the following statements is true of ABC systems? A) ABC systems are time-driven cost systems. B) ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs. C) ABC systems provide valuable information to managers beyond accurate product costs. D) ABC systems assume all costs are variable costs.

C) ABC systems provide valuable information to managers beyond accurate product costs.

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 overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs. B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs. C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs. D) 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.

**Which of the following is true of refinement of a costing system?** A) While refining a costing system, companies should identify as many indirect costs as is economically feasible. B) A homogeneous cost pool will use multiple cost drivers to allocate costs. C) It reduces the use of broad averages for assigning the cost of resources to cost objects. D) It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs.

C) It reduces the use of broad averages for assigning the cost of resources to cost objects.

Which of the following is true with activity based cost accounting? A) Activity-based costing ignores the allocation of marketing and distribution costs. B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. C) The focus is on activities that account for a sizable fraction of indirect costs . D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.

C) The focus is on activities that account for a sizable fraction of indirect costs .

The goal of a properly constructed ABC system is to ________. A) have the most accurate cost system B) identify more indirect costs C) develop the best cost system that meets the cost/benefit test D) have separate allocation rates for each department

C) develop the best cost system that meets the cost/benefit test

**For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that:** A) direct labor costs of the product are misallocated B) direct material costs of the product are misallocated C) indirect costs of another product are misallocated D) direct costs of another product are misallocated

C) indirect costs of another product are misallocated

**Which of the following ordering of the levels best depicts the cost hierarchy within an ABC system?** A) batch-level, output unit-level, product-sustaining level, and facility-sustaining level B) batch-level, output unit-level, facility-sustaining levels, product-sustaining levels C) output unit-level, batch-level, product-sustaining level, and facility-sustaining level D) facility-sustaining level, output unit-level, batch-level, product-sustaining level

C) output unit-level, batch-level, product-sustaining level, and facility-sustaining level

The following conditions with departmental indirect-cost rates will result in allocation of costs similar to ABC costing except: A) a single activity accounts for a sizable portion of the costs of the department B) Significant costs are incurred on different activities within a department C) several activities cause a sizable portion of the costs of the department D) significant costs are incurred for different activities with different cost -allocation bases within a department

C) several activities cause a sizable portion of the costs of the department

Product-cost cross-subsidization means that: A) when one product is overcosted, it results in more than one other product being overcosted B) when a company undercosts more than one of its products, it will overcost more than one of its other products C) when a company undercosts one of its products, it will overcost at least one of its other products D) when one product is overcosted it results in all other products being overcosted

C) when a company undercosts one of its products, it will overcost at least one of its other products

Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $900,000 for an annual production capacity of 10 million pages. For 2018, Xylon decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $190,000 200 design changes Setups 550,000 5,000 setups Inspections 160,000 16,000 inspections Total manufacturing overhead costs $900,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 70,000 86,000 Design changes 15 7 Setups 18 8 Inspections 25 63 If manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity, what is the cost driver rate? (Round the final answer to three decimal places.) A) $0.078 per page B) $0.035 per page C) $0.055 per page D) $0.09 per page

D) $0.09 per page Explanation: Cost driver rate = ($900,000 ÷ 10 million pages) = $0.09 per page

Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $336,000 8,000 hours Gas $84,000 7,000 gallons Invoices $180,000 7,500 invoices Total costs $600,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 3,100 hours 1,500 hours 3,400 hours Gas 1,900 gallons 900 gallons 4,200 gallons Invoices 1,300 invoices 400 invoices 5,800 invoices If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate? A) $75.00 per hour B) $26.67 per hour C) $42.00 per hour D) $33.00 per hour

D) $33.00 per hour Explanation: Overhead allocation rate = ($84,000 + $180,000) ÷ 8,000 = $33.00

**Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity? ** A) $0.16 B) $0.32 C) $1.16 D) $6.25

D) $6.25 Explanation: $68,750 / 11,000 = $6.25

Which of the following statements is true of costing systems? A) Single-indirect cost pool systems always result in overcosting of products. B) Single-indirect cost pool systems classify some direct costs as indirect costs. C) ABC systems always result in overcosting of products. D) ABC systems classify some indirect costs as direct costs helping to improve processes

D) ABC systems classify some indirect costs as direct costs helping to improve processes

________ is an example of an output unit-level cost in the cost hierarchy. A) Factory rent expense B) Building security costs C) Top management compensation costs D) Machine depreciation

D) Machine depreciation

**Demand for refinements to the costing system has accelerated due to ________.** A) increase in direct costs B) decrease in product diversity C) decrease in indirect costs D) competition in product markets

D) competition in product markets

Top management compensation cost is an example of ________ in the cost hierarchy. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

D) facility-sustaining costs

Activity based costing system differs from traditional costing systems in the treatment of ________. A) direct labor costs B) direct material costs C) prime costs D) indirect costs

D) indirect costs

Management accountants use the cost hierarchy to first calculate the ________. A) labor costs of each product and then they compute material costs B) overhead costs of each product and then they compute prime costs C) factory costs of each product and then they compute labor costs D) total costs of each product and then they compute per-unit costs

D) total costs of each product and then they compute per-unit costs