Bus 108 Chapter 7

Estimated costs for activity cost pools and other item(s) are as follows: Machining $800,000 Assembling 200,000 Advertising 450,000 Inspecting and testing 175,000 Total estimated overhead is

$1,175,000

A&W Manufacturing uses an activity-based costing system for its cutting department. The activity cost totals $148,000. The number of cuts is the cost driver. The cutting department processed a total of 9,000 batches with an average cuts per batch of 6 and total cuts of 46,250. What is the activity rate for the cutting department?

$3.20 per cut

Auburn, Inc.'s overhead costs of $700,000 consist of machining $400,000; inspecting $200,000; and packaging $100,000. Machining works 4,000 hours a year, 500 inspections occur each year, and 1,000 packing orders occur each year. Information on the company's two products are as follows: Alpha Omega Machining hours 1,000 3,000 Inspections 100 400 Packing orders 350 650 Direct labor hours 1,700 1,800 Determine how much overhead is allocated to Alpha assuming the use of a single overhead rate (based on direct labor hours) and assuming the use of ABC, respectively.

$340,000 and $175,000

Auburn, Inc.'s overhead costs of $700,000 consist of machining $400,000; inspecting $200,000; and packaging $100,000. Machining works 4,000 hours a year, 500 inspections occur each year, and 1,000 packing order occur each year. Information on the company's two products are as follows: Alpha Omega Machining hours 1,000 3,000 Inspections 100 400 Packing orders 350 650 Direct labor hours 1,700 1,800 Determine how much overhead is allocated to Omega assuming the use of a single overhead rate (based on direct labor hours) and assuming the use of ABC, respectively.

$360,000 and $525,000

Sampson Company manufactures two products, plain and complex. The company has estimated its overhead in the order-processing department to be $480,000. The company produces 50,000 plain and 80,000 complex each year. Plain production requires 25,000 machine hours, complex production requires 50,000 machine hours. The company places raw materials orders 10 times per month, 2 times for raw materials for plain and the remainder for raw materials for complex. How much of the order processing overhead should be allocated to complex?

$384,000

Which of the following is formula for calculating the activity rate in an activity-based costing system? -Estimated cost pool divided by activity cost pool resources -Activity cost pool resources divided by estimated total cost pool -Activity cost pool resources divided by activity driver -Activity driver divided by activity cost pool resources

Activity cost pool resources divided by activity driver

When using an activity-based costing system, which of the following is the formula for allocating costs to products or services? -Activity cost pool resources divided by activity driver -Activity cost pool resources times activity driver -Activity rate divided by activity driver consumption -Activity rate times activity driver consumption

Activity rate times activity driver consumption

Identifying activities performed in the organization is the first step in developing activity-based product costs. Which of the following is a way to identify these activities? -Neither asking employees what they do nor observing what employees do -Observe what employees do -Asking employees what they do -Both asking employees what they do and observing what employees do

Both asking employees what they do and observing what employees do

Which of the following is not a step in implementing an activity-based costing system? -Developing activity cost pools -Calculating pre-determined overhead rates -Calculate the unit product cost -Identifying activities

Calculating pre-determined overhead rates

In implementing an activity-based costing system, after all the activities have been identified and the appropriate level of detail selected, the activities are combined into activity cost pools based on their

Cost drivers

Assigning manufacturing overhead cost to activity pools is referred to as first-stage allocation because

Costs are assigned first to the activity pools before being assigned to cost objects.

Which of the following is not a product- or service-related activity? -Batch-level -Customer-level -Unit-level -Product-level

Customer-level

Processing a sales order is an example of a

Customer-level activity

In an activity-based costing system, which of the following is not a category in which activities are classified? -Delivery-level -Unit-level -Product-level -Batch-level

Delivery-Level

With activity-based costing, the goal is to

Develop a product cost that captures the amount of each resource consumed by the activities performed to produce a specific product.

Which of the following would be considered a unit-level activity? -Performing quality tests -Preparing the annual budget -Ordering direct materials -Direct labor

Direct Labor

Which of the following would be considered a product-level activity? -Quality tests -Engineering changes made in the assembly line -Machine set-up -None of these answer choices are correct

Engineering changes made in the assembly line

Which of the following is the step in implementing an activity-based costing system that can generate the greatest error? -Developing activity cost pools -Calculating activity cost pool rates -Calculate the unit product cost -Identifying activities

Identifying activities

Which of the following activities would be classified as non-value-added in the manufacture of dresses? -Cutting -Inspecting -Sewing -Hemming

Inspecting

Mounce Catering Service uses an activity-based costing system. What would be the most appropriate cost driver for the activity of preparing meals?

Number of meals prepared

Which of the following would be the most appropriate cost driver for the purchasing department? -Direct labor hours -Machine hours -Direct labor cost -Number of orders placed

Number of orders placed

Which of the following would be a likely activity driver for product design? -Number of batches -Number of product lines -Number of machine hours -Number of direct labor hours

Number of product lines

In an activity-based costing system, which of the following is not a category in which activities are classified? -Operations-level -Customer-level -Organization-level -Product-level

Operations-level

In changing from a traditional costing system to an activity-based costing system, overhead costs tend to shift from high-volume standard products to low-volume premium products because

Premium products usually consume more activities per unit than standard products.

Indicators that an activity-based costing analysis may be appropriate include all the following except -Products are similar and consume resources in the same way. -High-volume jobs show losses or minimal profits, while low-volume jobs show healthy profits. -Some manufacturing departments run at capacity, while others have minimal operations. -Bids for jobs that require "special" processing are always accepted.

Products are similar and consume resources in the same way

A firm produces and sells two products, Standard and Deluxe. The following information relates to setup costs (a part of factory overhead) of $180,000. Standard Deluxe Units Produced 1,600 1,600 Number of setups 100 125 Direct labor hours per unit 9 9 Total direct labor costs $9,000 $9,000 Activity-based costing would allocate which of the following amounts of setup cost to each unit (rounded to the nearest dollar)?

Standard: $356 & Deluxe: $444

Since a batch-level activity is based on the existence of the batch, a batch consumes resources

The same amount of resources whether it contains 20 units or 2,000 units

The main reason for generating new information provided by activity-based costing is

To help managers make better decisions