Cost Accounting

How much of the labor cost will be assigned to the Lawn Department?

A) $100,000 A) ($32,000 / 8,000) × 2,500 = $100,000

Assume a traditional costing system applies the $40,000 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the deluxe model?

A) $16,000

Using direct labor-hours as the only overhead cost driver, what is the amount of overhead costs allocated to the Mossman Job?

A) $160

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 cost assigned to the deluxe model?

A) $25,500

How much of the account inquiry cost will be assigned to Department A?

A) $40,000 ($200,000 / 10,000) × 2,000 = $40,000

Under the revised ABC system, supervision costs allocated to Sweatshirts will be:

A) $48,720

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) $49,600

How much of invoice cost will be assigned to the Bush Department?

A) $6,400 A) ($40,000/ 2,500) × 400 = $6,400

How much of the total costs will be assigned to Department A?

A) $79,000 A) ($200,000 / 10,000) * (2,000) + ($140,000 / 4,000,000) * (400,000) + ($75,000 / 40,000) * (10,000) + ($25,000 / 4,000) * (1,000) = $40,000 + $14,000 + $18,750 + $6,250 =$79,000

ABC systems identify ________ costs used by products.

A) all

To set realistic selling prices:

A) all costs should be allocated to products

If products are different, then for costing purposes:

A) an ABC costing system will yield more accurate cost numbers

When designing a costing system, it is easiest to:

A) calculate total costs first and then per-unit cost

Activity-based costing (ABC) can eliminate cost distortions because ABC:

A) develops cost drivers that have a cause-and-effect relationship with the activities performed

ABC systems:

A) highlight the different levels of activities

The focus of ABC systems is on:

A) long-term decisions

Overcosting a particular product may result in:

A) loss of market share

Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT:

A) selling prices

A single indirect-cost rate may distort product costs because:

A) there is an assumption that all support activities affect all products

According to an ABC system, CP8 is ________ under the traditional system.

A) undercosted

Logical cost allocation bases include:

All of these answers are correct.

An accelerated need for refined cost systems is due to:

C) intense competition

A top-selling product might actually result in losses for the company.

TRUE

If manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity, what is the cost driver rate?

D) $0.07 per page

Under the revised ABC system, the activity-cost driver rate for the supervision activity is:

D) $1.16

What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?

B) $0.07 per page

If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for Gregory Enterprises?

B) $0.80 per direct labor-hour

How much of account verification costs will be assigned to Department A?

B) $18,750 ($75,000 / 40,000) × 10,000 = $18,750

How much of the total cost will be assigned to the Plowing Department?

B) $202.200

How much of the gas cost will be assigned to the Plowing Department?

B) $22,200 B) ($36,000 / 6,000) × 3,700 = $22,200

Assume a traditional costing system applies the $40,000 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the standard model?

B) $24,000

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 deluxe model?

B) $70,400

Which of the following statements about activity-based costing is NOT true?

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.

ABC systems create:

B) homogenous activity-related cost pools

A company produces three products; if one product is overcosted then:

B) one or two products are undercosted

Unit-level cost drivers are most appropriate as an overhead assignment base when:

B) only one product is manufactured

Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT:

B) operations that remain fairly consistent

Design of an ABC system requires:

B) that a cause-and-effect relationship exists between resource costs and individual activities

The use of a single indirect-cost rate is more likely to:

B) undercost low-volume complex products

ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.

B) variable

How much of the total costs will be assigned to Department B?

C) $112,000 C) ($200,000 / 10,000) * (4,000) + ($140,000 / 4,000,000) * (200,000) + ($75,000 / 40,000) * (8,000) + ($25,000 / 4,000) * (1,600) = $ 80,000 + $ 7,000 + $ 15,000 + $ 10,000 = $112,000

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 cost assigned to the standard model?

C) $14,500

How much of correspondence costs will be assigned to Department B?

D) $10,000 ($25,000 / 4,000) × 1,600 = $10,000

Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Money Managers during 2010?

C) $4,200

How much of the account billing cost will be assigned to Department B?

C) $7,000 ($140,000 / 4,000,000) × 200,000 = $7,000

Assume a traditional costing system applies the $120,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model?

C) $75,000

How much of the gas cost will be assigned to the Lawn Department?

C) $9,000 C) ($36,000/ 6,000) × 1,500 = $9,000

Using the cost driver rate determined in the previous question, what is the manufacturing overhead cost estimate for Hospital Systems during 2010?

C) Manufacturing overhead costs applied to Hospital Systems total $5,320.

Refining a cost system includes:

C) identifying the activities involved in a process

Misleading cost numbers are most likely the result of misallocating:

C) indirect costs

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is:

C) number of parts used

Undercosting of a product is most likely to result from:

C) overcosting another product

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called:

C) peanut-butter costing

Design costs are an example of:

C) product-sustaining costs

According to an ABC system, S5 uses a disproportionately:

C) smaller amount of batch-level costs

Each of the following statements is true EXCEPT:

C) traditional product costing systems are more refined than an ABC system

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.

C) undercosted

How much of the total costs will be assigned to the Lawn Department?

D) $134,600

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $80,000. The budgeted number of nozzles to be inserted is 40,000. What is the budgeted indirect cost allocation rate for this activity?

D) $2.00 D) $80,000 / 40,000 = $2.00

Assume a traditional costing system applies the $120,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the deluxe model?

D) $45,000

Greater indirect costs are associated with:

D) All of these answers are correct.

Put the following ABC implementation steps in order: A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases.

D) CDAB

________ costs support the organization as a whole.

D) Facility-sustaining

It is usually difficult to find good cause-and-effect relationships between ________ and a cost allocation base.

D) facility-sustaining costs

Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into:

D) greater overhead costs for each product line

The most likely example of an output unit-level cost is:

D) machine depreciation

The most likely example of a batch-level cost is:

D) setup costs

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

FALSE

As product diversity and indirect costs increase, it is usually best to switch away from an activity based cost system to a broad averaging system.

FALSE

If companies increase market share in a given product line because their reported costs are less than their actual costs, they will become more profitable in the long run.

FALSE

Indirect labor and distribution costs would most likely be in the same activity-cost pool.

FALSE

Output unit-level costs CANNOT be determined unless you know how many units are in a given batch.

FALSE

Traditional systems are likely to overcost complex products with lower production volume.

FALSE

Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

FALSE

Activity-based costing helps identify various activities that explain why costs are incurred.

TRUE

Companies that overcost products will most likely lose market share.

TRUE

Direct costs plus indirect costs equal total costs.

TRUE

Direct tracing of costs improves cost accuracy.

TRUE

A cost-allocation base is a necessary element when using a strategy that will refine a costing system.

TRUE

For activity-based cost systems, activity costs are assigned to products in the proportion of the demand they place on activity resources.

TRUE

If a company overcosts one of its products, then it will undercost at least one of its other products.

TRUE

In a homogeneous cost pool, all costs have a similar cause-and-effect relationship with the cost- allocation base.

TRUE

Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost- driver assignments are proportionately dissimilar to each other.

TRUE

Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

TRUE

When refining a costing system, a company should classify as many costs as possible as direct costs.

TRUE

Traditional cost systems distort product costs because:

they apply average support costs to each unit of product