COST ACCOUNTING EXAM 2 ch 5
________ is an example of an output unit-level cost in the cost hierarchy.
Machine depreciation
Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8. According to an ABC system, S5 uses a disproportionately ________
smaller amount of batch-level cost
Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________
stablish a cause-and-effect relationship with the activities performed
facility sustaining costs are the costs of activities _____.
that manager cannot trace to individual products or services but that support the organization as a whole
Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8. According to an ABC system, CP8 is ________ under the traditional system.
undercosted
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.
undercosted
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
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?
$2.00
5 reasons that a company will choose ABC system
1. Significant amounts of indirect costs are allocated using only one or two cost pools 2. All or most indirect costs are identified as output unit-level costs 3. Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity. 4. products that a company is well-suited to make and sell show small profits; whereas products that a company is less suited to produce and sell show large profits 5. operations staffs have substantial disagreement with the reported costs of manufacturing and marketing products and services.
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-Shirts Sweatshirts Production and sales volume 60,000 35,000 Selling price $16.00 $29.00 Direct material $ 2.00 $ 5.00 Direct labor $ 4.50 $ 7.20 Manufacturing overhead $ 2.00 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $ 4.00 $ 7.00 Operating profit $ 3.50 $ 6.80 What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of Sweatshirts increase to $8.20 per unit? Under the revised ABC system, the activity-cost driver rate for the supervision activity is ________
=$1.16 100,920/(45,000 dlh + 42,000 dlh) = 1.16 per dlh
Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $140,000 4,000,000 lines Accnt verification accnts $75,000 40,000 accounts Correspondence letters $ 25,000 4,000 letters Total costs $440,000 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 400,000 lines 250,000 lines Account verification accou10,000 accounts 8,000 accts Correspondence letters 1,200 letters 1,600 letter How much of the total costs will be assigned to department B?
=$113,750 ($200,000/10,000)× 4,000= 80,000 ($140,000/4,000,000)× 250,000= 8,750 ($75,000/40,000)× 8,000= 15,000 ($25,000/4,000)× 1,600= 10,000 Total =113,750
Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $140,000 4,000,000 lines Accnt verification accnts $75,000 40,000 accounts Correspondence letters $ 25,000 4,000 letters Total costs $440,000 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 400,000 lines 250,000 lines Account verification accou10,000 accounts 8,000 accts Correspondence letters 1,200 letters 1,600 letter How much of account verification costs will be assigned to department A?
=$18,750 75,000/40,000= $1.875*10,000 accounts = $18,750
Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $140,000 4,000,000 lines Accnt verification accnts $75,000 40,000 accounts Correspondence letters $ 25,000 4,000 letters Total costs $440,000 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 400,000 lines 250,000 lines Account verification accou10,000 accounts 8,000 accts Correspondence letters 1,200 letters 1,600 letter How much of the account inquiry cost will be assigned to department A?
=$50,000 200,000/10,000= $20.00 hr * 2,500 hrs = $50,000
Teecorp Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $320,000 8,000 hours Gas $36,000 6,000 gallons Invoices $40,000 2,500 invoices Total cost $396,000 The above activities used by their three departments are: Lawn Dept Bush Dept Plowing Dept Labor 2,500 hours 1,200 hours 4,300 hours Gas 1,700 gallons 800 gallons 3,500 gallons Invoices 1,600 invoices 400 invoices 500 invoices How much of invoice cost will be assigned to the bush department
=$6,400 (40,000/2,500)*400= 6,400
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 Product of Setups Components DL Hours Standard 12 8 255 Deluxe 28 12 245 OH costs $52,000 $78,000 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?
=$66,300 [(52,000+78,000)/(255+245)]*255=$66,300
Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $140,000 4,000,000 lines Accnt verification accnts $75,000 40,000 accounts Correspondence letters $ 25,000 4,000 letters Total costs $440,000 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 400,000 lines 250,000 lines Account verification accou10,000 accounts 8,000 accts Correspondence letters 1,200 letters 1,600 letter How much of the correspondence costs will be assigned to department A?
=$7,500 25,000/4,000 =$6.25*1,200 letters= $7,500
Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $140,000 4,000,000 lines Accnt verification accnts $75,000 40,000 accounts Correspondence letters $ 25,000 4,000 letters Total costs $440,000 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 400,000 lines 250,000 lines Account verification accou10,000 accounts 8,000 accts Correspondence letters 1,200 letters 1,600 letter How much of the accounting bill will be assigned to department B?
=$8,750 140,000/4,000,000=.035 per line * 250,000 = $8,750
Teecorp Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $320,000 8,000 hours Gas $36,000 6,000 gallons Invoices $40,000 2,500 invoices Total cost $396,000 The above activities used by their three departments are: Lawn Dept Bush Dept Plowing Dept Labor 2,500 hours 1,200 hours 4,300 hours Gas 1,700 gallons 800 gallons 3,500 gallons Invoices 1,600 invoices 400 invoices 500 invoices If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate?
=$9.50 (36,000+40,000) / 8,000 = $9.50
Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $140,000 4,000,000 lines Accnt verification accnts $75,000 40,000 accounts Correspondence letters $ 25,000 4,000 letters Total costs $440,000 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 400,000 lines 250,000 lines Account verification accou10,000 accounts 8,000 accts Correspondence letters 1,200 letters 1,600 letter How much of the total costs will be assigned to department A?
=$90,250 (200,000/10,000)*2,500= 50,000 (140,000/4,000,000)*400,000= 14,000 (75,000/40,000)*10,000= 18,750 (25,000/4,000)*1,200= 7,500 Total costs =90,250
Which of the following statements is true of a peanut-butter costing system?
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?
Activity-based costing classifies some of the indirect costs as direct costs.
Which of the following is true of refinement of a costing system?
It reduces the use of broad averages for assigning the cost of resources to cost objects.
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?
Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
________ is considered while choosing a cost allocation base for activity costs in ABC costing.
Availability of reliable data and measures
a simple costing system has few indirect cost rates and allocates costs _____.
Broadly. It can lead to innaccurate product costs.
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.
CDAB
Collin Inc. produces hospital equipment and the setup requirements vary from product to product. Collin produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution costs are pooled together. Costs in this pool are allocated using number of customer orders for the easiness of costing operations. Based on the information provided, which of the following arguments is valid?
Collin has failed to use the correct cost driver as the cost-allocation base for setup costs.
Which of the following is a sign that an ABC system may be useful for an organization?
Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.
________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced.
Unit-level costs
ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.
Variable
Demand for refinements to the costing system has accelerated due to ________.
competition in product markets
increasing indirect cost pools
expand the number of cost pools so that each pool is somewhat homogeneous.
For a compant which produce its products in batches, the CEO's salary is a(n) ________ cost.
facility sustaining
Top management compensation cost is an example of _______ in the cost hierarchy.
facility sustaining
_______ costs support the organization as a whole
facility sustaining
it's usually difficult to find good cause-and-effect relationships between ______ and a cost
facility sustaining costs
Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into ________.
greater overhead costs for each product line
ABC systems ________
highlight the different levels of activities
ABC systems create ________.
homogenous activity-related cost pools
Refining a cost system includes ________
identifying the activities involved in a process
Activity based costing system differs from traditional costing systems in the treatment of ________
indirect costs
An accelerated need for refined cost systems is due to ________.
intense competition
Overcosting a particular product may result in ________.
loss of market share
Which of the following cost and cost allocation base have a strong cause and effect relationship?
machine depreciation and output units
Product-cost cross-subsidization ________.
means that if a company undercosts one of its products, it will overcost at least one of its other products
For a company with diverse products, undercosting overhead of a product will lead to ________.
misallocating indirect costs of another product
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 ________.
number of parts used
Unit-level cost drivers are most appropriate as an overhead assignment base when ________.
only one product is manufactured
Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called ________.
peanut-butter costing
Which of the following is a reason that has accelerated the demand for refinements to the costing system?
the use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.
A single indirect-cost rate distort product costs because ________.
there is an assumption that all support activities affect all products
Activity-based costing is most likely to yield benefits for companies ________.
with complex product design processes
