Accounting 202 chapter 17

Maintenance cost is allocated to the three producing departments based on the machine hours used in each department. The maintenance cost for May was $100,000. The three departments had the following usage for May: Department Machine hours used Direct labor hours used Assembly 500 2,000 Fabrication 800 5,000 Testing 700 3,000 The maintenance cost that should be allocated to the Fabrication Department for May should be: a. $40,000 Good job! The rate is calculated as total cost divided by total activity ($100,000 / 2,000 machine hours = $50/machine hour), then is applied to actual machine hours used by the department ($50 * 800 = $40,000). b. $20,000 c. $50,000 d. $25,000

$40,000 Good job! The rate is calculated as total cost divided by total activity ($100,000 / 2,000 machine hours = $50/machine hour), then is applied to actual machine hours used by the department ($50 * 800 = $40,000).

A company produces two products, Grey and Red. The following information is available relating to those two products. Assume that the company's total setup cost is $162,000. Using activity-based costing, how much setup cost is allocated to Grey? Grey Red Units produced 500 40,000 Number of setups 50 100 Direct labor hours per unit 15 15 a. $3,240 b. $1,080 c. $1,620 d. $10,800 e. $54,000

$54,000 The best cost driver for setup costs will be the number of setups performed, so the ABC rate for setup cost is Total Setup Costs divided by Total Setups ($162,000 / 150 = $1,080 per setup). Since Product Grey had 50 setups, the cost allocated to that product is calculated as ABC Rate multiplied by the actual activity ($1,080 * 50 setups = $54,000).

For its inspecting cost pool, Gadget, Inc. Estimated overhead cost of $500,000 and 5,000 inspections. The actual overhead cost for that cost pool was $480,000 for 4,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is a. $96 per inspection. b. $100 per inspection. c. $120 per inspection. d. $125 per inspection.

100 per inspection $500,000 / 5,000 = $100

Which of the following statements comparing traditional and activity-based costing (ABC) systems is true? a. Tradtitional systems focus on activity costing while ABC focuses on volume costing b. ABC systems are generally more accurate than traditional systems c. ABC and traditional systems often produce similar product cost information d. Traditional systems are generally more accurate than ABC systems

ABC systems are generally more accurate than traditional systems

Which of the following statements is false? a. Low-volume products often require more special handling than high-volume products. b. The first step in activity-based costing is to assign overhead costs to products using cost drivers. c. Activity-based costing allocates overhead to multiple activity cost pools and assigns the cost pools to products using cost drivers. d. Current trends in manufacturing include less direct labor and more overhead.

The first step in activity-based costing is to assign overhead costs to products using cost drivers.

_________________ is based upon the concept of assigning costs based upon activities that drive costs rather than the volume or number of units produced. a. Process costing b.Backflush costing c. Traditional overhead allocation d. Activity-based costing

activity based costing

An example of an activity cost pool is a. number of parts assembled. b. machine hours. c. assembling parts. d. number of setups.

assembling parts

In traditional costing systems, overhead is generally applied based on

direct labor

A cost driver does not generally have a direct cause and effect relationship with the resources consumed

false (it does)

Traditional costing systems use multiple predetermined overhead rates

false (only one)

Which of the following statements about Activity-based costing (ABC) is false? a. focuses on units of production. b. is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. c. uses multiple bases of allocation, not just a single basis of allocation. d. can be used in either a process cost or a job order cost system.

focuses on units of production.

In changing from a traditional costing system to an activity-based costing system, overhead costs tend to shift from high-volume standard (simple) products to low-volume premium (complicated) products, because a. premium products usually consume more activities per unit than standard products b. standard products use more total activities than premium products c. premium products use more total direct materials and direct labor than standard products d. companies usually make more premium products than standard products

premium products usually consume more activities per unit than standard products

Current trends in manufacturing include less direct labor and more overhead.

true

To achieve accurate costing, a high degree of correlation must exist between the cost driver and the actual consumption of the activity pool.

true

Traditionally, overhead has been assigned based on direct labor cost or direct labor hours

true