ACCT 116B - CH. 4 ASP

Which of the following statements regarding quality-control inspections is true? a. Inspection requires both product tear down and product reassembly. b. Inspection requires product reassembly. c. Inspection requires product tear down. d. Inspection requires neither product tear down nor product reassembly.

a. Inspection requires both product tear down and product reassembly.

All of the following are true with regard to activity-based costing for service businesses except a. the single plantwide factory overhead rate method may lead to distortions of costs. b. the multiple department factory overhead rate method may lead to distortions of costs. c. activity-based costing is not applicable to service businesses. d. All of these choices are correct.

c. activity-based costing is not applicable to service businesses.

The total factory overhead for Magnum Corporation is budgeted for the year at $500,000. This is divided into three activity pools: fabrication, $246,000; assembly, $144,000, and setup, $110,000. Magnum manufactures two types of kayaks: Basic and Deluxe. The activity-based usage quantities for each project by activity are as follows: Fabrication Assembly Setup Basic 2,000 dlh 8,000 dlh 5 setups Deluxe 10,000 dlh 24,000 dlh 15 setups Total activity-base usage 12,000 dlh 32,000 dlh 20 setups Each product is budgeted for 2,500 units of production for the year. What is the activity-based factory overhead per unit for the Deluxe kayak? a. $100.00 b. $41.80 c. $154.54 d. $158.20

d. $158.20

Which of the following statements regarding ABC product cost information is NOT true? a. ABC can be used to help improve operations. b. ABC can be used to determine changes that should be made in classifying costs. c. ABC can be used to isolate cost improvement opportunities. d. ABC can be used to simplify the cost allocation process when compared to using one plantwide allocation rate.

d. ABC can be used to simplify the cost allocation process when compared to using one plantwide allocation rate.

Managers use product cost information for decisions regarding a. product price. b. whether to discontinue a product line. c. product mix. d. All of these choices are correct.

d. All of these choices are correct.

Under the ABC costing method, a. departments are identified as activities. b. the budgetary activity costs are assigned to products using factory overhead rates for each activity. c. activity rates are calculated by dividing the budgeted activity cost by the total activity-base usage. d. All of these choices are correct.

d. All of these choices are correct.

When production departments differ significantly in their manufacturing processes, factory overhead costs may be more accurately allocated using which of the following? a. Single plantwide factory overhead rates b. Contribution margin ratio c. Contribution margin d. Multiple production department overhead rates

d. Multiple production department overhead rates

Which of the following is not one of the steps for applying activity-based costing in a service business? a. Determine activity rates for each activity. b. Allocate overhead costs to customers based upon activity-base usage. c. Identify activities. d. Pay the vendor for raw materials.

d. Pay the vendor for raw materials.

Using ABC product cost information when considering reducing cost, which of the following would not be a way to reduce activity costs? a. Improve operations so that the activity-base usage per unit is eliminated. b. Change the classification of employees doing an activity to decrease the activity rate. c. Improve operations so that the activity-base usage per unit is reduced. d. Switch to a plantwide allocation rate.

d. Switch to a plantwide allocation rate.

Which of the following best describes a document that initiates changing a product or process? a. An engineering change order b. A retooling setup order c. An activity rate allocation report d. An activity cost pool analysis

a. An engineering change order

Countryside Bank uses activity-based costing to determine the cost of servicing customers. There are three activity pools: teller transaction processing ($2.60 per teller transaction), check processing ($0.20 per canceled check), and ATM transaction processing ($0.15 per ATM transaction). Rosa Bush had 5 teller transactions, 10 canceled checks, and 7 ATM transactions during the month. What is the total monthly activity-based cost for Rosa Bush during the month? a. $16.05 b. $10.50 c. $34.05 d. $25.50

a. $16.05

The total factory overhead for Norton Company is budgeted for the year at $300,000, divided into three activities: assembly, $200,000; setup, $50,000; and materials handling, $150,000. Norton manufactures two products: Product A and Product B. The activity-based usage quantities for each product by each activity are estimated as follows: Assembly Setup Materials Handling Product A 2,000 dlh 8,000 dlh 5 setups Product B 10,000 dlh 24,000 dlh 15 setups Total activity-base usage 12,000 dlh 32,000 dlh 20 setups What is the activity rate for the assembly activity? a. $16.67 b. $15.00 c. $1.67 d. $25.00

a. $16.67 Activity rates are calculated by dividing the budgeted activity cost by the total activity-base usage. $200,000 ÷ 12,000 dlh = $16.67 per dlh.

The Lazy Pelican Resort uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in ($9.00 per guest visit), room cleaning ($21.75 per day), and room service ($3.25 per order, not including food). Gregory Petricoff visited the hotel for a 9-day stay. He used room service 2 times during his stay. What is the total activity-based cost for Gregory's visit? a. $211.25 b. $220.25 c. $204.75 d. $283.25

a. $211.25

The total factory overhead for Landen Company is budgeted for the year at $675,000. Landen manufactures two drapery products: sheer curtains and insulated curtains. These products each require 6 direct labor hours (dlh) to manufacture. Each product is budgeted for 7,500 units of production for the year. What would the single plantwide factory overhead rate be? a. $7.50 per dlh b. $90.00 per dlh c. $15.00 per dlh d. $45.00 per dlh

a. $7.50 per dlh

The total factory overhead for Simmons Company is budgeted for the year at $450,000 and divided into two departments: Fabrication, $315,000 and Assembly, $135,000. Simmons manufactures two products: chairs and tables. Each chair requires 1 direct labor hour in Fabrication and 3 direct labor hours in Assembly. Each table requires 3 direct labor hours in Fabrication and 6 direct labor hours in Assembly. Each product is budgeted for 3,750 units of production for the year. What would the total number of budgeted direct labor hours (dlh) for the year be in the Assembly Department? a. 33,750 dlh b. 22,500 dlh c. 11,250 dlh d. 7,500 dlh

a. 33,750 dlh Budgeted direct labor hours are calculated by multiplying planned production in units times direct labor hours per unit for each product. Assembly: (3,750 chairs × 3 dlh) + (3,750 tables × 6 dlh) = 33,750 dlh.

Jason's Outdoors manufactures two products: snow skis and water skis. Jason's managerial accountant suspects that product cost distortion through factory overhead allocation is occurring where snow skis are underpriced and water skis are overpriced. As a result, all of the following statements are true except a. Jason's accountant should consider a single plantwide rate to correct the problem. b. Jason's may incorrectly decide to expand production of snow skis. c. Snow skis likely consumed a larger proportion of factory overhead than was allocated. d. Jason's will likely lose sales of water skis.

a. Jason's accountant should consider a single plantwide rate to correct the problem.

Which of the following statements is true? a. Using the activity-based costing method typically results in more accurate product costs than using the single plantwide rate. b. Activity rates are calculated by dividing the activity base by budgeted activity cost. c. Product cost distortion cannot occur when the multiple production department rate method is used. d. Factory overhead costs using activity rates are allocated to products by dividing the activity-base usage by the activity rate.

a. Using the activity-based costing method typically results in more accurate product costs than using the single plantwide rate.

Under activity-based costing, selling and administrative expenses are a. allocated to products based on how each product consumes activities. b. allocated to all products at the same rate. c. treated as period expenses. d. allocated to the top-selling products only.

a. allocated to products based on how each product consumes activities.

The __________ method uses different rates for each production department to allocate factory overhead costs to products. a. multiple production department factory overhead rate b. average cost c. activity-based costing (ABC) d. single plantwide factory overhead rate

a. multiple production department factory overhead rate

A(n) __________ consists of changing tooling in machines in preparation for making a new product. a. setup b. engineering change order c. assembly d. quality-control inspection

a. setup

Single plantwide factory overhead rate is calculated as a. total budgeted factory overhead divided by total budgeted plantwide allocation base. b. contribution margin less fixed costs. c. total budgeted plantwide allocation base divided by total budgeted factory overhead. d. fixed costs less contribution margin.

a. total budgeted factory overhead divided by total budgeted plantwide allocation base.

The denominator in the single plantwide factory overhead rate calculation is a. total budgeted plantwide allocation base. b. total budgeted selling expenses. c. total budgeted factory overhead in dollars. d. total budgeted general and administrative expenses.

a. total budgeted plantwide allocation base.

Sebastian Company manufactures and sells sportswear products. Sebastian uses activity-based costing to determine the cost of the customer return processing and shipping activities. The customer return processing activity has an activity rate of $60 per return, and the shipping activity has an activity rate of $20 per shipment. Sebastian shipped 4,000 units of Product 1 in 800 shipments (some shipments are more than one unit). There were 90 returns. What is the total activity cost for the return and shipping activities of Product 1? a. $5,400 b. $21,400 c. $71,200 d. $5,500

b. $21,400

Sebastian Company manufactures and sells sportswear products. Sebastian uses activity-based costing to determine the cost of the customer return processing and shipping activities. The customer return processing activity has an activity rate of $60 per return, and the shipping activity has an activity rate of $20 per shipment. Sebastian shipped 4,000 units of Product 1 in 800 shipments (some shipments are more than one unit). There were 90 returns. What is the per-unit customer cost for the combined shipping and return activities of Product 1? a. $80 per unit b. $5.35 per unit c. $1.38 per unit d. $359.55 per unit

b. $5.35 per unit

The total factory overhead for Simmons Company is budgeted for the year at $450,000 and divided into two departments: Fabrication, $315,000 and Assembly, $135,000. Simmons manufactures two products: chairs and tables. Each chair requires 1 direct labor hour in Fabrication and 3 direct labor hours in Assembly. Each table requires 3 direct labor hours in Fabrication and 6 direct labor hours in Assembly. Each product is budgeted for 3,750 units of production for the year. What would the factory overhead allocated per unit for each table be, using the department factory overhead allocation rates? a. $60 b. $87 c. $63 d. $24

b. $87

Which of the following is one of the conditions indicating that using a single plantwide factory overhead rate may cause product cost distortions? a. Differences between production for one period compared to production in the next period b. Differences in production department factory overhead rates c. Differences among total budgeted overhead and total budgeted allocation base amount d. There are no specific conditions indicating that a single plantwide factory overhead rate may cause product distortions.

b. Differences in production department factory overhead rates

Which of the following is the correct order for applying activity-based costing steps in a service business? a. Determine activity rates for each activity, identify activities, and allocate overhead costs to customers based upon activity-base usage b. Identify activities, determine activity rates for each activity, and allocate overhead costs to customers based upon activity-base usage c. Identify activities, determine activity rates for each activity, allocate overhead costs to customers based upon activity-base usage, and invoice the customer d. Allocate overhead costs to customers based upon activity-base usage, determine activity rates for each activity, and identify activities

b. Identify activities, determine activity rates for each activity, and allocate overhead costs to customers based upon activity-base usage

Using ABC product cost information when considering reducing cost, which of the following would not be a way to reduce activity costs? a. Improve operations so that the activity-base usage per unit is eliminated. b. Switch to a plantwide allocation rate. c. Change the classification of employees doing an activity to decrease the activity rate. d. Improve operations so that the activity-base usage per unit is reduced.

b. Switch to a plantwide allocation rate.

All of the following are true with regard to activity-based costing for service businesses except a. the multiple department factory overhead rate method may lead to distortions of costs. b. activity-based costing is not applicable to service businesses. c. the single plantwide factory overhead rate method may lead to distortions of costs. d. All of these choices are correct.

b. activity-based costing is not applicable to service businesses.

Activity-based costing allocates selling and administrative expenses a. based on sales volume in units. b. based on how each product consumes activities. c. in accordance with GAAP. d. based on sales volume in dollars.

b. based on how each product consumes activities.

The total factory overhead for Martin Company is budgeted for the year at $375,000. Martin manufactures two garden products: a leaf blower and a garden wagon. These products each require 4 direct labor hours (dlh) to manufacture. Each product is budgeted for 2,500 units of production for the year. What would the single plantwide factory overhead rate be? a. $37.50 per dlh b. $75.00 per dlh c. $18.75 per dlh d. $150.00 per dlh

c. $18.75 per dlh

How many conditions indicate that a single plantwide factory overhead rate may cause product cost distortions? a. Four b. Ten c. Two d. There are no specific conditions indicating that a single plantwide factory overhead rate may cause product distortions.

c. Two

Using ABC product cost information when considering reducing cost, which of the following would be recommended? a. Improving operations so that the raw material usage per unit is eliminated b. Switching to a plantwide allocation rate c. Using an activity-based approach with multiple overhead allocation rates d. Improving operations so that the activity-base usage per unit is increased

c. Using an activity-based approach with multiple overhead allocation rates

Which of the following statements is true? a. Activity rates are calculated by dividing the activity base by budgeted activity cost. b. Product cost distortion cannot occur when the multiple production department rate method is used. c. Factory overhead costs using activity rates are allocated to products by dividing the activity-base usage by the activity rate. d. Using the activity-based costing method typically results in more accurate product costs than using the single plantwide rate.

d. Using the activity-based costing method typically results in more accurate product costs than using the single plantwide rate.

Product costs consist of all of the following except a. direct labor. b. factory overhead. c. direct materials. d. dividends.

d. dividends.