Chapter 17

a156. Under just-in-time processing, all of the following are received or completed "just in time" except

d. supplies.

82. As compared to a high-volume product, a low-volume product

b. is usually responsible for more overhead costs per unit.

106. Each of the following is a limitation of activity-based costing except that

b. it decreases control over overhead costs

a152. Just-in-time processing

c. minimizes inventory storage and waiting time.

102. Each of the following is a limitation of activity-based costing except that

c. more cost pools are used.

60. Use of activity-based costing will result in the development of

c. multiple activity-based overhead rates.

100. The primary benefit of ABC is it provides

d. more accurate product costing.

49. The last step in activity-based costing is to

a. assign overhead costs to products, using overhead rates determined for each cost pool.

33. An activity that has a direct cause-effect relationship with the resources consumed is a(n)

a. cost driver.

a159. An important element of just-in-time processing is

a. dependable suppliers who are willing to deliver on short notice.

32. In traditional costing systems, overhead is generally applied based on

a. direct labor.

35. The costs that are easiest to trace directly to products are

a. direct materials and direct labor.

62. To assign overhead costs to each product, the company

a. multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product.

116. Non-value-added activities

a. should be minimized or eliminated.

61. To use activity-based costing, it is necessary to know the

d. all of the above.

a158. Just-in-time processing

d. all of the above.

120. A non-value-added activity in a service enterprise is

d. all of these.

109. Which of the following statements is false?

a. ABC can weaken control over overhead costs.

95. A company incurs $3,600,000 of overhead each year in three departments: Processing, Packaging, and Testing. The company performs 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year in producing 400,000 drums of Oil and 600,000 drums of Sludge. The following data are available: Department Expected Use of Driver Cost Processing 800 $1,500,000 Packaging 200,000 1,500,000 Testing 2,000 600,000 Production information for the two products is as follows: Oil Sludge Department Expected Use of Driver Expected Use of Driver Processing 300 500 Packaging 120,000 80,000 Testing 1,600 400

b. $1,657,500. Solution: Processing: $1,500,000 / 800 = $1,875; Packaging: $1,500,000 / 200,000 = $7.50; Testing: $600,000 / 2,000 = $300; ($1.875 x 500) + ($7.50 x 80,000) + ($300 x 400) = $937,500 + $600,000 + $120,000 = $1,657,500

94. A company incurs $3,600,000 of overhead each year in three departments: Processing, Packaging, and Testing. The company performs 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year in producing 400,000 drums of Oil and 600,000 drums of Sludge. The following data are available: Department Expected Use of Driver Cost Processing 800 $1,500,000 Packaging 200,000 1,500,000 Testing 2,000 600,000 Production information for the two products is as follows: Oil Sludge Department Expected Use of Driver Expected Use of Driver Processing 300 500 Packaging 120,000 80,000 Testing 1,600 400 The amount of overhead assigned to Oil using ABC is

b. $1,942,500. Solution: Processing: $1,500,000 / 800 = $1,875; Packaging: $1,500,000 / 200,000 = $7.50; Testing: $600,000 / 2,000 = $300; ($1,875 x 300) + ($7.50 x 120,000) + ($300 x 1,600) = $562,500 + $900,000 + $480,000 = $1,942,500

80. One of Stine Company's activity cost pools is machine setups, with estimated overhead of $360,000. Stine produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?

b. $144,000 Solution: $360,000 / (400 + 600) = $360; $360 x 400 = $144,000

139. Activity-based costing is used in

b. Yes Yes

55. An example of a cost which would not be assigned to an overhead cost pool is

b. freight-out.

53. An example of an activity cost pool is

b. setting up machines.

105. Which of the following is true about activity-based costing?

c. More costly to use

108. Activity-based costing uses

c. numerous cost pools and numerous cost drivers.

a162. In the pull approach

c. the manufacturing process begins with a customer placing an order.

138. Activity-based costing has been found to be useful in each of the following service industries except

d. ABC has been useful in all of these industries.

65. Companies that switch to ABC often find they have

d. All of the these answers are correct.

130. Which of the following is not a batch-level activity?

d. Assembling

a160. Which of the following is a limitation of just-in-time processing?

d. None of the above

133. Which of the following is a batch-level activity?

d. Purchase ordering

a155. Which account is used in just-in-time processing?

d. Raw and In-Process Inventory

97. Which of the following is a limitation of activity-based costing?

d. Some arbitrary allocations continue

31. Which of the following is not typical of traditional costing systems?

d. Use of multiple cost drivers to allocate overhead.

117. Value-added activities

d. all of the above.

141. Activity-based costing is used by

d. all of the above.

a153. An element of just-in-time processing is

d. all of these.

51. A well-designed activity-based costing system starts with

d. analyzing the activities performed to manufacture a product.

39. Advances in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by

d. decreasing direct labor costs and increasing overhead costs.

136. Activities required to support or sustain an entire production process are called

d. facility-level activities.

70. Boswell Company manufactures two products, Regular and Supreme. Boswell's overhead costs consist of machining, $3,000,000; and assembling, $1,500,000. Information on the two products is: Regular Supreme Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Regular using activity-based costing is

a. $1,290,000. Solution: ($3,000,000 / (10,000 + 30,000)) = $75; $75 x 10,000 = $750,000; $1,500,000 / (90,000 + 160,000) = $6; $6 x 90,000 = $540,000; $750,000 + $540,000 = $1,290,000

143. Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Audit Tax Direct labor cost $50,000 $100,000 CPU minutes 40,000 10,000 Legal hours used 200 800

a. $150,000. Solution: ($300,000 + $150,000) / ($50,000 + $100,000) = $3; $3 x $50,000 = $150,000

75. Ben Gordon, Inc. manufactures 2 products, wheels and seats. The company has estimated its overhead in the assembling department to be $660,000. The company produces 300,000 wheels and 600,000 seats each year. Each wheel uses 2 parts, and each seat uses 3 parts. How much of the assembly overhead should be allocated to wheels?

a. $165,000. Solution: $660,000 / [(300,000 x 2) + (600,000 x 3)] = $0.275; $0.275 x 600,000 = $165,000

89. Hale Company manufactures two models of its couch, the Mini and the Maxi. The Mini model requires 10,000 direct labor hours and the Maxi model requires 40,000 direct labor hours. The company produces 4,000 units of the Mini model and 1,000 units of the Maxi model each year. The company produces the Mini model in batch sizes of 200, while it produces the Maxi model in batch sizes of 100. The company expects to incur $360,000 of total setup costs this year. How much of the setup costs are allocated to the Mini model using ABC costing?

a. $240,000 Solution: $360,000 / [(4,000 / 200) + (1,000 / 100)] = $12,000; $12,000 x 20 = $240,000

77. Windsor Co. incurs $1,050,000 of overhead costs each year in its three main departments, machining ($600,000), inspections ($300,000) and packing ($150,000). The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year. Information about Windsor's two products is as follows: Product X Product Y Machining hours 1,000 3,000 Inspections 100 500 Orders packed 350 650 Direct labor hours 1,700 1,800 Using ABC, how much overhead is assigned to Product X this year?

a. $252,500 Solution: $600,000 / (1,000 + 3,000) = $150; $300,000 / (100 + 500) = $500; $150,000 / (350 + 650) = $150; ($150 x 1,000) + ($500 x 100) + ($150 x 350) = $252,500

84. Zimmerman Company manufactures two products, Board 12 and Case 165. Zimmerman's overhead costs consist of setting up machines, $2,400,000; machining, $5,400,000; and inspecting, $1,800,000. Information on the two products is: Board 12 Case 165 Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Board 12 using traditional costing using direct labor hours is

a. $3,600,000. Solution: ($2,400,000 + $5,400,000 + $1,800,000) / (15,000 + 25,000) = $240; $240 x 15,000 = $3,600,000

56. One of Matheny Company's activity cost pools is inspecting, with estimated overhead of $200,000. Matheny produces throw rugs (700 inspections) and area rugs (1,300 inspections). How much of the inspecting cost pool should be assigned to throw rugs?

a. $70,000. Solution: $200,000 / (1,300 + 700) = $100 x 700 = $70,000

91. Foxx Company incurs $480,000 overhead costs each year in its three main departments, setup ($30,000), machining ($330,000), and packing ($120,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Foxx's two products is as follows: Product A1 Product B1 Number of setups 20 20 Machining hours 1,000 4,000 Orders packed 150 350 Number of products manufactured 600 400 If machining hours are used as a base under traditional costing, how much overhead is assigned to Product A1 each year?

a. $96,000 Solution: $480,000 / 5,000 = $96; $96 x 1,000 = $96,000

a154. Which of the following is not a benefit of just-in-time processing?

a. Control of significant inventory balances

125. Which of the following is not a batch-level activity?

a. Engineering changes

118. Which of the following is a value-added activity?

a. Engineering design

112. Which of the following is a non-value-added activity?

a. Inventory control

99. Which of the following is true of activity-based costing?

a. More cost pools

132. Which of the following is a unit-level activity?

a. Painting

126. Which of the following is not a unit-level activity?

a. Purchase ordering

40. Activity-based costing

a. allocates overhead to activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers.

37. Predetermined overhead rates in traditional costing are often based on

a. direct labor cost for job order costing and machine hours for process costing.

115. A value-added activity in a service enterprise is

a. performing landscaping services.

66. As compared to high-volume products, low-volume products

a. require more special handling.

63. As compared to a low-volume product, a high-volume product

a. usually requires less special handling.

78. A company incurs $4,050,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Department Expected use of Driver Cost Ordering and Receiving 2,000 $1,200,000 Mixing 50,000 1,500,000 Testing 1,500 1,350,000 Production information for Goo is as follows: Department Expected use of Driver Ordering and Receiving 400 Mixing 20,000 Testing 500 Compute the amount of overhead assigned to Goo.

b. $1,290,000 Solution: [($1,200,000 / 2,000) x 400] + [($1,500,000 / 50,000) x 20,000] + [($1,350,000 / 1,500) x 500] = $240,000 + $600,000 + $450,000 = $1,290,000

68. Boswell Company manufactures two products, Regular and Supreme. Boswell's overhead costs consist of machining, $3,000,000; and assembling, $1,500,000. Information on the two products is: Regular Supreme Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Regular using traditional costing using direct labor hours is

b. $1,800,000. Solution: ($3,000,000 + $1,500,000) / (10,000 + 15,000) = $180; $180 x 10,000 = $1,800,000

96. Younger, Inc. manufactures recliners for the hotel industry. It has two products, the Heater and the Massager, and total overhead is $3,160,000. The company plans to manufacture 400 Heaters and 100 Massagers this year. In manufacturing the recliners, the company must perform 600 material moves for the Heater and 400 for the Massager; it processes 900 purchase orders for the Heater and 700 for the Massager; and the company's employees work 1,400 direct labor hours on the Heater product and 3,400 on the Massager. Younger's total material handling costs are $2,000,000 and its total processing costs are $1,160,000. Using ABC, how much overhead would be assigned to the Heater product?

b. $1,852,500 Solution: $2,000,000 / (600 + 400) = $2,000; $1,160,000 / (900 + 700) = $725; ($2,000 x 600) + ($725 x 900) = $1,852,500

146. Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Audit Tax Direct labor cost $50,000 $100,000 CPU minutes 40,000 10,000 Legal hours used 200 800 Overhead applied to tax services using activity-based costing is

b. $180,000. Solution: Computer support: $300,000 / (40,000 + 10,000) = $6; Legal: $150,000 / (200 + 800) = $150; ($6 x 10,000) + ($150 x 800) = $180,000

48. Tidwell Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year. Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity Ordering and Receiving Orders $ 120,000 500 orders Machine Setup Setups 297,000 450 setups Machining Machine hours 1,500,000 125,000 MH Assembly Parts 1,200,000 1,000,000 parts Inspection Inspections 300,000 500 inspections If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is

b. $240 per order. Solution: $120,000 / 500 = $240

45. Reynoso Corporation manufactures titanium and aluminum tennis racquets. Reynoso's total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Titanium Aluminum Total Cost Assembly 500 mach. hours 500 mach. hours $60,000 Inspections 350 150 $100,000 2,100 labor hours 1,900 labor hours Reynoso is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much assembly cost is assigned to titanium racquets?

b. $30,000. Solution: $60,000 / (500 + 500) = $60; $60 x 500 = $30,000

87. Zimmerman Company manufactures two products, Board 12 and Case 165. Zimmerman's overhead costs consist of setting up machines, $2,400,000; machining, $5,400,000; and inspecting, $1,800,000. Information on the two products is: Board 12 Case 165 Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Case 165 using activity-based costing is

b. $4,608,000. Solution: $2,400,000 / (600 + 400) = $2,400; $5,400,000 / (24,000 + 26,000) = $108; $1,800,000 / (800 + 700) = $1,200; ($2,400 x 400) + ($108 x 26,000) + ($1,200 x 700) = $960,000 + $2,808,000 + $840,000 = $4,608,000

74. Noland Company manufactures two models of its banjo, the Basic and the Luxury. The Basic model requires 10,000 direct labor hours and the Luxury requires 30,000 direct labor hours. The company produces 3,400 units of the Basic model and 600 units of the Luxury model each year. The company inspects one Basic for every 100 produced, and inspects one Luxury for every 10 produced. The company expects to incur $112,800 of total inspecting costs this year. How much of the inspecting costs should be allocated to the Basic model using ABC costing?

b. $40,800 Solution: 3,400 ÷ 100 = 34; 600 ÷ 10 = 60; $112,800 / (34 + 60) = $1,200; $1,200 x 34 = $40,800

44. Reynoso Corporation manufactures titanium and aluminum tennis racquets. Reynoso's total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Titanium Aluminum Total Cost Assembly 500 mach. hours 500 mach. hours $60,000 Inspections 350 150 $100,000 2,100 labor hours 1,900 labor hours Reynoso is considering switching from one overhead rate based on labor hours to activity-based costing. Total overhead costs assigned to titanium racquets, using a single overhead rate, are

b. $84,000. Solution: ($100,000 + $60,000) / (2,100 + 1,900) = $40; $40 x 2,100 = $84,000

54. Estimated costs for activity cost pools and other item(s) are as follows: Machining $500,000 Assembling 200,000 Advertising 450,000 Inspecting and testing 175,000 Total estimated overhead is

b. $875,000. Solution: ($500,000 + $200,000 + $175,000) = $875,000

110. Which of the following is a value-added activity?

b. Machining

98. Which of the following factors would suggest a switch to activity-based costing?

b. Overhead costs constitute a significant portion of total costs.

123. Which of the following is not a facility-level activity?

b. Product design

134. Which of the following is a product-level activity?

b. Product design

58. Which would be an appropriate cost driver for the purchasing activity cost pool?

b. Purchase orders

81. Which would be an appropriate cost driver for the ordering and receiving activity cost pool?

b. Purchase orders

a161. Which account is not used in just-in-time processing?

b. Work-in-Process Inventory

83. Identifying and classifying activities is the

b. first step under ABC.

64. Assigning overhead using ABC will usually

b. increase the cost per unit for low volume products as compared to a traditional overhead allocation.

121. Value-added activities

b. involve those activities that are essential to a company's operations.

122. All of the following are examples of a value-added activity in a service company except

b. ordering supplies.

41. Ordering materials, setting up machines, assembling products, and inspecting products are examples of

b. overhead cost pools.

103. The presence of any of the following factors would suggest a switch to ABC except when

b. overhead costs constitute a minor portion of total costs.

150. All of the following statements are correct except that

b. the objective of installing ABC in service firms is different than it is in a manufacturing firm.

67. For its inspecting cost pool, Ellsworth, Inc. expected overhead cost of $400,000 and 4,000 inspections. The actual overhead cost for that cost pool was $480,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is

c. $100 per inspection. Solution: $400,000 / 4,000 = $100

69. Boswell Company manufactures two products, Regular and Supreme. Boswell's overhead costs consist of machining, $3,000,000; and assembling, $1,500,000. Information on the two products is: Regular Supreme Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Supreme using traditional costing using direct labor hours is

c. $2,700,000. Solution: ($3,000,000 + $1,500,000) / (10,000 + 15,000) = $180; $180 x 15,000 = $2,700,000

79. A company incurs $4,050,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Department Expected use of Driver Cost Ordering and Receiving 2,000 $1,200,000 Mixing 50,000 1,500,000 Testing 1,500 1,350,000 Production information for Slime is as follows: Department Expected use of Driver Ordering and Receiving 1,600 Mixing 30,000 Testing 1,000 Compute the amount of overhead assigned to Slime.

c. $2,760,000 Solution: [($1,200,000 / 2,000) x 1,600] + [($1,500,000 / 50,000) x 30,000] + [($1,350,000 / 1,500) x 1,000] = $960,000 + $900,000 + $900,000 = $2,760,000

88. Thomsen Computer Company produces three products: Earth, Wind, and Fire. Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Thomsen has identified an activity cost pool with allocated overhead of $960,000 for which the cost driver is machine setups. How much overhead is assigned to each product?

c. $240,000 $180,000 $540,000 Solution: $960,000 / (80 + 60 + 180) = $3,000; Earth = $3,000 x 80 = $240,000; Wind: $3,000 x 60 = $180,000; Fire: $3,000 x 180 = $540,000

145. Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Audit Tax Direct labor cost $50,000 $100,000 CPU minutes 40,000 10,000 Legal hours used 200 800 Overhead applied to audit services using activity-based costing is

c. $270,000. Solution: Computer support: $300,000 / (40,000 + 10,000) = $6; Legal: $150,000 / (200 + 800) = $150; ($6 x 40,000) + ($150 x 200) = $270,000

93. Foxx Company incurs $480,000 overhead costs each year in its three main departments, setup ($30,000), machining ($330,000), and packing ($120,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Foxx's two products is as follows: Product A1 Product B1 Number of setups 20 20 Machining hours 1,000 4,000 Orders packed 150 350 Number of products manufactured 600 400 Using ABC, how much overhead is assigned to Product B1 each year?

c. $363,000 Solution: Setup : $30,000 / (20 + 20) = $750; Machining: $330,000 / ( 1,000 + 4,000) = $66; Packing: $120,000 / (150 + 350) = $240; ($750 x 20) + ($66 x 4,000) + ($240 x 350) = $363,000

86. Zimmerman Company manufactures two products, Board 12 and Case 165. Zimmerman's overhead costs consist of setting up machines, $2,400,000; machining, $5,400,000; and inspecting, $1,800,000. Information on the two products is: Board 12 Case 165 Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Board 12 using activity-based costing is

c. $4,992,000. Solution: $2,400,000 / (600 + 400) = $2,400; $5,400,000 / (24,000 + 26,000) = $108; $1,800,000 / (800 + 700) = $1,200; ($2,400 x 600) + ($108 x 24,000) + ($1,200 x 800) = $1,440,000 + $2,592,000 + $960,000 = $4,992,000

72. Peters, Inc. produces 3 products: P1, Q2, and R3. P1 requires 400 purchase orders, Q2 requires 600 purchase orders, and R3 requires 1,000 purchase orders. Peters has identified an ordering and receiving activity cost pool with allocated overhead of $240,000 for which the cost driver is purchase orders. Direct labor hours used on each product are 50,000 for P1, 40,000 for Q2, and 110,000 for R3. How much ordering and receiving overhead is assigned to each product?

c. $48,000 $72,000 $120,000 Solution: $240,000 / (400 + 600 + 1,000) = $120; P1 = $120 x 400 = $48,000; Q2 = $120 x 600 = $72,000; R3 = $120 x 1,000 = $120,000

76. Windsor Co. incurs $1,050,000 of overhead costs each year in its three main departments, machining ($600,000), inspections ($300,000) and packing ($150,000). The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year. Information about Windsor's two products is as follows: Product X Product Y Machining hours 1,000 3,000 Inspections 100 500 Orders packed 350 650 Direct labor hours 1,700 1,800 If traditional costing based on direct labor hours is used, how much overhead is assigned to Product X this year?

c. $510,000 Solution: $1,050,000 / (1,700 + 1,800) = $300/DLH; $300 x 1,700 = $510,000

43. Hartley Company produces two products, Flower and Planter. Flower is a high-volume item totaling 20,000 units annually. Planter is a low-volume item totaling only 6,000 units per year. Flower requires one hour of direct labor for completion, while each unit of Planter requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $960,000. Hartley uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of Planter would be assigned overhead of

c. $60.00. Solution: ($960,000 / 32,000) = $30 x 2 = $60

104. Which of the following is a limitation of activity-based costing?

c. ABC can be expensive to use

128. Which of the following is not a facility-level activity?

c. Engineering changes

127. Which of the following is a batch-level activity?

c. Equipment setups

119. Which of the following is a non-value-added activity?

c. Inspection

57. Which would be an appropriate cost driver for the machining activity cost pool?

c. Machine hours

129. Which of the following is not a product-level activity?

c. Material handling

34. Which best describes the flow of overhead costs in an activity-based costing system?

c. Overhead costs activity cost pools cost drivers products

111. Which of the following is a value-added activity?

c. Packaging

135. Which of the following is a facility-level activity?

c. Property taxes

137. Which would be a cost driver for a facility-level activity?

c. Square footage

140. In service industries

c. a larger proportion of overhead costs are company-wide costs.

a157. Just-in-time processing

c. eliminates the push approach.

50. The first step in activity-based costing is to

c. identify and classify the activities involved in the manufacture of specific products, and allocate overhead to cost pools.

42. An "Ordering and Receiving Materials" cost pool would most likely have as a cost driver:

c. number of purchase orders.

36. Often the most difficult part of computing accurate unit costs is determining the proper amount of _________ to assign to each product, service, or job.

c. overhead

149. What sometimes makes implementation of activity-based costing difficult in service industries is

c. that a larger proportion of overhead costs are company-wide costs.

92. Foxx Company incurs $480,000 overhead costs each year in its three main departments, setup ($30,000), machining ($330,000), and packing ($120,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Foxx's two products is as follows: Product A1 Product B1 Number of setups 20 20 Machining hours 1,000 4,000 Orders packed 150 350 Number of products manufactured 600 400 Using ABC, how much overhead is assigned to Product A1 each year?

d. $117,000 Solution: Setup : $30,000 / (20 + 20) = $750; Machining: $330,000 / ( 1,000 + 4,000) = $66; Packing: $120,000 / (150 + 350) = $240; ($750 x 20) + ($66 x 1,000) + ($240 x 150) = $117,000

71. Boswell Company manufactures two products, Regular and Supreme. Boswell's overhead costs consist of machining, $3,000,000; and assembling, $1,500,000. Information on the two products is: Regular Supreme Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Supreme using activity-based costing is

d. $3,210,000. Solution: ($3,000,000 / (10,000 + 30,000)) = $75; $75 x 30,000 = $2,250,000; $1,500,000 / (90,000 + 160,000) = $6; $6 x 160,000 = $960,000; $2,250,000 + $960,000 = $3,210,000

73. Kiner Co. computed an overhead rate for machining costs ($500,000) of $5 per machine hour. Machining costs are driven by machine hours. If computed based on direct labor hours, the overhead rate for machining costs would be $10 per direct labor hour. The company produces two products, Cape and Chap. Cape requires 60,000 machine hours and 20,000 direct labor hours, while Chap requires 40,000 machine hours and 30,000 direct labor hours. Using activity-based costing, machining costs assigned to each product is

d. $300,000 $200,000 Solution: Cape: 60,000 x $5 = $300,000; Chap: 40,000 x $5 = $200,000

144. Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Audit Tax Direct labor cost $50,000 $100,000 CPU minutes 40,000 10,000 Legal hours used 200 800 Overhead applied to tax services using traditional costing is

d. $300,000. Solution: ($300,000 + $150,000) / ($50,000 + $100,000) = $3; $3 x $100,000 = $300,000

47. Tidwell Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year. Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity Ordering and Receiving Orders $ 120,000 500 orders Machine Setup Setups 297,000 450 setups Machining Machine hours 1,500,000 125,000 MH Assembly Parts 1,200,000 1,000,000 parts Inspection Inspections 300,000 500 inspections If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is

d. $34.17. Solution: ($120,000 + $297,000 + $1,500,000 + $1,200,000 + $300,000) / 100,000 = $34.17

147. Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: Audit Tax Direct labor cost $50,000 $100,000 CPU minutes 40,000 10,000 Legal hours used 200 800 Gant Accounting performs tax services for Cathy Lane. Direct labor cost is $1,200; 600 CPU minutes were used; and 1 legal hour was used. What is the total cost of the Lane job using activity-based costing?

d. $4,950 Solution: Computer Support: $300,000 / (40,000 + 10,000) = $6; $150,000 / (200 + 800) = $150; $1,200 + (600 x $6) + ($150 x 1) = $4,950

90. Nott Company manufactures two products, pillows and comforters. The company has estimated its overhead in the order-processing department to be $600,000. The company produces 50,000 pillows and 80,000 comforters each year. Pillow production requires 25,000 machine hours, comforter production requires 50,000 machine hours. The company places raw materials orders 10 times per month, 2 times for raw materials for pillows and the remainder for raw materials for comforters. How much of the order processing overhead should be allocated to comforters?

d. $480,000 Solution: $600,000 / [(2 x 12) + (8 x 12)] = $5,000; $5,000 x 96 = $480,000

46. Reynoso Corporation manufactures titanium and aluminum tennis racquets. Reynoso's total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Titanium Aluminum Total Cost Assembly 500 mach. hours 500 mach. hours $45,000 Inspections 350 150 $75,000 2,100 labor hours 1,900 labor hours Reynoso is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much inspections cost is assigned to titanium racquets?

d. $52,500. Solution: $75,000 / (350 + 150) = $150; $150 x 350 = $52,500

85. Zimmerman Company manufactures two products, Board 12 and Case 165. Zimmerman's overhead costs consist of setting up machines, $2,400,000; machining, $5,400,000; and inspecting, $1,800,000. Information on the two products is: Board 12 Case 165 Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Case 165 using traditional costing using direct labor hours is

d. $6,000,000. Solution: ($2,400,000 + $5,400,000 + $1,800,000) / (15,000 + 25,000) = $240; $240 x 25,000 = $6,000,000

142. Baxter Accounting Services estimates for next year revenues of $3,000,000, direct labor of $600,000, and overhead of $1,050,000. Under traditional costing, overhead is applied to audit jobs using the rate of

d. 175% of direct labor. Solution: $1,050,000 / $600,000 = 175%

148. Activity-based costing has been found to be useful in each of the following service industries except

d. ABC has been useful in any of these industries.

38. Direct labor is sometimes the appropriate basis for assigning overhead cost to products. It is appropriate to use direct labor when which of the following is true?

d. Both (1) and (2)

113. Which of the following is a non-value-added activity?

d. Building maintenance

124. Which of the following is not a product-level activity?

d. Equipment setups

131. Which of the following is not a unit-level activity?

d. Inspecting

101. Which of the following is not a benefit of activity-based costing?

d. Less costly to use

52. Which of the following is not an example of an activity cost pool?

d. Machine hours

151. The use of activity-based costing in service industries

d. all of these.

114. A non-value-added activity in a service enterprise is

d. bookkeeping.

59. An activity-based overhead rate is computed as follows:

d. estimated overhead divided by estimated use of cost drivers.

107. The presence of any of the following factors would suggest a switch to ABC except when

d. production managers are using data provided by the existing system