Quiz 4

Recognizing ABC information is not always perfect, because ________. -it balances the need for better information against the costs of creating a complex system -it lacks the simplicity that traditional systems used to have to allocate overhead costs -it mostly uses far too many indirect cost pools than what is actually required i-t never measures how the resources of an organization are used

it balances the need for better information against the costs of creating a complex system

The following information is for Question 10 and Question 11. GR Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $326,000 Direct labor-hours 900,000 Machine maintenance $132,000 Machine-hours 960,000 Facility rent $217,000 Square feet of area 100,000 Total overhead costs $675,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 200 Machine-hours 1,500 Square feet of area 70 If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for GR? -$1.33 per direct labor-hour -$0.75 per direct labor-hour -$0.80 per direct labor-hour -$1.25 per direct labor-hour

$0.75 per direct labor-hour

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? -$1.50 -$2.00 -$0.50 -$1.00

$2.00

The following information are for questions 4 ~ 6. 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 Account verification accounts $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 accounts 10,000 accounts 8,000 accounts Correspondence letters 1,200 letters 1,600 letters How much of the account inquiry cost will be assigned to Department A? -$60,000 -$80,000 -$200,000 -$50,000

$50,000

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 Number of Product Setups Components Direct Labor Hours Standard 12 8 255 Deluxe 28 2 245 Overhead 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 deluxe model? -$63,300 -$63,700 -$64,300 -$63,600

$63,700

The following information are for questions 4 ~ 6. 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 Account verification accounts $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 accounts 10,000 accounts 8,000 accounts Correspondence letters 1,200 letters 1,600 letters How much of the account billing cost will be assigned to Department B? -$8,500 -$8,250 -$8,750 -$8,540

$8,750

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 Number of Product Setups Components Direct Labor Hours Standard 12 8 255 Deluxe 28 12 245 Overhead costs $52,000 $78,000 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? -$83,200 -$82,600 -$84,400 -$80,800

$83,200

The following information are for questions 4 ~ 6. 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 Account verification accounts $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 accounts 10,000 accounts 8,000 accounts Correspondence letters 1,200 letters 1,600 letters How much of the total costs will be assigned to Department A? -$90,650 -$90,250 -$90,750 -$90,350

$90,250

The following information is for Question 10 and Question 11. GR Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $326,000 Direct labor-hours 900,000 Machine maintenance $132,000 Machine-hours 960,000 Facility rent $217,000 Square feet of area 100,000 Total overhead costs $675,000 The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 200 Machine-hours 1,500 Square feet of area 70 Under activity-based costing (ABC), what is the amount of machine maintenance costs allocated to the Mossman Job? -$206.50 -$206.00 -$206.25 -$206.75

-$206.25

Which of the following statements is true of a peanut-butter costing system? -A peanut-butter costing system assumes that all costs are variable. -A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects. -In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume. -A peanut-butter costing system typically has more-homogeneous indirect cost pools.

A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects.

ABC systems create ________. -one large cost pool -homogenous activity-related cost pools -activity-cost pools with a broad focus -activity-cost pools containing many direct costs

homogenous activity-related cost pools

Cannady produces six products. Under their traditional cost system using one cost driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of SR6 was determined to be $178.00 per unit. The total amount of direct costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC -less than -identical to -more than -None of these answers are correct.

identical to

Overcosting a particular product may result in ________. -operating efficiencies -pricing the product too low -loss of market share -understating total product costs

loss of market share

Facility-sustaining costs are the costs of activities ________. -performed on each individual unit of a product or service such as the cost of energy, machine depreciation, and repair -related to a group of units of a product or service rather than each individual unit of product or service -that managers cannot trace to individual products or services but that support the organization as a whole -undertaken to support individual products or services regardless of the number of units or batches in which the units are produced

that managers cannot trace to individual products or services but that support the organization as a whole

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. -ignored -fairly costed -overcosted -undercosted

undercosted