UFC1, Chapter 4, Quiz 1

This is a true statement

Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor

A method of assigning overhead costs to a product using a single overhead rate is

Plantwide overhead rate method

The cost object of the plantwide overhead rate method is

The unit of product

What are the main advantages of traditional volume-based allocation methods compared to activity-based costing?

Traditional volume-based methods are easier to use and less costly to implement and maintain.

A company estimates that overhead costs for the next year will be $9,234,000 for indirect labor and $156,800 for factory utilities. The company uses machine hours as its overhead allocation base. If 500,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round to two decimal places)

$18.78 per machine hour. because: ($9,234,000 + $156,800)/500,000 machine hours = $18.78 per machine hour

Ridley Company estimates that overhead costs for the next year will be $6,870,000 for indirect labor and $450,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 160,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?

$45.75 per machine hour. because: ($6,870,000 + $450,000)/160,000 machine hours = $45.75 per machine hour

K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 80,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

$46.25 per direct labor hour. because: ($2,900,000 + $800,000)/80,000 direct labor hours = $46.25 per direct labor hour

From an ABC perspective, what causes costs to be incurred

Activities

Direct Labor Hours- Mixing is 400,000 DLH and Baking is 80,000 DLH Machine Hours- Mixing is 800,000 DLH and Baking is 800,000 DLH Overhead Costs- Mixing is $600,000 and Baking is $400,000

Aztec's departmental overhead rate for the mixing department based on direct labor hours is $1.50 per DLH. because: $600,000/400,000 DLH = $1.50 per DLH Azetec's departmental overhead rate for the mixing department based on machine hours is .75 per MH because: $600,000/800,000 MH = $0.75 per MH Aztec's departmental overhead rate for the baking department based on direct labor hours is $5.00 per DLH. because: $400,000/80,000 DLH = $5.00 per DLH Aztec's departmental overhead rate for the baking department based on machine hours is .50 per MH because: $400,000/800,000 MH = $0.50 per MH

Overhead costs

Cannot be traced to units of product in the same way that direct labor can

Consider the following activities which take place in a veterinary clinic. (a.) Cleaning cages (b.) Heating and air conditioning the clinic (c.) Sending blood work to a lab (d.) Dispensing medicine Which of the following statements is(are) true?

Heating and air conditioning the clinic is a facility level activity

Three advantages of activity-based costing over traditional volume-based allocation methods

More accurate product costing, more effective cost control, and better focus on the relevant factors for decision making.

These statements are false

The departmental overhead rate is not usually based on measures closely related to production volume. The departmental overhead rate is most accurate in assigning overhead costs that are not driven by production volume. Allocated overhead costs will be the same no matter which allocation method is used. When cost analysts are able to logically trace cost objects to costs, costing accuracy is improved.

Which of the following are advantages of using the plantwide overhead rate method

The necessary information is readily available

The cost objects of the activity-based costing method are

The production activities in the first stage and the unit of production in the second stage

The cost object of the departmental overhead rate method is

The production departments in the first stage and the unit of product in the second stage