Acct 102 - Ch. 18

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) $5.35 per unit b) $359.55 per unit c) $80 per unit d) $1.38 per unit

a) $5.35 per unit Return: 90 returns × $60 per return =$5,400 Shipping: 800 shipments × $20 per shipment =16,000 Total activity cost $21,400 $21,400 ÷ 4,000 units = $5.35 per unit

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

a) An engineering change order

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 in production department factory overhead rates b) Differences between production for one period compared to production in the next period 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.

a) Differences in production department factory overhead rates

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

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

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) Snow skis likely consumed a larger proportion of factory overhead than was allocated. c) Jason's will likely lose sales of water skis. d) Jason's may incorrectly decide to expand production of snow skis.

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

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

a) Using an activity-based approach with multiple overhead allocation rates

Which of the following is a scenario in which multiple production department overhead rates should be used? a) When one department relies more heavily on direct labor hours as an overhead driver than the other department b) When two departments have vastly different sales volumes and selling expenses c) When two department both rely heavily on machine hours as an overhead driver d) When two departments have vastly different raw materials procurement processes

a) When one department relies more heavily on direct labor hours as an overhead driver than the other department

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

a) based on how each product consumes activities.

Under the __________ method, factory overhead costs are allocated to products only using one rate. a) single plantwide factory overhead rate b) multiple production department factory overhead c) average costing d) activity-based costing

a) single plantwide factory overhead rate

Seaside Clinic uses activity-based costing to determine the cost of servicing patients. There are three activity pools: patient admissions ($75 per patient), laboratory services ($110 per diagnosis), and x-ray imaging ($350 per image). Harold Reed went to the clinic and had blood drawn regarding 1 separate diagnosis, and he had 4 separate images read and interpreted by a doctor. What is the total activity-based cost of Harold's visit? a) $2,140 b) $1,585 c) $535 d) $1,510

b) $1,585 Admission $75 Lab diagnosis ($110 × 1) =110 Imaging ($350 × 4) = 1,400 total $1,585

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 factory overhead allocated to each garden wagon using the single plantwide factory overhead rate be? a) $150.00 b) $75.00 c) $300.00 d) $37.50

b) $75.00 2,500 units × 4 dlh =10,000 dlh leaf blower 2,500 units × 4 dlh =10,000 dlh garden wagon total 20,000 dlh $375,000 ÷ 20,000 dlh = $18.75 $18.75 per dlh × 4 hours = $75.00 allocated per garden wagon

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) 7,500 dlh b) 33,750 dlh c) 22,500 dlh d) 11,250 dlh

b) 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.

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

b) 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) Allocate overhead costs to customers based upon activity-base usage. b) Pay the vendor for raw materials. c) Determine activity rates for each activity. d) Identify activities.

b) 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) Change the classification of employees doing an activity to decrease the activity rate. b) Switch to a plantwide allocation rate. c) Improve operations so that the activity-base usage per unit is eliminated. d) Improve operations so that the activity-base usage per unit is reduced.

b) Switch to a plantwide allocation rate.

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

b) Two

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

b) allocated to products based on how each product consumes activities.

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

b) setup

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

b) total budgeted plantwide allocation base.

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) $154.54 c) $158.20 d) $41.80

c) $158.20 Fabrication: $246,000 ÷ 12,000 dlh =$20.50 per dlh Assembly: $144,000 ÷ 32,000 dlh =$4.50 per dlh Setup: $110,000 ÷ 20 setups =$5,500 per setup Deluxe Kayak: 10,000 dlh × $20.50 per hour =$205,000 24,000 dlh × $4.50 per hour =108,000 15 setups × $5,500 per setup =82,500 Total allocation $395,500 Per-unit overhead = $395,500 ÷ 2,500 units = $158.20

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) $25.50 b) $34.05 c) $16.05 d) $10.50

c) $16.05 Teller transactions (5 × $2.60) =$13.00 Check processing (10 × $0.20) =2.00 ATM transactions (7 × $0.15) = 1.05 total $16.05

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) $220.25 b) $283.25 c) $211.25 d) $204.75

c) $211.25 Check-in $9.00 Room cleaning (9 × $21.75) = 195.75 Room service (2 × $3.25) = 6.50 total = $211.25

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: Product A 5,000 dlh 60 setups 25 moves Product B 15,000 dlh 110 setups 250 moves Total activity-base usage 20,000 dlh 170 setups 275 moves What is the activity rate for the setup activity (round to the nearest dollar)? a) $166 per setup b) $1,764 per setup c) $294 per setup d) $118 per setup

c) $294 per setup Activity rates are calculated by dividing the budgeted activity cost by the total activity-base usage. $50,000 ÷ 170 setups = $294 per setup

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) $90.00 per dlh b) $45.00 per dlh c) $7.50 per dlh d) $15.00 per dlh

c) $7.50 per dlh 7,500 units × 6 dlh =45,000 dlh sheer curtains 7,500 units × 6 dlh =45,000 dlh insulated curtains 45,000 + 45,000 = 90,000 dlh $675,000 ÷ 90,000 dlh = $7.50 per dlh

The total factory overhead for Rowland Company is budgeted for the year at $652,000 and divided into two departments: Fabrication, $460,000 and Assembly, $192,000. Rowland manufactures two products: treadmills and weight machines. Each treadmill requires 3 direct labor hours in Fabrication and 1 direct labor hour in Assembly. Each weight machine requires 2 direct labor hours in Fabrication and 5 direct labor hours in Assembly. Each product is budgeted for 4,000 units of production for the year. What would the factory overhead allocated per unit for each weight machine be, using the department factory overhead allocation rates? a) $77 b) $163 c) $86 d) $81

c) $86 Fabrication dlh (4,000 treadmills × 3 dlh) + (4,000 weight machines × 2 dlh) =20,000 dlh $460,000 ÷ 20,000 dlh = $23 per dlh Assembly dlh (4,000 treadmills × 1 dlh) + (4,000 weight machines × 5 dlh) =24,000 dlh $192,000 ÷ 24,000 dlh = $8 per dlh Weight Machine: Fabrication: 2 dlh × $23 per dlh =$46 Assembly: 5 dlh × $8 per dlh = 40 Allocation per unit 46 + 40 = $86

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) $24 b) $60 c) $87 d) $63

c) $87 Fabrication dlh (3,750 chairs × 1 dlh) + (3,750 tables × 3 dlh) =15,000 dlh $315,000 ÷ 15,000 dlh = $21 per dlh Assembly dlh (3,750 chairs × 3 dlh) + (3,750 tables × 6 dlh) =33,750 dlh $135,000 ÷ 33,750 dlh = $4 per dlh Table: Fabrication: 3 dlh × $21 per hour =$63 Assembly: 6 dlh × $4 per hour = 24 total $87

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 total number of budgeted direct labor hours for the year be? a) 15,000 dlh b) 2,500 dlh c) 90,000 dlh d) 45,000 dlh

c) 90,000 dlh 7,500 units × 6 dlh =45,000 dlh sheer curtains 7,500 units × 6 dlh =45,000 dlh insulated curtains 45,000 + 45,000 = 90,000 dlh

Under activity-based costing, selling and administrative expenses may be allocated using which of the following formulas for activity rate? a) Activity Rate = Budgeted Activity Cost × Total Activity-Base Usage b) Activity Rate = Budgeted Activity Cost + Total Activity-Base Usage c) Activity Rate = Budgeted Activity Cost ÷ Total Activity-Base Usage d) Activity Rate = Budgeted Activity Cost - Total Activity-Base Usage

c) Activity Rate = Budgeted Activity Cost ÷ Total Activity-Base Usage

Using the single plantwide factory overhead rate may cause product cost distortions due to which of the following? a) Differences among products in the ratios of allocation base usage within a department and across departments b) Differences in production department factory overhead rates c) Both of these choices may cause distortions. d) Neither of these choices may cause distortions.

c) Both of these choices may cause distortions.

Which of the following is an important feature when considering the use of a single plantwide factory overhead rate? a) It is complex to use. b) It is often inaccurate. c) It is easy to use. d) It is expensive to use.

c) It is easy to use.

Which of the following is a common method of allocating factory overhead costs to products? a) Association-based costing method b) Average costing method c) Multiple production department factory overhead rate method d) Double plantwide rate method

c) Multiple production department factory overhead rate method

Which of the following is a disadvantage to using a single plantwide factory overhead rate? a) The rate is complicated to use. b) The rate does not take total factory overhead into consideration. c) The rate assumes that factory overhead costs are consumed in the same way by all products. d) The rate is expensive to calculate and to use.

c) The rate assumes that factory overhead costs are consumed in the same way by all products.

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

c) 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 may be allocated to a) products. b) customers. c) both products and customers. d) neither products nor customers.

c) both products and customers.

Activity rates for a service business are a) not used by service businesses even though they are used for manufacturers. b) always higher than for a manufacturer. c) calculated the same as for a manufacturer. d) calculated differently than for a manufacturer.

c) calculated the same as for a manufacturer.

Selling and administrative expenses include all of the following except a) post-sale technical support. b) shipping document preparation. c) factory overhead. d) customer return processing.

c) factory overhead.

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

c) total budgeted factory overhead divided by 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) $71,200 b) $5,400 c) $5,500 d) $21,400

d) $21,400 Return: 90 returns × $60 per return =$5,400 Shipping: 800 shipments × $20 per shipment =16,000 Total activity cost $21,400

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

d) All of these choices are correct.

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

d) All of these choices are correct.

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

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

Activity rates are calculated by a) multiplying the budgeted activity cost by the total activity-base usage. b) subtracting the total activity-base usage from the budgeted activity cost. c) dividing the total activity-base usage by the budgeted activity cost. d) dividing the budgeted activity cost by the total activity-base usage.

d) dividing the budgeted activity cost by the total activity-base usage.

Activity rates for use in service businesses are calculated by a) multiplying the budgeted activity cost by the total activity-base usage. b) adding the budgeted activity cost to the total activity-base usage. c) dividing the total activity-base usage by the budgeted activity cost. d) dividing the budgeted activity cost by the total activity-base usage.

d) dividing the budgeted activity cost by the total activity-base usage.

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

d) multiple production department factory overhead rate

Common allocation bases under the single plantwide factory overhead rate method include all of the following except a) direct labor dollars. b) machine hours. c) direct labor hours. d) planned production in units of product.

d) planned production in units of product.