ACCT 3121 Chapter 5 Practice

$200.20 (1,681.68 mh × ($100,000 ÷ 840,000) = $200.20)

Under activity-based costing, what is the amount of machine maintenance costs allocated to the Mossman Job? (Do not round any intermediary calculations.) A) $1,881.88 B) $200.20 C) $1,681.68 D) $210.45

there is an assumption that all support activities affect all products in a uniform way

A single indirect-cost rate distorts product costs because ________. A) there is an assumption that all support activities affect all products in a uniform way B) it recognizes specific activities that are required to produce a product C) competitive pricing is ignored D) it assumes all costs are product costs

the treatment of direct costs

ABC and traditional systems are quite similar in ________. A) the treatment of direct costs B) the allocation of overheads C) evaluating performance D) the identification of cost pools

highlight the different levels of activities

ABC systems ________. A) highlight the different levels of activities B) limit cost drivers to units of output C) allocate costs based on the overall level of activity D) generally undercost complex products

homogeneous activity-related cost pools

ABC systems create ________. A) one large cost pool B) homogeneous activity-related cost pools C) activity-cost pools with a broad focus D) activity-cost pools containing many direct costs

identify new designs to reduce costs

ABC systems help managers to ________. A) value ending inventory more accurately B) identify new designs to reduce costs C) evaluate direct material costs more efficiently D) improve the inventory turnaround time

indirect costs

Activity based costing system differs from traditional costing systems in the treatment of ________. A) direct labor costs B) direct material costs C) prime costs D) indirect costs

indirect costs (Both ABC method & traditional costing method are different methods of allocating overhead costs . Overhead costs are nothing but indirect costs only.)

Activity based costing system differs from traditional costing systems in the treatment of ________. A) direct labor costs B) direct material costs C) prime costs D) indirect costs

establish a cause-and-effect relationship with the activities performed

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________. A) establish a cause-and-effect relationship with the activities performed B) use single cost pool for all overhead costs, thereby enabling simplicity C) use a broad average to allocate all overhead costs D) never consider interactions between different departments in assigning support costs

with complex product design processes that vary significantly from product to product

Activity-based costing is most likely to yield benefits for companies ________. A) with complex product design processes that vary significantly from product to product B) with operations that remain fairly consistent across product lines C) in a monopolistic market D) having nominal percentage of indirect costs

Batch-level costs

Advanced Technology Products produces 10 different fastners. Each time a type of fastener is produced, the equipment must be stopped and items such as filters and drill bits must be changed, oil must be added to the equipment and some parts need lubrication. This work must be done before the products can be produced, the costs related to this activity would be part of which cost pool? A) Output-level costs B) Batch-level costs C) Product-sustaining costs D) Service-sustaining costs

Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.

Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua? A) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs. B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs. C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs. D) Aqua will overcost Beta's indirect costs because beta has high indirect costs.

[$160,000 / (650 + 150)] × 150 = $30,000

Assume a traditional costing system applies the $160,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the deluxe model?

[$160,000 / (650 + 150)] × 650 = $130,000

Assume a traditional costing system applies the $160,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model?

$14,109 ([$37,960 / (710 + 420)] × 420 = $14,109)

Assume a traditional costing system applies the $37,960 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the deluxe model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $14,109 B) $23,851 C) $23,294 D) $14,666

$26,050 ([$39,240 / (790 + 400)] × 790 = $26,050)

Assume a traditional costing system applies the $39,240 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $13,190 B) $26,050 C) $25,343 D) $13,898

$67,441 ([($82,800 + $74,000) ÷ (265 + 200)] × 200 = $67,441)

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? A) $31,828 B) $67,441 C) $35,613 D) $78,400

$71,749 ([($61,100 + $64,800) ÷ (265 + 200)] × 265 = $71,749)

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 standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $62,950 B) $54,151 C) $71,749 D) $36,929

($4,000 × 7) + ($1,500 × 50) = $103,000

Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.

Because the products do not all require the same proportionate shares of the overhead resources of setup hours and components, the ABC system provides different results than the traditional system which allocates overhead costs on the basis of direct labor hours. The ABC system considers some important differences in overhead resource requirements and thus provides a better picture of the costs from each grooming table style, provided that the activity measures are fairly estimated.

Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.

Setups: $40,000 / (3 + 7) = $4,000 Components: $120,000 / (30 + 50) = $1,500 ($4,000 × 3) + ($1,500 × 30) = $57,000

Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead. What is the total amount of overhead costs assigned to the standard model?

L3 pack is overcosted by $5,850 (Setup cost allocated using direct labor-hours - Setup cost allocated using setup-hours = $19,250 − $13,400 = $5,850)

Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours. Which of the following statements is true of Hebar's setup costs under traditional costing? A) L3 pack is undercosted by $5,850 B) L7 pack is undercosted by $5,750 C) L3 pack is overcosted by $5,850 D) L7 pack is overcosted by $5,850

the costing results for SR6 under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system

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. Given this change in the cost ________. A) SR6 will now command a higher sales price B) SR6 has benefited from the new system C) SR6 is definitely more accurately costed D) the costing results for SR6 under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system

less than

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 indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC. A) more than B) less than C) equal to D) more accurate than

Multiple cost pools are appropriate for Canton's because of diverse support costs.

Canton Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Expected direct costs amounts to $927,000 for the period. Support cost requirements of both products are substantially different from one another. Zitriks uses an ABC costing system. Which of the following is true of Canton's overhead costing? A) Multiple cost pools are appropriate for Canton's because of high direct costs. B) Single cost pool is appropriate for Canton's because of high direct costs. C) Multiple cost pools are appropriate for Canton's because of diverse support costs. D) Single cost pool is appropriate for Canton's because of diverse support costs.

$5.80 per setup (Setups activity-cost driver rate = $261,000 ÷ 45,000 setups = $5.80 per setup)

Canton Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Expected direct costs amounts to $942,000 for the period. Support cost requirements of both products are substantially different from one another. Canton uses an ABC costing system. The setups activity-cost driver rate is ________. A) $6.10 per setup B) $5.80 per setup C) $4.15 per setup D) $15.50 per setup

$6.20 (Inspections activity-cost driver rate = $135,780 ÷ 21,900 inspections = $6.20 per inspection)

Canton's Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Expected direct costs amounts to $928,000 for the period. Support cost requirements of both products are substantially different from one another. Canton's uses an ABC costing system. The inspections activity-cost driver rate is ________. A) $0.44 B) $5.70 C) $6.20 D) $13.08

indirect costs

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of ________. a) material costs b) indirect costs c) prime costs d) labor costs

$6.25 ($68,750 / 11,000 = $6.25)

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity? A) $0.16 B) $0.32 C) $1.16 D) $6.25

$2.00 ($80,000 / 40,000 = $2.00)

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? A) $0.50 B) $1.00 C) $1.50 D) $2.00

competition in product markets

Demand for refinements to the costing system has accelerated due to ________. A) increase in direct costs B) decrease in product diversity C) decrease in indirect costs D) competition in product markets

activity-cost-driver rate = packaging overhead / packaging hours = $150,000 / 950 hours = $157.89 per packaging hour

Determine the activity-cost-driver rate for packaging costs.

The activity-cost-driver rate for setup costs is $4,900 per setup hour = $465,500/95, and for inspection costs is $150 per inspection hour = $405,000/2,700.

Determine the activity-cost-driver rate for setup costs and inspection costs.

the degree to which a predetermined objective or target is met

Effectiveness is ________. a) the relative amount of inputs used to achieve a given output level b) is a practice whereby managers focus more closely on areas that are not operating as expected and less closely on areas that are c) the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies d) the degree to which a predetermined objective or target is met

will likely seek to do business with competitors

Excellent Printing has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2018, Excellent Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: When costs are assigned using the single cost driver, number of pages printed, then Hospital Systems ________. A) is fairly billed because resources are allocated uniformly to all jobs B) is grossly under billed for the job, while other jobs will be unfairly over billed C) will likely seek to do business with competitors D) will contribute too little to profits, and Wallace Printing will not want to accept additional work from the company

Traditional system: Operating profit per batch of sugar cookies is $430.00. ABC system: Operating profit per batch of sugar cookies is $390.52. Because the products do not all require the same proportionate shares of the direct labor resources, the allocation of the total overhead on that basis is not as accurate as using the ABC system. The ABC system allocates the overhead based on activity levels for the specific categories as well as activity usage by the product lines.

Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

ok

Explain the differences between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why? (Answer=ok)

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

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

number of pounds of product shipped or delivered (Distribution ​costs depend on quantity/weight of products being shipped through delivery channels so pounds of product shipped or delivered would be the best allocation base.)

For a business that offers customers a store where product can be purchased and picked up or a delivery service that can ship the product directly to the customer, which of the following would most likely be the best cost allocation base for distribution costs? A) number of customer service phone calls and emails per period B) number of pounds of product shipped or delivered C) Electricity costs for the period D) Number of products sold

facility-sustaining

For a company which produce its products in batches, the CEO's salary is a(n) ________ cost. A) batch-level B) output unit-level C) facility-sustaining D) product-sustaining

misallocating indirect costs of another product

For a company with diverse products, undercosting overhead of a product will lead to ________. A) misallocating direct labor costs of the product. B) misallocating direct material costs of the product C) misallocating indirect costs of another product D) misallocating direct costs of another product

indirect costs of another product are misallocated (If Overhead cost of a particular product is understated it leads to increase in the indirect costs of another product.)

For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that: A) direct labor costs of the product are misallocated B) direct material costs of the product are misallocated C) indirect costs of another product are misallocated D) direct costs of another product are misallocated

direct labor hours

For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what would be the best allocation base for human resource adminstration costs? A) direct labor hours B) electricity costs C) number of parts purchased D) machine hours

$28,500 (Account verification costs - Department A = ($95,000/ 40,000) × 12,000 = $28,500)

How much of account verification costs will be assigned to Department A? A) $23,750 B) $28,500 C) $95,000 D) $47,500

$11,000 (Correspondence costs - Department A = ($22,000 ÷ 4,000) × 2,000 = $11,000)

How much of correspondence costs will be assigned to Department A? A) $22,000 B) $49,500 C) $11,000 D) $11,242

$7,200 (($180,000 / 7,500 invoices) × 300 invoices = $7,200)

How much of invoice cost will be assigned to the Bush Department? A) $7,200 B) $141,600 C) $31,200 D) $180,000

$24,750 (Billing costs - Department B = ($220,000 ÷ 4,000,000) × 450,000 = $24,750)

How much of the account billing cost will be assigned to Department B? A) $220,000 B) $110,000 C) $24,750 D) $33,000

$54,000 (Account inquiry costs - Department A = ($320,000 ÷ 16,000) × 2,700 = $54,000)

How much of the account inquiry cost will be assigned to Department A? A) $54,000 B) $320,000 C) $160,000 D) $84,000

$3,800 (Gas cost = ($8,000 ÷ 4,000 gallons) × 1,900 gallons = $3,800)

How much of the gas cost will be assigned to the Lawn Department? A) $1,800 B) $3,800 C) $2,400 D) $8,000

$63,700 (($392,000 ÷ 8,000) × 1,300 = $63,700)

How much of the labor cost will be assigned to the Bush Department? A) $127,400 B) $63,700 C) $200,900 D) $97,825

$311,600 (($490,000 / 10,000) × 5,800 = $284,200; ($18,000 / 3,000) × 300 = $1,800; ($56,000 / 3,500) × 1,600 = $25,600; $311,600

How much of the total cost will be assigned to the Plowing Department? A) $564,000 B) $311,600 C) $188,000 D) $173,600

$88,825 (Account inquiry costs = ($280,000 ÷ 14,000) × 2,100 = $42,000; Billing costs = ($350,000 ÷ 7,000,000) × 500,000 = $25,000; Account verification costs = ($93,750 ÷ 50,000) × 7,000 = $13,125; Correspondence costs = ($29,000 ÷ 4,000) × 1,200 = $8,700; $88,825)

How much of the total costs will be assigned to Department A? A) $88,825 B) $118,825 C) $120,000 D) $85,075

$239,425 (Account inquiry costs = ($750,000 ÷ 15,000) × 3,500 = $175,000; Billing costs = ($250,000 ÷ 5,000,000) × 750,000 = $37,500; Account verification costs = ($173,250 ÷ 70,000) × 7,000 = $17,325; Correspondence costs = ($42,000 ÷ 7,000) × 1,600 = $9,600; $239,425)

How much of the total costs will be assigned to Department B? A) $282,460 B) $246,925 C) $239,425 D) $256,825

$174,800

How much of the total costs will be assigned to the Lawn Department? A) $192,000 B) $464,000 C) $174,800 D) $154,667

$52,364.86 ($77,500 × [125 ÷ (125 + 60)] =$52,364.86)

If administrative expense of $77,500 is allocated on the basis of number of employees, the amount allocated to the Car Rental Department would be ________. A) $38,750.00 B) $52,364.86 C) $25,135.14 D) $51,278.20

$0.95 per direct labor-hour ($874,000 ÷ 920,000 = 0.95 per dlh)

If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for Milan? A) $1.05 per direct labor-hour B) $0.59 per direct labor-hour C) $0.95 per direct labor-hour D) $1.71 per direct labor-hour

$33.00 per hour (($84,000 + $180,000) ÷ 8,000 = $33.00)

If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate? A) $75.00 per hour B) $26.67 per hour C) $42.00 per hour D) $33.00 per hour

$0.09 per page (($900,000 ÷ 10 million pages) = $0.09 per page)

If manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity, what is the cost driver rate? (Round the final answer to three decimal places.) A) $0.078 per page B) $0.035 per page C) $0.055 per page D) $0.09 per page

a simple costing system will yield accurate cost numbers

If products are alike, then for costing purposes a. a simple costing system will yield accurate cost numbers b. an activity-based costing system should be used c. multiple indirect-cost rates should be used d. varying demands will be placed on resources

$522,000 ($629,300 × ($1,800,000 / $2,170,000) = $522,000)

If total advertising expense of $629,300 is allocated on the basis of sales, the amount allocated to the Large Department would be ________. A) $107,300 B) $558,000 C) $522,000 D) $314,650

$21,420 ($64,680 × (510 ÷ (1,030 + 510)) = $21,420)

If total payroll processing costs of $64,680 are allocated on the basis of number of employees, the amount allocated to the Large Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $32,026 B) $21,420 C) $32,340 D) $43,260

$103,200 (Amount allocated to the Large Department = 144,300 × (17,200 ÷ (6,850 + 17,200)) = $103,200)

If total rent expense of $144,300 is allocated on the basis of square footage, the amount allocated to the Large Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $103,000 B) $41,100 C) $72,150 D) $103,200

product-pricing errors are minimal

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________. A) total costs reflect market price B) value-added costs can be eliminated C) there is high likelihood of cross-subsidizing of product costs D) product-pricing errors are minimal

facility-sustaining costs (Facility−sustaining costs are the cost which is related to the whole of the organization that is they provide support to the whole of the organization. Therefore it is very difficult to trace it along with the individual Product. As a result, it is very difficult to find a good cost driver​(cause−and−effect​relationship) between ​facility−sustaining costs and a cost allocation base.)

It is usually difficult to find good cost driver (cause-and-effect relationship) between ________ and a cost allocation base. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

its benefits exceed its implementation costs

It only makes sense to implement an ABC system when ________. A) a single product is produced in bulk B) its benefits exceed its implementation costs C) it traces more costs as direct costs D) production process is labor-intensive

Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.

Johnson Superior Products Inc. produces hospital equipment and the setup requirements vary from product to product. Johnson produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution costs are pooled together. Costs in this pool are allocated using number of customer orders for the easiness of costing operations. Based on the information provided, which of the following arguments is valid? A) Johnson has clearly failed to identify as many direct costs as is economically feasible. B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect relationship with the single cost driver that is used as the cost-allocation base for Johnson. C) Johnson has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as direct costs. D) Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.

process-improvement

Lavender Company is a logistics company and has recently implemented ABC system. Using activity-based information, it decides to reduce the bulkiness of the packages delivered, thereby reducing costs. This suggests that ABC system helps managers in ________ decisions. A) pricing B) product-mix C) process-improvement D) product-design

total costs of each product and then they compute per-unit costs

Management accountants use the cost hierarchy to first calculate the ________. A) labor costs of each product and then they compute material costs B) overhead costs of each product and then they compute prime costs C) factory costs of each product and then they compute labor costs D) total costs of each product and then they compute per-unit costs

$21,960 (Setups: 16,000 ÷ (17 + 33) = $320; Components: $18,050 ÷ (7 + 12) = $950; Total amount of overhead cost = ($320 × 33) + ($950 × 12) = $21,960)

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 cost assigned to the deluxe model? A) $21,960 B) $17,025 C) $16,840 D) $17,210

$11,500 (Setups: 17,150 ÷ (20 + 29) = $350; Components: $19,800 ÷ (5 + 17) = $900; Total amount of overhead cost = ($350 × 20) + ($900 × 5) = $11,500)

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 cost assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $18,475 B) $11,500 C) $19,750 D) $25,450

$83,800 (Setups: $60,000 ÷ (11 + 29) = $1,500; Components: $58,900 ÷ (6 + 13) = $3,100; Total amount of overhead costs = ($1,500 × 29) + ($3,100 × 13) = $83,800)

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? A) $59,450 B) $83,800 C) $56,800 D) $62,100

$61,200 (Setups: $75,000 ÷ (18 + 32) = $1,500; Components: $87,400 ÷ (9 + 14) = $3,800; Total amount of overhead costs = ($1,500 × 18) + ($3,800 × 9) = $61,200)

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 standard model? A) $81,200 B) $81,900 C) $61,200 D) $101,200

to ensure that all costs are considered

One reason for assigning selling and distribution costs to products for analytical purposes is ________. A) to justify a varied product-mix B) that these costs should be included in the cost of goods sold in the income statement C) to ensure that all costs are considered D) that all direct costs must be assigned

loss of market share

Overcosting a particular product may result in ________. A) loss of market share B) pricing the product too low C) operating efficiencies D) understating total product costs

pricing the product too high

Overcosting a particular product may result in: A) pricing the product too high B) pricing the product too low C) operating efficiencies D) understating total product costs

greater overhead costs for each product line

Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into ________. A) fewer indirect costs for each product line B) decisions to drop product variations C) a greater number of direct manufacturing labor cost allocation rates D) greater overhead costs for each product line

means that if a company undercosts one of its products, it will overcost at least one of its other products

Product-cost cross-subsidization ________. A) exists when one overcosted product results in more than one other product being overcosted B) means that if a company undercosts more than one of its products, it will overcost more than one of its other products C) means that if a company undercosts one of its products, it will overcost at least one of its other products D) exists only when one overcosted product results in all other products being overcosted

when a company undercosts one of its products, it will overcost at least one of its other products

Product-cost cross-subsidization means that: A) when one product is overcosted, it results in more than one other product being overcosted B) when a company undercosts more than one of its products, it will overcost more than one of its other products C) when a company undercosts one of its products, it will overcost at least one of its other products D) when one product is overcosted it results in all other products being overcosted

CDAB

Put the following ABC implementation steps in order ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases. A) DACB B) DBCA C) BADC D) CDAB

$704 (($88,000 ÷ 8,000 inspections) × 64 = $704)

Under ABC costing, what is the inspection cost allocated to Hospital Systems? A) $704 B) $80 C) $286 D) $6,574

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

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

identifying the activities involved in a process and understanding how those activities consume resources

Refining a cost system involves which of the following? A) classifying as many costs as indirect costs as is feasible B) creating as many cost pools as possible to capture all costs C) identifying the activities involved in a process and understanding how those activities consume resources D) Seeking an easier and more cost effective way to calculate average costs

For marketing, using 11% of sales limits the marketing activities to an arbitrary amount without consideration for potential opportunities. Using the number of customers for customer service can lead to customer service initiatives to limit the amount of time servicing each customer to cause the number of customers serviced to increase. Using the number of orders for order execution can result in purchasers splitting orders to increase the numbers of orders executed. Using the number of product lines for warehousing can lead warehouse personnel to designate more product line differences in the warehouse.

The Chapeau Company is noted for an exceptionally impressive line of one-size fits-all men's hats. Chapeau has established the following selling and distribution support activity-cost pools and their corresponding activity drivers for the year 2018: Describe at least one possible negative behavioral consequence for each of the four activity-cost drivers.

Activity-cost driver rate for Marketing = $150,000 ÷ $1,250,000 = 11% of sales Activity-cost driver rate for Customer Service = $70,000 ÷ 10,000 = $7 per customer Activity-cost driver rate for Order Execution = $5,000 ÷ 200= $25 per order Activity-cost driver rate for Warehousing = $15,000 ÷ 125= $120 per order

The Chapeau Company is noted for an exceptionally impressive line of one-size fits-all men's hats. Chapeau has established the following selling and distribution support activity-cost pools and their corresponding activity drivers for the year 2018: Determine the activity-cost-driver rate for each of the four selling and distribution activities.

For marketing, using 11% of stipulated sales is appropriate when management wants to limit marketing costs to a budgeted proportion to sales. Using the number of customers for customer service is appropriate when the customer service costs are similar enough to use the average for all customers. Using the number of orders for order execution is appropriate when all orders are sufficiently alike in terms of resources used that they can be averaged. Using the number of product lines for warehousing is appropriate when each product line requires similar proportions of the warehousing efforts.

The Chapeau Company is noted for an exceptionally impressive line of one-size fits-all men's hats. Chapeau has established the following selling and distribution support activity-cost pools and their corresponding activity drivers for the year 2018: Under what circumstances is it appropriate to use each of the activity-cost drivers?

ABC system is a highly refined costing system

The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour. Nichols' management is considering to implement ABC system because ________. A) ABC system can be implemented cheaply B) ABC system provides more accurate direct cost figures C) ABC system is a highly refined costing system D) ABC system requires minimal expertise to operate

several activities cause a sizable portion of the costs of the department

The following conditions with departmental indirect-cost rates will result in allocation of costs similar to ABC costing except: A) a single activity accounts for a sizable portion of the costs of the department B) Significant costs are incurred on different activities within a department C) several activities cause a sizable portion of the costs of the department D) significant costs are incurred for different activities with different cost -allocation bases within a department

activities

The fundamental cost objects of ABC are ________. A) activities B) cost drivers C) products D) services

develop the best cost system that meets the cost/benefit test (Activity-based costing (ABC) is a costing method that assigns overhead and indirect costs to related products and services. This accounting method of costing recognizes the relationship between costs, overhead activities, and manufactured products, assigning indirect costs to products less arbitrarily than traditional costing methods.)

The goal of a properly constructed ABC system is to ________. A) have the most accurate cost system B) identify more indirect costs C) develop the best cost system that meets the cost/benefit test D) have separate allocation rates for each department

$52,920 $123,480 / (48,000 dlh + 36,000 dlh) = $1.47 per dlh × 36,000 dlh = $52,920

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: Under the revised ABC system, supervision costs allocated to Sweatshirts will be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $52,920 B) $104,800 C) $123,480 D) None of these answers are correct.

facility-sustaining costs

Top management compensation cost is an example of ________ in the cost hierarchy. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

$1.90 per unit ($70,200 / (40,000 inspections + 18,500 inspections) = $1.20 per inspection x 18,500 = $22,200 plus $107,520 / (48,000 dlh + 48,000 dlh) = $1.12 per dlh x 48,000 dlh = $53,760; $22,200 + $53,760 = $75,960; $75,960 / 40,000 sweatshirts = $1.90)

Under the revised ABC system, overhead costs per unit for the Sweatshirts will be ________. (Do not round interim calculations. Round the final answer to the nearest cent) A) $1.19 per unit B) $1.20 per unit C) $1.90 per unit D) $1.58 per unit

$52,920 ($123,480 / (48,000 dlh + 36,000 dlh) = $1.47 per dlh × 36,000 dlh = $52,920)

Under the revised ABC system, supervision costs allocated to Sweatshirts will be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $52,920 B) $104,800 C) $123,480 D) None of these answers are correct.

$1.2 ($97,200 / (45,000 dlh + 36,000 dlh) = $1.2 per dlh)

Under the revised ABC system, the activity-cost driver rate for the supervision activity is ________. A) $1.70 B) $2.70 C) $2.16 D) $1.2

$68,460 ($93,000 / (60,000 inspections + 17,500 inspections) = $1.20 per inspection × 17,500 = $21,000 plus $108,480 / (54,000 dlh + 42,000 dlh) = $1.13 per dlh × 42,000 dlh = $47,460; $21,000 + $47,460 = $68,460)

Under the revised ABC system, total overhead costs allocated to Sweatshirts will be ________. A) $47,460 B) $68,460 C) $201,480 D) None of these answers are correct.

lower profits

Undercosting a particular product may result in: a. loss of market share b. lower profits c. operating inefficiencies d. understating total product costs

peanut-butter costing

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called ________. A) activity-based costing B) uniform costing C) peanut-butter costing D) department costing

only one product is manufactured

Unit-level cost drivers are most appropriate as an overhead assignment base when ________. A) several complex products are manufactured B) only one product is manufactured C) direct material costs are low D) prime costs are low

ok

Using a traditional system (with direct labor hours as the overhead allocation base), for the sugar cookie:. 1. compute the estimated overhead costs per thousand cookies. 2. compute the estimated operating profit per thousand cookies. (Answer=ok)

there are several homogeneous cost pools

Using activity-cost rates rather than department indirect-cost rates to allocate costs results in different product costs when ________. A) a single activity accounts for a sizable portion of department costs B) there are several homogeneous cost pools C) different activities have the same cost-allocation base D) different products use different resources in the same proportion

$3.66 per t-shirt ([46,000 ($18.00 - $1.60 - $4.30 - $3.50)] - $227,300 = $168,300 / 46,000 = $3.66)

Using an ABC system, next year's estimates show manufacturing overhead costs will total $227,300 for 46,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is ________. (Round the final answer to the nearest whole cent.) A) $8.60 per t-shirt B) $4.94 per t-shirt C) $3.66 per t-shirt D) ($0.27) per t-shirt

a single activity accounts for a sizable portion of the costs of the department (Departmental indirect-cost rates will result in allocation of cost similar to ABC costing except when a single activity accounts for a sizable portion of the costs of the department (D) because in such case the majority of cost will come under a particular activity ignoring other factors affecting the working of the department thereby forgoing the concept of ABC analysis.)

Using department indirect-cost rates to allocate costs will result in results similar to ABC if: A) a single activity accounts for a sizable portion of the costs of the department B) several activities cause a sizable portion of the costs of the department C) a single activity accounts for a small portion of the costs of the department D) several activities cause a small portion of the costs of the department

$3,500 ($3,500 = [70,000 pages × ($600,000 / 12,000,000)])

Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Money Managers during 2018? A) $4,300 B) $2,800 C) $3,500 D) $4,784

ok

Using the ABC system, for each style of faucet 1. compute the estimated overhead costs per unit. 2. compute the estimated operating profit per unit. (Answer=ok)

ok

Using the ABC system, for the sugar cookie: 1. compute the estimated overhead costs per thousand cookies. 2. compute the estimated operating profit per thousand cookies. (Answer=ok)

Operating profit per unit for Brass faucets is $5 = $40 - ($8 + $15 + $12) Operating profit per unit for Chrome faucets is $10 = $20 - ($4 + $3 + $3) Operating profit per unit for White faucets is $4 = $30 - ($8 + $9 + $9)

Using the traditional system, determine the operating profit per unit for each style of faucet.

$0.15 per page (($1,500,000 / 10,000,000 pages))

What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity? A) $0.01 per page B) $0.15 per page C) $0.14 per page D) $0.13 per page

time-driven activity based costing

When "available time" (i.e., setup-hours) is used to calculate a cost of a resource and to allocate costs to cost objects , the system is called: A) job costing B) process costing C) hybrid costing D) time-driven activity based costing

machine depreciation and output units

Which of the following cost and cost allocation base have a strong cause and effect relationship? A) administration costs and cubic feet B) setup costs and square feet C) machine depreciation and output units D) machine maintenance and setup hours

quality control costs and the number of inspections

Which of the following cost and cost allocation base have a strong cause and effect relationship? A) administration costs and cubic feet B) setup costs and square feet C) quality control costs and the number of inspections D) machine maintenance and setup hours

intense competition

Which of the following has accelerated need for refined cost systems? A) global monopolies B) rising prices C) intense competition D) a shift toward increased direct costs

It needs activity-cost rates to be updated regularly.

Which of the following is a disadvantage of an activity-based costing system? A) It classifies some indirect costs as direct costs. B) It assumes all costs as direct costs. C) It needs activity-cost rates to be updated regularly. D) It ignores direct costs of a product.

The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.

Which of the following is a reason that has accelerated the demand for refinements to the costing system? A) The declining demand for customized products has led managers to decrease the variety of products and services their companies offer. B) The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs. C) The increased of automated processes has led to the increase in direct manufacturing cost leading to a decrease in break even point. D) The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of break even point.

Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.

Which of the following is a sign that an ABC system may be useful for an organization? A) Significant amounts of indirect costs are allocated using multiple cost pools. B) Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity. C) Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs. D) Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.

All or most indirect costs are treated as output-unit level costs.

Which of the following is a sign that an ABC system will provide benefits? A) There are relatively few indirect cost pools associated with the product and the indirect costs are a small percentage of total product cost B) All the products produced are similar and sell in equal proportions (sales mix) C) Operations staff has no substantial disagreements with the reported costs of manufacturing and marketing products and services. D) All or most indirect costs are treated as output-unit level costs.

It reduces the use of broad averages for assigning the cost of resources to cost objects.

Which of the following is true of refinement of a costing system? A) While refining a costing system, companies should identify as many indirect costs as is economically feasible. B) A homogeneous cost pool will use multiple cost drivers to allocate costs. C) It reduces the use of broad averages for assigning the cost of resources to cost objects. D) It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs.

The focus is on activities that account for a sizable fraction of indirect costs. (The activity-based costing is different from traditional costing. This model assigns more indirect costs, It is used to allocate the overhead to the products based on the activities consumed by the product or process.)

Which of the following is true with activity based cost accounting? A) Activity-based costing ignores the allocation of marketing and distribution costs. B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. C) The focus is on activities that account for a sizable fraction of indirect costs. D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.

output unit-level, batch-level, product-sustaining level, and facility-sustaining level

Which of the following ordering of the levels best depicts the cost hierarchy within an ABC system? A) batch-level, output unit-level, product-sustaining level, and facility-sustaining level B) batch-level, output unit-level, facility-sustaining levels, product-sustaining levels C) output unit-level, batch-level, product-sustaining level, and facility-sustaining level D) facility-sustaining level, output unit-level, batch-level, product-sustaining level

Companies that overcost run the risk of losing customers.

Which of the following statements is true concerning product costing systems? A) Companies that undercost products always sell products at a loss. B) Companies that overcost run the risk of losing customers. C) Undercosting or overcosting does not relate to product cost cross-subsidization. D) Peanut butter costing is another term for direct costing. E) Companies that overcost will make more profit by passing along higher prices to customers.

ABC system employs multiple activity-cost drivers.

Which of the following statements is true of ABC systems? A) ABC system will always result in higher product costs. B) ABC system employs multiple activity-cost drivers. C) ABC system is least suited for service companies. D) ABC system is simpler compared to traditional systems.

ABC systems provide valuable information to managers beyond accurate product costs.

Which of the following statements is true of ABC systems? A) ABC systems are time-driven cost systems. B) ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs. C) ABC systems provide valuable information to managers beyond accurate product costs. D) ABC systems assume all costs are variable costs.

ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies.

Which of the following statements is true of ABC systems? A) ABC systems provide less insight than traditional systems into the management of the indirect costs. B) ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies. C) Service companies find great value from ABC because a vast majority of their cost structure is composed of direct costs. D) ABC systems is valuable for pricing decisions but not for understanding, managing, and reducing costs in government institutions.

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

Which of the following statements is true of a peanut-butter costing system? A) A peanut-butter costing system typically has more-homogeneous indirect cost pools. B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects. C) A peanut-butter costing system assumes that all costs are variable. D) 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.

Activity-based costing classifies some of the indirect costs as direct costs.

Which of the following statements is true of activity-based costing? A) Activity-based costing ignores the allocation of marketing and distribution costs. B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. C) Activity-based costing classifies some of the indirect costs as direct costs. D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.

Activity based costing is more suited to companies with high product diversity than companies with single product line.

Which of the following statements is true of activity-based costing? A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs. B) Activity based costing is more suited to companies with high product diversity than companies with single product line. C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services. D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.

undercosted

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. A) overcosted B) fairly costed C) undercosted D) ignored

Direct labor hours; machine hours

________ and ________ are typically the measures of volume of activity in traditional volume-based cost systems. a. Practical capacity; products sold b. Direct labor hours; practical capacity c. Direct labor hours; machine hours d. Square footage; machine hours

Product-sustaining costs

________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced. A) Unit-level costs B) Batch-level costs C) Product-sustaining costs D) Facility-sustaining costs

Facility-sustaining

________ costs support the organization as a whole. A) Unit-level B) Batch-level C) Product-sustaining D) Facility-sustaining

Machine depreciation

________ is an example of an output unit-level cost in the cost hierarchy. A) Factory rent expense B) Building security costs C) Top management compensation costs D) Machine depreciation

Availability of reliable data and measures

________ is considered while choosing a cost allocation base for activity costs in ABC costing. A) Marketing strategy and material price level B) Availability of reliable data and measures C) Product price level D) Market share of a product