exam 2 accounting

Valpar Company produces four types of laundry hampers and uses ABC to allocate overhead costs to products. During the upcoming period the company expects to produce 72,000 total units with the following costs and cost drivers: Activities Unit-Level Batch-Level Product-Level Facility-Level Cost $20,000 $8,000 $15,000 $36,000 Cost Driver 4,000 labor hours 200 set-ups % of use 72,000 units Production of 12,000 units of its deluxe wood hamper required 600 labor hours, 70 setups, and consumed 40% o

$0.50 Reason: $15,000 × 40% = $6,000 $6,000 ÷ 12,000 = $0.50

Valpar Company produces four types of laundry hampers and uses ABC to allocate overhead costs to products. During the upcoming period the company expects to produce 72,000 total units with the following costs and cost drivers: Activities Unit-Level Batch-Level Product-Level Facility-Level Cost $20,000 $8,000 $15,000 $36,000 Cost Driver 4,000 labor hours 200 set-ups % of use 72,000 units Production of 20,000 units of its popular foldable hamper required 1,200 labor hours, 50 setups, and consume

$10,000 Reason: $36,000 ÷ $72,000 = $0.50 per hamper $0.50 × 20,000 = $10,000

Wilson Co. currently produces 2,000 tennis rackets annually. A supplier has offered to produce the rackets for $370 per racket. Wilson incurs unit-level costs of $360 per racket and spends $10,000 on product design each year. Annual facility-level costs are $100,000. What is the effect on profit if Wilson Co. outsources the rackets?

$10,000 decrease Reason: $720,000 (2,000 × $360) unit-level cost + $10,000 product-level = $730,000 avoidable cost vs. $740,000 (2,000 units × $370) outsourcing cost. Company profits will decrease by $10,000 if the outsourcing option is chosen.

Oliver's Company (OC) produces organic dog food in batches of chicken and beef. Each time OC switches production from chicken to beef, setup costs are incurred. OC plans 180 set-ups for chicken and 180 set-ups for beef dog food. If total setup costs are expected to be $95,040, the allocation rate per set-up is _blank​_.

$264 Reason: $95,040 ÷ (180 + 180) = $264 per set-up

Chris Co. is currently producing 1,000 surfboards annually. A supplier has offered to produce the boards for $300 each. Chris Co. incurs unit-level costs of $280 per surfboard. Chris also spends $25,000 on product design each year and incurs $50,000 of facility-level costs. If Chris Co. outsources the boards, they can lease their manufacturing space for $12,500 per annum. Chris Co.'s relevant cost per surfboard is _blank​_.

$317.50 Reason: $280,000 (1,000 × $280) unit-level cost + $25,000 product-level + $12,500 opportunity cost = $317,500 total relevant cost or $317.50 per unit.

Valpar Company produces four types of laundry hampers and uses ABC to allocate overhead costs to products. During the upcoming period the company expects to produce 72,000 total units with the following costs and cost drivers: Activities Unit-Level Batch-Level Product-Level Facility-Level Cost $16,000 $8,000 $15,000 $36,000 Cost Driver 4,000 labor hours 200 set-ups % of use 72,000 units Production of 20,000 units of its popular foldable hamper required 1,200 labor hours, 50 setups, and consum

$4,800 incorrect Reason: $16,000 ÷ 4,000 direct labor hours = $4 per direct labor hour 1,200 labor hours × $4 = $4,800

Chris Co. produces surfboards. A customer has offered Chris Co. $400 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $350 per unit and batch-level costs of $5,500. Chris Co. also incurred $70,000 of product-level costs to design the board and $10,000 of facility-level costs. Calculate the amount of differential revenue.

$40,000 Reason: $400 × 100 = $40,000

Premium Co. produces park benches. A customer has offered Premium Co. $700 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $500 per unit and batch-level costs of $5,000. Premium Co. also incurred $15,000 of product-level costs to design the bench and has $200,000 of facility-level costs. Calculate the amount of differential cost.

$55,000 Reason: $500 × 100 units= $50,000 + $5,000 batch-level cost = $55,000

Premium Co. produces park benches. A customer has offered Premium Co. $700 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $500 per unit and batch-level costs of $5,000. Premium Co. also incurred $15,000 of product-level costs to design the bench and has $200,000 of facility-level costs. Calculate the amount of differential revenue.

$70,000 Reason:$700 × 100 units = $70,000

Oliver's Company (OC) produces organic dog food in batches of chicken and beef. Each time OC switches production from chicken to beef, setup costs are incurred. The allocation rate is $150 per set-up. If OC uses 210 batches to produce chicken dog food, the total set-up cost assigned to chicken dog food will be $

31,500

Wilson Co. currently produces 2,000 tennis rackets annually. A supplier has offered to produce the rackets for $370 per racket. Wilson incurs unit-level costs of $360 per racket and spends $10,000 on product design each year. Annual facility-level costs are $100,000. The avoidable production cost for Wilson per racket is:

365 Reason: $360 unit-level + ($10,000 ÷ 2,000 units) product-level = $365

Which of the following statements are true? Multiple select question. A particular cost may be either batch-level or unit-level depending on the situation. Changing the number of units in a batch impacts both batch- and unit-level costs. Eliminating a batch eliminates both batch- and unit- level costs.

A particular cost may be either batch-level or unit-level depending on the situation. Eliminating a batch eliminates both batch- and unit- level costs.

chapter 5

Chapter 5

chapter 6

Chapter 6

Which of the following is a qualitative characteristic of a special order decision?

Current customers demanding a price reduction

True or false: A traditional costing system uses more cause-and-effect relationships in tracing costs than does an activity-based cost allocation system.

False Reason: An activity-based costing system uses more cause-and-effect relationships in tracing costs than does a traditional cost allocation system.

What type of cost behavior pattern does a batch-level activity exhibit within a given batch?

Fixed Reason: Batch-level costs are fixed regardless of the number of units produced in a single batch.

A company makes two products. Product ABC is made in batch-sizes of 50 and Product XYZ is made in batch-sizes of 150. The batch-level cost per unit will be _blank​_.

Higher for product ABC Reason: Since batch-level costs are fixed relative to the number of units in a particular batch, the smaller the batch, the higher the cost per unit.

Which of the following statements are true?

In a decision, qualitative factors may be more important than quantitative factors.

Which of the following statements are true? Multiple select question.

In a decision, qualitative factors may be more important than quantitative factors.

Which of the following statements are true? Totally accurate information can still be irrelevant. Information does not have be exact to be relevant. Totally inaccurate information can still be useful. The most useful information is both relevant and precise.

Totally accurate information can still be irrelevant. Information does not have be exact to be relevant. The most useful information is both relevant and precise.

Which of the following statements are true? Multiple select question. Totally accurate information can still be irrelevant. Totally inaccurate information can still be useful. The most useful information is both relevant and precise. Information does not have be exact to be relevant.

Totally accurate information can still be irrelevant. The most useful information is both relevant and precise. Information does not have be exact to be relevant.

It is as important to reduce the price of overcosted products as it is to increase the price of undercosted products.

True Reason: Overcosted products have a negative impact on market share, so prices need to be reduced when applicable.

Defining a cost as fixed or variable has no effect on whether or not the cost is considered relevant.

True Reason: The concept of relevance is independent from the concept of cost behavior.

Some activities could fall into any of the four hierarchical categories.

True Reason: To properly classify activities, you must learn to analyze the context within which they occur.

A unit-level cost exhibits a _blank​_ cost behavior pattern.

Variable Reason: The unit-level costs exhibit a variable cost behavior pattern. Total cost varies in direct proportion to the number of units produced. Cost per unit is constant.

Wilson Co. produces tennis rackets. A customer offered Wilson Co. $400 per racket for 200 rackets. To fill the order, Wilson would incur unit-level costs of $300 per unit and batch-level costs of $1,000. Wilson also incurred $10,000 of product-level costs to design the racket and has $100,000 of facility-level costs. Based on your quantitative analysis, should Wilson Co. accept the special order?

Yes Reason: $80,000 differential revenue - $61,000 differential cost = $19,000 contribution to income.

Wilson Co. produces tennis rackets. A customer offered Wilson Co. $400 per racket for 200 rackets. To fill the order, Wilson would incur unit-level costs of $300 per unit and batch-level costs of $1,000. Wilson also incurred $10,000 of product-level costs to design the racket and has $100,000 of facility-level costs. If Wilson Co. does not accept the special order, they can rent out the excess capacity for $10,000. Should Wilson Co. accept the special order? What or why not?

Yes, profits increase by $9,000. Reason: $80,000 differential revenue - $61,000 differential cost = $19,000 contribution to income. Since the company will only receive $10,000 in rent, they are $9,000 better off to accept the special order.

ABC improves the accuracy of allocations by using _blank​_ cost drivers.

a combination of volume- and activity-based

Challenging obstacles to successfully implementing ABC include _blank​_.

accurate data obtaining employee support

Many companies have adopted _________ -based cost drivers to improve the accuracy of indirect cost allocations.

activity

To reduce record-keeping costs, companies group related activities into hubs called _blank​_.

activity centers

In a highly automated environment, the accuracy of cost allocations and the effectiveness of decisions is improved by using _blank​_ costing.

activity-based

To improve the accuracy of indirect cost allocations many companies have adopted _blank​_ cost drivers.

activity-based

In a highly automated environment, improved accuracy of cost allocations is a benefit of

activity-based costing

In the first stage of developing an ABC system, a company _blank​_

assigns costs to pools based on the activities that cause the costs to be incurred Reason: This is the first step, but not the first stage.

Costs that can be eliminated by making specific choices are called _blank​_ costs.

avoidable

Relevant costs are frequently called ___________ costs.

avoidable

Inspecting the first item of each group to ensure the setup was correct is a _blank​_ activity.

batch-level

What type of activity relates to producing groups of products?

batch-level

To improve cost tracing, companies organize production activities into _blank​_ activities.

batch-level facility-level product-level unit-level

When a company switches from traditional costing to ABC it is important, if possible, to adjust the sales price of _blank​_.

both over and under costed products Reason: The company is potentially losing money on undercosted products, so the sales price needs to be adjusted, if possible.

Relevant information can have _blank​_ characteristics.

both qualitative and quantitative

A company that produces cars has a division that makes sound systems for the cars. If the company decides to stop producing the sound systems internally, the product-level costs related to the sound system division _blank​_ be avoided.

can

Unit-level costs _blank​_ be avoided by eliminating the production of a single unit of product.

can

When a company only uses one base for allocating all overhead costs to products or other cost objects it is referred to as a _blank​_ allocation rate.

companywide

To be relevant, information must _blank​_.

differ among alternatives be future oriented

Relevant revenue is sometimes called _blank​_ revenue.

differential

Revenue that varies among alternatives is called relevant or _____ revenue.

differential

In product elimination decisions, _blank​_ costs may be relevant.

either upstream or downstream

The minimum amount of total quality costs is achieved when the marginal voluntary expenditures _blank​_.

equal the marginal savings on failure costs

Costs incurred to support an entire company are called ________-level costs.

facility

Many companies organize activities into four hierarchical categories including unit-level, batch-level, product-level, and _blank​_ activities.

facility-level

What level of activity benefits the production process as a whole?

facility-level

Facility-level costs include _blank​_.

factory depreciation security guard salaries factory rent

True or false: Qualitative characteristics are never as important as quantitative characteristics when making special order decisions.

false

Information must be exact to be relevant.

false Reason: Although the most useful information is both relevant and precise, information that is not exact can still be relevant.

Switching from a traditional overhead allocation rate to ABC impacts material, labor and overhead costs.

false Reason: Only overhead allocation is impacted, which results in a change in gross margin.

ABC implementation is generally easy as long as both management and rank-and-file employees support it.

false Reason: While employee support make it more likely to succeed, even with support implementing an ABC system can be difficult. Frequently, the accounting system is not collecting some of the needed data and changes will be required to ensure success.

If batch-level costs are significant, it is most cost effective for a company to produce _blank​_.

high-volume products only Reason: Low-volume products are more expensive to make because the fixed batch costs must be spread over fewer units.

In automated manufacturing companies, the number of direct _______ Incorrect Unavailable hours is no longer an effective allocation base.

labor

As companies shift from labor intensive to highly automated, which of the following allocation bases will be most appropriate for allocating overhead costs to products or other cost objects?

machine hours Reason: Direct labor was related to production volume prior to the automation of the manufacturing process. As automation has taken over, direct labor is not an effective base for allocating overhead costs. Machines have replaced most human workers.

Unit-level activities for a shirt manufacturer include _blank​_.

material inspection

Relevant costs _blank​_.

may be fixed or variable

A particular cost that is relevant in one context _blank​_.

may be irrelevant in another context

Eliminating a business segment (such as a division, department, or office) _blank​_ facility-level costs.

may enable a company to avoid some

A volume-based allocation rate assigns _blank​_ products.

more cost to high-volume

Chris Co. produces surfboards. A customer has offered Chris Co. $400 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $350 per unit and batch-level costs of $5,500. Chris Co. also incurred $70,000 of product-level costs to design the board and $10,000 of facility-level costs. Based on your quantitative analysis, should Chris Co. accept the special order?

no Reason: $40,000 differential revenue - $40,500 differential costs = ($500). Since differential revenue is greater than differential cost, the order should not be accepted.

Chris Co. produces surfboards. A customer has offered Chris Co. $400 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $350 per unit and batch-level costs of $5,500. Chris Co. also incurred $70,000 of product-level costs to design the board and $10,000 of facility-level costs. Chris Co. can rent out its excess capacity for $2,000 if it does not accept the special order. Based on your quantitative analysis, should Chris Co. accept the special order? What is the effect on profit?

no, profit decreases by $2500 Reason: $40,000 differential revenue - $40,500 differential costs = ($500). The company will give up an additional $2,000 from not renting the space, making the total decrease in profit $2,500.

The sacrifice that is incurred in order to obtain an a different option is a(n) _blank​_ cost.

opportunity

The sacrifice that is incurred in order to obtain an alternative option is a(n)

opportunity cost

Buying goods and services from other companies rather than producing them internally is commonly called

outsourcing

Assigning non-volume related costs, such as set-ups, using volume-based cost drivers will _blank​_ high-volume products.

overcost

A switch from traditional overhead allocation to ABC impacts _blank​_.

overhead allocation only

Costs incurred to support specific products or services are called _________-level costs

product

Raw materials inventory holding costs, engineering development costs, and legal fees for patents, copyrights, trademarks, and brand names are considered _blank​_ activities.

product-level

The degree to which products or services conform to design specifications is the definition of

quality

Product-level costs include _blank​_.

raw materials inventory holding costs engineering development costs legal fees for patents

Information that is future oriented and differs among the alternatives is known as _blank​_ information.

relevant

A furniture store that is losing money is considering two options. One is to close the entire store. The other is to close the outdoor furniture department only. The salary of the manager of the outdoor furniture department is _blank​_.

relevant to both decisions Reason: Because this salary will be eliminated under both options, it is relevant to both decisions.

Costs in the activity cost pools are allocated to products using a variety of cost drivers in the _______ stage of activity-based costing.

second

Historical costs are frequently called _______ costs because they cannot be changed and are not relevant for making current decisions. (Enter

sunk

Determining the price customers are willing to pay then producing the product at a cost low enough to then sell at a price customers demand, is known as _blank​_.

target pricing

Managing quality costs to achieve the highest level of customer satisfaction is known as _blank​_ management.

total quality

The sum of voluntary costs plus failure costs equals _blank​_ cost.

total quality control

Determining the optimal number of activity centers requires cost/benefit analysis.

true

In a labor-intensive environment, a companywide allocation rate based on direct labor hours will generally only lead to insignificant allocation inaccuracies.

true Reason: In the labor-intensive environment that led to companywide allocation rates, overhead costs were relatively small compared to the costs of labor and materials, making allocation inaccuracies relatively insignificant in amount.

Defining a cost as fixed or variable has no effect on whether or not the cost is considered relevant.

true Reason: The concept of relevance is independent from the concept of cost behavior.

To disclose the effects of changes over time, data in a quality cost report are normally displayed over _blank​_ or more accounting periods.

two

Costs incurred each time a company generates one individual item of product are called ______-level costs.

unit

An activity that occurs each time an individual item of a product is made is a(n)

unit-level activity

The material costs for every item manufactured is a _blank​_ cost.

unit-level cost

Both activity-based costing and traditional costing systems _blank​_.

uses volume-based cost drivers allocate overhead costs to cost pools

Unit-level costs exhibit a(n) ______ cost behavior pattern.

variable

Automated production processes often generate costs which have no cause-and-effect relationship with

volume based drivers

When indirect costs increase or decrease relative to the magnitude of activity, it is appropriate to use _blank​_ cost driver.

volume-based

Fill in the blank question. Automated production processes often generate costs which have no cause-and-effect relationship with

volume-based cost driver

Sunk costs _blank​_.

were incurred in the past and are not relevant