Test bank managerial accounting by garrison 13e chapter 08

In the second-stage allocation in activity-based costing, activity rates are used to applycosts to products, customers, and other cost objects.Ans: True AACSB: Reflective Thinking AICPA

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True/False Questions

1 If a manufacturing company is using activity-based costing for internal purposes only, then organization-sustaining overhead costs should not be allocated to any of the products

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

2 Batch-level activities are performed each time a batch of goods is handled or

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

6 Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable

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7 A duration driver provides a measure of the amount of time required to perform an activity.

8 In general, transaction drivers are more accurate measures of the consumption of resources than duration drivers

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

9 The costs of idle capacity should not be assigned to products in activity-based costing.Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

10 In traditional costing systems, all manufacturing costs are assigned to products even manufacturing costs that are not caused by the products

11 Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs on the basis of direct labor hours

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium

12 In activity-based costing, some costs may be broken down and assigned to two activitycost pools For example, part of a supervisor's salary may be classified as a product-level activity and part of it may be classified as a batch-level activity

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14 In the second-stage allocation in activity-based costing, activity rates are used to applycosts to products, customers, and other cost objects.

15 When a company shifts from a traditional cost system in which manufacturing

overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase

Ans: True AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting LO: 8 Level: Medium

Multiple Choice Questions

16 Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _ percentage of total product cost and where there is _ diversity among the various products that they produce

A) low, little

B) low, considerable

C) high, little

D) high, considerable

Ans: D AACSB: Analytic AICPA BB: Critical Thinking

17 Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-

sustaining?

Security Assembly

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18 Which of the following would be an acceptable measure of activity for a material handling activity cost pool?

Number of Weight ofmaterial moves material moved

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

19 An activity-based costing system that is designed for internal decision-making

generally will not conform to generally accepted accounting principles Which of the following is NOT a reason for this happening?

A) Some manufacturing costs (i.e., the costs of idle capacity and sustaining costs) will not be assigned to products

organization-B) Some nonmanufacturing costs are assigned to products

C) Allocation bases other than direct labor-hours, direct labor cost, and hours are used

machine-D) First-stage allocations may be based on subjective interview data

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting LO: 1 Level: Hard

20 Providing the power required to run production equipment is an example of a:

A) Unit-level activity

B) Batch-level activity

C) Product-level activity

D) Organization-sustaining activity

21 Parts administration is an example of a:

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22 If a cost object such as a product or customer has a negative green margin, then:A) its red margin will be positive.

B) its red margin may be either positive or negative

C) its red margin will be negative

D) its red margin will be zero

AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium

23 Tatman Corporation uses an activity-based costing system with the following three activity cost pools:

Activity Cost Pool Total ActivityFabrication 10,000 machine-hours

Order processing 800 orders

Other Not applicable

The Other activity cost pool is used to accumulate costs of idle capacity and

organization-sustaining costs

The company has provided the following data concerning its costs:

Wages and salaries $320,000

Depreciation 220,000

Occupancy 120,000

Total $660,000

The distribution of resource consumption across activity cost pools is given below:

Activity Cost PoolsFabrication

OrderProcessing Other TotalWages and salaries 20% 65% 15% 100%

Depreciation 15% 35% 50% 100%

Occupancy 5% 70% 25% 100%

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Total Fabrication Cost:

Wages and salaries: 20% × $320,000 $ 64,000

Activity Cost Pool Total Cost Total Activity Activity Rate

Fabrication $103,000 10,000 machine-hours $10.30 per machine-hour

24 Leaper Corporation uses an activity-based costing system with the following three activity cost pools:

Activity Cost Pool Total ActivityFabrication 40,000 machine-hours

The Other activity cost pool is used to accumulate costs of idle capacity and

organization-sustaining costs

The company has provided the following data concerning its costs:

Depreciation 140,000

Occupancy 160,000

Total $660,000

Activity Cost PoolsFabrication

OrderProcessing Other TotalWages and salaries 35% 40% 25% 100%

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AICPA FN: Reporting LO: 2,3 Level: Medium

Solution:

Total Order Processing Cost:

Wages and salaries: 40% × $360,000 $144,000

Order Processing $293,000 200 orders $1,465 per order

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25 Huelskamp Corporation has provided the following data concerning its overhead costsfor the coming year:

The Other activity cost pool does not have a measure of activity; it is used to

accumulate costs of idle capacity and organization-sustaining costs

Activity Cost Pools

Assembly ProcessingOrder Other TotalWages and salaries 25% 65% 10% 100%

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Total Assembly Cost:

Assembly $171,000 60,000 labor-hours $2.85 per labor-hour

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26 Bennette Corporation has provided the following data concerning its overhead costs for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to

accumulate costs of idle capacity and organization-sustaining costs

Activity Cost Pools

Assembly ProcessingOrder Other TotalWages and salaries 40% 35% 25% 100%

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Order Processing $215,000 500 orders $430 per order

27 Eccles Corporation uses an activity-based costing system with three activity cost pools The company has provided the following data concerning its costs and its activity based costing system:

Distribution of resource consumption:

Activity Cost PoolsAssembly Setting Up Other TotalWages and salaries 20% 60% 20% 100%

Utilities 5% 55% 40% 100%

How much cost, in total, would be allocated in the first-stage allocation to the

Assembly activity cost pool?

A) $144,000

B) $96,000

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Total Assembly Cost:

Utilities 15% 50% 35% 100%

How much cost, in total, would be allocated in the first-stage allocation to the Setting

Up activity cost pool?

A) $360,000

B) $336,000

C) $288,000

D) $348,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

Solution:

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29 Gutknecht Corporation uses an activity-based costing system with three activity cost pools The company has provided the following data concerning its costs and its activity based costing system:

Solution:

Total Other Cost:

Depreciation: 35% × $180,000 63,000

Utilities: 30% × $240,000 72,000

Total $210,000

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30 Lakatos Corporation uses an activity-based costing system with three activity cost pools The company has provided the following data concerning its costs:

Occupancy 30% 35% 35% 100%

How much cost, in total, would be allocated in the first-stage allocation to the

Fabricating activity cost pool?

A) $88,000

B) $132,000

C) $264,000

D) $120,000

Solution:

Total Fabricating Cost:

Depreciation: 5% × $240,000 12,000

Occupancy: 30% × $220,000 66,000

Total $120,000

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31 Perl Corporation uses an activity-based costing system with three activity cost pools The company has provided the following data concerning its costs:

Activity Cost Pools

Fabricating ProcessingOrder Other TotalWages and salaries 15% 60% 25% 100%

Solution:

Depreciation: 35% × $200,000 70,000

Occupancy: 50% × $100,000 50,000

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32 Hosley Corporation uses an activity-based costing system with three activity cost pools The company has provided the following data concerning its costs:

Solution:

Total Other Cost:

Depreciation: 45% × $100,000 45,000

Occupancy: 35% × $120,000 42,000

Total $123,000

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33 Feldpausch Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool Total Cost Total ActivityAssembly $1,137,360 84,000 machine-hours

Processing orders $28,479 1,100 orders

Inspection $97,155 1,270 inspection-hours

The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year The product's direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit The

product sells for $118.00 per unit According to the activity-based costing system, the product margin for product W26B is:

A) $6,444.70 per unit

B) $4,679.20 per unit

C) $3,384.70 per unit

D) $16,675.60 per unit

AICPA FN: Reporting LO: 3,4,5 Level: Medium

hours

$76.50 perinspection-hourCalculation of Overhead Costs:

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Data concerning one of the company’s products, Product W58B, appear below:

Selling price per unit $113.70

Direct materials cost per unit $48.14

Direct labor cost per unit $11.62

Annual unit production and sales 360

AICPA FN: Reporting LO: 3,4,5 Level: Medium

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hours inspection-hour$76.90 per

Calculation of Overhead Costs:

Activity Cost Pool Activity Rate Total Activity ABC Cost

Assembly $11.15 per MH 1,040 MHs $11,596.00

Processing Orders $30.78 per order 60 orders $1,846.80

Inspection $76.90 per IH 30 IHs $2,307.00

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35 Dobles Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool Total Cost Total ActivityAssembly $228,060 18,000 machine-hours

The company makes 420 units of product D28K a year, requiring a total of 460

machine-hours, 80 orders, and 10 inspection-hours per year The product's direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit According

to the activity-based costing system, the average cost of product D28K is closest to:A) $95.34 per unit

B) $93.60 per unit

C) $74.32 per unit

D) $89.93 per unit

hours

$73.00 perinspection-hourAverage Cost of Product D28K:

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36 Paparo Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool Total Cost Total ActivityAssembly $846,040 52,000 machine-hours

Data concerning the company’s product Q79Y appear below:

Annual unit production and sales 450

Annual machine-hours 1,080

Annual number of orders 70

Annual inspection hours 20

Direct materials cost $44.00 per unit

Direct labor cost $41.03 per unit

According to the activity-based costing system, the average cost of product Q79Y is closest to:

A) $133.29 per unit

B) $85.03 per unit

C) $127.43 per unit

D) $129.94 per unit

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$75.30 perinspection-hourAverage Cost of Product Q79Y:

Setting up batches $33,300 740 batch set-ups

Assembling products $126,160 6,640 assembly hours

The activity rate for the “designing products” activity cost pool is closest to:

A) $101 per product design hour

B) $1,372,448 per product design hour

C) $176 per product design hour

D) $57 per product design hour

AICPA FN: Reporting LO: 3 Level: Easy

Solution:

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38 Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below:

Activity Cost Pools Total Cost Total ActivityResearching legal issues $20,480 640 research hours

Meeting with clients $1,182,239 7,253 meeting hours

Preparing documents $91,840 5,740 documents

The activity rate for the “meeting with clients” activity cost pool is closest to:

A) $95 per meeting hour

B) $61 per meeting hour

C) $163 per meeting hour

D) $1,182,239 per meeting hour

Solution:

Meeting with clients $1,182,239 7,253 meeting

hours $163 per meeting hour

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39 Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Activity Cost Pools Activity RateSetting up batches $59.06 per batch

Processing customer orders $72.66 per customer order

Assembling products $3.75 per assembly hour

Data concerning two products appear below:

Product K91B Product F65ONumber of batches 84 50

Number of customer orders 32 43

Number of assembly hours 483 890

How much overhead cost would be assigned to Product K91B using the activity-basedcosting system?

A) $9,097.41

B) $81,146.53

C) $4,961.04

D) $135.47

84 batches $4,961.04Processing customer

orders

$72.66 perorder

32 orders 2,325.12Assembling products $3.75 per AH 483 AHs 1,811.25

$9,097.41

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40 Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Activity Cost Pools Activity RateAssembling products $8.90 per assembly hour

Processing customer orders $31.23 per customer order

Setting up batches $43.72 per batch

Data for one of the company’s products follow:

Product U94WNumber of assembly hours 389

Number of customer orders 53

Solution:

Activity Cost Pool Activity Rate Total Activity ABC CostAssembling products $8.90 per AH 389 AHs $3,462.10Processing customer

orders

$31.23 perorder

53 orders 1,655.19Setting up batches

$43.72 perbatch

61 batches 2,666.92

$7,784.21

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41 Activity rates from Lippard Corporation's activity-based costing system are listed below The company uses the activity rates to assign overhead costs to products:

Activity Cost Pools Activity RateProcessing customer orders $31.62 per customer order

Assembling products $2.86 per assembly hour

Setting up batches $46.61 per batch

Last year, Product H50E involved 9 customer orders, 666 assembly hours, and 77 batches How much overhead cost would be assigned to Product H50E using the activity-based costing system?

A) $60,979.68

B) $3,588.97

C) $5,778.31

D) $81.09

$46.61 perbatch

77 batches 3,588.97

$5,778.31

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Use the following to answer questions 42-43:

Weldon Corporation has provided the following data from its activity-based costing

accounting system:

Indirect factory wages $340,000

Factory equipment depreciation $240,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost PoolsCustomer

Orders

ProductProcessing Other TotalIndirect factory wages 25% 65% 10% 100%

Factory equipment depreciation 40% 40% 20% 100%

The “Other” activity cost pool consists of the costs of idle capacity and

organization-sustaining costs that are not assigned to products

42 How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool?

A) $188,500

B) $181,000

C) $290,000

D) $580,000

AICPA FN: Reporting LO: 1,2 Level: Easy

Solution:

Customer Orders Cost:

Indirect factory wages: 25% × $340,000 $ 85,000

Factory equipment depreciation: 40% × $240,000 96,000

Total $181,000

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43 How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system?

A) $340,000

B) $82,000

C) $0

D) $240,000

Solution:

Other Cost:

Indirect factory wages: 10% × $340,000 $34,000

Factory equipment depreciation: 20% × $240,000 48,000

Total $82,000

Tomasini Corporation has provided the following data from its activity-based costing

accounting system:

Supervisory wages $660,000

Factory supplies $280,000

Activity Cost PoolsBatch

Processing ProcessingUnit Other TotalSupervisory wages 20% 70% 10% 100%

Factory supplies 45% 35% 20% 100%

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44 How much supervisory wages and factory supplies cost would be assigned to the Batch Processing activity cost pool?

A) $940,000

B) $470,000

C) $305,500

D) $258,000

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The following data have been provided by Letze Corporation from its activity-based costing accounting system:

Factory supervision $460,000

Indirect factory labor $220,000

Activity Cost PoolsBatch Set-Up Expediting Other TotalFactory supervision 55% 35% 10% 100%

Indirect factory labor 60% 20% 20% 100%

46 How much factory supervision and indirect factory labor cost would be assigned to theBatch Set-Up activity cost pool?

A) $680,000

B) $385,000

C) $391,000

D) $340,000

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47 How much factory supervision and indirect factory labor cost would NOT be assigned

to products using the activity-based costing system?

A) $220,000

B) $90,000

C) $0

D) $460,000

Forliche Florist specializes in large floral bouquets for hotels and other commercial spaces The company has provided the following data concerning its annual overhead costs and its activity based costing system:

Overhead costs:

Wages and salaries $ 80,000

Other expenses 40,000

Total $120,000

Activity Cost PoolsMaking

Bouquets Delivery Other TotalWages and salaries 60% 30% 10% 100%

Other expenses 45% 25% 30% 100%

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48 What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round to the nearest whole cent.)

A) $1.65

B) $1.35

C) $1.58

D) $1.80

Solution:

Making Bouquets Cost:

Other expenses: 45% × $40,000 18,000

Total $66,000

Making Bouquets $66,000 40,000 bouquets $1.65 per bouquet

49 What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the

deliveries activity cost pool? (Round to the nearest whole cent.)

A) $7.20

B) $6.60

C) $6.00

D) $6.80

Solution:

Delivery Cost:

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Dietz Company uses an activity-based costing system with three activity cost pools The company has provided the following data concerning its costs and its activity based costing system:

Costs:

Manufacturing overhead $440,000

Selling and administrative expenses 240,000

Total $680,000

Activity Cost PoolsOrder

Size CustomerSupport Other TotalManufacturing overhead 55% 35% 10% 100%

Selling and administrative expenses 30% 50% 20% 100%

organization-sustaining costs You have been asked to complete the first-stage allocation of costs to the activity cost pools

50 How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool?

A) $314,000

B) $289,000

C) $204,000

D) $374,000

Solution:

Order Size Cost:

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51 How much cost, in total, would be allocated in the first-stage allocation to the

Customer Support activity cost pool?

A) $274,000

B) $238,000

C) $289,000

D) $340,000

A) $68,000

B) $0

C) $92,000

D) $136,000

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The controller of Hendershot Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below:

Wall Mirrors Specialty WindowsTotal expected units produced 6,000 3,000

Total expected material moves 500 100

Expected direct labor-hours per unit 6 9

The total materials handling cost for the year is expected to be $6,123.60

53 If the materials handling cost is allocated on the basis of direct labor-hours, how much

of the total materials handling cost would be allocated to the wall mirrors? (Round off your answer to the nearest whole dollar.)

A) $2,449

B) $4,144

C) $3,499

D) $3,062

AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted

Solution:

Total Direct Labor-Hours

Wall Mirrors: 6,000 units × 6 DLHs per unit 36,000 DLHs

Specialty Mirrors: 3,000 units × 9 DLHs per unit 27,000 DLHs

Total 63,000 DLHs

Direct labor-hours $6,123.60 63,000 DLHs $.0972 per DLHMaterials Handling Cost for Wall Mirrors:

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54 If the materials handling cost is allocated on the basis of material moves, how much ofthe total materials handling cost would be allocated to the specialty windows? (Round off your answer to the nearest whole dollar.)

A) $1,021

B) $3,674

C) $3,062

D) $1,980

Solution:

Material moves $6,123.60 600 moves* $10.206 per move

*500 + 100 = 600 moves

Materials Handling Cost for Specialty Mirrors:

Material moves $10.206 per move 100 moves $1,021

Swimm Company allocates materials handling cost to the company's two products using the below data:

Modular Homes Prefab BarnsTotal expected units produced 3,000 4,000

Total expected material moves 400 100

Expected direct labor-hours per unit 700 200

The total materials handling cost for the year is expected to be $72,065

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55 If the materials handling cost is allocated on the basis of direct labor-hours, how much

of the total materials handling cost would be allocated to the prefab barns? (Round off your answer to the nearest whole dollar.)

A) $16,014

B) $19,880

C) $36,890

D) $36,033

Solution:

Total Direct Labor-Hours

Modular Homes: 3,000 units × 700 DLHs per unit 2,100,000 DLHs

Prefab Barns: 4,000 units × 200 DLHs per unit 800,000 DLHs

Total 2,900,000 DLHs

Direct labor-hours $72,065 2,900,000 DLHs $.02485 per DLHMaterials Handling Cost for Prefab Barns:

Direct labor-hours $.02485 per DLH 800,000 DLHs $19,880

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56 If the materials handling cost is allocated on the basis of material moves, how much ofthe total materials handling cost would be allocated to the modular homes? (Round offyour answer to the nearest whole dollar.)

A) $36,033

B) $57,652

C) $56,051

D) $35,175

Solution:

Material moves $72,065 500 moves* $144.13 per move

*400 + 100 = 500 moves

Materials Handling Cost for Modular Homes:

Material moves $144.13 per move 400 moves $57,652

Abel Company uses activity-based costing The company has two products: A and B The annual production and sales of Product A is 200 units and of Product B is 400 units There are three activity cost pools, with estimated costs and expected activity as follows:

Expected ActivityActivity Cost Pool

EstimatedCost Product A Product B TotalActivity 1 $16,660 600 100 700

Activity 2 $18,450 1,100 700 1,800

Activity 3 $9,731 60 160 220

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57 The activity rate for Activity 2 is closest to:

A) $24.91

B) $26.36

C) $16.77

D) $10.25

AICPA FN: Reporting LO: 4 Level: Hard

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Andris Corporation uses activity-based costing to determine product costs for external

financial reports The company has provided the following data concerning its activity-based costing system:

Activity Cost Pools(and Activity Measures) Estimated Overhead Cost

Machine related (machine-hours) $46,400

Batch setup (setups) $434,000

General factory (direct labor-hours) $226,500

Expected ActivityActivity Cost Pools Total Product X Product Y

Solution:

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