361 Chapter 4 MC Solutions

Chapter 4Activity-Based Management and Activity-Based Costing MULTIPLE CHOICE 1. An objective of activity-based management is to a.
eliminate the majority of centralized activities in an organization. b. reduce or eliminate non-value-added activities incurred to make a product or provide a service. c. institute responsibility accounting systems in decentralized organizations. d. all of the above
ANS: NAT: LOC: 2.
B PTS: 1 DIF: AACSB: Reflective Thinking AICPA Functional Competencies: Decision Modeling
Easy
OBJ:
4-1
Global competition has forced American industry to a. seek increased governmental regulation. b. improve product quality and customer service. c. narrow product lines. d. decrease its social responsibility.
ANS: NAT: LOC: 3.
Easy
OBJ:
4-1
Lead time minus production time is equal to a. idle time. b. storage time. c. non-value-added time. d. value-added time.
ANS: NAT: LOC: 4.
C PTS: 1 DIF: AACSB: Reflective Thinking AICPA Functional Competencies: Decision Modeling
Easy
OBJ:
4-1
Which of the following statements about business-value-added activities (BVAs) is true? a. BVAs reflect the same processes in all organizations. b. A process map will not reflect BVAs because such activities are not essential to process performance. c. BVAs are actually value-added activities of an organization that relate to administrative processes. d. It is impossible to eliminate all BVAs in an organization.
ANS: D PTS: 1 DIF: Easy OBJ: 4-1 NAT: AACSB: Reflective Thinking LOC: AICPA Functional Competencies: Decision Modeling 5.In the pharmaceutical or food industries, quality control inspections would most likely be viewed as a. non-value-added activities. b. business-value-added activities. c. value-added-activities. d. process-efficiency activities.
ANS: NAT: LOC: 6.
Difficult
OBJ:
4-1
The sum of the non-value-added time and the value-added time equals a. inspection time. b. production time. c. the product life cycle. d. cycle time.
ANS: NAT: LOC: 7.
D PTS: 1 DIF: AACSB: Reflective Thinking AICPA Functional Competencies: Decision Modeling
Easy
OBJ:
4-1
The amount of time between the development and the production of a product is a. the product life cycle. b. lead time. c. production time.
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d. value-added time.
ANS: NAT: LOC: 8.
Easy
OBJ:
4-1
For a CPA firm, how would the wages of staff auditors be classified? Direct Costs a. b. c. d. Yes No Yes No Value-Added Costs No Yes Yes No
ANS: NAT: LOC: 9.
Easy
OBJ:
4-1
For a CPA firm, how would the costs of continuing education for audit managers be classified? Direct Costs a. b. c. d. Yes No Yes No Value-Added Costs No Yes Yes No
ANS: NAT: LOC: 10.
Easy
OBJ:
4-1
For a company that manufactures candy, how would the costs of product inspection be classified? Direct Costs a. b. c. d. Yes No Yes No Value-Added Costs No Yes Yes No
ANS: NAT: LOC: 11.
Easy
OBJ:
4-1
For a company that manufactures candy, how would the cost of sugar be classified? Direct Costs a. b. c. d. Yes No Yes No Value-Added Costs No Yes Yes No
ANS: NAT: LOC: 12.
Easy
OBJ:
4-1
When a firm redesigns a product to reduce the number of component parts, the firm is a. increasing consumer value. b. increasing the value added to the product. c. decreasing product variety. d. decreasing non-value-added costs.
ANS: NAT: LOC:
Moderate
OBJ:
4-1
Chapter 4
13. Which of the following add customer value? a. setup time b. storage time c. idle time d. processing time
ANS: D PTS: 1 DIF: Easy OBJ: 4-1 NAT: AACSB: Reflective Thinking LOC: AICPA Functional Competencies: Decision Modeling 14. Non-value-added activities that are necessary to businesses, but not costs that customers are willing to pay for are known as a. business-value-added activities. b. long-term variable activities. c. short-term variable activities. d. superior business activities.
ANS: NAT: LOC: 15.
A PTS: 1 DIF: AACSB: Reflective Thinking AICPA Functional Competencies: Decision Modeling
Moderate
OBJ:
4-1
Which of the following would not be considered a value-added activity in the preparation of a tax return? a. printing a copy of the return for the client b. printing a copy of the return for the IRS c. installing tax software d. checking for accuracy
ANS: NAT: LOC: 16.
Easy
OBJ:
4-1
Which of the following is considered a value-added activity? Idle time a. b. c. d. yes no yes no yes nono no yes Inspection time no yes yes Transfer time
ANS: NAT: LOC: 17.
Easy
OBJ:
4-1
A process map a. should indicate only value-added activities. b. is also known as a detailed flowchart. c. should indicate only those steps/processes that are obvious in the production of goods/services. d. is also known as a value chart.
ANS: NAT: LOC: 18.
Easy
OBJ:
4-1
A value chart indicates a. all steps in a process and the time it takes for them to be completed. b. the value-added steps in a process and the time it takes for them to be completed. c. the time and cost of all value-added steps in a process. d. the time and costs of all value-added and non-value-added steps in a process.
ANS: NAT: LOC: 19.
Moderate
OBJ:
4-1
A value chart should include which of the following? Service time a. b. yes no no no Inspection time yes yes Transfer time
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c. d. yes yes yes yesyes no
ANS: NAT: LOC: 20.
Easy
OBJ:
4-1
The actual time it takes to perform a specific task is called a. inspection time. b. service time. c. transfer time. d. quality time.
ANS: NAT: LOC: 21.
Easy
OBJ:
4-1
Manufacturing cycle efficiency is a measure of a. bottlenecks. b. effectiveness. c. efficiency. d. quality.
ANS: NAT: LOC: 22.
Easy
OBJ:
4-2
Manufacturing cycle efficiency should be increased by employing which of the following techniques? JIT Inventory a. b. c. d. yes yes no yes yesyes yes nono no Flexible Manufacturing Systems Batch Manufacturing
no yes
ANS: NAT: LOC:
Moderate
OBJ:
4-2
23. For one product that a firm produces, the manufacturing cycle efficiency is 20 percent. If the total production time is 12 hours, what is the total manufacturing time? a. 15.0 hours b. 60.0 hours c. 12.0 hours d. 2.4 hours
ANS: NAT: LOC: 24.
B PTS: 1 DIF: AACSB: Analytical Skills AICPA Functional Competencies: Decision Modeling
Easy
OBJ:
4-2
For one product that a firm produces, the manufacturing cycle efficiency is 25 percent. If the total production time is 10 hours, what is the total manufacturing time? a. 2.5 hours b. 8.0 hours c. 10.0 hours d. 40.0 hours
ANS: NAT: LOC: 25.
D PTS: 1 DIF: AACSB: Analytical Skills AICPA Functional Competencies: Decision Modeling
Easy
OBJ:
4-2
Which of the following is typically regarded as a cost driver in traditional accounting practices? a. number of purchase orders processed b. number of customers served c. number of transactions processed d. number of direct labor hours worked
Chapter 4
ANS: NAT: LOC: 26.
D PTS: 1 DIF: Easy AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting
OBJ:
4-3
When a company is labor-intensive, the cost driver that is probably least significant would be a. direct labor hours. b. direct labor dollars. c. machine hours. d. cost of materials used.
ANS: NAT: LOC: 27.
C PTS: 1 DIF: Easy AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting
OBJ:
4-3
An activity driver is used for which of the following reasons? To measure demands a. b. c. d. yes yes no no yes no yes no To measure resources consumed
ANS: NAT: LOC: 28.
A PTS: 1 DIF: Easy AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting
OBJ:
4-3
The term cost driver refers to a. any activity that can be used to predict cost changes. b. the attempt to control expenditures at a reasonable level. c. the person who gathers and transfers cost data to the management accountant. d. any activity that causes costs to be incurred.
ANS: NAT: LOC: 29.
D PTS: 1 DIF: Moderate AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting
OBJ:
4-3
Cost allocation bases in activity-based costing should be a. cost drivers. b. value-added activities. c. activity centers. d. processes.
ANS: NAT: LOC: 30.
OBJ:
4-3
Costs that are common to many different activities within an organization are known as ____ costs. a. product- or process-level b. organizational-level c. batch-level d. unit-level
ANS: NAT: LOC: 31.
B PTS: 1 DIF: Easy AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting
OBJ:
4-3
In activity-based costing, cost reduction efforts are directed at specific a. cost categories. b. cost pools. c. processes. d. cost drivers.
ANS: NAT: LOC:
Easy
OBJ:
4-3
Chapter 4
32. Setup time is A batch cost a. b. c. d. no yes yes no no yes no yes A value-added cost yes no yes yes A production cost
ANS: NAT: LOC: 33.
Easy
OBJ:
4-3
Which of the following have an impact on long-term variable costs? Product complexity nono yes no yesyes Process complexity
Product variety a. b. c. d. no no yes yes
yes yes
ANS: NAT: LOC: 34.
Moderate
OBJ:
4-4
In allocating variable costs to products, a. a volume-based cost driver should be used. b. direct labor hours should always be used as the allocation base. c. a company should use the same allocation base that it uses for fixed costs. d. a company should never use more than one cost driver.
ANS: NAT: LOC: 35.
Easy
OBJ:
4-4
Which of the following is not a drawback of mass customization? a. The choices are too numerous. b. The potential for errors is great. c. Only a small percentage of available choices is normally selected. d. All of the above are drawbacks.
ANS: NAT: LOC: 36.
Moderate
OBJ:
4-5
Simultaneous engineering helps companies accomplish which of the following? Reduces product complexity a. b. c. d. no yes yes no no yes no yes Reduces process complexity
ANS: NAT: LOC: 37. a. b. c. d.
Easy
OBJ:
4-5
For traditional costing purposes, R&D costs are capitalized and allocated over the product life cycle. expensed as incurred. capitalized and amortized over three years. charged to the future accounting periods that receive the benefit of the R&D expenditures.
Chapter 4
ANS: NAT: LOC: 38. B PTS: 1 DIF: Easy AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting OBJ: 4-6
Traditionally, managers have focused cost reduction efforts on a. activities. b. processes. c. departments. d. costs.
ANS: NAT: LOC: 39.
Easy
OBJ:
4-5
Today, traditional accounting methods are a. still appropriate for financial reporting. b. still appropriate for providing useful cost information to internal managers. c. still appropriate for both internal and external financial reporting. d. outdated for all purposes.
ANS: NAT: LOC: 40.
OBJ:
4-6
Product costing systems in use over the last 40 years a. concentrated on using multiple cost pools and cost drivers. b. were often technologically incapable of handling activity-based costing information. c. have generally been responsive to changes in the manufacturing environment. d. have been appropriate for managerial decision purposes as long as they met the requirements of generally accepted accounting principles.
ANS: NAT: LOC: 41.
B PTS: 1 DIF: Moderate AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting
OBJ:
4-5
Traditional overhead allocations result in which of the following situations? a. Overhead costs are assigned as period costs to manufacturing operations. b. High-volume products are assigned too much overhead, and low-volume products are assigned too little overhead. c. Low-volume products are assigned too much, and high-volume products are assigned too little overhead. d. The resulting allocations cannot be used for financial reports.
ANS: NAT: LOC:
Easy
OBJ:
4-5
42. Traditionally, overhead has been assigned based on direct labor hours or machine hours. What effect does this have on the cost of a high-volume item? a. over-costs the product b. under-costs the product c. has no effect the product cost d. cost per unit is unaffected by product volume
ANS: NAT: LOC: 43.
Easy
OBJ:
4-5
Relative to traditional product costing, activity-based costing differs in the way costs are a. processed. b. allocated. c. benchmarked. d. incurred.
ANS: NAT: LOC: 44.
Easy
OBJ:
4-5
In activity-based costing, final cost allocations assign costs to
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a. b. c. d. departments. processes. products. activities.
ANS: NAT: LOC: 45.
Easy
OBJ:
4-4
In activity-based costing, preliminary cost allocations assign costs to a. departments. b. processes. c. products. d. activities.
ANS: NAT: LOC: 46.
Easy
OBJ:
4-4
In allocating fixed costs to products in activity-based costing, a. direct labor hours should always be used as the allocation base. b. a company should use the same allocation base that it uses for variable costs. c. a cost driver that is not volume-related should be used. d. machine hours should always be used.
Moderate
OBJ:
4-4
Under activity-based costing, benchmarks for product cost should contain an allowance for idle time. idle time and scrap materials. spoilage. None of the responses are correct.
ANS: NAT: LOC: 48.
Moderate
OBJ:
4-4
Of the following, which is the best reason for using activity-based costing? a. to keep better track of overhead costs b. to more accurately assign overhead costs to cost pools so that these costs are better controlled c. to better assign overhead costs to products d. to assign indirect service overhead costs to direct overhead cost pools
ANS: NAT: LOC: 49.
Easy
OBJ:
4-5
ABC should be used in which of the following situations? a. single-product firms with multiple steps b. multiple-product firms with only a single process c. multiple-product firms with multiple processing steps d. in all manufacturing firms
ANS: NAT: LOC: 50.
Easy
OBJ:
4-5
Activity-based costing and activity-based management are effective in helping managers do all of the following except a. trace technology costs to products. b. promote excellence standards. c. identify only value-added activities. d. analyze performance problems.
ANS: NAT:
C PTS: 1 AACSB: Reflective Thinking
DIF:
Moderate
OBJ:
4-5
Chapter 4
LOC: 51. AICPA Functional Competencies: Decision Modeling
Which of the following falls under the Activity-Based Management umbrella? Continuous improvement a. b. c. d. no yes yes no no no yesyes yes Business process reengineering yes no no Activity-based costing
ANS: NAT: LOC: 52.
Easy
OBJ:
4-5
Which of the following is/are part of activity-based management? Activity analysis a. b. c. d. yes no no yes yes yes no no Cost driver analysis
ANS: NAT: LOC: 53.
Easy
OBJ:
4-5
The costs of non-quality work do not include a. the cost of handling complaints. b. the cost of scrap. c. warranty costs. d. original design costs.
ANS: NAT: LOC: 54.
Easy
OBJ:
4-6
Traditional standard costs are inappropriate measures for performance evaluation in the "new era" of manufacturing because they a. build in allowances for non-value-adding activities. b. are based on historical information. c. don't reflect current costs. d. are ideal goals.
ANS: NAT: LOC: 55.
Moderate
OBJ:
4-6
Activity analysis allows managers to a. classify activities so that processes can be eliminated. b. devise ways to minimize or eliminate non-value-added activities. c. evaluate process performance to gain competitive advantages. d. all of the above.
ANS: NAT: LOC: 56.
Easy
OBJ:
4-3
A key concept underlying cost driver analysis is that a. all cost drivers identified should be used for cost accumulation. b. the cost of measuring a driver does not exceed the benefits of using it. c. only costs occurring at the unit-level should be assigned to products or services. d. organizational/facility costs are non-value-added and should never be assigned to products or services.
ANS: NAT:
B PTS: 1 AACSB: Reflective Thinking
DIF:
Moderate
OBJ:
4-3
Chapter 4
LOC: 57. AICPA Functional Competencies: Decision Modeling
10
When cost driver analysis is used, organizational profit or loss can be determined by subtracting a. organizational costs from total margin provided by products. b. organizational costs from total product revenue. c. total product costs from total product revenue. d. total unit, batch, product/process, and organizational level costs incurred for a period from total product revenue.
ANS: NAT: LOC: 58.
Moderate
OBJ:
4-3
Mass customization is closely associated with Product variety a. b. c. d. yes yes no yes Product complexity yes no yes Process errors Pareto principle
no no yesyes no yes no no yes
ANS: NAT: LOC: 59.
Difficult
OBJ:
4-5
The following items are used in tracing costs in an ABC system. In which order are they used? (1) (2) (3) (4) a. b. c. d. cost object cost driver activity driver cost pool 1, 2, 3, 4 2, 3, 4, 1 2, 4, 3, 1 4, 3, 1, 2
ANS: NAT: LOC: 60.
Difficult
OBJ:
4-4
The "Rule of One" underlies the premise that all costs are a. variable. b. fixed. c. unit-based. d. short-term.
ANS: NAT: LOC:
Easy
OBJ:
4-4
61. Moreno Company makes ten different styles of inexpensive feather masks. Which of the following is this company most likely to have? a. Product complexity b. Process complexity c. Product variety d. Process customization
ANS: NAT: LOC: 62.
Easy
OBJ:
4-5
Mass customization can be achieved through the use of a. activity-based costing. b. just-in-time inventory. c. flexible manufacturing systems. d. all of the above.
Chapter 4
ANS: NAT: LOC: 63. C PTS: 1 DIF: AACSB: Reflective Thinking AICPA Functional Competencies: Decision Modeling Easy OBJ: 4-5
11
The Pareto principle is important to consider when an organization is a. assessing whether to employ activity-based costing versus attribute-based costing. b. evaluating the number of activities that are value-added versus those that are non-value-added. c. deciding whether to offer a product in one color versus in ten colors. d. determining whether simultaneous engineering activities will be impacted by the "Rule of One."
ANS: NAT: LOC: 64.
Moderate
OBJ:
4-5
An activity center is an organizational unit a. that makes a single product or performs a single service. b. in which only value-added activities are performed. c. that incurs only unit, batch, or product/process level costs. d. for which management wants separate activity information.
ANS: NAT: LOC: 65.
Easy
OBJ:
4-4
Which of the following cost drivers is often disregarded in a traditional costing system? a. Pounds of direct material c. Direct labor dollars b. Machine hours d. Variety of products manufactured
D PTS: 1 DIF: Easy AACSB: Reflective Thinking AICPA Functional Competencies: Measurement, Reporting
OBJ:
4-4
Simultaneous engineering can be used to reduce both product and process complexity. integrate activity-based costing with value chain analysis. reduce the time-to-market of new products through elimination of batch-level activities. reduce manufacturing cycle efficiency by reducing process waste.
ANS: NAT: LOC: 67.
Easy
OBJ:
4-5
If only one or two overhead cost pools are used, a. it will be easy to determine which products or services are creating the most costs. b. overhead created by a specific product will be assigned to all products. c. the reduction in cost accumulation and allocation time will raise company profits. d. allocations should be made using only unit-based cost drivers.
ANS: NAT: LOC: 68.
Easy
OBJ:
4-4
A cost accumulation system should most likely be reevaluated when a company has a. automated one or more production processes. b. introduced new products to its customers. c. had its industry deregulated. d. all of the above.
ANS: NAT: LOC: 69.
Easy
OBJ:
4-5
Engaging in which of the following will result in radical changes being made to an organization's processes? a. Continuous improvement b. Benchmarking c. Reengineering d. Mass customization
Chapter 4
12
ANS: NAT: LOC: 70.
Moderate
OBJ:
4-5
Use of activity-based costing and activity-based management requires a. the creation of an environment for change in an organization. b. elimination of all non-value-added activities in an organization. c. that company processes be automated and the use of direct labor be minimal. d. each process be fully mapped and all activities be identified as value-added or non-value-added.
ANS: NAT: LOC:
Easy
OBJ:
4-5
71. If activity-based costing is implemented in an organization without any other changes being implemented, total overhead manufacturing costs will a. be reduced because of the elimination of non-value-added activities. b. be reduced because organizational costs will not be assigned to products or services. c. be increased because of the need for additional people to gather information on cost drivers and cost pools. d. remain constant and simply be spread over products using different cost drivers.
ANS: NAT: LOC: 72.
Difficult
OBJ:
4-5
A just-in-time manufacturing process should have substantially less of which of the following than a traditional manufacturing process? Idle time a. b. c. d. yes yes yes no Transfer time Value-added time Cycle time
yesyesyes no no yes no yes yes
yes yes no
ANS: NAT: LOC: 73.
Difficult
OBJ:
4-6
Which of the following is most likely to make the implementation of ABC/ABM slow and difficult? a. The development of new cost drivers that measure costs more effectively. b. A lack of involvement by or support from upper management. c. The need for dual costing systems. d. An inability to eliminate all business-value-added activities.
ANS: NAT: LOC: 74.
Moderate
OBJ:
4-6
Activity-based costing and generally accepted accounting principles differ in that ABC a. does not define product costs in the same manner as GAAP. b. cannot be used to compute an income statement, but GAAP can. c. is concerned only with costs generated from automated processes, but GAAP is concerned with costs generated from both manual and automated processes. d. information is useful only to managers, while GAAP information is useful to all organizational stakeholders.
Moderate
OBJ:
4-6
In the "new era" of manufacturing, good performance indicators are production-based. sales-based. cost-based. consumer-based.
Chapter 4
ANS: NAT: LOC: D PTS: 1 DIF: AACSB: Reflective Thinking AICPA Functional Competencies: Decision Modeling Easy OBJ: 4-6
13
Levine Company Levine Company produces two products: A and B. The company has three overhead functions that are required for both products. Below is production information for Products A and B: Product Prime Costs (Direct Materials + Direct Labor) $35 $22 Direct Labor Hours Overhead Function #1 Overhead Function #2 Overhead Function #3
A B
4 hrs 1.5 hrs
2 hrs 1 hr
1 hr 8 hrs
6 hrs 1 hr
The company produces 800 units of Product A and 8,000 units of Product B each period. The overhead functions have the following hourly costs: Function 1 2 3 Hourly Rate $10 7 18
76.
Refer to Levine Company If total overhead is assigned to A and B on the basis of units produced, Product A will have an overhead cost per unit of a. $ 88.64. b. $123.64. c. $135.00. d. None of the responses are correct. ANS: A Total Overhead Product A Function 1 2 3 Hourly Rate $ $ $ 10 7 18 Totals Hours 2 1 6 9 Total $ $ $ $ 20 7 108 135
Product B
Function 1 2 3
Hourly Rate $ $ $ 10 7 18 Totals
Hours 1 8 1 10
Total $ $ $ $ 10 56 18 84
OH/Unit $ $ Total OH $ 780,000 135 84
Units Produced 800 8,000 Proportion 0.090909091 (800/8,800)
Total $ $ $ Allocated OH $ 70,909.09 108,000 672,000 780,000 Units Produced 800 OH per Unit $ 88.64
PTS:
DIF:
Moderate
OBJ:
4-3
NAT:
AACSB: Analytical Skills
Chapter 4
LOC: 77. AICPA Functional Competencies: Measurement, Reporting
14
Refer to Levine Company If total overhead is assigned to A and B on the basis of units produced, Product B will have an overhead cost per unit of a. $84.00. b. $88.64. c. $110.64. d. None of the responses are correct.
ANS: B See #70 for Total Overhead Computations Total OH $ 780,000 Proportion 0.909090909 (8,000/8,800) Allocated OH $ 709,090.91 Units Produced 8,000 OH per Unit $ 88.64
PTS: LOC:
1 DIF: Moderate OBJ: 4-3 AICPA Functional Competencies: Measurement, Reporting
NAT:
78. Refer to Levine Company If total overhead is assigned to A and B on the basis of direct labor hours, Product A will have an overhead cost per unit of a. $51.32 b. $205.26 c. $461.88 d. None of the responses are correct.
ANS:
B DL Hrs/Unit 4 1.5 Units Produced 800 8,000 Total DL Hours 3,200 12,000 15,200
Product A B
Total OH $ 780,000
Proportion 0.210526316 (3,200/15,200)
Allocated OH $ 164,210.53
Units Produced 800
OH per Unit $ 205.26
PTS: LOC: 79.
NAT:
Refer to Levine Company If total overhead is assigned to A and B on the basis of direct labor hours, Product B will have an overhead cost per unit of a. $76.97 b. $87.75 c. $88.64 d. None of the responses are correct.
ANS:
A DL Hrs/Unit 4 1.5 Units Produced 800 8,000 Total DL Hours 3,200 12,000 15,200
Product A B
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Total OH $ 780,000 Proportion 0.7894736 (12,000/15,200) Allocated OH $ 615,789.40 Units Produced 8000 OH per Unit $ 76.97
15
80.Refer to Levine Company If total overhead is assigned to A and B on the basis of direct labor hours, Product B will have an overhead cost per unit of a. $76.97 b. $87.75 c. $88.64 d. None of the responses are correct.
Product A B
DL Hrs/Unit 4 1.5
Units Produced 800 8,000
Total DL Hours 3,200 12,000 15,200
Total OH $ 780,000
Proportion 0.7894736 (12,000/15,200)
Allocated OH $ 615,789.40
Units Produced 8000
OH per Unit $ 76.97
ANS: A 81. Refer to Levine Company If total overhead is assigned to A and B on the basis of overhead activity hours used, the total product cost per unit assigned to Product A will be a. $86.32. b. $95.00. c. $115.50. d. None of the responses are correct.
ANS: C Total OH $ 780,000
Proportion 0.082568807 (7,200/87,200) $
Allocated OH 64,403.67
Units Produced 800
OH per Unit $ 80.50
DM and DL/Unit $ 35.00
Total $ 115.50
PTS: LOC: 82.
NAT:
Refer to Levine Company If total overhead is assigned to A and B on the basis of direct labor hours, Product B will have an overhead cost per unit of a. $51.32 b. $76.97 c. $510.32 d. None of the responses are correct.
ANS: B See #72 for Direct Labor Computations Total OH $ 780,000 Proportion 0.789473684 (12,000/15,200) Allocated OH $ 615,789.47 Units Produced 8,000 OH per Unit $ 76.97
PTS: LOC:
NAT:
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16
83. Refer to Levine Company If total overhead is assigned to A and B on the basis of overhead activity hours used, the total product cost per unit assigned to Product B will be a. $115.50 b. $73.32 c. $34.60 d. None of the responses are correct.
ANS: D Total OH $ 780,000
Proportion 0.917431193 (80,000/87,200) $
Allocated OH 715,596.33
Units Produced 8,000
OH per Unit $ 89.45
DM and DL/Unit $ 22.00
Total $ 111.45
PTS: LOC:
NAT:
Video Corporation Video Corporation has two product lines: LCD televisions and projection televisions. The company has budgeted the following production and overhead costs for the upcoming year: LCD TVs Units Produced Direct labor hours per Unit Material Moves per Product Line Budgeted Materials Handling Cost Total Machine Hours Machine Maintenance Costs 1,500 20 15 $75,000 10,000 $180,000 16,000 Projection TVs 2,250 30 25
84.
Refer to Video Corporation. If the company uses total direct labor hours to allocate factory overhead, the materials handing cost allocated to LCD TVs would be: a. $23,077 b. $28,125 c. $30,000 d. $45,000
ANS: A Total direct labor hours (1,500 * 20) + (2,250 * 30) Total direct hours for LCD TVs (1,500 * 20) Total materials handling cost Materials handling costs for LCD TVs ($75,000 * (30,000/97,500))
97,500 30,000 $75,000 $23,077
PTS: LOC: 85.
NAT:
Refer to Video Corporation. If the company uses total direct labor hours to allocate factory overhead, the machine maintenance cost allocated to LCD TVs would be: a. $51,923 b. $55,385 c. $69,231 d. $72,000 ANS: B Total direct labor hours (1,500 * 20) + (2,250 * 30) 97,500 Total direct labor hours for LCD TVs (1,500 * 20) 30,000 Total machine maintenance costs Machine maintenance costs for LCD TVs ($180,000 * (30,000/97,500)) $180,000 $55,385
PTS: LOC: 86.
NAT:
Refer to Video Corporation. If the company uses total direct labor hours to allocate factory overhead, the materials handing cost allocated to projection TVs would be: a. $35,000 b. $45,000
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c. d. $46,875 $51,923
17
ANS: D Total direct labor hours (1,500 * 20) + (2,250 * 30) Total direct labor hours for projection TVs (2,250 * 30) Total materials handling cost Materials handling costs allocated to projection TVs ($75,000 * (67,500/97,500))
97,500 67,500 $75,000 $51,923
PTS: LOC: 87.
NAT:
Refer to Video Corporation. If the company uses total direct labor hours to allocate factory overhead, the machine maintenance cost allocated to projection TVs would be: a. $ 72,000 b. $108,000 c. $110,769 d. $124,615
ANS: D Total direct labor hours (1,500 * 20) + (2,250 * 30) Total direct labor hours for projection TVs (2,250 * 30) Total machine maintenance costs Machine maintenance costs allocated to projection TVs ($180,000 * (67,500/97,500))
97,500 67,500 $180,000 $124,615
PTS: LOC: 88.
NAT:
Refer to Video Corporation. If the company uses number of units produced to allocate factory overhead, the materials handing cost allocated to LCD TVs would be: a. $23,077 b. $28,125 c. $30,000 d. $45,000 ANS: C Total units produced (1,500 + 2,250) Total LCD TVs produced Total materials handling cost Materials handling costs allocated to LCD TVs ($75,000 * (1,500/3,750))
3,750 1,500 $75,000 $30,000
PTS: LOC: 89.
NAT:
Refer to Video Corporation. If the company uses number of units produced to allocate factory overhead, the machine maintenance cost allocated to LCD TVs would be: a. $51,923 b. $55,385 c. $69,231 d. $72,000
ANS: D Total units produced (1,500 + 2,250) Total LCD TVs produced Total machine maintenance cost Machine maintenance costs allocated to LCD TVs $180,000 * (1,500/3,750)
3,750 1,500 $180,000 $72,000
PTS: LOC:
NAT:
Chapter 4
90.
18
Refer to Video Corporation. If the company uses number of units produced to allocate factory overhead, the materials handing cost allocated to projection TVs would be: a. $35,000 b. $45,000 c. $46,875 d. $51,923
ANS: B Total units produced (1,500 + 2,250) Total projection TVs produced Total materials handling cost Materials handling cost allocated to projection TVs ($75,000 * (2,250/3,750))
3,750 2,250 $75,000 $45,000
91.
Refer to Video Corporation. If the company uses number of units produced to allocate factory overhead, the machine maintenance cost allocated to projection TVs would be: a. $ 72,000 b. $108,000 c. $110,769 d. $124,615 ANS: B Total units produced (1,500 + 2,250) 3,750 Total projection TVs produced Total machine maintenance cost Machine maintenance cost allocated to projection TVs ($180,000 * (2,250/3,750)) 2,250 $180,000 $108,000
PTS: LOC: 92.
NAT:
Refer to Video Corporation. If the company uses an activity-based costing (ABC) system to allocate factory overhead, the materials handing cost allocated to LCD TVs would be: a. $23,077 b. $28,125 c. $30,000 d. $45,000
ANS:
B 40 15 $75,000 $28,125
Total material moves (15+25) Materials moves for LCD TVs Total materials handling cost Materials handling cost allocated to LCD TVs ($75,000 * (15/40))
PTS: LOC: 93.
NAT:
Refer to Video Corporation. If the company uses an activity-based costing (ABC) system to allocate factory overhead, the machine maintenance cost allocated to LCD TVs would be: a. $51,923 b. $55,385 c. $69,231 d. $72,000
ANS:
C 26,000 10,000 $180,000 $69,231
Total machine hours (10,000 + 16,000) Machine hours for LCD TVs Total machine maintenance cost Machine maintenance cost allocated to LCD TVs ($180,000 * (10/26))
PTS: LOC:
NAT:
Chapter 4
94.
19
Refer to Video Corporation. If the company uses an activity-based costing (ABC) system to allocate factory overhead, the materials handing cost allocated to projection TVs would be: a. $35,000 b. $45,000 c. $46,875 d. $51,923 ANS: C Total material moves (15 + 25) Materials moves for projection TVs Total materials handling cost Materials handling cost allocated to projection TVs ($75,000 * (25/40)) 40 25 $75,000 $46,875
PTS: LOC: 95.
NAT:
Refer to Video Corporation. If the company uses an activity-based costing (ABC) system to allocate factory overhead, the machine maintenance cost allocated to projection TVs would be: a. $ 72,000 b. $108,000 c. $110,769 d. $124,615
ANS:
C 26,000 16,000 $180,000 $110,769
Total machine hours (10,000 + 16,000) Machine hours for projection TVs Total machine maintenance cost Machine maintenance cost allocated to projection TVs $180,000 * (16/26)
PTS: LOC:
NAT:
Stone Company Stone Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In that period, four set-ups were required for color changes. All units of Product Q are black, which is the color in the process at the beginning of the period. A set-up was made for 1,000 blue units of Product Z; a set-up was made for 4,500 red units of Product Z; a set-up was made for 500 green units of Product Z. A set-up was then made to return the process to its standard black coloration and the units of Product Q were run. Each set-up costs $500.
96.
Refer to Stone Company. If set-up cost is assigned on a volume basis for the department, what is the approximate per-unit setup cost for Product Z? a. $.010. b. $.036. c. $.040. d. None of the responses are correct.
ANS:
$2,000/56,000 = $0.0357
PTS: LOC: 97.
NAT:
Refer to Stone Company. If set-up cost is assigned on a volume basis for the department, what is the approximate per-unit setup cost for the red units of Product Z? a. $.036. b. $.111. c. $.250. d. None of the responses are correct.
Chapter 4
ANS: A
20
$2,000/56,000 = $0.0357
PTS: LOC: 98.
NAT:
Refer to Stone Company. Assume that Stone Company has decided to allocate overhead costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the blue units of Product Z? a. $.04. b. $.25. c. $.50. d. None of the responses are correct.
ANS: C Setup cost for blue units = $500.00 Number of blue units produced = 1,000 $500/1,000 = $.50
PTS: LOC: 99.
NAT:
Refer to Stone Company. Assume that Stone Company has decided to allocate overhead costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the green units of Product Z? a. $1.00. b. $0.25. c. $0.04. d. None of the responses are correct.
ANS: A Setup cost = $500.00 Units produced = 500 $500.00/500 = $1.00/unit
PTS: 1 Ada National Bank
DIF:
Moderate
OBJ:
4-3
NAT:
Ada National Bank had the following activities, traceable costs, and physical flow of driver units: Traceable Costs $50,000 36,000 15,000 27,000 Physical flow of Driver Units 1,000 accounts 400,000 deposits 200,000 withdrawals 900 applications
Activities Open new accounts Process deposits Process withdrawals Process loan applications
The above activities are used by the Broken Arrow branch and the Choctaw branch: Broken Arrow New accounts Deposits Withdrawals Loan applications 200 40,000 15,000 100 Choctaw 400 20,000 18,000 160
100.
Refer to Ada National Bank. What is the cost per driver unit for new account activity? a. $0.09 b. $0.075 c. $30.00 d. $50.00
Chapter 4
ANS: D $50,000 / 1,000 = $50.00 per account
21
PTS: LOC: 101.
1 DIF: Easy OBJ: 4-4 AICPA Functional Competencies: Measurement, Reporting
NAT:
Refer to Ada National Bank. What is the cost per driver unit for the deposit activity? a. $0.09 b. $0.075 c. $30.00 d. $50.00
ANS: A $36,000/400,000 = $0.09
PTS: LOC: 102.
NAT:
Refer to Ada National Bank. What is the cost per driver unit for the withdrawal activity? a. $0.09 b. $0.075 c. $30.00 d. $50.00 ANS: B $15,000/200,000 = $0.075
PTS: LOC: 103.
NAT:
Refer to Ada National Bank. What is the cost per driver unit for the loan application activity? a. $0.09 b. $0.075 c. $30.00 d. $50.00
ANS: C $27,000/900 = $30.00
PTS: LOC: 104.
NAT:
Refer to Ada National Bank. How much of the loan application cost will be assigned to the Broken Arrow branch? a. $3,000 b. $4,800 c. $ 7,800 d. $27,000
ANS:
PTS: LOC: 105.
NAT:
Refer to Ada National Bank. How much of the deposit cost will be assigned to the Choctaw branch? a. $1,800 b. $3,600 c. $ 5,400 d. $36,000
ANS: A $0.09 * 20,000 = $1,800
Chapter 4
PTS: LOC: 106. 1 DIF: Easy OBJ: 4-4 AICPA Functional Competencies: Measurement, Reporting NAT: AACSB: Analytical Skills
22
Refer to Ada National Bank. How much of the new account cost will be assigned to the Choctaw branch? a. $10,000 b. $20,000 c. $30,000 d. $50,000
ANS: B 400 * $50 = $20,000
PTS: LOC:
NAT:
Parrish Company Parrish Company uses activity-based costing. The company produces two products: IPods and MP3 players. The annual production and sales volume of IPods is 8,000 units and of MP3 players is 6,000 units. There are three activity cost pools with the following expected activities and estimated total costs: Activity Cost Pool Activity 1 Activity 2 Activity 3 Estimated Cost $20,000 $37,000 $91,200 Expected Activity IPods 100 800 800 Expected Activity MP3 players Total 400 200 3,000 500 1,000 3,800
107.
Refer to Parrish Company. Using ABC, the cost per unit of IPods is approximately: a. $ 2.40 b. $ 3.90 c. $ 6.60 d. $10.59
ANS: C Activity 1 2 3
Cost Allocation $20,000 * 100/500 = $ 4,000 / 8,000 $37,000 * 800/1,000 = $29,600 / 8,000 $91,200 * 800/3,800 = $19,200 / 8,000 Total Cost per Unit
Cost per Unit $0.50 3.70 2.40 6.60
PTS: LOC: 108.
1 DIF: Difficult OBJ: 4-4 AICPA Functional Competencies: Measurement, Reporting
NAT:
Refer to Parrish Company. Using ABC, the cost per unit of MP3 players is approximately: a. $ 2.40 b. $ 3.90 c. $12.00 d. $15.90
ANS: D Activity 1 2 3
Cost Allocation $20,000 * 400/500 = $ 16,000 / 6,000 $37,000 * 200/1,000 = $ 7,400/ 6,000 $91,200 * 3,000/3,800 = $72,000 / 6,000 Total Cost per Unit
Cost per Unit $2.67 1.23 12.00 15.90
PTS: LOC:
NAT:
Greenspan Company Greenspan Company manufactures two products: digital cameras and video cameras. The company uses an activity-based costing system. The annual production and sales volume of digital cameras is 10,000 units and of video cameras is 8,000 units. Direct costs for the digital cameras are $122; for the video cameras, direct costs are $153.
Chapter 4
For overhead costs, there are three activity cost pools with the following expected activities and estimated total costs: Activity Cost Pool Activity 1 Activity 2 Activity 3 Estimated Cost $30,000 $45,000 $96,600 Expected Activity Digital Cameras 100 600 400 Expected Activity Video Cameras Total 500 300 2,000 600 900 2,400
23
109.
Refer to Greenspan Company. Using ABC, the total cost per digital camera is approximately: a. $126.82 b. $127.11 c. $130.55 d. $131.50
ANS:
B $122.00 Cost Allocation $(30,000 x (100/600))/10,000 $(45,000 x (600/900)/10,000 $(96,600 x (400/2,400))/10,000 Total Cost Cost per Unit $0.50 $3.00 $1.61 $127.11
Direct Costs Overhead Costs Activity 1 2 3
PTS: LOC: 110. a. b. c. d.
1 DIF: Difficult OBJ: 4-4 NAT: AACSB: Analytical Skills AICPA Functional Competencies: Measurement, Reporting Refer to Greenspan Company. Using ABC, the total cost per video camera is approximately:
$162.50 $163.69 $168.35 $169.07
ANS: D Direct Costs Overhead Costs Activity 1 2 3
$153.00 Cost Allocation $(30,000 x (500/600))/8,000 $(45,000 x (300/900)/8,000 $(96,600 x (2,000/2,400))/8,000 Total Cost Cost per Unit $ 3.13 $1.88 $10.06 $169.07
PTS: LOC:
NAT:

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Chapter 4Activity-Based Management and Activity-Based Costing MULTIPLE CHOICE 1. An objective of activity-based management is to a.

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Manufacturing cycle efficiency is a measure of a. bottlenecks. b. effectiveness. c. efficiency. d. quality.

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Product variety a. b. c. d. no no yes yes

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In activity-based costing, final cost allocations assign costs to

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C PTS: 1 AACSB: Reflective Thinking

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B PTS: 1 AACSB: Reflective Thinking

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no no yesyes no yes no no yes

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