NAME_____________________________________________ TRUE-FALSE STATEMENTS 1. 2. 3. 4. . ". #. %. (. 1+. 11. 12. 13. 14. 1 . 1". 1#. 1%. 1(. 2+. 21.

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Traditional costing systems use multiple predetermined overhead rates. Traditionally, overhead is allocated based on direct labor cost or direct labor hours. Current trends in manufacturing include less direct labor and more overhead. Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using cost drivers. A cost driver does not generally have a direct cause-effect relationship !ith the resources consumed. The first step in activity-based costing is to assign overhead costs to products, using cost drivers. To achieve accurate costing, a high degree of correlation must e$ist bet!een the cost driver and the actual consumption of the activity cost pool. &o!-volume products often re'uire more special handling than high-volume products. )hen overhead is properly assigned in A*C, it !ill usually decrease the unit cost of high-volume products. A*C leads to enhanced control over overhead costs. A*C usually results in less appropriate management decisions. A*C is generally more costly to implement than traditional costing. A*C eliminates all arbitrary cost allocations. A*C is particularly useful !hen product lines differ greatly in volume and manufacturing comple$ity. A*C is particularly useful !hen overhead costs are an insignificant portion of total costs. Activity-based management focuses on reducing costs and improving processes. Any activity that increases the cost of producing a product is a value-added activity. ,ngineering design is a value-added activity. -on-value-added activities increase the cost of a product but not its mar.et value. /achining is a non-value-added activity. -ot all activities labeled non-value-added are totally !asteful, nor can they be totally eliminated. The overall ob0ective of installing A*C in service firms is no different than it is in a manufacturing company. )hat sometimes ma.es implementation of activity-based costing difficult in service industries is that a smaller proportion of overhead costs are company-!ide costs. The general approach to identifying activities, activity cost pools, and cost drivers is used by a service company in the same manner as a manufacturing company. 1lant management is a batch-level activity. 1ainting is a product-level activity. 2ust-in-time strives to eliminate inventories by using a pull approach. 3uality control is less important in 0ust-in-time than in traditional manufacturing philosophies. 4nventory storage costs are reduced in 0ust-in-time processing. 5e!or. costs typically increase in 0ust-in-time processing.

MULTIPLE CHOICE QUESTIONS: Encircle the correct letter. 31. )hich of the follo!ing is not typical of traditional costing systems6 a. 7se of a single predetermined overhead rate. b. 7se of direct labor hours or direct labor cost to assign overhead. c. Assumption of correlation bet!een direct labor and incurrence of overhead cost. d. 7se of multiple cost drivers to allocate overhead. 32. 4n traditional costing systems, overhead is generally applied based on a. direct labor. b. machine hours. c. direct material pesos. d. units of production. An activity that has a direct cause-effect relationship !ith the resources consumed is a8n9 a. cost driver. b. overhead rate. c. cost pool. d. product activity. )hich best describes the flo! of overhead costs in an activity-based costing system6 a. :verhead costs direct labor cost or hours products b. :verhead costs products c. :verhead costs activity cost pools cost drivers products d. :verhead costs machine hours products

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The costs that are easiest to trace directly to products are a. direct materials and direct labor. b. direct labor and overhead. c. direct materials and overhead. d. none of the above; all three costs are e'ually easy to trace to the product. :ften the most difficult part of computing accurate unit costs is determining the proper amount of <<<<<<<<< to assign to each product, service, or 0ob. a. direct materials b. direct labor c. overhead d. direct materials and direct labor 1redetermined overhead rates in traditional costing are often based on a. direct labor cost for 0ob order costing and machine hours for process costing. b. machine hours for 0ob order costing and direct labor cost for process costing. c. multiple bases for 0ob order costing and direct labor cost for process costing. d. multiple bases for both 0ob order costing and process costing. =irect labor is sometimes the appropriate basis for assigning overhead cost to products. 4t is appropriate to use direct labor !hen !hich of the follo!ing is true6 819 =irect labor constitutes a significant part of total product cost. 829 A high correlation e$ists bet!een direct labor and changes in the amount of overhead costs. a. 819 only b. 829 only c. ,ither 819 or 829 d. *oth 819 and 829

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Advances in computeri>ed systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by a. increasing direct labor costs and increasing overhead costs. b. increasing direct labor costs and decreasing overhead costs. c. decreasing direct labor costs and decreasing overhead costs. d. decreasing direct labor costs and increasing overhead costs. Activity-based-costing a. allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers. b. accumulates overhead in one cost pool, then assigns the overhead to products and services by means of a cost driver. c. assigns activity cost pools to products and services, then allocates overhead bac. to the activity cost pools. d. allocates overhead directly to products and services based on activity levels. :rdering materials, setting up machines, assembling products, and inspecting products are e$amples of a. cost drivers. b. overhead cost pools. c. direct labor costs. d. nonmanufacturing activities. An ?:rdering and 5eceiving /aterials@ cost pool !ould most li.ely have as a cost driverA a. machine hours. b. number of setups. c. number of purchase orders. d. number of inspection tests. Blobe Company produces t!o products, A1 and *2. A1 is a high-volume item totaling 2+,+++ units annually. *2 is a lo!-volume item totaling only ",+++ units per year. A1 re'uires one hour of direct labor for completion, !hile each unit of *2 re'uires 2 hours. Therefore, total annual direct labor hours are 32,+++ 82+,+++ C 12,+++9. ,$pected annual manufacturing overhead costs are 1"4+,+++. Blobe uses a traditional costing system and assigns overhead based on direct labor hours. ,ach unit of *2 !ould be assigned overhead of a. 12+.++. b. 124."1. c. 14+.++. d. -one of these

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Use the following information to answer questions 4446. 5-*all Corporation manufactures delu$e and standard rac'uetball rac'uets. 5-*allDs total overhead costs consist of assembly costs and inspection costs. The follo!ing information is availableA

` Cost Assembly 4nspections =elu$e ++ mach. hours 3 + 2,1++ labor hours Etandard ++ mach. hours 1 + 1,(++ labor hours Total Cost 13+,+++ 1 +,+++

5-*all is considering s!itching from one overhead rate based on labor hours to activity-based costing. 44. 4 . 4". Total overhead costs assigned to delu$e rac'uets, using a single overhead rate, are a. 14+,+++. b. 142,+++. c. 1 +,+++. d. 1 ",+++. 7sing activity-based costing, ho! much assembly cost is assigned to delu$e rac'uets6 a. 11+, ++. b. 11 ,+++. c. 11 ,# +. d. 121,+++. 7sing activity-based costing, ho! much inspections cost is assigned to delu$e rac'uets6 a. 11 ,+++. b. 123,# +. c. 12 ,+++. d. 13 ,+++.

Use the following information to answer questions 4748. Finnie /orelli Corporation has the follo!ing overhead costs and cost drivers. =irect labor hours are estimated at 1++,+++ for the year. Activity Cost 1ool :rdering and 5eceiving /achine Eetup /achining Assembly 4nspection 4#. Cost =river :rders Eetups /achine hours 1arts 4nspections ,st. :verhead 1 12+,+++ 2(#,+++ 1, ++,+++ 1,2++,+++ 3++,+++ Cost =river Activity ++ orders 4 + setups 12 ,+++ /G 1,+++,+++ parts ++ inspections

4f overhead is applied using traditional costing based on direct labor hours, the overhead application rate is a. 1(."+. b. 112.++. c. 11 .++. d. 134.1#. 4f overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is a. 11.2+ per direct labor hour. b. 124+ per order. c. 1+.12 per part. d. 1",%34 per order. The last step in activity-based costing is to a. assign manufacturing overhead costs for each activity cost pool to products. b. compute the activity-based overhead rate per cost driver. c. identify and classify the ma0or activities involved in the manufacture of specific products. d. identify the cost driver that has a strong correlation to the activity cost pool. The first step in activity-based costing is to a. assign manufacturing overhead costs for each activity cost pool to products. b. compute the activity-based overhead rate per cost driver. c. identify and classify the ma0or activities involved in the manufacture of specific products. d. identify the cost driver that has a strong correlation to the activity cost pool. A !ell-designed activity-based costing system starts !ith a. identifying the activity-cost pools. b. computing the activity-based overhead rate. c. assigning manufacturing overhead costs for each activity cost pool to products. d. analy>ing the activities performed to manufacture a product. )hich of the follo!ing is not an e$ample of an activity cost pool6 a. Eetting up machines b. /achining c. 4nspecting d. /achine hours An e$ample of an activity cost pool is a. machine hours. c. number of setups. b. setting up machines. d. number of inspections.

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,stimated costs for activity cost pools and other item8s9 are as follo!sA /achining Assembling Advertising 4nspecting and testing Total estimated overhead is a. 1#++,+++. b. 1%# ,+++. 1 ++,+++ 2++,+++ 4 +,+++ 1# ,+++ c. 11,1 +,+++. d. 11,32 ,+++.

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An e$ample of a cost !hich !ould not be assigned to an overhead cost pool is a. salaries. b. freight-out. c. depreciation. d. supplies. :ne of 2etson CompanyHs activity cost pools is inspecting, !ith estimated overhead of 11++,+++. 2etson produces thro! rugs 8#++ inspections9 and area rugs 81,3++ inspections9. Go! much of the inspecting cost pool should be assigned to thro! rugs6 a. 13 ,+++. b. 1 +,+++. c. 1 3,%4". d. 11++,+++. )hich !ould be an appropriate cost driver for the machining activity cost pool6 a. /achine setups b. 1urchase orders c. /achine hours d. 4nspections )hich !ould be an appropriate cost driver for the purchasing activity cost pool6 a. /achine setups b. 1urchase orders c. /achine hours d. 4nspections An activity-based overhead rate is computed as follo!sA a. actual overhead divided by actual use of cost drivers. b. estimated overhead divided by actual use of cost drivers. c. actual overhead divided by estimated use of cost drivers. d. estimated overhead divided by estimated use of cost drivers. 7se of activity-based costing !ill result in the development of a. one overhead rate based on direct labor hours. b. one plant-!ide activity-based overhead rate. c. multiple activity-based overhead rates. d. no overhead rates; overhead rates are not used in activity-based costing. To use activity-based costing, it is necessary to .no! the a. cost driver for each activity cost pool. b. e$pected use of cost drivers per activity. c. e$pected use of cost drivers per product. d. all of the above. To assign overhead costs to each product, the company a. multiplies the activity-based overhead rates per cost driver by the number of cost drivers e$pected to be used per product. b. multiplies the overhead rate by the number of direct labor hours used on each product. c. assigns the cost of each activity cost pool in total to one product line. d. multiplies the rate of cost drivers per estimated cost for the cost pool by the estimated cost for each cost pool. As compared to a lo!-volume product, a high-volume product a. usually re'uires less special handling. b. is usually responsible for more overhead costs per unit. c. re'uires relatively more machine setups. d. re'uires use of direct labor hours as the primary cost driver to ensure proper allocation of overhead. Assigning overhead using A*C !ill usually a. decrease the cost per unit for lo! volume products as compared to a traditional overhead allocation. b. increase the cost per unit for lo! volume products as compared to a traditional overhead allocation. c. provide less accurate cost per unit for lo! volume products than !ill traditional costing. d. result in the same cost per unit for lo! volume products as does traditional costing. Companies that s!itch to A*C often find they have a. been overpricing some products. b. possibly losing mar.et share to competitors.

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` c. been sacrificing profitability by underpricing some products. d. all of the above. "". Comparing the 7.E. to 2apan, a. activity-based costing is used less than in the 7.E. b. 7.E. companies sho! a stronger preference to volume measures such as direct labor hours to assign overhead costs. c. labor cost reduction is less of a priority in the 7.E. d. developing more accurate product costs is less of a priority in the 7.E. Ior its inspecting cost pool, Gose Company e$pected overhead cost of 12++,+++ and 4,+++ inspections. The actual overhead cost for that cost pool !as 124+,+++ for ,+++ inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is a. 14+ per inspection. b. 14% per inspection. c. 1 + per inspection. d. 1"+ per inspection.

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Use the following information to answer questions 6871. =on.ey Company manufactures t!o products, Etandard and =e&u$e. =on.eyDs overhead costs consist of machining, 12,+++,+++; and assembling, 11,+++,+++. 4nformation on the t!o products isA Etandard =e&u$e =irect labor hours 1+,+++ 1 ,+++ /achine hours 1+,+++ 3+,+++ -umber of parts (+,+++ 1"+,+++ "%. "(. #+. #1. #2. :verhead applied to Etandard using traditional costing using direct labor hours is a. 1%"+,+++. b. 11,2++,+++. c. 11,%++,+++. d. 12,14+,+++. :verhead applied to =e&u$e using traditional costing using direct labor hours is a. 1%"+,+++. b. 11,2++,+++. c. 11,%++,+++. d. 12,14+,+++. :verhead applied to Etandard using activity-based costing is a. 1%"+,+++. b. 11,2++,+++. c. 11,%++,+++. :verhead applied to =e&u$e using activity-based costing is a. 1%"+,+++. b. 11,2++,+++. c. 11,%++,+++. d. 12,14+,+++. d. 12,14+,+++.

Calvin Co. produces 3 productsA A1, *2, and C3. A1 re'uires 4++ purchase orders, *2 re'uires "++ purchase orders, and C3 re'uires 1,+++ purchase orders. Calvin has identified an ordering and receiving activity cost pool !ith allocated overhead of 112+,+++ for !hich the cost driver is purchase orders. =irect labor hours used on each product are +,+++ for A1, 4+,+++ for *2, and 11+,+++ for C3. Go! much ordering and receiving overhead is assigned to each product6 A1 *2 C3 a. 14+,+++ 14+,+++ 14+,+++ b. 13+,+++ 124,+++ 1"",+++ c. 124,+++ 13",+++ 1"+,+++ d. 12#,+++ 13+,+++ 1"3,+++ :ld/aid 4nc. computed an overhead rate for machining costs 811,+++,+++9 of 11+ per machine hour. /achining costs are driven by machine hours. 4f computed based on direct labor hours, the overhead rate for machining costs !ould be 12+ per direct labor hour. The company produces t!o products, Bert and /ill. Bert re'uires "+,+++ machine hours and 2+,+++ direct labor hours, !hile /ill re'uires 4+,+++ machine hours and 3+,+++ direct labor hours. 7sing activity-based costing, machining costs assigned to each product is Bert /ill a. 14++,+++ 1"++,+++ b. 1 ++,+++ 1 ++,+++ c. 1 33,333 14"",""# d. 1"++,+++ 14++,+++ Bee-Tar Company manufactures t!o models of its guitar, the *eginner and the 1ro. The *eginner model re'uires 1+,+++ direct labor hours and the 1ro re'uires 3+,+++ direct labor hours. The company produces 3,4++ units of the *eginner model and "++ units of the 1ro model each year. The company inspects one

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*eginner for every 1++ produced, and inspects one 1ro for every 1+ produced. The company e$pects to incur 1 ",4++ of total inspecting costs this year. Go! much of the inspecting costs should be allocated to the *eginner model using A*C costing6 a. 114,1++ b. 12+,4++ c. 12%,2++ d. 14#,(4+ # . Easse 4nc. manufactures 2 products, hammers and scre!drivers. The company has estimated its overhead in the assembling department to be 11" ,+++. The company produces 3++,+++ hammers and "++,+++ scre!drivers each year. ,ach hammer uses 2 parts, and each scre!driver uses 3 parts. Go! much of the assembly overhead should be allocated to hammers6 a. 141,2 +. b. 1 ,+++. c. 1"",+++ d. 1#+,#14.

Use the following information to answer questions 7677: Jones Co. incurs 13 +,+++ of overhead costs each year in its three main departments, machining 812++,+++9, inspections 811++,+++9 and pac.ing 81 +,+++9. The machining department !or.s 4,+++ hours per year, there are ++ inspections per year, and the pac.ing department pac.s ++ orders per year. 4nformation about JonesDs t!o products is as follo!sA /achining hours 4nspections :rders pac.ed =irect labor hours #". 1roduct A 1,+++ 1++ 3 + 1,#++ 1roduct * 3,+++ ++ " + 1,%++

4f traditional costing based on direct labor hours is used, ho! much overhead is assigned to 1roduct A this year6 a. 1%4,1"# b. 1121,1 4 c. 11#+,+++ d. 11# ,+++ 7sing A*C, ho! much overhead is assigned to 1roduct A this year6 a. 1%4,1"# b. 1121,1 4 c. 11#+,+++ d. 11# ,+++

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A company incurs 11,3 +,+++ of overhead each year in three departmentsA :rdering and 5eceiving, /i$ing, and Testing. The company prepares 2,+++ purchase orders, !or.s +,+++ mi$ing hours, and performs 1, ++ tests per year in producing 2++,+++ drums of Boo and "++,+++ drums of Elime. The follo!ing data are availableA =epartment :rdering and 5eceiving /i$ing Testing ,$pected use of =river 2,+++ +,+++ 1, ++ Cost K4++,+++ ++,+++ 4 +,+++

1roduction information for Boo is as follo!sA =epartment :rdering and 5eceiving /i$ing Testing ,$pected use of =river 4++ 2+,+++ ++ d. 1"# ,+++

Compute the amount of overhead assigned to Boo. a. 133#, ++ b. 143+,+++ c. 1 2#,3%2 #(.

A company incurs 11,3 +,+++ of overhead each year in three departmentsA :rdering and 5eceiving, /i$ing, and Testing. The company prepares 2,+++ purchase orders, !or.s +,+++ mi$ing hours, and performs 1, ++ tests per year in producing 2++,+++ drums of Boo and "++,+++ drums of Elime. The follo!ing data are availableA =epartment :rdering and 5eceiving /i$ing Testing ,$pected use of =river 2,+++ +,+++ 1, ++ Cost K4++,+++ ++,+++ 4 +,+++

1roduction information for Elime is as follo!sA =epartment :rdering and 5eceiving /i$ing ,$pected use of =river 1,"++ 3+,+++

` Testing 1,+++ d. 11,+12, ++

Compute the amount of overhead assigned to Elime. a. 1"# ,+++ b. 1%22,"1# c. 1(2+,+++ %+.

:ne of Astro CompanyHs activity cost pools is machine setups, !ith estimated overhead of 11%+,+++. Astro produces spar.lers 84++ setups9 and lighters 8"++ setups9. Go! much of the machine setup cost pool should be assigned to spar.lers6 a. 11%+,+++ b. 1#2,+++ c. 1(+,+++ d. 11+%,+++ )hich !ould be an appropriate cost driver for the ordering and receiving activity cost pool6 a. /achine setups b. 1urchase orders c. /achine hours d. 4nspections As compared to a high-volume product, a lo!-volume product a. usually re'uires less special handling. b. is usually responsible for more overhead costs per unit. c. re'uires relatively fe!er machine setups. d. re'uires use of direct labor hours as the primary cost driver to ensure proper allocation of overhead. 4n 2apan, a. activity-based costing is used more than in the 7.E. b. companies prefer volume measures such as direct labor hours to assign overhead costs. c. labor cost reduction is less of a priority. d. developing more accurate product costs is more of a priority.

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Use the following information to answer questions 8487. 1oodle Company manufactures t!o products, /ini A and /a$i *. 1oodleHs overhead costs consist of setting up machines, 11,2++,+++; machining, 12,#++,+++; and inspecting, 1(++,+++. 4nformation on the t!o products isA /ini A /a$i * =irect labor hours 1 ,+++ 2 ,+++ /achine setups "++ 4++ /achine hours 24,+++ 2",+++ 4nspections %++ #++ %4. % . %". %#. %%. :verhead applied to /ini A using traditional costing using direct labor hours is a. 11,%++,+++. b. 12,3+4,+++. c. 12, + ,+++. d. 12,%%+,+++. :verhead applied to /a$i * using traditional costing using direct labor hours is a. 11,(2+,+++. b. 12,3+4,+++. c. 12, + ,+++. d. 13,+++,+++. :verhead applied to /ini A using activity-based costing is a. 11,%++,+++. b. 12,3+4,+++. c. 12,4(",+++. :verhead applied to /a$i * using activity-based costing is a. 11,(2+,+++. b. 12,3+4,+++. c. 12,4(",+++. d. 12,%%+,+++. d. 13,+++,+++.

Feronica Co. produces three productsA 5ain, Eno! and )ind. 5ain re'uires %+ machine setups, Eno! re'uires "+ setups, and )ind re'uires 1%+ setups. Feronica has identified an activity cost pool !ith allocated overhead of 14%+,+++ for !hich the cost driver is machine setups. Go! much overhead is assigned to each product6 a. b. c. d. 5ain 11"+,+++ 11++,+++ 112+,+++ 1(+,+++ Eno! 11"+,+++ 1# ,+++ 1(+,+++ 11"+,+++ )ind 11"+,+++ 122 ,+++ 12#+,+++ 123+,+++

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Gammoc. Company manufactures t!o models of its hammoc., the Euperior and the =elu$e. The Euperior model re'uires 1+,+++ direct labor hours and the =elu$e model re'uires 4+,+++ direct labor hours. The company produces 4,+++ units of the Euperior model and 1,+++ units of the =elu$e model each year. The company produces the Euperior model in batch si>es of 2++, !hile it produces the =elu$e

model in batch si>es of 1++. The company e$pects to incur 11%+,+++ of total setup costs this year. Go! much of the setup costs are allocated to the Euperior model using A*C costing6 a. 112+,+++ b. 1(+,+++ c. 13",+++ d. 11 +,+++ (+. 2aime 4nc. manufactures t!o products, s!eaters and 0ac.ets. The company has estimated its overhead in the order-processing department to be 124+,+++. The company produces +,+++ s!eaters and %+,+++ 0ac.ets each year. E!eater production re'uires 2 ,+++ machine hours, 0ac.et production re'uires +,+++ machine hours. The company places ra! materials orders 1+ times per month, 2 times for ra! materials for s!eaters and the remainder for ra! materials for 0ac.ets. Go! much of the order processing overhead should be allocated to 0ac.ets6 a. 112+,+++ b. 11"+,+++ c. 114#,"(3 d. 11(2,+++

Use the following information to answer questions 9193. Canterra Co, incurs 124+,+++ overhead costs each year in its three main departments, setup 811 ,+++9, machining 811" ,+++9, and pac.ing 81"+,+++9. The setup department performs 4+ setups per year, the machining department !or.s ,+++ hours per year, and the pac.ing department pac.s ++ orders per year. 4nformation about CanterraDs t!o products is as follo!sA -umber of setups /achining hours :rders pac.ed -umber of products manufactured (1. (2. (3. 1roduct :ne 2+ 1,+++ 1 + "++ 1roduct T!o 2+ 4,+++ 3 + 4++

4f machining hours are used as a base, ho! much overhead is assigned to 1roduct :ne each year6 a. 14%,+++ b. 112+,+++ c. 1%2, ++ d. 1#2,+++ 7sing A*C, ho! much overhead is assigned to 1roduct :ne each year6 a. 112+,+++ b. 11%1, ++ c. 14%,+++ d. 1 %, ++ 7sing A*C, ho! much overhead is assigned to 1roduct T!o each year6 a. 112+,+++ b. 1(",+++ c. 11%1, ++ d. 11(2,+++

Use the following information to answer questions 9495. A company incurs 11,%++,+++ of overhead each year in three departmentsA 1rocessing, 1ac.aging, and Testing. The company performs %++ processing transactions, 2++,+++ pac.aging transactions, and 2,+++ tests per year in producing 4++,+++ drums of oil and "++,+++ drums of sludge. The follo!ing data are availableA =epartment 1rocessing 1ac.aging Testing ,$pected 7se of =river %++ 2++,+++ 2,+++ Cost K# +,+++ # +,+++ 3++,+++

1roduction information for the t!o products is as follo!sA =epartment 1rocessing 1ac.aging Testing (4. ( . (". :il ,$pected 7se of =river 3++ 12+,+++ 1,"++ Eludge ,$pected 7se of =river ++ %+,+++ 4++ c. 1%2%,# +. c. 1(#1,2 +. d. 1"(+,+++. d. 1"(+,+++.

The amount of overhead assigned to oil is a. 1(++,+++. b. 1(#1,2 +. The amount of overhead assigned to sludge is a. 1(++,+++. b. 1%2%,# +.

Eleep-Tight manufactures mattresses for the hotel industry. 4t has t!o products, =o!ny and Iirm, and total overhead is 1#(+,+++. The company plans to manufacture 4++ =o!ny mattresses and 1++ Iirm mattresses his year. 4n manufacturing the mattresses, the company must perform "++ material moves for the =o!ny and 4++ for the Iirm; it processes (++ purchase orders for the =o!ny and #++ for the Iirm; and the companyDs employees !or. 1,4++ direct labor hours on the =o!ny product and 3,4++ on the Iirm. Eleep-TightDs total material handling costs are 1 ++,+++ and its total processing costs are 12(+,+++. 7sing A*C, ho! much overhead !ould be assigned to the =o!ny product6

` a. 13( ,+++ (#. b. 14"3,12 c. 132",%# d. 1 (, %3

)hich of the follo!ing is a limitation of activity-based costing6 a. /ore cost pools b. &ess control over overhead costs c. 1oorer management decisions d. Eome arbitrary allocations continue )hich of the follo!ing factors !ould suggest a s!itch to activity-based costing6 a. 1roduct lines similar in volume and manufacturing comple$ity. b. :verhead costs constitute a significant portion of total costs. c. The manufacturing process has been stable. d. 1roduction managers use data provided by the e$isting system. )hich of the follo!ing is true of activity-based costing6 a. /ore cost pools b. Eame base as traditional costing c. &ess costly to use d. ,liminates arbitrary allocations The primary benefit of A*C is it provides a. better management decisions. c. more cost pools. b. enhanced control over overhead costs. d. more accurate product costing.

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)hich of the follo!ing is not a benefit of activity-based costing6 a. /ore accurate product costing b. ,nhanced control over overhead costs c. *etter management decisions d. &ess costly to use ,ach of the follo!ing is a limitation of activity-based costing e$cept that a. it can be e$pensive to use. b. it is more comple$ than traditional costing. c. more cost pools are used. d. some arbitrary allocations continue. The presence of any of the follo!ing factors !ould suggest a s!itch to A*C e$cept !hen a. product lines differ greatly in volume. b. overhead costs constitute a minor portion of total costs. c. the manufacturing process has changed significantly. d. production managers are ignoring data provided by the e$isting system. )hich of the follo!ing is a limitation of activity-based costing6 a. /ore cost pools b. &ess control over overhead costs c. A*C can be e$pensive to use d. 1oorer management decisions )hich of the follo!ing is true about activity-based costing6 a. &ess cost pools b. Eame base as traditional costing c. /ore costly to use d. ,liminates arbitrary allocations ,ach of the follo!ing is a limitation of activity-based costing e$cept that a. it can be e$pensive to use. b. it decreases control over overhead costs c. it is comple$ and can be difficult to understand d. some arbitrary allocations continue. The presence of any of the follo!ing factors !ould suggest a s!itch to A*C e$cept !hen a. product lines differ greatly in volume. b. overhead costs constitute a ma0or portion of total costs. c. the manufacturing process has changed significantly. d. production managers are using data provided by the e$isting system Activity-based costing uses a. one plant!ide pool and a single cost driver. c. numerous cost pools and numerous cost drivers. b. departmental pools and a single cost driver. d. one plant!ide pool and numerous cost drivers

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)hich of the follo!ing statements is false6 a. A*C can !ea.en control over overhead costs. b. 7nder A*C, companies can trace many overhead costs directly to activities. c. A*C allo!s some indirect costs to be identified as direct costs. d. managers become more a!are of their responsibility to control the activities that generate costs.

11+. 111. 112. 113. 114.

)hich of the follo!ing is a value-added activity6 a. 4nventory storage b. /achining c. *uilding maintenance d. *oo..eeping )hich of the follo!ing is a value-added activity6 a. 4nventory control b. 4nspections c. 1ac.aging )hich of the follo!ing is a non-value-added activity6 a. 4nventory control b. /achining c. Assembly )hich of the follo!ing is a non-value-added activity6 a. 1ainting b. Iinishing c. 1ac.aging A non-value-added activity in a service enterprise is a. providing legal research. c. consulting. A value-added activity in a service enterprise is a. performing landscaping services. c. billing. d. 5epair of machines d. 1ainting d. *uilding maintenance

b. delivering pac.ages. d. boo..eeping. b. reception. d. ordering supplies.

11 .

11".

-on-value-added activities a. should be reduced or eliminated. b. involve resource usage customers are !illing to pay for. c. increase both the cost and mar.et value of a product. d. cannot be differentiated from value-added activities. Falue-added activities a. increase the !orth of a product or service to customers. b. involve resource usage and related costs that customers are !illing to pay for. c. are the activities of actually manufacturing a product or performing a service. d. all of the above. )hich of the follo!ing is a value-added activity6 a. ,ngineering design c. 4nventory storage )hich of the follo!ing is a non-value-added activity6 a. ,ngineering design c. 4nspection A non-value-added activity in a service enterprise is a. ta.ing appointments. c. advertising. b. /achinery repair d. 4nspections b. /achining d. 1ac.aging b. traveling. d. all of these.

11#.

11%.

11(.

12+.

121.

Falue-added activities a. should be reduced or eliminated. b. involve resource usage customers are !illing to pay for. c. add cost to a product !ithout affecting selling price. d. cannot be differentiated from non-value-added activities. All of the follo!ing are e$amples of a value-added activity in a service company exce t a. delivering pac.ages by a delivery service. b. ordering supplies. c. performing surgery. d. providing legal research for legal services. )hich of the follo!ing is not a facility-level activity6 a. 1lant management c. 1ersonnel administration b. 1roduct design d. Training

122.

123.

` 124. )hich of the follo!ing is not a product-level activity6 a. 1roduct design c. 4nventory management )hich of the follo!ing is not a batch-level activity6 a. ,ngineering changes c. 4nspection b. ,ngineering changes d. ,'uipment setups b. ,'uipment setups d. /aterials handling d. Ee!ing d. Assembling

12 .

12". 12#. 12%. 12(. 13+. 131. 132. 133. 134. 13 .

)hich of the follo!ing is not a unit-level activity6 a. 1urchase ordering b. Assembling c. 1ainting )hich of the follo!ing is a batch-level activity6 a. 1lant management b. 1roduct design c. ,'uipment setups

)hich of the follo!ing is not a facility-level activity6 a. 1lant depreciation b. 1roperty ta$es c. ,ngineering changes d. 7tilities )hich of the follo!ing is not a product-level activity6 a. 1roduct design b. ,ngineering changes c. /aterial handling )hich of the follo!ing is not a batch-level activity6 a. 1urchase ordering b. ,'uipment setups c. 4nspection )hich of the follo!ing is not a unit-level activity6 a. =rilling b. Cutting c. Eanding )hich of the follo!ing is a unit-level activity6 a. 1ainting b. 1urchase ordering c. 4nspection d. 4nventory management d. Assembling d. 4nspecting d. /aterial handling

)hich of the follo!ing is a batch-level activity6 a. Assembling b. 1roduct design c. ,ngineering changes d. 1urchase ordering )hich of the follo!ing is a product-level activity6 a. ,'uipment setups b. 1roduct design c. 1roperty ta$es )hich of the follo!ing is a facility-level activity6 a. ,ngineering changes c. 1roperty ta$es d. 7tilities

b. 1roduct design d. 4nspection

13".

Activities re'uired to support or sustain an entire production process are called a. unit-level activities. b. batch-level activities. c. product-level activities. d. facility-level activities. )hich !ould be a cost driver for a facility-level activity6 a. -umber of setups b. -umber of product designs c. E'uare footage d. -umber of purchase orders Activity-based costing has been found to be useful in each of the follo!ing service industries exce t a. airlines. b. railroads. c. hotels. d. A*C has been useful in all of these industries. Activity-based costing is used in a. b. c. d. Eervice industries Les Les -o -o /anufacturing industries -o Les Les -o

13#.

13%.

13(.

14+.

4n service industries a. activities cannot be labeled as value-added or non-value-added.. b. the overall ob0ective of A*C is different than in manufacturing industries. c. a larger proportion of overhead costs are company-!ide costs. d. activity cost pools cannot be identified.. Activity-based costing is used by a. accounting firms. b. la! firms. c. consulting firms. d. all of the above.

141. 142.

*en and 2a.eDs Accounting Eervices estimates for ne$t year revenues of 11,+++,+++, direct labor of 12++,+++, and overhead of 13 +,+++. 7nder traditional costing, overhead is applied to audit 0obs using the rate of a. 3 M of revenues. b. 2+M of revenues. c. "M of direct labor. d. 1# M of direct labor.

7se the follo!ing information to ans!er 'uestions 143N14#. 2C Accounting performs t!o types of services, Ta$ and Consulting. 2CDs overhead costs consist of computer support, 12++,+++; and legal support, 11++,+++. 4nformation on the t!o services isA =irect labor cost C17 minutes &egal hours used 143. 144. 14 . 14". 14#. Ta$ K +,+++ 4+,+++ 2++ Consulting 11++,+++ 1+,+++ %++ d. 12++,+++. d. 12++,+++. d. 12++,+++. d. 12++,+++.

:verhead applied to ta$ services using traditional costing is a. 11++,+++. b. 112+,+++. c. 11%+,+++. :verhead applied to consulting services using traditional costing is a. 11++,+++. b. 112+,+++. c. 11%+,+++. :verhead applied to ta$ services using activity-based costing is a. 11++,+++. b. 112+,+++. c. 11%+,+++. :verhead applied to consulting services using activity-based costing is a. 11++,+++. b. 112+,+++. c. 11%+,+++.

2C Accounting performs ta$ services for Fince /orelli. =irect labor cost is 11,2++; "++ C17 minutes !ere used; and 1 legal hour !as used. )hat is the total cost of the /orelli 0ob6 a. 12,4++ b. 12, ++ c. 13,"++ d. 13,#++ Activity-based costing has been found to be useful in each of the follo!ing service industries exce t a. ban.s. b. hospitals. c. telephone companies. d. A*C has been useful in any of these industries. )hat sometimes ma.es implementation of activity-based costing difficult in service industries is a. the labeling of activities as value-added. b. identifying activities, activity cost plus, and cost drivers. c. that a larger proportion of overhead costs are company-!ide costs. d. attempting to reduce or eliminate non-value-added activities. All of the follo!ing statements are correct exce t that a. activity-based costing has been !idely adopted in service industries. b. the ob0ective of installing A*C in service firms is different than it is in a manufacturing firm. c. a larger proportion of overhead costs are company-!ide costs in service industries. d. the general approach to identifying activities and activity cost pools is the same in a service company as in a manufacturing company. The use of activity-based costing in service industries a. has the same ob0ective as in manufacturing. b. results in improved costing of services provided. c. uses cost pools to assign overhead.

14%.

14(.

1 +.

1 1.

` d. all of these.
a

1 2.

2ust-in-time processing a. is based on a 0ust-in-case philosophy. c. minimi>es inventory storage and !aiting time.

b. results in a push approach. d. all of these.

1 3.

An element of 0ust-in-time processing is a. dependable suppliers !ho are !illing to deliver on short notice. b. a multi-s.illed !or.force. c. a total 'uality control system. d. all of these. )hich of the follo!ing is not a benefit of 0ust-in-time processing6 a. Control of significant inventory balances b. ,nhanced product 'uality c. 5eduction of re!or. costs d. 1roduction cost savings )hich account is used in 0ust-in-time processing6 a. 5a! materials inventory c. /erchandise inventory b. )or.-in-process inventory d. 5a! and 4n-1rocess inventory

1 4.

1 ".

7nder 0ust-in-time processing, all of the follo!ing are received or completed ?0ust in time@ exce t a. finished goods. b. ra! materials. c. subassembly parts. d. supplies. 2ust-in-time processing a. is based on a 0ust-in-case philosophy. c. eliminates the push approach. 2ust-in-time processing a. results in the opposite of a 0ust-in-case philosophy. c. minimi>es inventory storage and !aiting time. b. results in higher inventory amounts. d. all of the above. b. results in a pull approach. d. all of the above.

1 #.

1 %.

1 (.

An important element of 0ust-in-time processing is a. dependable suppliers !ho are !illing to deliver on short notice. b. a speciali>ed !or.force. c. less emphasis on a 'uality control system. d. all of the above. )hich of the follo!ing is a limitation of 0ust-in-time processing6 a. Eignificant reduction of manufacturing inventories b. &ess emphasis on product 'uality c. Gigher production costs d. -one of the above )hich account is not used in 0ust-in-time processing6 a. Accounts payable c. Iinished goods inventory b. )or.-in-process inventory d. 5a! and 4n-1rocess inventory

1"+.

1"1.

1"2.

4n the pull approach a. subassembly parts are manufactured and stored 0ust in case they are needed later in the manufacturing process. b. Iinished goods are completed and stored 0ust in case une$pected and rush customer orders are received. c. the manufacturing process begins !ith a customer placing an order. d. -one of the above. En! o" Te#t$