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Week 4 Quiz 3: Chapter 4
TRUE-FALSE STATEMENTS
1. Traditional costing systems use multiple predetermined overhead
rates.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
2. Traditionally, overhead is allocated based on direct labor cost
or direct labor hours.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
3. Current trends in manufacturing include less direct labor and
more overhead.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
4. Activity-based costing allocates overhead to multiple cost pools
and assigns the cost pools to products using cost drivers.
Ans:, LO: 1, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
5. A cost driver does not
generally have a direct cause-effect relationship with the resources consumed.
Ans:, LO: 1, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
6. The first step in activity-based costing is to assign overhead
costs to products, using cost drivers.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
7. To achieve accurate costing, a high degree of correlation must
exist between the cost driver and the actual consumption of the activity cost
pool.
Ans:, LO: 4, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
8. Low-volume products often require more special handling than
high-volume products.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
9. When overhead is properly assigned in ABC, it will usually
decrease the unit cost of high-volume products.
Ans:, LO: 4, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
10. ABC leads to enhanced control over overhead costs.
Ans:, LO: 5, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
11. ABC usually results in less appropriate management decisions.
Ans:, LO: 5, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
12. ABC is generally more costly to implement than traditional
costing.
Ans:, LO: 5, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
13. ABC eliminates all arbitrary cost allocations.
Ans:, LO: 5, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
14. ABC is particularly useful when product lines differ greatly in
volume and manufacturing complexity.
Ans:, LO: 5, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
15. ABC is particularly useful when overhead costs are an
insignificant portion of total costs.
Ans:, LO: 5, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
16. Activity-based management focuses on reducing costs and
improving processes.
Ans:, LO: 6, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
17. Any activity that increases the cost of producing a product is a
value-added activity.
Ans:, LO: 6, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
18. Engineering design is a value-added activity.
Ans:, LO: 6, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
19. Non-value-added activities increase the cost of a product but
not its perceived value.
Ans:, LO: 6, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
20. Machining is a non-value-added activity.
Ans:, LO: 6, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
21. Not all activities labeled non-value-added are totally wasteful,
nor can they be totally eliminated.
Ans:, LO: 6, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
22. The overall objective of installing ABC in service firms is no
different than it is in a manufacturing company.
Ans:, LO: 8, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
23. What sometimes makes implementation of activity-based costing
difficult in service industries is that a smaller proportion of overhead costs
are company-wide costs.
Ans:, LO: 8, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
24. 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.
Ans:, LO: 8, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
25. Plant management is a batch-level activity.
Ans:, LO: 7, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
26. Painting is a product-level activity.
Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA
BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: Cost Mgmt
a27. Just-in-time
strives to eliminate inventories by using a pull approach.
Ans:, LO: 9, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
a28. Quality control is less important in
just-in-time than in traditional manufacturing philosophies.
Ans:, LO: 9, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
a29. Inventory storage costs are reduced in
just-in-time processing.
Ans:, LO: 9, Bloom: K, Difficulty:
Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA
FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
a30. Rework costs typically increase in
just-in-time processing.
Ans:, LO: 9, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
MULTIPLE
CHOICE QUESTIONS
31. Which of the following is not
typical of traditional costing systems?
a. Use of a single predetermined overhead rate.
b. Use of direct labor hours or direct labor
cost to assign overhead.
c. Assumption of correlation between direct
labor and incurrence of overhead cost.
d. Use of multiple cost drivers to allocate
overhead.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
32. In traditional costing systems, overhead is generally applied
based on
a. direct labor.
b. machine hours.
c. direct material dollars.
d. units of production.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
33. An activity that has a direct cause-effect relationship with the
resources consumed is a(n)
a. cost driver.
b. overhead rate.
c. cost pool.
d. product activity.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
34. Which best describes the flow of overhead costs in an
activity-based costing system?
a. Overhead costs direct labor cost or hours
products
b. Overhead costs products
c. Overhead costs activity cost pools cost
drivers products
d. Overhead costs machine hours products
Ans:, LO: 1, Bloom: C,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
35. 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
equally easy to trace to the product.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
36. Often the most difficult part of
computing accurate unit costs is determining the proper amount of _________to
assign to each product, service, or job.
a. direct materials
b. direct labor
c. overhead
d. direct materials and direct labor
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
37. Predetermined overhead rates in traditional costing are often
based on
a. direct labor cost for job order costing and
machine hours for process costing.
b. machine hours for job order costing and
direct labor cost for process costing.
c. multiple bases for job order costing and
direct labor cost for process costing.
d. multiple bases for both job order costing and
process costing.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
38. Direct
labor is sometimes the appropriate basis for assigning overhead cost to
products. It is appropriate to use direct labor when which of the following is
true?
(1) Direct labor constitutes a significant part
of total product cost.
(2) A high correlation exists between direct
labor and changes in the amount of overhead costs.
a. (1) only
b. (2) only
c. Either (1) or (2)
d. Both (1) and (2)
Ans:, LO: 1, Bloom: C,
Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
39. Advances
in computerized 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.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
40. Activity-based costing
a. allocates overhead to 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 back to the activity cost pools.
d. allocates overhead directly to products and
services based on activity levels.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
41. Ordering
materials, setting up machines, assembling products, and inspecting products
are examples of
a. cost drivers.
b. overhead cost pools.
c. direct labor costs.
d. nonmanufacturing activities.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
42. An “Ordering and Receiving Materials” cost pool would most
likely have as a cost driver:
a. machine hours.
b. number of setups.
c. number of purchase orders.
d. number of inspection tests.
Ans:, LO: 1, Bloom: K,
Difficulty: Medium, Min: 3, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
43. Daffodil Company produces two products,
Flower and Planter. Flower is a high-volume item totaling 20,000 units
annually. Planter is a low-volume item totaling only 6,000 units per year.
Flower requires one hour of direct labor for completion, while each unit of
Planter requires 2 hours. Therefore, total annual direct labor hours are 32,000
(20,000 + 12,000). Expected annual manufacturing overhead costs are $800,000.
Daffodil uses a traditional costing system and assigns overhead based on direct
labor hours. Each unit of Planter would be assigned overhead of
a. $25.00.
b. $30.77.
c. $50.00.
d. need more information to compute.
Ans:, LO: 2, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
44. Sitwell Corporation manufactures titanium and aluminum tennis
racquets. Sitwell’s total overhead costs consist of assembly costs and
inspection costs. The following information is available:
Cost Titanium Aluminum Total Cost
Assembly 500 mach. hours 500
mach. hours $45,000
Inspections 350 150 $75,000
2,100
labor hours 1,900 labor hours
Sitwell is considering switching from one overhead rate
based on labor hours to activity-based costing.
Total overhead costs assigned to titanium racquets,
using a single overhead rate, are
a. $60,000.
b. $63,000.
c. $75,000.
d. $84,000.
Ans:, LO: 2, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
45. Sitwell Corporation manufactures titanium and aluminum tennis
racquets. Sitwell’s total overhead costs consist of assembly costs and
inspection costs. The following information is available:
Cost Titanium Aluminum Total Cost
Assembly 500 mach. hours 500
mach. hours $45,000
Inspections 350 150 $75,000
2,100
labor hours 1,900 labor hours
Sitwell is considering switching from one overhead rate
based on labor hours to activity-based costing.
Using activity-based costing, how much assembly cost is
assigned to titanium racquets?
a. $15,750.
b. $22,500.
c. $23,625.
d. $31,500.
Ans:, LO: 2, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
46. Sitwell Corporation manufactures titanium and aluminum tennis
racquets. Sitwell’s total overhead costs consist of assembly costs and
inspection costs. The following information is available:
Cost Titanium Aluminum Total Cost
Assembly 500 mach. hours 500
mach. hours $45,000
Inspections 350 150 $75,000
2,100
labor hours 1,900 labor hours
Sitwell is considering switching from one overhead rate
based on labor hours to activity-based costing.
Using activity-based costing, how much inspections cost
is assigned to titanium racquets?
a. $22,500.
b. $35,625.
c. $37,500.
d. $52,500.
Ans:, LO: 2, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
47. Sanborn Industries has the following
overhead costs and cost drivers. Direct labor hours are estimated at 100,000
for the year.
Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity
Ordering and Receiving Orders $ 120,000 500
orders
Machine Setup Setups 297,000 450 setups
Machining Machine
hours 1,500,000 125,000 MH
Assembly Parts 1,200,000 1,000,000 parts
Inspection Inspections 300,000 500 inspections
If overhead is applied using traditional costing based
on direct labor hours, the overhead application rate is
a. $9.60.
b. $12.00.
c. $15.00.
d. $34.17.
Ans:, LO: 2, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
48. Sanborn
Industries has the following overhead costs and cost drivers. Direct labor
hours are estimated at 100,000 for the year.
Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity
Ordering and Receiving Orders $ 120,000 500
orders
Machine Setup Setups 297,000 450 setups
Machining Machine
hours 1,500,000 125,000 MH
Assembly Parts 1,200,000 1,000,000 parts
Inspection Inspections 300,000 500 inspections
If overhead is applied using activity-based costing, the
overhead application rate for ordering and receiving is
a. $1.20 per direct labor hour.
b. $240 per order.
c. $0.12 per part.
d. $6,834 per order.
Ans:, LO: 2, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
49. The last step in activity-based costing is to
a. assign overhead costs to products, using
overhead rates determined for each cost pool.
b. compute the activity-based overhead rate per
cost driver.
c. identify and classify the activities involved
in the manufacture of specific products, and allocate overhead to cost pools.
d. identify the cost driver that has a strong
correlation to the activity cost pool.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
50. The first step in activity-based costing is to
a. assign overhead costs to products, using
overhead rates determined for each
cost pool.
cost pool.
b. compute the activity-based overhead rate per
cost driver.
c. identify and classify the activities involved
in the manufacture of specific products, and allocate overhead to cost pools.
d. identify the cost driver that has a strong
correlation to the activity cost pool.
Ans:, LO: 2, Bloom: K, Difficulty:
Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA
FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
51. A well-designed activity-based costing system starts with
a. identifying the activity-cost pools.
b. computing the activity-based overhead rate.
c. assigning overhead costs to products.
d. analyzing the activities performed to
manufacture a product.
Ans:, LO: 3, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
52. Which of the following is not an example of an activity cost
pool?
a. Setting up machines
b. Machining
c. Inspecting
d. Machine hours
Ans:, LO: 3, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
53. An example of an activity cost pool is
a. machine hours.
b. setting up machines.
c. number of setups.
d. number of inspections.
Ans:, LO: 3, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
54. Estimated costs for activity cost pools and
other item(s) are as follows:
Machining $800,000
Assembling 200,000
Advertising 450,000
Inspecting
and testing 175,000
Total estimated overhead is
a. $1,000,000.
b. $1,175,000.
c. $1,450,000.
d. $1,625,000.
Ans:, LO: 3, Bloom: AP,
Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
55. An example of a cost which would not
be assigned to an overhead cost pool is
a. indirect salaries.
b. freight-out.
c. depreciation.
d. supplies.
Ans:, LO: 3, Bloom: K,
Difficulty: Medium, Min: 3, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
56. One of Hartman Company's activity cost pools is inspecting, with
estimated overhead of $140,000. Hartman produces throw rugs (700 inspections)
and area rugs (1,300 inspections). How
much of the inspecting cost pool should be assigned to throw rugs?
a. $49,000.
b. $70,000.
c. $75,384.
d. $140,000.
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
57. Which would be an appropriate
cost driver for the machining activity cost pool?
a. Machine setups
b. Purchase orders
c. Machine hours
d. Inspections
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
58. Which would be an appropriate
cost driver for the purchasing activity cost pool?
a. Machine setups
b. Purchase orders
c. Machine hours
d. Inspections
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
59. An activity-based overhead rate is computed as follows:
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.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
60. Use of activity-based costing will result in the development of
a. one overhead rate based on direct labor
hours.
b. one plantwide activity-based overhead rate.
c. multiple activity-based overhead rates.
d. no overhead rates; overhead rates are not
used in activity-based costing.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
61. To use activity-based costing, it is necessary to know the
a. cost driver for each activity cost pool.
b. expected use of cost drivers per activity.
c. expected use of cost drivers per product.
d. all of the above.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector Perspective,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
62. 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 expected 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.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
63. As compared to a low-volume product, a high-volume product
a. usually requires less special handling.
b. is usually responsible for more overhead
costs per unit.
c. requires relatively more machine setups.
d. requires use of direct labor hours as the
primary cost driver to ensure proper allocation of overhead.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
64. Assigning
overhead using ABC will usually
a. decrease the cost per unit for low volume
products as compared to a traditional overhead allocation.
b. increase the cost per unit for low volume
products as compared to a traditional overhead allocation.
c. provide less accurate cost per unit for low
volume products than will traditional costing.
d. result in the same cost per unit for low
volume products as does traditional costing.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
65. Companies that
switch to ABC often find they have
a. been overpricing some products.
b. possibly losing market share to competitors.
c. been sacrificing profitability by
underpricing some products.
d. all of the above.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
66. Comparing the U.S. to Japan,
a. activity-based costing is used less than in
the U.S.
b. U.S. companies show 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 U.S.
d. developing more accurate product costs is
less of a priority in the U.S.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 2, AACSB: Reflective, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
67. For
its inspecting cost pool, Davidson, Inc. expected overhead cost of $300,000 and
4,000 inspections. The actual overhead cost for that cost pool was $360,000 for
5,000 inspections. The activity-based overhead rate used to assign the costs of
the inspecting cost pool to products is
a. $60 per inspection.
b. $72 per inspection.
c. $75 per inspection.
d. $90 per inspection.
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
68. Addison Company manufactures two products, Regular
and Supreme. Addison’s overhead costs consist of machining, $2,500,000; and
assembling, $1,250,000. Information on the two products is:
Regular Supreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000
Overhead applied to Regular using traditional costing
using direct labor hours is
a. $1,075,000.
b. $1,500,000.
c. $2,250,000.
d. $2,675,000.
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
69. Addison Company manufactures two products, Regular
and Supreme. Addison’s overhead costs consist of machining, $2,500,000; and
assembling, $1,250,000. Information on the two products is:
Regular Supreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000
Overhead applied to Supreme
using traditional costing using direct labor hours is
a. $1,075,000.
b. $1,500,000.
c. $2,250,000.
d. $2,675,000.
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
70. Addison Company manufactures two products, Regular
and Supreme. Addison’s overhead costs consist of machining, $2,500,000; and
assembling, $1,250,000. Information on the two products is:
Regular Supreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000
Overhead applied to Regular using activity-based costing
is
a. $1,075,000.
b. $1,500,000.
c. $2,250,000.
d. $2,675,000.
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
71. Addison Company manufactures two products, Regular
and Supreme. Addison’s overhead costs consist of machining, $2,500,000; and
assembling, $1,250,000. Information on the two products is:
Regular Supreme
Direct labor hours 10,000 15,000
Machine hours 10,000 30,000
Number of parts 90,000 160,000
Overhead applied to Supreme using activity-based costing
is
a. $1,075,000.
b. $1,500,000.
c. $2,250,000.
d. $2,675,000.
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
72. Teller, Inc. produces 3 products: P1, Q2, and R3. P1 requires
400 purchase orders, Q2 requires 600 purchase orders, and R3 requires 1,000
purchase orders. Teller has identified an ordering and receiving activity cost
pool with allocated overhead of $180,000 for which the cost driver is purchase
orders. Direct labor hours used on each product are 50,000 for P1, 40,000 for
Q2, and 110,000 for R3. How much ordering and receiving overhead is assigned to
each product?
P1 Q2 R3
a. $60,000 $60,000 $60,000
b. $45,000 $36,000 $99,000
c. $36,000 $54,000 $90,000
d. $40,500 $45,000 $94,500
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
73. Hagar
Co. computed an overhead rate for machining costs ($1,500,000) of $15 per
machine hour. Machining costs are driven by machine hours. If computed based on
direct labor hours, the overhead rate for machining costs would be $30 per
direct labor hour. The company produces
two products, Cape and Chap. Cape requires 60,000 machine hours and 20,000
direct labor hours, while Chap requires 40,000 machine hours and 30,000 direct
labor hours. Using activity-based costing, machining costs assigned to each
product is
Cape Chap
a. $600,000 $900,000
b. $750,000 $750,000
c. $800,000 $700,000
d. $900,000 $600,000
Ans:, LO: 4, Bloom: AP, Difficulty:
Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical Thinking, AICPA
FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
74. Wilder Company manufactures two models of its banjo, the Basic
and the Luxury. The Basic model requires 10,000 direct labor hours and the
Luxury requires 30,000 direct labor hours. The company produces 3,400 units of
the Basic model and 600 units of the Luxury model each year. The company
inspects one Basic for every 100 produced, and inspects one Luxury for every 10
produced. The company expects to incur $84,600 of total inspecting costs this
year. How much of the inspecting costs should be allocated to the Basic model
using ABC costing?
a. $21,150
b. $30,600
c. $42,300
d. $71,910
Ans:, LO: 4, Bloom: AP,
Difficulty: Hard, Min: 4, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
75. Ben Gordon, Inc. manufactures 2 products, wheels and seats. The
company has estimated its overhead in the assembling department to be $330,000.
The company produces 300,000 wheels and 600,000 seats each year. Each wheel
uses 2 parts, and each seat uses 3 parts. How much of the assembly overhead
should be allocated to wheels?
a. $
82,500.
b. $110,000.
c. $132,000
d. $141,428.
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
76. Clemson Co. incurs $700,000 of overhead costs each year in its
three main departments, machining ($400,000), inspections ($200,000) and
packing ($100,000). The machining department works 4,000 hours per year, there
are 600 inspections per year, and the packing department packs 1,000 orders per
year. Information about Clemson’s two
products is as follows:
Product X Product Y
Machining hours 1,000 3,000
Inspections 100 500
Orders packed 350 650
Direct labor hours 1,700 1,800
If traditional costing based on direct labor hours is
used, how much overhead is assigned to Product X this year?
a. $168,334
b. $242,308
c. $340,000
d. $350,000
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
77. Clemson Co. incurs $700,000 of overhead costs each year in its
three main departments, machining ($400,000), inspections ($200,000) and
packing ($100,000). The machining department works 4,000 hours per year, there
are 600 inspections per year, and the packing department packs 1,000 orders per
year. Information about Clemson’s two
products is as follows:
Product X Product Y
Machining hours 1,000 3,000
Inspections 100 500
Orders packed 350 650
Direct labor hours 1,700 1,800
Using ABC, how
much overhead is assigned to Product X this year?
a. $168,334
b. $242,308
c. $340,000
d. $350,000
Ans:, LO: 4, Bloom: AP,
Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
78. A company incurs $2,700,000 of overhead each year in three
departments: Ordering and Receiving, Mixing, and Testing. The company prepares
2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per
year in producing 200,000 drums of Goo and 600,000 drums of Slime. The
following data are available:
Department Expected
use of Driver Cost
Ordering and Receiving 2,000 $ 800,000
Mixing 50,000 1,000,000
Testing 1,500 900,000
MC
78. (Cont.)
Production information for Goo is as follows:
Department Expected
use of Driver
Ordering and Receiving 400
Mixing 20,000
Testing 500
Compute the amount of overhead assigned to Goo.
a. $
675,000
b. $
860,000
c. $1,054,764
d. $1,350,000
Ans:, LO: 4, Bloom: AP,
Difficulty: Hard, Min: 4, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
79. A company incurs $2,700,000
of overhead each year in three departments: Ordering and Receiving, Mixing, and
Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours,
and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000
drums of Slime. The following data are available:
Department Expected
use of Driver Cost
Ordering and Receiving 2,000 $ 800,000
Mixing 50,000 1,000,000
Testing 1,500 900,000
Production information for Slime is as follows:
Department Expected
use of Driver
Ordering and Receiving 1,600
Mixing 30,000
Testing 1,000
Compute the amount of overhead assigned to Slime.
a. $1,350,000
b. $1,645,234
c. $1,840,000
d. $2,025,000
Ans:, LO: 4, Bloom: AP,
Difficulty: Hard, Min: 4, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt
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