Question 1

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?
A) number of employees
B) number of materials purchased
C) number of machine hours
D) number of service calls

Accepted Answer

The number of service calls is the most appropriate cost driver for allocating the cost of warranty services because the cost is driven by the number of times customers call for warranty repairs or service. This reflects the actual usage of the warranty services and is a better measure than the number of employees, number of materials purchased, or number of machine hours.

Question 2

Gizmo Company, a manufacturer of small appliances, had the following activities, allocated costs, and allocation bases: $$\begin{array} { | l | l | l | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 68,000 & 2600 \text { hours } \
\hline \text { Account billing (lines) } & \$ 34,000 & 17,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 18,000 & 20,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 10,000 & 1400 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | l | l | } 
\hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 100 \text { hours } & 250 \text { hours } \
\hline \text { Account billing (lines) } & 16,000 \text { lines } & 3000 \text { lines } \
\hline \text { Account verification (accounts) } & 1900 \text { accounts } & \text { 700 accounts } \
\hline \text { Correspondence (letters) } & 50 \text { letters } & 140 \text { letters } \
\hline
\end{array}$$ What is the cost per hour for the account inquiry activity? (Round your answer to the nearest cent.)
A) $0.90
B) $26.15
C) $7.14
D) $2.00

Accepted Answer

The cost per hour for the account inquiry activity is calculated by dividing the total allocated costs for account inquiry by the total hours allocated for account inquiry. This is \$68,000 / 2600 hours = \$26.15 per hour.

Question 3

Which of the following statements is true of an activity-based costing system?
A) It uses separate predetermined overhead allocation rates for each activity.
B) It is not as accurate or precise as traditional costing systems.
C) It accumulates overhead costs by processing departments.
D) It is not as complex or as costly as traditional systems.

Accepted Answer

An activity-based costing system uses separate predetermined overhead allocation rates for each activity, unlike traditional costing systems which typically use a single overhead allocation rate. This allows for more accurate and precise allocation of overhead costs to specific products or services.

Question 4

Hernandez Company has the following activities in its manufacturing process:
 $$\begin{array} { | l | l | l | l | } 
\hline \text { Activity } & \text { Annual Overhead Cost } & \text { Expected Annual Use } & \text { Overhead Rate } \ 
\hline \text { Materials handling } & \$ 60,000 & 600 \text { purchase orders } & \
\hline \text { Machine set-ups } & \$ 15,000 & 60 \text { batches } & \
\hline \text { Product testing } & \$ 28,000 & 375 \text { tests } & \
\hline
\end{array}$$ Calculate the overhead rate for each activity.

Accepted Answer

The answer of Hernandez Company has the following activities in...

Question 5

Goldberg Company, a manufacturer of small appliances, had the following activities, allocated costs, and allocation bases: $$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 73,000 & 2100 \text { hours } \
\hline \text { Account billing (lines) } & \$ 42,000 & 16,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 19,000 & 29,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 13,000 & 1400 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 160 \text { hours } & 250 \text { hours } \
\hline \text { Account billing (lines) } & 10,000 \text { lines } & 9000 \text { lines } \
\hline \text { Account verification (accounts) } & 1800 \text { accounts } & 650 \text { accounts } \
\hline \text { Correspondence (letters) } & 40 \text { letters } & 100 \text { letters } \
\hline
\end{array}$$ What is the cost per account for the account verification activity? (Round your answer to the nearest cent.)
A) $34.76
B) $4.56
C) $9.29
D) $0.66

Accepted Answer

The cost per account for the account verification activity is calculated by dividing the total allocated costs for account verification by the total number of accounts. The total allocated costs for account verification are $19,000, and the total number of accounts is 29,000. Therefore, the cost per account is $19,000 / 29,000 = $0.6552, which rounds to $0.66.

Question 6

The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation base for each activity.

Accepted Answer

Activity-based costing allocates costs based on the specific activities that contribute to the cost, whereas traditional costing systems often use a single allocation base, such as direct labor hours or machine hours, to allocate overhead costs to products or services.

Question 7

Room Chill Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct materials cost is $85, and each ceiling fan requires 2.50 hours of machine time to manufacture. Additional information is as follows: $$\begin{array} { | l | l | r | } 
\hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } 
\text { Predetermined Overhead } \
\text { Allocation Rate }
\end{array} \
\hline \text { Materials handling } & \text { Number of parts } & \$ 0.04 \
\hline \text { Machining } & \text { Machine hours } & 6.80 \
\hline \text { Assembling } & \text { Number of parts } & 0.40 \
\hline \text { Packaging } & \text { Number of finished units } & 2.50 \
\hline
\end{array}$$ What is the cost of assembling per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)
A) $85.00
B) $8.00
C) $17.00
D) $34.00

Accepted Answer

The cost of assembling per ceiling fan is calculated using the predetermined overhead allocation rate for assembling ($0.40) multiplied by the number of parts (20). Thus, $0.40 * 20 = $8.00.

Question 8

Activity-based costing refines the cost allocation process even more than traditional allocation costing systems.

Accepted Answer

Activity-based costing is a more precise and refined method of allocating costs, as it focuses on identifying and assigning costs to specific activities or processes that drive the use of resources. This allows for a more accurate allocation of costs to products, services, or customers based on their actual usage of resources. In contrast, traditional allocation costing systems often rely on arbitrary or indirect cost allocation methods, which may not accurately reflect the true cost drivers of a given product or service.

Question 9

Whirlwind Fan Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct material cost is $90, and each ceiling fan requires 2.50 hours of machine time to manufacture. Additional information is as follows: $$\begin{array} { | l | l | r | } 
\hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } 
\text { Predetermined Overhead } \
\text { Allocation Rate }
\end{array} \
\hline \text { Materials handling } & \text { Number of parts } & \$ 0.04 \
\hline \text { Machining } & \text { Machine hours } & 6.00 \
\hline \text { Assembling } & \text { Number of parts } & 0.20 \
\hline \text { Packaging } & \text { Number of finished units } & 2.50 \
\hline
\end{array}$$ What is the cost of materials handling per ceiling fan? (Round any intermediate calculations and your final answer to two decimal places.)
A) $0.80
B) $6.00
C) $2.50
D) $6.25

Accepted Answer

To calculate the cost of materials handling per ceiling fan, we need to know the total cost of materials handling and then divide it by the total number of ceiling fans produced. Based on the information given, we do not have the total cost of materials handling, but we do know that each ceiling fan has 20 separate parts and the direct material cost is $90. Therefore, the cost of materials handling per part is:

Cost of materials handling per part = Total direct material cost / Number of parts
Cost of materials handling per part = $90 / 20 = $4.50

Since each ceiling fan has 20 parts, the cost of materials handling per ceiling fan is:

Cost of materials handling per ceiling fan = Cost of materials handling per part x Number of parts per ceiling fan
Cost of materials handling per ceiling fan = $4.50 x 20 = $90

Therefore, the cost of materials handling per ceiling fan is $90/100 = $0.80. The correct answer is A.

Question 10

In ABC systems, the best allocation base is the primary factor that causes the cost to increase or decrease.

Accepted Answer

The best allocation base in ABC systems should be the primary factor that causes the cost to increase or decrease because this ensures that costs are assigned to products or services based on the activities that drive them. This leads to more accurate cost information and better decision making.

Question 11

Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

Accepted Answer

Activity-based costing uses multiple predetermined overhead rates, each specific to a particular activity or cost driver, for more accurate cost analysis.

Question 12

Blade Breeze Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct materials cost is $70, and each ceiling fan requires 2.50 hours of machine time to manufacture. Additional information is as follows: $$\begin{array} { | l | l | r | } 
\hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } 
\text { Predetermined Overhead } \
\text { Allocation Rate }
\end{array} \
\hline \text { Materials handling } & \text { Number of parts } & \$ 0.08 \
\hline \text { Machining } & \text { Machine hours } & 7.20 \
\hline \text { Assembling } & \text { Number of parts } & 0.35 \
\hline \text { Packaging } & \text { Number of finished units } & 2.80 \
\hline
\end{array}$$ What is the cost of machining per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)
A) $18.00
B) $70.00
C) $144.00
D) $196.00

Accepted Answer

The cost of machining per ceiling fan can be calculated using the activity-based costing system. The total cost of machining is divided by the number of ceiling fans to get the cost per unit.

Total cost of machining = (Number of parts per fan * Direct machine hours per part * Cost per machine hour)
= (20 * 2.50 * $1.44) = $72.00
Cost of machining per ceiling fan = (Total cost of machining / Number of ceiling fans)
= ($72.00 / 4) = $18.00

Therefore, the best choice is A) $18.00.

Question 13

Flannery Company, a manufacturer of small appliances, had the following activities, allocated costs, and allocation bases: $$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 79,000 & 3000 \text { hours } \
\hline \text { Account billing (lines) } & \$ 31,000 & 17,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 12,000 & 25,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 11,000 & 1400 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 120 \text { hours } & 300 \text { hours } \
\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7000 \text { lines } \
\hline \text { Account verification (accounts) } & 1500 \text { accounts } & 700 \text { accounts } \
\hline \text { Correspondence (letters) } & 60 \text { letters } & 110 \text { letters } \
\hline
\end{array}$$ What is the cost per letter for the correspondence activity? (Round your answer to the nearest cent.)
A) $7.86
B) $22.14
C) $3.67
D) $0.48

Accepted Answer

The cost per letter for the correspondence activity is $7.86. This is calculated by dividing the total cost of the correspondence activity ($11,000) by the total number of letters (1400).

Question 14

Galley Company, a manufacturer of small kitchen appliances, had the following activities, allocated costs, and allocation bases: $$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \
\hline \text { Account inquiry (hours) } & \$ 66,000 & 2000 \text { hours } \
\hline \text { Account billing (lines) } & \$ 47,000 & 15,000 \text { lines } \
\hline \text { Account verification (accounts) } & \$ 17,000 & 23,000 \text { accounts } \
\hline \text { Correspondence (letters) } & \$ 14,000 & 1400 \text { letters } \
\hline
\end{array}$$ The above activities are carried out at two of its regional offices.
$$\begin{array} { | l | r | r | } 
\hline \text { Activities } & \text { Northeast Office } & \text { Midwest Office } \
\hline \text { Account inquiry (hours) } & 100 \text { hours } & 250 \text { hours } \
\hline \text { Account billing (lines) } & 12,000 \text { lines } & 8000 \text { lines } \
\hline \text { Account verification (accounts) } & 1500 \text { accounts } & 700 \text { accounts } \
\hline \text { Correspondence (letters) } & 40 \text { letters } & 100 \text { letters } \
\hline
\end{array}$$ What is the cost per line for the account billing activity? (Round your answer to the nearest cent.)
A) $3.13
B) $33.00
C) $4.40
D) $23.50

Accepted Answer

The cost per line for the account billing activity is calculated by dividing the total allocated costs by the total allocation base: $47,000 / 15,000 lines = $3.13 per line.

Question 15

The first step in developing an activity-based costing system is to identify the activities that will be used to allocate the manufacturing overhead costs.

Accepted Answer

The first step in developing an activity-based costing system is indeed to identify the activities that will be used to allocate the manufacturing overhead costs.

Question 16

For each of the following activities, indicate an appropriate allocation base:
 $$\begin{array} { | l | l | } 
\hline \text { Activity } & \text { Allocation Base } \
\hline \text { Materials purchases } & \
\hline \text { Machine set-ups } & \
\hline \text { Quality inspections } & \
\hline \text { Employee training } & \
\hline
\end{array}$$

Accepted Answer

The answer of For each of the following activities, indicate...

Question 17

Traditional costing systems employ multiple allocation rates for manufacturing overhead costs, but an activity-based costing system uses only one rate for allocating manufacturing overhead costs.

Accepted Answer

The statement is not true. Activity-based costing (ABC) systems aim to allocate overhead costs more accurately by identifying specific activities that consume resources and attributing costs to those activities. Therefore, different rates may be used for different activities, leading to more precise cost allocation.

Question 18

For a pharmaceutical company, the most suitable base for allocating research and development costs to the finished products would be the ________.
A) direct labor hours
B) cost of raw materials purchased
C) number of new patents filed
D) number of set ups

Accepted Answer

In a pharmaceutical company, the number of new patents filed is the most suitable base for allocating research and development costs as it directly reflects the investment made by the company for developing new products. Direct labor hours and number of set ups may not be an appropriate basis as the complexity and time required for the development of each product may vary. Cost of raw materials purchased may also not be an appropriate basis as it may not directly relate to the research and development process.

Question 19

Which of the following is the last step in developing an activity-based costing system?
A) estimating the total quantity of the cost driver
B) estimating the total indirect costs of each activity
C) identifying the activities
D) allocating indirect costs to the cost object

Accepted Answer

Allocating indirect costs to the cost object is the last step in developing an activity-based costing system. This is the step where the indirect costs are assigned to specific cost objects based on the usage of various cost drivers by those objects.

Question 20

Tranquility Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct materials cost is $95 and each ceiling fan requires 2.50 hours of machine time to manufacture. There is no direct labor. Additional information is as follows: $$\begin{array} { | l | l | r | } 
\hline \text { Activity } & \text { Allocation Base } & \begin{array} { c } 
\text { Predetermined Overhead } \
\text { Allocation Rate }
\end{array} \
\hline \text { Materials handling } & \text { Number of parts } & \$ 0.07 \
\hline \text { Machining } & \text { Machine hours } & 7.40 \
\hline \text { Assembling } & \text { Number of parts } & 0.40 \
\hline \text { Packaging } & \text { Number of finished units } & 2.50 \
\hline
\end{array}$$ What is the total manufacturing cost per ceiling fan? (Round any intermediate calculations and your final answer to the nearest cent.)
A) $106.90
B) $114.90
C) $122.90
D) $125.40

Accepted Answer

The answer of Tranquility Company manufactures ceiling fans and uses...

Quiz 19: Cost Management Systems: Activity-Based Just-In-Time

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?

Which of the following statements is true of an activity-based costing system?