Deck 4: Activity Based Costing and Analysis

Question 1

Products are the first stage cost objects when using a departmental overhead rate method.

Answer 1

False

Question 2

Product costs consist of direct labor, direct materials, and overhead (indirect) costs.

Answer 2

True

Question 3

Over recent decades, overhead costs have steadily decreased while direct labor costs have increased as a percentage of total manufacturing costs.

Answer 3

False

Question 4

The cost to heat a manufacturing facility can be directly linked to the number of units produced.

Question 5

Activities are the cost objects of the second stage of ABC.

Question 6

Allocating overhead involves the following four steps: 1) Assign overhead costs to departmental cost pools. 2) Select an allocation base for each department. 3) Compute overhead allocation rates for each department and 4) Use departmental overhead rates to assign overhead costs to products.

Question 7

The plantwide overhead rate is total plantwide allocation base divided by total budgeted plantwide overhead cost.

Question 8

Data concerning volume-related measures are readily available in most manufacturing settings.

Question 9

The premise of ABC is that it takes activities to make products and provide services and these activities drive costs.

Question 10

Over recent decades, overhead costs have steadily increased while direct labor costs have decreased as a percentage of total manufacturing costs.

Question 11

Distorted product cost information can result in poor decisions.

Question 12

The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.

Question 13

Overhead costs are not directly related to production and cannot be traced to units of product like direct materials and direct labor can.

Question 14

Examples of volume-related measures include direct labor hours and machine hours.

Question 15

The departmental overhead rate method uses the same overhead rate for each production department.

Question 16

Departments are the cost objects when the plantwide overhead rate method is used.

Question 17

The departmental overhead rate method uses a different overhead rate for each production department.

Question 18

The plantwide overhead rate is determined using volume-related measures.

Question 19

The unit of product is the cost object when the plantwide overhead rate method is used.

Question 20

By definition, costs classified as overhead are consumed in basically the same manner regardless of the process involved.

Question 21

ABC is significantly less costly to implement and maintain than more traditional overhead costing systems.

Question 22

ABC allocates overhead costs to products based on input measures rather than output measures.

Question 23

A cost pool is a collection of costs that are related to the same or similar activity.

Question 24

Activity-based costing first assigns costs to products and then uses these product costs to assign costs to manufacturing activities.

Question 25

A single cost pool is used when allocating overhead using the activity-based costing method.

Question 26

Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor.

Question 27

Multiple cost pools are used when allocating overhead using the plantwide overhead rate method.

Question 28

The use of a plantwide overhead rate is not acceptable for external reporting under GAAP.

Question 29

Compared to the departmental overhead rate method, the plantwide overhead rate method usually results in more accurate overhead allocations.

Question 30

Compared to the plantwide overhead rate method, the departmental overhead rate method usually results in more accurate overhead allocations.

Question 31

Some companies allocate their overhead cost using a plantwide overhead rate largely because of its simplicity.

Question 32

Because departmental overhead costs are allocated based on measures closely related to production volume, they accurately assign overhead, such as utility costs.

Question 33

ABC can be used to assign costs to any cost object that is of management interest.

Question 34

Management's pricing and cost decisions for a product are influenced by that product's cost assignments.

Question 35

The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1) the overhead cost is correlated with the allocation base; and (2) all products use overhead cost in dissimilar proportions.

Question 36

Allocated overhead costs vary depending upon the allocation methods used.

Question 37

The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1) the overhead cost is correlated with the allocation base; and (2) all products use overhead cost in similar proportions.

Question 38

Activities are the cost objects of the first stage of ABC.

Question 39

When products differ in batch size and complexity, they usually consume different amounts of overhead resources.

Question 40

A major disadvantage of using a plantwide overhead rate is the extreme difficulty in gathering the needed information.

Question 41

Malone's plantwide overhead rate will be $20.99 per direct labor hour next year.

Question 42

If the direct labor time estimates are met, Malone will allocate $12.59 of overhead cost to each unit of Little X.

Question 43

ABC is more costly to implement and maintain than more traditional overhead costing systems.

Question 44

The more activities tracked by activity-based costing, the more accurately overhead costs are assigned.

Question 45

A company estimates that costs for the next year will be $500,000 for indirect labor, $50,000 for factory utilities, and $1,000,000 for the CEO's salary. The company uses machine hours as its overhead allocation base. If 25,000 machine hours are planned for this next year, then a product requiring 10 machine hours will be assigned $220 in overhead.

Question 46

A company produces surgical equipment that goes through threes processes, 1A1, 2B2, and 3C3, before they are complete. Expected costs and activities for the three departments are shown below. All departments have departmental overhead rates based on direct labor hours. Therefore, the overhead rate for each department is $5 per direct labor hour.

Question 47

A company produces paint that goes through two operations, operation A and operation B, before it is complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for Department B based on machine hours is $4 per machine hour.

Question 48

Turtle Company produces t-shirts that go through two operations, cutting and sewing, before they are complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for the cutting department based on direct labor hours is $2.69 per direct labor hour (rounded to two decimals).

Question 49

In activity-based costing, an activity can involve several related tasks.

Question 50

Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for indirect labor and $400,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 50,000 direct labor hours are planned for this next year, then the plantwide overhead rate is $.025 per direct labor hour.

Question 51

Malone has 33,000 total estimated direct labor hours for next year.

Question 52

When using the plantwide overhead rate method, total budgeted overhead costs are combined into one overhead cost pool.

Question 53

A company produces garden benches that go through two operations, operation 1A1 and operation 2B2, before they are complete. Expected costs and activities for the two departments are shown below. Both departments have departmental overhead rates based on machine hours. Therefore, the overhead rates for department 1A1 and department 2B2 are the same.

Question 54

Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for indirect labor and $400,000 for factory utilities. The company uses direct labor hours as its overhead allocation base, and plans to use 50,000 direct labor hours for this next year. If a product uses 5 direct labor hours, then it will be assigned $200 in overhead costs.

Question 55

A company produces heating elements that go through two operations, casting and assembling, before they are complete. Expected costs and activities for the two departments are shown below. Given this information, the departmental overhead rate for the assembling department based on direct labor hours is $5 per direct labor hour.

Question 56

The first step in using the departmental overhead rate method requires that overhead be traced to each of the company's departments.

Question 57

A company estimates that costs for the next year will be $500,000 for indirect labor, $50,000 for factory utilities, and $1,000,000 for the CEO's salary. The company uses machine hours as its overhead allocation base. If 25,000 machine hours are planned for this next year, then the plantwide overhead rate is $22 per machine hour.

Question 58

A company estimates total overhead costs for the next year to be $1,200,000 and wishes to use direct labor hours as its overhead allocation base. This company makes two products: (1) Fancy X, which requires three direct labor hours per unit, and (2) Plain X, which requires one direct labor hour per unit. If the company plans to make 10,000 units of Fancy X and 10,000 units of Plain X, then each unit produced will be allocated the same amount of overhead.

Question 59

Activity-based costing involves four steps: (1) identify activities and the costs they cause, (2) group similar activities into cost pools, (3) determine an activity rate for each activity cost pool, and (4) allocate overhead costs to products using those activity rates.

Question 60

The departmental overhead rate method traces costs to each department and then determines an allocation base for each department.

Question 61

Batch-level costs vary with the number of units produced.

Question 62

Which types of overhead allocation methods result in the use of more than one overhead rate during the same time period?

A) Plantwide overhead rate method and departmental overhead rate method.
B) Cost pool overhead rate method and plantwide overhead rate method.
C) Departmental overhead rate method and activity-based costing.
D) Activity-based costing and plantwide overhead rate method.
E) Departmental overhead rate method and cost pool overhead rate method.

Question 63

Activity-based costing often shifts overhead costs from large volume, standardized products to low-volume, specialty products that consume disproportionate resources.

Question 64

Unit-level costs vary with the number of units produced.

Question 65

Plantwide overhead rates typically do a better job of matching each department's overhead costs to the products using the department's resources than do departmental overhead rates.

Question 66

Activities causing overhead cost in an organization are typically separated into four levels: (1) direct activities, (2) indirect activities, (3) batch level activities, and (4) facility level activities.

Question 67

Overhead costs:

A) Are directly related to production.
B) Can be traced to units of product in the same way that direct materials can.
C) Cannot be traced to units of product in the same way that direct labor can.
D) Are period costs.
E) Include only fixed costs.

Question 68

The cost object of the plantwide overhead rate method is:

A) The unit of product.
B) The production departments of the company.
C) The production activities of the company.
D) Manufacturing cost pools.
E) The time period.

Question 69

A quality-inspection cost is an example of unit-level costs.

Question 70

Activity-based costing eliminates the need for overhead allocation rates.

Question 71

Product-level costs do not vary with the number of units or batches produced.

Question 72

Which of the following would not be considered a product cost?

A) Direct labor costs.
B) Factory supervisor's salary.
C) Factory line worker's salary.
D) Cost accountant's salary.
E) Manufacturing overhead costs.

Question 73

Two big benefits of ABC costing are a) more accurate product cost information and b) more detailed information on costs and the drivers of those costs.

Question 74

Machine setup costs are an example of a batch level activity.

Question 75

Facility-level costs are not traceable to individual product lines, batches or units.

Question 76

Batch-level costs do not vary with the number of units produced.

Question 77

A method of assigning overhead costs to a product using a single overhead rate is:

A) Plantwide overhead rate method.
B) Cost pool overhead rate method.
C) Departmental overhead rate method.
D) Activity-based costing.
E) Overhead cost allocation method.

Question 78

Facility-level costs vary with the number of units or batches produced.

Question 79

Product design costs are an example of a unit level activity.

Question 80

The final step of activity-based costing assigns overhead costs to pools rather than to products.