Deck 7: Activity-Based Costing and Management

Question 1

Refer to the Figure.What is the activity rate for warranty work on the basis of warranty hours?

A) $262 per hour
B) $264 per hour
C) $266 per hour
D) $268 per hour

Answer 1

C

Question 2

$\begin{array}{lr}\text { Setting up equipment } & \$ 8,000 \\\text { Machining } & 48,000\end{array}$ The controller has collected the expected annual prime costs for each product,the machine hours,the setup hours,and the expected production. $$\begin{array} { l r r } & \text { High-end } & \text { Inexpensive } \\\text { Direct Labour } & \$ 24,000 & \$ 8,000 \\\text { Direct Materials } & 15,000 & 4,000 \\\text { Units } & 2,000 & 2,000 \\\text { Machine Hours } & 1,000 & 3,000 \\\text { Setup Hours } & 150 & 50\end{array}$$

-Refer to the Figure.What is the inexpensive laptop's consumption ratio for setup hours?

A) 0.25
B) 0.45
C) 0.50
D) 0.75

Answer 2

0.25

Question 3

Refer to the Figure.What is the activity rate for reworking products on the basis of rework hours?

A) $595 per hour
B) $599 per hour
C) $602 per hour
D) $605 per hour

Answer 3

B

Question 4

What type of costs typically represent a much higher percentage of product costs than direct labour?

A) value-added costs
B) activity costs
C) overhead costs
D) consumption costs

Question 5

The activity driver for the shipping activity is the number of orders shipped.Product X uses 40 orders,and Product Y uses 120 orders.What is the consumption ratio for product X?

A) 0.215
B) 0.250
C) 0.300
D) 0.625

Question 6

Which ratio measures the proportion of an activity consumed by a product?

A) production ratio
B) consumption ratio
C) efficiency ratio
D) quality ratio

Question 7

$$\begin{array} { l r r r r } \text { Product } & \text { Machine Hours } & \text { Setups } & \text { Receiving Orders } & \text { Packing Orders } \\\text { basic } & 20,000 & 200 & 100 & 800 \\\text { deluxe } & 20,000 & 500 & 400 & 4,000 \\\text { Costs } & \$ 80,000 & \$ 60,000 & \$ 10,000 & \$ 30,000\end{array}$$

-Refer to the Figure.What is the consumption ratio for setups on the deluxe?

A) 0.500
B) 0.688
C) 0.700
D) 0.714

Question 8

What is the term for products having different consumption ratios for different overhead activities?

A) volume costing
B) activity-based costing
C) product diversity
D) overhead diversity

Question 9

$\begin{array}{lr}\text { Setting up equipment } & \$ 8,000 \\\text { Machining } & 48,000\end{array}$ The controller has collected the expected annual prime costs for each product,the machine hours,the setup hours,and the expected production. $$\begin{array} { l r r } & \text { High-end } & \text { Inexpensive } \\\text { Direct Labour } & \$ 24,000 & \$ 8,000 \\\text { Direct Materials } & 15,000 & 4,000 \\\text { Units } & 2,000 & 2,000 \\\text { Machine Hours } & 1,000 & 3,000 \\\text { Setup Hours } & 150 & 50\end{array}$$

-Refer to the Figure.What is the overhead cost per unit for high-end laptops when using a plantwide rate that is based on direct labour costs?

A) $21.00 per laptop
B) $14.00 per laptop
C) $10.00 per laptop
D) $7.00 per laptop

Question 10

Receiving provides 4,000 receiving hours and costs $80,000 per year.What is the activity rate for receiving?

A) $0.05 per receiving hour
B) $10.00 per receiving hour
C) $20.00 per receiving hour
D) $40.00 per receiving hour

Question 11

What are the two classifications of activity drivers?

A) unit-level and non-unit-level
B) exact and inexact
C) inputs and outputs
D) right and wrong

Question 12

Which of the following are setups,material handling,and inspection all possible examples of?

A) product diversity
B) unit-level overhead activities
C) non-unit-level overhead activities
D) sustainable diversity

Question 13

Which of the following must be determined to calculate an activity rate?

A) practical capacity of each activity
B) expenditure level of each activity
C) processing ratio of each activity
D) value of each activity

Question 14

$$\begin{array} { l r r r r } \text { Product } & \text { Machine Hours } & \text { Setups } & \text { Receiving Orders } & \text { Packing Orders } \\\text { basic } & 20,000 & 200 & 100 & 800 \\\text { deluxe } & 20,000 & 500 & 400 & 4,000 \\\text { Costs } & \$ 80,000 & \$ 60,000 & \$ 10,000 & \$ 30,000\end{array}$$

-Refer to the Figure.Suppose Andiamo uses only machine hours to calculate a plantwide overhead rate.What would be the total overhead assigned to the basic tablets?

A) $60,000
B) $80,000
C) $90,000
D) $180,000

Question 15

$$\begin{array} { l r r r r } \text { Product } & \text { Machine Hours } & \text { Setups } & \text { Receiving Orders } & \text { Packing Orders } \\\text { basic } & 20,000 & 200 & 100 & 800 \\\text { deluxe } & 20,000 & 500 & 400 & 4,000 \\\text { Costs } & \$ 80,000 & \$ 60,000 & \$ 10,000 & \$ 30,000\end{array}$$

-Refer to the Figure.What is the activity rate for packing that is based on packing orders?

A) $1.20 per packing order
B) $6.25 per packing order
C) $9.00 per packing order
D) $10.00 per packing order

Question 16

$$\begin{array} { l r r r r } \text { Product } & \text { Machine Hours } & \text { Setups } & \text { Receiving Orders } & \text { Packing Orders } \\\text { basic } & 20,000 & 200 & 100 & 800 \\\text { deluxe } & 20,000 & 500 & 400 & 4,000 \\\text { Costs } & \$ 80,000 & \$ 60,000 & \$ 10,000 & \$ 30,000\end{array}$$

-Refer to the Figure.Suppose Andiamo uses an activity rate for receiving that is based on receiving orders.What would be the receiving costs allocated to the basic?

A) $1,200
B) $1,600
C) $1,800
D) $2,000

Question 17

Refer to the Figure.What is the activity rate for inspecting components on the basis of sampling hours?

A) $72.00 per hour
B) $76.00 per hour
C) $77.25 per hour
D) $78.00 per hour

Question 18

$\begin{array}{lr}\text { Setting up equipment } & \$ 8,000 \\\text { Machining } & 48,000\end{array}$ The controller has collected the expected annual prime costs for each product,the machine hours,the setup hours,and the expected production. $$\begin{array} { l r r } & \text { High-end } & \text { Inexpensive } \\\text { Direct Labour } & \$ 24,000 & \$ 8,000 \\\text { Direct Materials } & 15,000 & 4,000 \\\text { Units } & 2,000 & 2,000 \\\text { Machine Hours } & 1,000 & 3,000 \\\text { Setup Hours } & 150 & 50\end{array}$$

-Refer to the Figure.What is the overhead cost per unit for each inexpensive laptop,when using overhead rates that are based on machine hours and setup hours?

A) $21.00 per unit
B) $19.00 per unit
C) $12.00 per unit
D) $10.00 per unit

Question 19

What can be caused by using only unit-based activity drivers to assign non-unit-related overhead costs?

A) product diversity
B) distorted product costs
C) efficiency
D) activity sharing

Question 20

The moving activity has an expected cost of $80,000.Expected direct labour hours are 20,000,and the expected number of moves is 40,000.What is the best activity rate for moving?

A) $2 per hour
B) $2 per move
C) $4 per hour
D) $4 per move

Question 21

Last year,Tevia Inc.shipped 6,000,000 kg of goods to customers at a cost of $4,800,000.Suppose an individual customer orders 40,000 kg and produces $400,000 of revenue.(The total revenue is $40 million.)What amount of shipping cost would be assigned to the customer when using activity-based costing?

A) $4,000
B) $8,000
C) $32,000
D) $40,000

Question 22

Solo Company has developed cost formulas for the drivers of the following production activities: $$\begin{array} { l l r r } \text { Driver } & \text { Activity } & \text { Fixed } & \text { Variable } \\\text { Labour hours } & \text { Materials } & - 0 - & 40 \\\text { Labour hours } & \text { Labour } & - 0 - & 20 \\\text { Machine hours } & \text { Maintenance } & 20,000 & 16 \\\text { Machine hours } & \text { Machining } & 100,000 & 4 \\\text { Number of setups } & \text { Inspections } & 60,000 & 400 \\\text { Number of setups } & \text { Setups } & - 0 - & 600 \\\text { Number of purchase orders } & \text { Purchasing } & 150,000 & 6\end{array}$$ What is the budgeted inspection cost for 20 setups?

A) $60,000
B) $68,000
C) $160,000
D) $330,000

Question 23

Refer to the Figure.Suppose that Tigra loses $2,500,000 in sales per year because of its reputation for defective units attributable to failed components.Using warranty hours,assign the proportional cost of lost sales to Customer 1.What would be the new cost per unit as a result of the lost sales?

A) $4.00 per unit
B) $8.15 per unit
C) $8.95 per unit
D) $25.00 per unit

Question 24

Which of the following are assigned using direct tracing and resource drivers?

A) resources
B) costs
C) profits
D) materials

Question 25

$$\begin{array}{l}&\text { Percentage of Time }\\\text { Activity } & \text { on Each Activity } \\\text { Unloading } & 25 \% \\\text { Counting } & 40 \% \\\text { Inspecting } & 35 \%\end{array}$$

-Refer to the Figure.What is the cost of counting?

A) $50,500
B) $52,000
C) $54,000
D) $56,000

Question 26

$$\begin{array}{l}&\text { Percentage of Time }\\\text { Activity } & \text { on Each Activity } \\\text { Unloading } & 25 \% \\\text { Counting } & 40 \% \\\text { Inspecting } & 35 \%\end{array}$$

-Refer to the Figure.What is the cost for inspection?

A) $50,500
B) $52,000
C) $54,000
D) $56,000

Question 27

$$\begin{array}{l}&\text { Percentage of Time }\\\text { Activity } & \text { on Each Activity } \\\text { Unloading } & 25 \% \\\text { Counting } & 40 \% \\\text { Inspecting } & 35 \%\end{array}$$

-Refer to the Figure.What is the cost of unloading?

A) $50,500
B) $52,000
C) $54,000
D) $56,000

Question 28

Which of the following is NOT a possible source of customer diversity?

A) sales support
B) order frequency
C) geographic distance
D) pricing

Question 29

Which costing system first assigns costs to activities and then to products?

A) activity-based costing
B) production costing
C) volume-based costing
D) unit-level costing

Question 30

Producing 20,000 cell phone units requires $600,000 of prime costs,uses 4,000 machine hours,and takes 2,400 setup hours.The activity rates are $80 per machine hour and $200 per setup hour.What is the unit cost of a cell phone?

A) $30
B) $40
C) $50
D) $60

Question 31

Which matrix is derived from the interview process (or written survey)?

A) work distribution matrix
B) activity explanation matrix
C) driver consumption matrix
D) value analysis matrix

Question 32

Refer to the Figure.What is the total cost per component associated with using Customer 2 as the supplier?

A) $8.95
B) $12.00
C) $15.74
D) $84.26

Question 33

What is the term for a list of activities accompanied by information that describes each activity?

A) an activity manifesto
B) an activity journal
C) an activity dictionary
D) an activity note

Question 34

What costing method can help a company to become more competitive by providing more accurate cost data?

A) unit-based costing
B) volume-based costing
C) production costing
D) activity-based costing

Question 35

In activity-based costing,what are interviews and surveys used to identify?

A) quality
B) velocity
C) value
D) activities

Question 36

Refer to the Figure.Suppose that Tigra loses $2,500,000 in sales per year because of its reputation for defective units attributable to failed components.Using warranty hours,assign the proportional cost of lost sales to Customer 2 Company.What would be the new cost per unit as a result of the lost sales?

A) $11.34 per unit
B) $20.00 per unit
C) $44.11 per unit
D) $55.00 per unit

Question 37

Refer to the Figure.What is the total activity cost per component associated with using Customer 1 as the supplier?

A) $10.00
B) $15.75
C) $19.38
D) $20.00

Question 38

Which of the following is an example of types of resources consumed in an activity dictionary?

A) activity sharing
B) qualities
C) activity attributes
D) allocations

Question 39

Which of the following is NOT a supplier-driven activity?

A) receiving
B) purchasing
C) efficiency
D) inspection of incoming components

Question 40

A company has two inspectors,each earning a salary of $150,000.One inspector works exclusively on inspecting parts received from outside suppliers,while the other spends 40% of her time inspecting parts and 60% of her time inspecting final products.How much labour cost should be assigned to the activity of inspecting parts?

A) $60,000
B) $90,000
C) $210,000
D) $300,000

Question 41

$$\begin{array} { l r r } & \text { JIT } & \text { Non-JIT } \\\text { Sales Orders } & 300 & 20 \\\text { Sales Calls } & 25 & 25 \\\text { Service Calls } & 150 & 75 \\\text { Average Order Size } & 100 & 1,000 \\\text { Manufacturing Cost/Unit } & \$ 50 & \$ 50\end{array}$$ $$\begin{array}{l}\text { Customer Costs: }\\\begin{array} { l l } \text { Processing Sales Orders } & \$ 200,000 \\\text { Selling Goods } & \$ 120,000 \\\text { Servicing Goods } & \$ 150,000 \\\text { Total } & \$ 470,000\end{array}\end{array}$$

-Refer to the Figure.What is the total customer cost for the JIT distributor?

A) $60,000
B) $100,050
C) $187,500
D) $347,550

Question 42

Which of the following is an example of a value-added activity?

A) inspecting
B) scheduling
C) moving
D) supervising

Question 43

$$\begin{array} { l r r } & \text { JIT } & \text { Non-JIT } \\\text { Sales Orders } & 300 & 20 \\\text { Sales Calls } & 25 & 25 \\\text { Service Calls } & 150 & 75 \\\text { Average Order Size } & 100 & 1,000 \\\text { Manufacturing Cost/Unit } & \$ 50 & \$ 50\end{array}$$ $$\begin{array}{l}\text { Customer Costs: }\\\begin{array} { l l } \text { Processing Sales Orders } & \$ 200,000 \\\text { Selling Goods } & \$ 120,000 \\\text { Servicing Goods } & \$ 150,000 \\\text { Total } & \$ 470,000\end{array}\end{array}$$

-Refer to the Figure.What is the total customer cost for the non-JIT distributor?

A) $12,500
B) $50,025
C) $78,791
D) $122,525

Question 44

Which of the following is NOT a component of process value analysis?

A) driver analysis
B) velocity
C) activity analysis
D) performance measurement

Question 45

A company spends $50,000 a year for inspecting,$40,000 for purchasing,and $60,000 for reworking products.What would be the best estimate of non-value-added costs?

A) $50,000
B) $60,000
C) $110,000
D) $150,000

Question 46

What are non-value-added activities?

A) unnecessary inputs
B) valued outputs to internal users
C) valued outputs to external users
D) activities that meet the organization's needs,not the product's needs

Question 47

Which of the following is one of the three conditions necessary to classify an activity as discretionary?

A) The activity produces a change of state.
B) The change of state was achievable by preceding activities.
C) The activity does not enable other activities to be performed.
D) The activity increases efficiency.

Question 48

What is the aim of activity-based management?

A) to identify and eliminate all unnecessary activities
B) to decrease the efficiency of necessary activities
C) to add new activities that decrease value
D) to increase non-value-added activities

Question 49

Which of the following is a value-added activity?

A) moving
B) inspection
C) processing
D) waiting

Question 50

Consider the following two activities: performing warranty work and purchasing components.The warranty work costs $60,000,and the warranty cost of the most efficient competitor is $10,000.Purchasing components costs $100,000 (5,000 purchase orders).A study reveals that the most efficient level would use 2,500 purchase orders and entail a cost of $55,000. What is the non-value-added cost?

A) $45,000
B) $55,000
C) $60,000
D) $105,000

Question 51

What is the term for activities that are considered unnecessary to staying in business?

A) value-added activities
B) non-value-added activities
C) direct activities
D) indirect activities

Question 52

Inspection time for a plant is 20,000 hours per year.The cost of inspection consists of the salaries of four inspectors,totalling $120,000.Inspection also uses supplies costing $6 per inspection hour.The company has a close to zero-defect state and has eliminated the need for any inspection activity.What is the non-value-added cost of inspection per year?

A) $30,000
B) $120,000
C) $240,000
D) $480,000

Question 53

$$\begin{array} { l r r } & \text { JIT } & \text { Non-JIT } \\\text { Sales Orders } & 300 & 20 \\\text { Sales Calls } & 25 & 25 \\\text { Service Calls } & 150 & 75 \\\text { Average Order Size } & 100 & 1,000 \\\text { Manufacturing Cost/Unit } & \$ 50 & \$ 50\end{array}$$ $$\begin{array}{l}\text { Customer Costs: }\\\begin{array} { l l } \text { Processing Sales Orders } & \$ 200,000 \\\text { Selling Goods } & \$ 120,000 \\\text { Servicing Goods } & \$ 150,000 \\\text { Total } & \$ 470,000\end{array}\end{array}$$

-Refer to the Figure.What is the activity rate for processing sales orders?

A) $1.47 per order
B) $182.00 per order
C) $625.00 per order
D) $667.00 per order

Question 54

What type of analysis is concerned with identifying the root causes of activity costs?

A) direct analysis
B) activity analysis
C) driver analysis
D) causal analysis

Question 55

A manual process takes 36 minutes of direct labour time and 12 kg of material to make a product.Automating the process requires 24 minutes of machine time and 10 kg of material.The cost per labour hour is $18,the cost per machine hour is $14,and the cost per kilogram of materials is $22. What is the non-value-added cost per unit?

A) $5.60 per unit
B) $10.80 per unit
C) $44.00 per unit
D) $49.20 per unit

Question 56

A product currently requires eight moves.By changing the plant layout,the number of moves can be reduced to zero.The cost per move is $150.What is the reduction in the non-value-added cost of the moving activity?

A) $0
B) $150
C) $600
D) $1,200

Question 57

Which of the following is an example of an activity necessary to comply with Canada Customs and Revenue Agency?

A) recreational activity
B) discretionary activity
C) recommended activity
D) required activity

Question 58

$$\begin{array} { l r r } & \text { JIT } & \text { Non-JIT } \\\text { Sales Orders } & 300 & 20 \\\text { Sales Calls } & 25 & 25 \\\text { Service Calls } & 150 & 75 \\\text { Average Order Size } & 100 & 1,000 \\\text { Manufacturing Cost/Unit } & \$ 50 & \$ 50\end{array}$$ $$\begin{array}{l}\text { Customer Costs: }\\\begin{array} { l l } \text { Processing Sales Orders } & \$ 200,000 \\\text { Selling Goods } & \$ 120,000 \\\text { Servicing Goods } & \$ 150,000 \\\text { Total } & \$ 470,000\end{array}\end{array}$$

-Refer to the Figure.What is the activity rate for servicing goods?

A) $650 per service call
B) $667 per service call
C) $675 per service call
D) $2,000 per service call

Question 59

$$\begin{array} { l r r } & \text { JIT } & \text { Non-JIT } \\\text { Sales Orders } & 300 & 20 \\\text { Sales Calls } & 25 & 25 \\\text { Service Calls } & 150 & 75 \\\text { Average Order Size } & 100 & 1,000 \\\text { Manufacturing Cost/Unit } & \$ 50 & \$ 50\end{array}$$ $$\begin{array}{l}\text { Customer Costs: }\\\begin{array} { l l } \text { Processing Sales Orders } & \$ 200,000 \\\text { Selling Goods } & \$ 120,000 \\\text { Servicing Goods } & \$ 150,000 \\\text { Total } & \$ 470,000\end{array}\end{array}$$

-Refer to the Figure.What is the activity rate for selling goods?

A) $375 per sales call
B) $1,200 per sales call
C) $2,400 per sales call
D) $4,800 per sales call

Question 60

Using the original design,a machine requires 24 hours of setup time.By redesigning the machine,the setup time is reduced by 35%.The cost per setup hour is $250.What is the reduction in non-value-added cost per setup?

A) $87.50 per setup
B) $2,000.00 per setup
C) $3,900.00 per setup
D) $6,000.00 per setup

Question 61

What is the term for the process of decreasing the time and resources required by an activity?

A) activity reduction
B) activity sharing
C) activity elimination
D) activity mapping

Question 62

What is the term for the time required to produce one unit of a product?

A) efficiency
B) velocity
C) speed
D) cycle time

Question 63

What type of activity is performed in response to poor quality?

A) failure
B) quality
C) efficiency
D) control

Question 64

Which of the following is a view of conformance that assumes an acceptable range of values exists for each specification or quality characteristic?

A) standard
B) normal
C) common
D) traditional

Question 65

Cycle time is the length of time required to produce one product.What is the term for the number of units that can be produced in a given period of time?

A) velocity
B) cycle production
C) activity time
D) activity output

Question 66

A plant produces 92 different electronic products.Each product requires an average of seven components that are purchased externally.By redesigning the products,it is possible to produce the 92 products that have five components in common.This redesign will reduce the demand for purchasing,receiving,and paying bills.Estimated savings from the reduced demand are $1,500,000 per year.What is the non-value-added cost of purchasing,receiving,and paying bills?

A) $600,000
B) $900,000
C) $1,000,000
D) $1,500,000

Question 67

What is the term for the identification and removal of activities that fail to add value?

A) activity selection
B) activity stabilization
C) activity reduction
D) activity elimination

Question 68

Each unit of a product requires eight components.The average number of components is 8.25 due to component failure.Purchasing higher quality components can reduce the average number of components to four per unit.The cost per component is $500.What is the reduction in failure costs per unit due to purchasing higher quality components?

A) $43.75
B) $125.00
C) $175.00
D) $350.00

Question 69

What is the term for increasing the efficiency of necessary activities by using economies of scale?

A) activity elimination
B) activity sharing
C) activity management
D) activity selection

Question 70

What type of costs are packaging inspection and process acceptance?

A) external failure costs
B) prevention costs
C) appraisal costs
D) value costs

Question 71

Which of the following activity performance measures is concerned with doing the activity right the first time it is performed?

A) time
B) efficiency
C) quality
D) velocity

Question 72

Which of the following focuses on the relationship of activity inputs to activity outputs?

A) quality
B) efficiency
C) time
D) cycle time

Question 73

A company takes 10,000 hours to produce 20,000 units of a product.What is the cycle time?

A) 0.50 hour
B) 0.75 hour
C) 1.00 hour
D) 2.00 hours

Question 74

A company takes 15,000 hours to produce 30,000 units of a product.What is the velocity?

A) 0.5 units per hour
B) 1.0 unit per hour
C) 2.0 units per hour
D) 2.5 units per hour

Question 75

What type of product meets or exceeds customer expectations?

A) a robust product
B) a defective product
C) a traditional product
D) a quality product

Question 76

What type of costs are field trials and quality engineering?

A) prevention costs
B) appraisal costs
C) failure costs
D) quality costs

Question 77

What is the term for the process of choosing among different sets of activities caused by competing strategies?

A) activity elimination
B) activity reduction
C) activity costing
D) activity selection

Question 78

A factory produces 108,000 3D televisions per quarter.A total of 12,000 production hours are used within the factory per quarter.What is the velocity in units per hour?

A) 2 units per hour
B) 9 units per hour
C) 16 units per hour
D) 18 units per hour

Question 79

A factory produces 175,000 3D televisions per quarter.A total of 8,750 production hours are used within the factory per quarter.What is the cycle time in minutes?

A) 3.00
B) 3.83
C) 3.87
D) 3.92

Question 80

What quality-control method involves sampling from batches of finished goods to determine whether they meet an acceptable quality level?

A) process acceptance
B) product acceptance
C) quality acceptance
D) velocity acceptance