Question 1

Batch-level activities are performed each time a batch is handled or processed, regardless of how many units are in the batch.

Accepted Answer

Batch-level activities are activities that are performed for each batch, regardless of the number of units processed within the batch. Examples of batch-level activities include setting up equipment, cleaning and sterilizing equipment, and processing paperwork.

Question 2

What is the company's current predetermined overhead rate?
A)$9.06
B)$56.63
C)$22.65
D)$37.75

Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead cost by the estimated total amount of the allocation base. Therefore, to calculate the predetermined overhead rate we have to divide the estimated overhead cost for the year ($1,133,333) by the estimated total amount of the allocation base (50,000 machine-hours). So, predetermined overhead rate = $1,133,333 ÷ 50,000 = $22.65 per machine-hour. Therefore, the current predetermined overhead rate is $22.65.

Question 3

When there are batch-level or product-level costs, in comparison to a traditional cost
system, an activity-based costing system ordinarily will shift costs from high-volume to low-volume products.

Accepted Answer

Activity-based costing system allocates costs based on activities involved in producing a product or providing a service, rather than just the volume of output. As a result, high-volume products that require fewer activities to produce will have lower costs allocated to them, while low-volume products that require more activities will have higher costs allocated to them. Therefore, costs may shift from high-volume to low-volume products in an activity-based costing system.

Question 4

Reference: 05-10
Austad Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system: $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \text { Activity Cost Pools (and Activity Measures) } & \begin{array} { l } 
\text { Estimated } \
\text { Overhead Cost }
\end{array} \
\hline \text { Machine related (machine-hours) } & \$ 67,500 \
\hline \text { Batch setup (setups) } & \$ 273,700 \
\hline \text { General factory (direct labour-hours) } & \$ 204,000 \
\hline
\end{array}\
\begin{array} { | l | l | l | l | } 
\hline & & { \text { Expected Activity } } \
\hline \text { Activity Cost Pools } & \text { Total } & \text { Product } X & \text { Product } Y \
\hline \text { Machine related } & 5,000 & 4,000 & 1,000 \
\hline \text { Batch setup } & 7,000 & 3,000 & 4,000 \
\hline \text { General factory } & 8,000 & 1,000 & 7,000 \
\hline
\end{array}
\end{array}$$
-The activity rate for the batch setup activity cost pool is closest to:
A)$68.40.
B)$39.10.
C)$77.90.
D)$91.20.

Accepted Answer

The answer of Reference: 05-10
Austad Corporation uses activity-based costing to...

Question 5

Human resource management is an example of an activity at which of the following levels?
A)Facility-level activity.
B)Product-level activity.
C)Batch-level activity.
D)Unit-level activity.

Accepted Answer

Human resource management is considered a facility-level activity because it supports the entire operation and is not directly tied to the volume of production or the production of specific products, batches, or units.

Question 6

Using activity-based costing is not useful in determining costs of quality.

Accepted Answer

Activity-based costing can be useful in determining the costs of quality by identifying activities and processes that contribute to quality and allocating costs accordingly. It can help identify areas where quality costs can be reduced or eliminated.

Question 7

Unit-level activities are performed each time a unit is made.

Accepted Answer

Unit-level activities are those activities that are performed each time a unit of a product is produced, such as assembling or packaging.

Question 8

Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to:
A)$272,600.
B)$274,000.
C)$234,000.
D)$196,800.

Accepted Answer

The answer of Assuming that actual activity turns out to...

Question 9

$$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline & \begin{array} { l } 
\text { Estimated } \
\text { Overhead } \
\text { Cost }
\end{array} & \begin{array} { l } 
\text { Expected } \
\text { Activity }
\end{array} \
\hline \text { Activity 1 } & \$ 11,916 & 900 \
\hline \text { Activity 2 } & \$ 12,360 & 1,200 \
\hline \text { Activity 3 } & \$ 19,950 & 1,000 \
\hline
\end{array}\
\text { Actual activity for the current year was as follows: }\
\begin{array} { | l | c | } 
\hline & \begin{array} { l } 
\text { Actual } \
\text { Activity }
\end{array} \
\hline \text { Activity 1 } & 915 \
\hline \text { Activity 2 } & 1,185 \
\hline \text { Activity 3 } & 965 \
\hline
\end{array}
\end{array}$$ The amount of overhead applied for Activity 2 during the year was closest to:
A)$12,205.50.
B)$12,460.00.
C)$16,905.75.
D)$12,360.00.

Accepted Answer

To find the amount of overhead applied for Activity 2, we first calculate the overhead rate per unit of activity. For Activity 2, the estimated overhead cost is $12,360 and the expected activity is 1,200 units. The overhead rate per unit is $12,360 / 1,200 = $10.30 per unit. The actual activity for Activity 2 is 1,185 units. Therefore, the applied overhead for Activity 2 is 1,185 units * $10.30 per unit = $12,205.50.

Question 10

Reference: 05-12
Brenot Corporation uses activity-based costing to determine product costs for external financial reports. Activity rates computed at the beginning of the year are used to apply manufacturing overhead costs to products. The company has provided the following data concerning its activity-based costing system.
The data used to develop activity rates were: $$\begin{array} { | l | l | l | l | } 
\hline \text { Activity Cost Pools } & \begin{array} { l } 
\text { Estimated } \
\text { Overhead Cost }
\end{array} &{ \text { Expected Activity } } \
\hline \text { Machine related (machine-hours) } & \$ 379,600 & 13,000 & \text { MHs } \
\hline \text { Batch setup (setups) } & \$ 1,144,800 & 27,000 & \text { setups } \
\hline \text { General factory (direct labour-hours) } & \$ 420,500 & 29,000 & \text { DLHs } \
\hline \text { The actual activity for the year was: } & & & \
\hline & & \text { Actual Activity for the Year } \
\hline \text { Activity Cost Pools } & \text { Total } & \text { Product X } & \text { Product } Y \
\hline \text { Machine related (machine-hours) } & 13,000 & 11,000 & 2,000 \
\hline \text { Batch setup (setups) } & 26,000 & 3,000 & 23,000 \
\hline \text { General factory (direct labour-hours) } & 30,000 & 24,000 & 6,000 \
\hline
\end{array}$$ The actual total manufacturing overhead cost incurred for the year was $1,942,300.
-The credits to the Manufacturing Overhead control account during the year (prior to closing out the balance)would have totalled:
A)$1,917,000.
B)$1,932,300.
C)$1,929,650.
D)$1,942,300.

Accepted Answer

The answer of Reference: 05-12
Brenot Corporation uses activity-based costing to...

Question 11

Reference: 05-09
Aujla Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system: $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \text { Activity Cost Pools (and Activity Measures) } & \text { Estimated Overhead Cost } \
\hline \text { Machine related (machine-hours) } & \$ 239,000 \
\hline \text { Batch setup (setups) } & \$ 234,900 \
\hline \text { General factory (direct labour-hours) } & \$ 159,300 \
\hline
\end{array}\
\begin{array} { | l | l | l | l | } 
\hline & & \text { Expected Activity } & \
\hline \begin{array} { l } 
\text { Activity Cost } \
\text { Pools }
\end{array} & \text { Total } & \text { Product X } & \text { Product Y } \
\hline \text { Machine related } & 10,000 & 4,000 & \
\hline \text { Batch setup } & 9,000 & 8,000 & 6,000 \
\hline \text { General factory } & 9,000 & 3,000 & 1,000 \
\hline
\end{array}
\end{array}$$
-The activity rate for the batch setup activity cost pool is closest to:
A)$29.40.
B)$70.40.
C)$26.10.
D)$234.90.

Accepted Answer

The answer of Reference: 05-09
Aujla Corporation uses activity-based costing to...

Question 12

An activity-based costing system is generally easier to set up and run than a traditional cost system.

Accepted Answer

Activity-based costing systems require more detailed and accurate data collection and analysis, making them more complex and time-consuming to set up and run than traditional cost systems.

Question 13

Which of the following is not a limitation of activity-based costing
A)Implementing an activity based costing system is more costly than implementing a traditional direct labour-based costing system.
B)In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity based costing system. This results in overstated costs.
C)More accurate product costs may result in better decisions.
D)Changing from a traditional direct labour based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers.

Accepted Answer

This statement is not a limitation of activity-based costing; it is actually a benefit. Implementing an activity-based costing system may be more costly than a traditional direct labour-based system, managers may insist on fully allocating costs resulting in overstated costs, and changing to an activity-based costing system can change product margins and other key performance indicators, all of which are limitations of activity-based costing.

Question 14

Departmental overhead rates applied on the basis of a volume measure such as direct
labour-hours or machine-hours will eliminate any distortions in unit costs due to product diversity.

Accepted Answer

Departmental overhead rates based on a volume measure such as direct labor-hours or machine-hours can still cause distortions in unit costs due to product diversity. This is because different products may use different amounts of indirect resources and the same amount of direct labor or machine-hours. To address this, activity-based costing (ABC) may be a more accurate method of assigning overhead costs to products based on the specific activities that drive the costs.

Question 15

Parts administration is an example of a:
A)facility-level activity.
B)unit-level activity.
C)batch-level activity.
D)product-level activity.

Accepted Answer

Parts administration is a product-level activity because it supports the production of a specific product line rather than individual units or batches.

Question 16

Reference 05-16
Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up to this point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours as the allocation base. The company has been receiving complaints that the polishing mitt seems over-priced. Management is wondering if there's merit to this claim since the washing mitt is a more complex product
compared to the polishing cloth. As such, management has gathered information on the potential activity areas to be used. $\begin{array}{|l|l|l|}
\hline \text { Activity } & \text { Activity Measure } & \begin{array}{l}
\text { Estimated } \
\text { Manufacturing } \
\text { Overhead Cost }
\end{array} \
\hline \text { Design } & \text { Design hours } & \$ 12,000 \
\hline \text { Setups } & \text { Number of set-ups } & 40,000 \
\hline \text { Materials Handling } & \text { Meters of fabric } & 30,000 \
\hline \text { Production } & \text { Machine Hours } & 250,000 \
\hline
\end{array}$
The company expected has determined the expected activity for each of the product lines:
During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $\$ 8.00$ for washing mitts and $\$ 2.00$ for polishing costs.
$\begin{array}{|l|l|l|}
\hline \text { Activity Measure } & \text { Washing Mitt } & \text { Polishing Cloth } \
\hline \text { \# of design hours } & 50 & 5 \
\hline \text { \# of setups } & 30 & 20 \
\hline \text { \# of meters of fabric } & 4,000 & 1,000 \
\hline \text { \# of machine hours } & 40,000 & 10,000 \
\hline
\end{array}$
-What is the allocation rate for Setups using activity based Costing?
A)$2,000
B)$800
C)$1,333
D)$6,640

Accepted Answer

The answer of Reference 05-16
Washie manufactures two types of products...

Question 17

When activity-based costing is used, the flow of costs through the accounts is similar to a system using one plantwide overhead application rate other than the overhead costs are applied using multiple predetermined overhead rates.

Accepted Answer

Activity-based costing (ABC) differs from traditional costing systems by applying overhead costs using multiple predetermined rates for different activities, rather than using a single plantwide overhead rate, but the overall flow of costs through the accounts (from direct materials, direct labor, and overhead to work in process, finished goods, and cost of goods sold) remains similar.

Question 18

Reference: 05-14
Brooke Corporation uses activity-based costing to determine product costs for external financial reports. Activity rates computed at the beginning of the year are used to apply manufacturing overhead costs to products. The company has provided the following data concerning its activity-based costing system.
The data used to develop activity rates were: \[\begin{array} { | l | l | l | l | } 
\hline \text { Activity Cost Pools } & \begin{array} { l } 
\text { Estimated } \
\text { Overhead Cost }
\end{array} & { \text { Expected Activity } } \
\hline \text { Machine related (machine-hours) } & \$ 777,400 & 26,000 & \text { MHs } \
\hline \text { Batch setup (setups) } & \$ 1,814,400 & 28,000 & \text { setups } \
\hline \begin{array} { l } 
\text { General factory (direct } \
\text { labour-hours) }
\end{array} & \$ 478,800 & 18,000 & \text { DLHs } \
\hline \begin{array} { l } 
\text { The actual activity for the year } \
\text { was: }
\end{array} & & &\
\hline & & \text { Actual Activity for the Year } \
\hline \text { Activity Cost Pools } & \text { Total } & \text { Product X } & \text { Product } Y  \
\hline \text { Machine related (machine-hours) } & 28,000 & 17,000 & 11,000 \
\hline \text { Batch setup (setups) } & 28,000 & 7,000 & 21,000 \
\hline \begin{array} { l } 
\text { General factory (direct } \
\text { labour-hours) }
\end{array} & 18,000 & 9,000 & 9,000 \
\hline
\end{array}\] The actual total manufacturing overhead cost incurred for the year was $3,064,400.
-The total amount of overhead cost allocated to Product X during the year would be closest to:
A)$1,535,000.
B)$768,000.
C)$1,201,300.
D)$1,814,000.

Accepted Answer

To calculate the total amount of overhead cost allocated to Product X, we first need to determine the activity rates for each activity cost pool. This is done by dividing the estimated overhead cost by the expected activity:1. Machine related: $777,400 / 26,000 MHs = $29.9 per MH2. Batch setup: $1,814,400 / 28,000 setups = $64.8 per setup3. General factory: $478,800 / 18,000 DLHs = $26.6 per DLHNext, we multiply the activity rates by the actual activity for Product X to find the overhead cost allocated to it:1. Machine related: $29.9/MH * 17,000 MHs = $508,3002. Batch setup: $64.8/setup * 7,000 setups = $453,6003. General factory: $26.6/DLH * 9,000 DLHs = $239,400Adding these amounts gives the total overhead cost allocated to Product X: $508,300 + $453,600 + $239,400 = $1,201,300.

Question 19

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labour-hours.

Accepted Answer

Activity-based costing uses multiple cost drivers, which can include direct labour-hours but are not limited to it. Cost pools are allocated to products based on the specific cost drivers that are most relevant to each product.

Question 20

Reference: 05-13
Bressler Corporation uses activity-based costing to determine product costs for external financial reports. Activity rates computed at the beginning of the year are used to apply manufacturing overhead costs to products. The company has provided the following data concerning its activity-based costing system.
The data used to develop activity rates were: \[\begin{array} { | l | l | l | l | } 
\hline \text { Activity Cost Pools } & \begin{array} { l } 
\text { Estimated } \
\text { Overhead Cost }
\end{array} &  { \text { Expected Activity } } \
\hline \text { Machine related (machine-hours) } & \$ 332,800 & 16,000 & \mathrm { MHs } \
\hline \text { Batch setup (setups) } & \$ 1,580,500 & 29,000 & \text { setups } \
\hline \begin{array} { l } 
\text { General factory (direct } \
\text { labour-hours) }
\end{array} & \$ 305,600 & 16,000 & \mathrm { DLHs } \
\hline \begin{array} { l } 
\text { The actual activity for the year } \
\text { was: }
\end{array} & & & \
\hline & & \text { Actual Activity for the Year } \
\hline \text { Activity Cost Pools } & \text { Total } & \text { Product X } & \text { Product } Y \
\hline \text { Machine related (machine-hours) } & 15,000 & 7,000 & 8,000 \
\hline \text { Batch setup (setups) } & 30,000 & 22,000 & 8,000 \
\hline \begin{array} { l } 
\text { General factory (direct } \
\text { labour-hours) }
\end{array} & 15,000 & 12,000 & 3,000 \
\hline
\end{array}\] The actual total manufacturing overhead cost incurred for the year was $2,202,600.
-The activity rate computed at the beginning of the year for the batch setup activity cost pool is closest to:
A)$54.50.
B)$197.60.
C)$74.00.
D)$71.80.

Accepted Answer

The activity rate for the batch setup activity cost pool is calculated by dividing the estimated overhead cost by the expected activity. The estimated overhead cost for the batch setup activity cost pool is $1,580,500 and the expected activity is 29,000 setups. Therefore, the activity rate for the batch setup activity cost pool is $1,580,500 / 29,000 = $54.50.

Quiz 5: Activity-Based Costing

Batch-level activities are performed each time a batch is handled or processed, regardless of how many units are in the batch.

What is the company's current predetermined overhead rate?

When there are batch-level or product-level costs, in comparison to a traditional cost system, an activity-based costing system ordinarily will shift costs from high-volume to low-volume products.

Human resource management is an example of an activity at which of the following levels?

Using activity-based costing is not useful in determining costs of quality.

Unit-level activities are performed each time a unit is made.

Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to:

An activity-based costing system is generally easier to set up and run than a traditional cost system.

Which of the following is not a limitation of activity-based costing

Departmental overhead rates applied on the basis of a volume measure such as direct labour-hours or machine-hours will eliminate any distortions in unit costs due to product diversity.

Parts administration is an example of a:

When activity-based costing is used, the flow of costs through the accounts is similar to a system using one plantwide overhead application rate other than the overhead costs are applied using multiple predetermined overhead rates.

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labour-hours.