Question 1

In order to operate its customer support activity, Lucky's Amusement Park incurred $325,000 in annual costs (spread evenly amongst the four quarters of the year). Due to the large number of visitors to the park each year, Lucky has been debating whether or not they can afford to bring on additional customer support staff members. While having an annual capacity of 525,000 minutes, Lucky is going to be utilizing Time-Driven Activity-Based Costing (TDABC). They have identified the following as their key activities within the customer support function: ticket sales, park admittance, assisting customers once they enter the park, and processing customer refunds. Management has compiled information pertaining to the first two quarters of the year:
  Using TDABC, what are the total costs allocated to quarter two? Also, what was the over- or underallocation of costs? (If required, round calculations to two decimal places.)
A) $80,549.78 in total costs allocated; with $700.22 overallocated
B) $80,549.78 in total costs allocated; with $700.22 underallocated
C) $81,250.00 in total costs allocated; with $700.22 overallocated
D) $81,250.00 in total costs allocated; with $700.22 underallocated

Accepted Answer

This question first requires calculation of the rate for supplying an activity and the cost per transaction. To calculate the rate for supplying an activity, divide the total cost of activity by the practical capacity available expressed in time: $325,000/525,000 minutes = $0.62/minute. Next, to calculate the cost per transaction, multiply the rate for supplying the activity by the number of minutes per transaction: Ticket Sales, $0.62 × 4 minutes = $2.48/ticket sale; Park Admittance, $0.62 × 1 minute = $0.62/admittance; Customer In-Park assistance, $0.62 × 3.5 minutes = $2.17/customer assisted; and Customer Refunds, $0.62 × 6 minutes = $3.72/refund. To obtain the total costs, multiply the cost of each transaction by its respective activity and sum the values: ($2.48 × 23,400 ticket sales) + ($0.62 × 13,600 admittances) + ($2.17 × 3,906 customers assisted) + ($3.72 × 1,508 refunds) = $58,032.00 + $8,432.00 + $8,476.02 + $5,609.76 = $80,549.78. Lastly, to determine if it was over- or underallocated, divide the $325,000.00 costs incurred by four to determine the allocation per quarter: $325,000.00/4 = $81,250.00 costs were incurred during the quarter. This means that quarter two is underallocated by ($81,250.00 - $80,549.78) = $700.22 (Choice B).

Question 2

Rosie Riveters is a home inspection company that specializes in pre-closing home inspections for single-family homes. Alexis, the owner, has tasked the accountant with addressing her budget concerns by finding an alternate way to cost aside from their current use of traditional costing. The accountant has determined that the advertising department may be first in line for analysis. The department handled the following volume during the year: responding to social media messages, 7,402 responses (1.5 minutes per response); responding to phone inquiries, 5,633 responses (3 minutes per response); and responding to mailed flyers, 1,340 responses (2 minutes per response). Rosie Riveters spent $167,900 to operate the advertising department, and these resources created a capacity of 35,000 minutes for Rosie Riveters. Using Time-Driven Activity-Based Costing (TDABC), how much cost will be allocated to responding to social media? (If required, round calculations to two decimal places.)
A) $27,038.40
B) $53,294.40
C) $167,900.00
D) $168,000.00

Accepted Answer

This question requires multiple steps in order to be able to calculate the cost that will be allocated under TDABC. First, calculate the rate for supplying the activity by taking the total cost of the activity and dividing it by the practical capacity available expressed in time: $167,900/35,000 minutes = $4.80 per response. Next, multiply the per-minute rate by the number of minutes per response: $4.80 × 1.5 minutes = $7.20. Lastly, multiply the cost per response by the number of times activity was performed: $7.20 × 7,402 responses = $53,294.40 (Choice B).

Question 3

Rosie Riveters is a home inspection company that specializes in pre-closing home inspections for single-family homes. Alexis, the owner, has tasked the accountant with addressing her budget concerns by finding an alternate way to cost aside from their current use of traditional costing. The accountant has determined that the advertising department may be first in line for analysis. The department handled the following volume during the year: responding to social media messages, 7,402 responses (1.5 minutes per response); responding to phone inquiries, 5,633 responses (3 minutes per response); and responding to mailed flyers, 1,340 responses (2 minutes per response). Rosie Riveters spent $167,900 to operate the advertising department, and these resources created a capacity of 35,000 minutes for Rosie Riveters. Using Time-Driven Activity-Based Costing (TDABC), how much total cost will be allocated to key activities? (If required, round calculations to two decimal places.)
A) $41,961.60
B) $62,568.00
C) $147,273.60
D) $167,900.00

Accepted Answer

This question requires multiple steps in order to calculate the cost that will be allocated under TDABC. First, calculate the rate for supplying an activity by taking the total cost of that activity and dividing it by the practical capacity available expressed in time: $167,900/35,000 minutes = $4.80 per response. Next, determine the cost per response by multiplying per-minute rate by the number of minutes per response for each activity: $4.80 × 1.5 minutes = $7.20; $4.80 × 3 minutes = $14.40; and $4.80 × 2 minutes = $9.60. Now, multiply the cost per response by the number of times each activity was performed: $7.20 × 7,402 social media responses = $53,294.40; $14.40 × 5,633 phone inquiry responses = $81,115.20; and $9.60 × 1,340 mailed flyer responses = $12,864.00. Lastly, combine all individual totals to arrive at the total cost allocated: $53,294.40 + $81,115.20 + $12,864.00 = $147,273.60 (Choice C).

Question 4

The Concrete Rose has been a staple of their community for several decades. As the owner retires and promotes his daughter Moira to CEO of this successful music venue, the management staff has prepared suggestions for improvements. At the top of their list is the implementation of Time-Driven Activity-Based Costing (TDABC) instead of their current traditional costing methods. With this new change, the management team believes they can optimize their earnings. They compiled the following data about their identified key activities:
 The Concrete Rose spent $389,500 to operate the ticketing department, and these resources created a capacity of 495,000 minutes. If actual costs incurred to operate the activities are compared to the allocated costs, what is the difference, and is it over- or underallocated? (If required, round calculations to two decimal places.)
A) $47.96 overallocated
B) $47.96 underallocated
C) $1,502.04 overallocated
D) $1,502.04 underallocated

Accepted Answer

This question requires the calculation of the rate for supplying an activity by taking the total cost of the activity and dividing it by the practical capacity available expressed in time: $389,500/495,000 minutes = $0.79 per minute. Next, multiply the per-minute rate by the time to complete each activity: $0.79 × 4 minutes per ticket sale = $3.16 per ticket sale; $0.79 × 1.50 minutes per ticket admittance = $1.19 per ticket admittance; and $0.79 × 8 minutes per ticket refund = $6.32 per ticket refund. Next, multiply each activity rate by the number of tickets handled per year, and sum those totals: ($3.16 × 84,620) + ($1.19 × 77,844) + ($6.32 × 4,670) = $267,399.20 + $92,634.36 + $29,514.40 = $389,547.96. Lastly, compare the total allocated costs to the actual costs, so the difference, $389,547.96 - $389,500 = $47.96, is overallocated (Choice A).

Question 5

The Concrete Rose has been a staple of their community for several decades. As the owner retires and promotes his daughter Moira to CEO of this successful music venue, the management staff has prepared suggestions for improvements. At the top of their list is the implementation of Time-Driven Activity-Based Costing (TDABC) over their current traditional costing methods. With this new change, the management team believes they can optimize their earnings. They compiled the following data about their identified key activities:
 The Concrete Rose spent $389,500 to operate the ticketing department, and these resources created a capacity of 495,000 minutes. How much total cost would be allocated to the key activities? (If required, round calculations to two decimal places.)
A) $326,428.00
B) $389,500.00
C) $389,547.96
D) $391,050.00

Accepted Answer

This question requires the calculation of the rate for supplying an activity by taking the total cost of the activity and dividing it by the practical capacity available expressed in time: $389,500/495,000 minutes = $0.79 per minute. Next, multiply the per-minute rate by the time to complete each activity: $0.79 × 4 minutes per ticket sale = $3.16 per ticket sale; $0.79 × 1.5 minutes per ticket admittance = $1.19 per ticket admittance; and $0.79 × 8 minutes per ticket refund = $6.32 per ticket refund. Next, multiply each activity rate by the number of tickets handled per year, and then sum their totals: ($3.16 × 84,620) + ($1.19 × 77,844) + ($6.32 × 4,670) = $267,399.20 + $92,634.36 + $29,514.40 = $389,547.96 (Choice C).

Question 6

When considering implementing activity-based costing, management should consider all advantages and disadvantages. Which of the following would be considered a disadvantage?
A) Better pricing decisions.
B) Employee pushback
C) More precise profit planning
D) Sound make-or-buy decisions

Accepted Answer

This question requires that you determine what would be considered advantages of activity-based costing. Advantages include better pricing decisions (Choice A), more precise profit planning (Choice C), and sound make-or-buy decisions (Choice D). Employee pushback (Choice B) is the correct choice as it is considered to be a disadvantage of activity-based costing.

Question 7

Activity-based costing (ABC) is often chosen in lieu of using a traditional costing system. While it does have many advantages, it also has some disadvantages. Of the following, which would be considered a disadvantage of ABC?
A) Improved product-mix decisions
B) Initial costs
C) Manufacturing efficiency
D) Sound make-or-buy decisions

Accepted Answer

This question requires that you determine what would be considered disadvantages of activity-based costing. Disadvantages include initial costs (Choice B) in addition to its being time-consuming, employee pushback, and the need for two costing systems. Improved product-mix decisions (Choice A), Manufacturing efficiency (Choice C), and Sound make-or-buy decisions (Choice D) are all considered advantages of ABC, and that makes them incorrect selections.

Question 8

Time-Driven Activity-Based Costing (TDABC) requires its users to calculate the rate for supplying an activity. The correct formula for doing so would be
A) Add the total cost of activity to the practical capacity available expressed in time
B) Divide the practical capacity available expressed in time by the total cost of activity
C) Divide the total cost of activity by the practical capacity available expressed in time
D) Multiply the total cost of activity by the practical capacity available expressed in time

Accepted Answer

This question requires you to recall the correct way to calculate the rate for supplying an activity. The formula is Total cost of activity/Practical capacity available expressed in time (Choice C). Choice A is incorrect as it adds the two numbers together. Choice B is incorrect as it swaps the numerator and denominator. Choice D is incorrect as it multiplies the two figures.

Question 9

Fashion Express, Inc. is a clothing retail vendor that specializes in modern women's clothing. They incurred costs of $146,000 last year to facilitate their staff performing customer service and sales activities. These resources create a capacity of 210,000 minutes for Fashion Express within their customer service and sales activity per year. On average, servicing all customers requires the following transactions throughout the year: processing sales orders, 105,000 minutes; restocking merchandise, 44,500 minutes; cash register, 50,450 minutes; and issuing returns, 10,050 minutes. Using Time-Driven Activity-Based Costing (TDABC), how much cost will be allocated to the cash register transactions? (If required, round calculations to two decimal places.)
A) $31,350.00
B) $35,315.00
C) $72,565.07
D) $73,500.00

Accepted Answer

This question requires multiple steps in order to be able to calculate the cost that will be allocated under TDABC. First, calculate the rate for supplying an activity by taking the total cost of the activity and dividing it by the practical capacity available expressed in time: $146,000/210,000 = $0.70 per minute. Next, multiply the per-unit rate by the activity: $0.70 × 50,450 minutes = $35,315.00 (Choice B).

Question 10

Fashion Express, Inc. is a clothing retail vendor that specializes in modern women's clothing. They incurred costs of $164,000 last year to facilitate their staff performing customer service and sales activities. These resources create a capacity of 222,000 minutes for Fashion Express within their customer service and sales activity per year. On average, servicing all customers requires the following transactions throughout the year: processing sales order, 117,000 minutes; restocking merchandise, 44,500 minutes; cash register, 50,450 minutes; and issuing returns, 10,050 minutes. Using Time-Driven Activity-Based Costing (TDABC), how much cost will be allocated to the restocking merchandise transactions? (If required, round calculations to two decimal places.)
A) $32,930.00
B) $37,333.00
C) $60,237.80
D) $77,700.00

Accepted Answer

This question requires multiple steps in order to be able to calculate the cost that will be allocated under TDABC. First, calculate the rate for supplying an activity by taking the total cost of the activity and dividing it by the practical capacity available expressed in time: $164,000/222,000 = $0.74 per minute. Next, multiply the per unit rate by the activity: $0.74 × 44,500 minutes = $32,930.00 (Choice A).

Question 11

Stevens Services is a call center that specializes in several customer- and order-related activities. They are in the process of implementing Time-Driven Activity-Based Costing (TDABC) and have identified the following pertinent information:
 They incurred $155,000 last year to operate the aforementioned activities. Assume that employees handled the following number of calls during the year: Initial Orders, 23,400 calls; Service Requests, 11,480 calls; and Customer Complaints, 9,872 calls. How much total cost would be allocated to the key activities?
A) $48,310.08
B) $117,566.40
C) $146,590.08
D) $155,000.00

Accepted Answer

This question provided the rate for supplying an activity, so the first step needed would be to calculate the cost per transaction. The initial order call costs would equal $0.42 times 10 minutes or $4.20 per call. Service request calls would be $0.42 times 4 minutes or $1.68 per call. Customer complaint calls would be $0.42 times 7 minutes or $2.94 per call. Next, multiply each per-call cost by the number of calls of that type completed for the year: $4.20 × 23,400 = $98,280; $1.68 × 11,480 = $19,286.40; and $2.94 × 9,872 = $29,023.68. The total cost allocated will be the sum of the previously calculated values = $98,280.00 + $19,286.40 + $29,023.68 = $146,590.08 (Choice C).

Question 12

Stevens Services is a call center that specializes in several customer- and order-related activities. They are in the process of implementing Time-Driven Activity-Based Costing (TDABC) and have identified the following pertinent information:
 They incurred $155,000 last year to operate the aforementioned activities. Assume that employees handled the following number of calls during the year: Initial Orders, 23,400 calls; Service Requests, 11,480 calls; and Customer Complaints, 9,872 calls. When comparing actual costs incurred to operate the activities to the allocated costs, what is the difference, and is it overallocated or underallocated?
A) $8,409.32 overallocated
B) $8,409.92 underallocated
C) $27,696.32 overallocated
D) $27,696.32 underallocated

Accepted Answer

This question provided the rate for supplying an activity, so the first step needed would be to calculate the cost per transaction. Initial order calls would equal $0.42 times 10 minutes or $4.20 per call. Service request calls would be $0.42 times 4 minutes or $1.68 per call. Customer complaint calls would be $0.42 times 7 minutes or $2.94 per call. Next, multiply each per-call cost by the number of calls of that type completed for the year. $4.20 × 23,400 = $98,280; $1.68 × 11,480 = $19,286.40; and $2.94 × 9,872 = $29,023.68. The total cost allocated will be the sum of the previously calculated values = $98,280.00 + $19,286.40 + $29,023.68 = $146,590.08. Lastly, compare the total costs incurred ($155,000) to the total allocated costs ($146,590.08) and get the difference of $8,409.92 that represents the underallocated cost (Choice B).

Question 13

Susan is an accountant for Spruce, Inc., a small lawn care business, and she is trying to determine whether or not they should implement Time-Driven Activity-Based Costing (TDABC). Spruce has several customer-centric activities including: Initial Phone Consultation, Appointment Setting, and Sales Follow-Up. Supporting these activities, Spruce has incurred costs of $198,800 last year, and Spruce has 605,800 minutes per year within their capacity. Susan has gathered the following information:
 How much total cost would be allocated to Sales Follow-Up? (If required, round calculations to two decimal places.)
A) $63,096.00
B) $66,528.50
C) $70,432.00
D) $200,056.00

Accepted Answer

First, this question requires that the calculation of the rate for supplying an activity: $198,800/605,800 minutes = $0.33 per minute. Next, calculate the cost per transaction for each sales follow-up call: $0.33 per minute times 8 minutes equals $2.64 per sales follow-up call. This leads to total sales follow-up costs of $63,096.00: Choice A (23,900 sales follow-up calls times $2.64 per call).

Question 14

Susan is an accountant for Spruce, Inc., a small lawn care business, and she is trying to determine whether or not they should implement Time-Driven Activity-Based Costing (TDABC). Spruce has several customer-centric activities including: Initial Phone Consultation, Appointment Setting, and Sales Follow-Up. Supporting these activities cost Spruce $198,800 last year, and Spruce has 605,800 minutes within their capacity. Susan has gathered the following information:
 How much total cost would be allocated to the key activities? (Do not round calculations.)
A) $118,624
B) $125,960
C) $193,600
D) $198,800

Accepted Answer

First, this question requires the calculation of the rate for supplying an activity: $198,800/605,800 minutes = $0.33 per minute. Next, calculate the cost per transaction for each type of call: initial phone consultation call, $0.33 per minute times 6 minutes equals $1.97 per call; appointment setting call, $0.33 per minute times 7.5 minutes equals $2.46 per call; and sales follow-up call, $0.33 per minute times 8 minutes equals $2.63 per call. Lastly, find the total cost for each call type, and add them for a total overall cost: ($1.97 × 33,600 calls) + ($2.46 × 28,400 calls) + ($2.63 × 23,900 calls) = $66,157.28 + $69,898.32 + $62,744.40 = $198,800.00 (Choice D).

Question 15

John is a carpenter who specializes in bathroom renovations for single-owner homes. He believes that he has been underbidding his projects and losing out on potential profit that could make all of the difference for his business's continued viability. He is putting together an estimate for a potential client and has determined the following activities:
 Previously, John was billing at a flat rate of $6 per square foot with no additional markups. John would like to add a 25% markup to the cost to arrive at a final bid price that will be given to the customer. Using Activity-Based Costing (ABC), what is the final bid price that will be presented to the customer?
A) $2,400.00
B) $2,554.04
C) $3,064.85
D) $3,192.55

Accepted Answer

To answer this question, first determine the estimated cost for each activity. Demo, $2.25 × 400 square feet = $900; Cabinets, $176 × 4 hours = $704; and Tile, $0.78 × 1,218 tiles = $950.04. Once they are totaled, the initial price is $2,554.04. The last step is to add the markup: $2,554.04 × 1.25 = $3,192.55 (Choice D).

Question 16

John is a carpenter who specializes in bathroom renovations for single-owner homes. He believes that he has been underbidding his projects and losing out on potential profit that could make all of the difference for his business's continued viability. He is putting together an estimate for a potential client and has determined the following activities:
 Previously, John was billing at a flat rate of $6 per square foot with no additional markups. John would like to add a 25% markup to the cost to arrive at the final bid price that will be given to the customer. Using Activity-Based Costing (ABC), how much additional profit will John make from this prospective client?
A) ($445.96)
B) $154.04
C) $192.55
D) $792.55

Accepted Answer

To answer this question, first determine the estimated cost for each activity. Demo, $2.25 × 400 square feet = $900; Cabinets, $176 × 4 hours = $704; and Tile, $0.78 × 1,218 tiles = $950.04. Once they are totaled, the initial price is $2,554.04. Next, add the markup: $2,554.04 × 1.25 = $3,192.55. Lastly, subtract the amount John would have received under his previous method ($6 × 400 square feet) = $2,400. John will make an additional profit of $792.55 (Choice D).

Question 17

Sunflower, Inc. is a service-based business that provides landscaping architecture services to their clients. Management has been investigating whether a change to Activity-Based Costing (ABC) would benefit the company and help them achieve their goal of having the costs in their bids more closely mirror the actual costs while maximizing their profit. Currently, Sunflower bills at a flat rate of $9 per square foot of yard prep and had been adding a 15% markup to their bids. After analyzing their key tasks, they are going to use ABC for an upcoming customer bid:
 Sunflower would like to increase their markup to 18% for all jobs using ABC. What would Sunflower's bid price be if they chose to utilize ABC?
A) $5,297.40
B) $5,808.43
C) $6,092.01
D) $6,250.93

Accepted Answer

To answer this question, first determine the estimated cost for each activity. Design, $100 × 20 hours = $2,000; Yard Prep, $1.78 × 600 square feet = $1,068; Planting, $48.80 × 38 plants = $1,854.40; and SG&A, $75 × 5 hours = $375. Once they are totaled, the initial price is $5,297.40. The last step is to add the markup- $5,297.40 × 1.18 = $6,250.93 (Choice D).

Question 18

Sunflower, Inc. is a service-based business that provides landscaping architecture services to their clients. Management has been investigating whether a change to Activity-Based Costing (ABC) would benefit the company and help them achieve their goal of having the costs in their bids more closely mirror the actual costs while maximizing their profit. Currently, Sunflower bills at a flat rate of $9 per square foot of yard prep and had been adding a 15% markup to their bids. After analyzing their key tasks, they are going to use ABC for an upcoming customer bid:
 Sunflower would like to increase their markup to 18% for all jobs using ABC. What would Sunflower's difference in bid price be if they chose to utilize ABC?
A) ($117.99)
B) $0.00
C) $40.93
D) $121.07

Accepted Answer

To answer this question, first determine the estimated cost for each activity. Design, $100 × 20 hours = $2,000; Yard Prep, $1.78 × 600 square feet = $1,068; Planting, $48.80 × 38 plants = $1,854.40; and SG&A, $75 × 5 hours = $375. Once they are totaled, the initial price is $5,297.40. Next, add the markup: $5,297.40 × 1.18 = $6,250.93 to arrive at the bid price for ABC. Then, calculate the cost that Sunflower would have billed at flat rate: ($9/square foot times 600 square feet) × 1.15 = $6,210.00. Lastly, subtract the older method bid price from the ABC method ($6,250.93 - $6,210.00) and you will see that Sunflower is able to bill an additional $40.93 (Choice C).

Question 19

Swanson Corp. manufactures and sells decorative bird feeders and birdhouses to local vendors. As a new business, they are trying to determine how to appropriately cost their items and have narrowed the choices to a traditional costing system and Activity-Based Costing (ABC). Their Direct Materials (DM) include (same for both products): Concrete, $12,500; and wood, $23,620. Their Direct Labor (DL) includes (same for both products): Wages (assembly line worker), $58,900; and Wages (painter), $42,850. Under a traditional costing system, their Manufacturing Overhead (MOH) would be 88% of their direct labor costs. If they decide to go with ABC, then they have identified the following key activities and costs: Property tax, $18,400 ($1.50 per square foot); Wages, supervisor, $56,800 ($7.10 per hour); and Cleaning, $24,700 ($3.81 per hour). Swanson intends to stick to the following production schedule:
Bird feeders: 18,640 units; 8,100 square feet; 5,230 supervisor hours; and 3,900 cleaning hours.
Birdhouses: 12,307 units; 4,150 square feet; 2,770 supervisor hours; and 2,580 cleaning hours.
If Swanson chooses to use a traditional costing system instead of ABC, then what is the difference in total product costs for bird feeders?
A) Traditional costing is $25,398.00 higher than ABC.
B) Traditional costing is $25,398.00 lower than ABC.
C) Traditional costing is $54,439.00 higher than ABC.
D) Traditional costing is $54,439.00 lower than ABC.

Accepted Answer

Under a traditional costing system, the total product costs would equal: DM [$12,500 + $23,620] + DL [$58,900 + $42,850] + MOH (($58,900 + $42,850) × 88%) = $36,120.00 + $101,750.00 + $89,540 = $227,410.00. Under ABC, DM and DL will be the same as under the traditional costing system, but the MOH must be calculated based on activity. Property tax: $1.50 × 8,100 square feet = $12,150.00; supervisor wages: $7.10 × 5,230 supervisor hours = $37,133.00; and cleaning: $3.81 × 3,900 cleaning hours = $14,859.00. MOH costs = $12,150.00 + $37,133.00 + $14,859.00 = $64,142.00. The total product costs will equal $36,120.00 + $101,750.00 + $64,142.00 = $202,012.00. The difference between the two costing systems is $227,410.00 - $202,012.00 = $25,398.00 higher under traditional costing (Choice A).

Question 20

Swanson Corp. manufactures and sells decorative bird feeders and birdhouses to local vendors. As a new business, they are trying to determine how to appropriately cost their items and have narrowed the choices to a traditional costing system and Activity-Based Costing (ABC) system. Their Direct Materials (DM) include (same for both products): Concrete, $12,500 and wood, $23,620. Their Direct Labor (DL) includes (same for both products): Wages (assembly line worker), $58,900, and Wages (painter), $42,850. Under a traditional costing system, their Manufacturing Overhead (MOH) would be 88% of their direct labor costs. If they decide to go with ABC, then they have identified the following key activities and costs: property tax, $18,400 ($1.50 per square foot); wages (supervisor), $56,800 ($7.10 per hour); and cleaning, $24,700 ($3.81 per hour). Swanson intends to stick to the following production schedule:
Bird feeders: 18,640 units; 8,100 square feet; 5,230 supervisor hours; and 3,900 cleaning hours.
Birdhouses: 12,307 units; 4,150 square feet; 2,770 supervisor hours; and 2,580 cleaning hours.
Under traditional costing, the total product cost for a birdhouse is $18.48. If Swanson chooses to use an ABC system instead of traditional costing system, then what is the difference in total cost per unit for the birdhouses?
Seems long for a multiply choice problem.
I updated this question to provide traditional cost per unit. This reduces the amount of work needed to do the comparison.
A) Total cost in Traditional costing is $1.38 higher than ABC.
B) Total cost in Traditional costing is $1.38 lower than ABC.
C) Total cost in Traditional costing is $4.37 higher than ABC.
D) Total cost in Traditional costing is $4.37 lower than ABC.

Accepted Answer

Under ABC, the total product costs would equal DM + DL + MOH. DM = $12,500 + $23,620 = $36,120.00; DL = $58,900 + $42,850 = $101,750.00; MOH = Property tax: $1.50 × 4,150 square feet = $6,225; Wages (supervisor) $7.10 × 2,770 hours = $19,667.00; Cleaning, $3.81 × 2,580 hours = $9,829.80. MOH costs = $6,225 + $19,667.00 + $9,829.80 = $35,721.80. The total product costs will equal $36,120.00 + $101,750.00 + $35,721.80 = $173,591.80. The total cost per unit will equal $173,591.80/12,307 units = $14.11 per birdhouse. The difference between the two costing systems is $18.48 - $14.11 = $4.37 higher under traditional costing (Choice C).

Quiz 9: Activity- Based Costing

When considering implementing activity-based costing, management should consider all advantages and disadvantages. Which of the following would be considered a disadvantage?

Activity-based costing (ABC) is often chosen in lieu of using a traditional costing system. While it does have many advantages, it also has some disadvantages. Of the following, which would be considered a disadvantage of ABC?

Time-Driven Activity-Based Costing (TDABC) requires its users to calculate the rate for supplying an activity. The correct formula for doing so would be