Question 1

Stealth, Inc. produces two types of drones, rotary and fixed wing. Stealth estimated $765,000 of manufacturing overhead, and 51,000 machine hours for the year. The allocation base for overhead costs is machine hours.The rotary model actually consumed 21,000 machine hours, and the fixed wing type consumed 30,000 machine hours. How much overhead is allocated to the fixed wing model?
A) $315,000
B) $450,000
C) $210,000
D) $150,000

Accepted Answer

The overhead cost per machine hour can be calculated using the given information:

Overhead cost per machine hour = Total manufacturing overhead / Total machine hours

Overhead cost per machine hour = $765,000 / 51,000 machine hours

Overhead cost per machine hour = $15 per machine hour

Using the overhead cost per machine hour, we can now calculate the amount of overhead allocated to each model:

Fixed wing model overhead = $15 per machine hour x 30,000 machine hours

Fixed wing model overhead = $450,000

Therefore, the answer is B) $450,000.

Question 2

An activity-based costing system is developed in four steps: 
A. Compute the predetermined overhead allocation rate for each activity.
B. Identify activities and estimate their total indirect costs.
C. Identify the allocation base for each activity and estimate the total quantity of each allocation base.
D. Allocate indirect costs to the cost object.
Which of the following is the correct order for performing these steps?
A) a, b, c, d
B) c, a, b, d
C) b, c, a, d
D) b, a, c, d

Accepted Answer

The correct order for developing an activity-based costing system is: Identify activities and estimate their total indirect costs (B), identify the allocation base for each activity and estimate the total quantity of each allocation base (C), compute the predetermined overhead allocation rate for each activity (A), and finally allocate indirect costs to the cost object (D).

Question 3

Made Well Tool, Inc., a manufacturer of cutting tools, divided its manufacturing process into two
Departments - Machining and Finishing. The estimated overhead costs for the Machining and Finishing
departments amounted to $400,000 and $1,000,000, respectively. The company produces two types of tools - Standard and Deluxe. The total estimated labor hours for the year were 4,000, and total estimated machine hours were 2,000. The Machining department is mechanized, whereas the Finishing department is labor oriented. Calculate departmental predetermined overhead allocation rates.
 $$\begin{array} { | l | r | r | } 
\hline &{ \text { Machining } } &  { \text { Finishing } } \
\hline & \text { Machine hours } & \text { Labor hours } \
\hline \text { Standard } & 500 & 1,800 \
\hline \text { Deluxe } & \underline { 1,500 } & \underline { 2,200 } \
\hline & \underline { 2,000 } & \underline { 4,000 } \
\hline
\end{array}$$

Accepted Answer

The answer of Made Well Tool, Inc., a manufacturer of...

Question 4

Reliable Car Parts, a manufacturer of spare parts, has two production departments-Assembling and Packaging. The Assembling Department is mechanized, while the Packaging Department is labor oriented. Estimated manufacturing overhead costs for the year were $17,400,000 for Assembling and $11,700,000 for Packaging. Calculate the department predetermined overhead allocation rates for the Assembling and Packaging Departments, respectively, if the total estimated machine hours were 35,000 and labor hours were 21,000 for the year. (Round your answer to the nearest cent.)
A) $828.57, $334.29
B) $497.14, $557.14
C) $334.29, $828.57
D) $497.14, $828.57

Accepted Answer

The answer of Reliable Car Parts, a manufacturer of spare...

Question 5

Restoration, Inc., a leading manufacturer of antique car parts, divided its manufacturing process into two Departments - Production and Packing. The estimated overhead costs for the Production and Packing departments amounted to $14,000,000 and $20,000,000, respectively. The company produces two types of parts - Part 1 and Part 2. The total estimated labor hours for the year were 40,000, and estimated machine hours were 35,000. The Production department is mechanized, whereas the Packing department is labor oriented. Calculate departmental predetermined overhead allocation rates.
 $$\begin{array} { | l | c | c | } 
\hline & \text { Production } & \text { Packing } \
\hline & \text { Machine hours } & \text { Labor hours } \
\hline \text { Part 1 } & 10,000 & 30,000 \
\hline \text { Part 2 } & \underline { 25,000 } & \underline { 10,000 } \
\hline & \underline { 35,000 } & \underline { 40,000 } \
\hline
\end{array}$$

Accepted Answer

The answer of Restoration, Inc., a leading manufacturer of antique...

Question 6

Activity-based costing uses a common allocation base for all activities.

Accepted Answer

Activity-based costing uses different allocation bases for different activities, which allows for a more accurate allocation of costs to products or services.

Question 7

Which of the following would most likely be treated as an activity in an activity-based costing system?
A) direct labor cost
B) machine processing
C) direct materials cost
D) sales revenues

Accepted Answer

Activity-based costing (ABC) system focuses on identifying and analyzing activities that incurs cost in order to allocate indirect costs to specific products or services. Machine processing is an activity that incurs indirect costs, such as depreciation and maintenance expenses. Therefore, it is most likely to be treated as an activity in an activity-based costing system. Direct labor cost and direct materials cost are direct costs that are usually traced directly to products or services. Sales revenues are not costs and therefore not related to the cost allocation process in ABC system.

Question 8

What is activity-based management? How is it different from activity-based costing?

Accepted Answer

The answer of What is activity-based management? How is it...

Question 9

The costs most easily traced to each product manufactured are ________.
A) direct materials and direct labor
B) direct materials and indirect materials
C) direct labor and manufacturing overhead
D) indirect materials and indirect labor

Accepted Answer

Direct materials and direct labor are the costs most easily traced to each product manufactured. Direct materials are the materials that are consumed in the production process and directly identifiable with each product, while direct labor is the labor directly involved in the manufacturing of the product.

Question 10

For each of the following activities, indicate an appropriate allocation base:
 $$\begin{array} { | l | l | } 
\hline \text { Activity } & \text { Allocation Base } \
\hline \text { Warranty Services - Providing service } & \
\text { for defective products } & \
\hline \text { Setup - Setting up machines for } & \
\text { production } & \
\hline \text { Shipping - Shipping finished } & \
\text { products to customers } & \
\hline \text { Machining - Machine usage } & \
\hline \text { Purchasing - Purchasing raw } & \
\text { materials } & \
\hline
\end{array}$$

Accepted Answer

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

Question 11

Stealth, Inc. produces two types of drones, rotary and fixed wing. Stealth estimated $1,210,000 of manufacturing overhead, and 55,000 machine hours for the year. The allocation base for overhead costs is machine hours. The rotary model actually consumed 26,000 machine hours, and the fixed wing type consumed 29,000 machine hours. How much overhead is allocated to the rotary model?
A) $572,000
B) $638,000
C) $260,000
D) $212,667

Accepted Answer

The overhead rate per machine hour is calculated as total estimated overhead divided by total estimated machine hours: $1,210,000 / 55,000 = $22 per machine hour. The overhead allocated to the rotary model is then 26,000 machine hours * $22/machine hour = $572,000.

Question 12

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the product and period costs.

Accepted Answer

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Question 13

Why is activity-based costing used? What is an activity? Give an example of an activity.

Accepted Answer

The answer of Why is activity-based costing used? What is...

Question 14

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

Accepted Answer

This statement is false. Activity-based costing provides more detailed information on costs of activities and the drivers of these costs than traditional costing.

Question 15

Why is using a single plantwide predetermined overhead allocation rate not always accurate?

Accepted Answer

The answer of Why is using a single plantwide predetermined...

Question 16

Allen Manufacturing has three departments that differ significantly in their manufacturing processes. A single plantwide rate will give the company the best estimate of overhead costs.

Accepted Answer

Since the manufacturing processes differ significantly among the three departments, using a single plantwide rate would not accurately allocate overhead costs to each department. It would be more appropriate to use departmental overhead rates to allocate costs based on the specific activities and resources used in each department.

Question 17

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the manufacturing overhead costs.

Accepted Answer

The first step in developing an activity-based costing system for a manufacturing company is to identify and determine the activities that incur the majority of the manufacturing overhead costs. This will help in allocating the overhead costs to the products or services accurately based on the activities they consume.

Question 18

In the first step in developing an activity-based costing system, the management team must think about how each activity for a product or service might be improved or whether is it necessary at all.

Accepted Answer

The first step in developing an activity-based costing system is to identify the activities that are necessary to produce a product or service, not to improve or eliminate them. Once these activities are identified, the management team can then analyze their costs and determine which ones can be improved or eliminated to reduce overall costs.

Question 19

Use of a single plantwide overhead rate assumes that there is a direct relationship between the allocation base and overhead costs in all plant activities.

Accepted Answer

A plantwide overhead rate is calculated by dividing the total estimated overhead costs by the total estimated allocation base for the entire plant. This assumes that there is a direct relationship between the allocation base and overhead costs in all plant activities. It is a simple method that is less time-consuming but may lead to inaccurate cost allocation for specific products or departments with significantly different levels of overhead costs.

Question 20

Managers are able to set an accurate selling price without knowing product cost information.

Accepted Answer

Knowing the product cost is crucial in setting a profitable selling price. Without knowing the cost, the price may be set too low and result in a loss or too high and deter potential customers.

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

Activity-based costing uses a common allocation base for all activities.

Which of the following would most likely be treated as an activity in an activity-based costing system?

What is activity-based management? How is it different from activity-based costing?

The costs most easily traced to each product manufactured are ________.

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the product and period costs.

Why is activity-based costing used? What is an activity? Give an example of an activity.

Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.

Why is using a single plantwide predetermined overhead allocation rate not always accurate?

Allen Manufacturing has three departments that differ significantly in their manufacturing processes. A single plantwide rate will give the company the best estimate of overhead costs.

In the first step in developing an activity-based costing system for a manufacturing company, the management team must determine the activities that incur the majority of the manufacturing overhead costs.

In the first step in developing an activity-based costing system, the management team must think about how each activity for a product or service might be improved or whether is it necessary at all.

Use of a single plantwide overhead rate assumes that there is a direct relationship between the allocation base and overhead costs in all plant activities.

Managers are able to set an accurate selling price without knowing product cost information.