Question 1

Mountaineer Tents manufactures and sells heavy and light duty tents to various outdoor retailers. To better estimate costs, the company recently adopted an activity-based costing system. Last year, the company incurred $1,200,000 in overhead costs. Based on an intense study of their company, the following activities, allocation bases, and percentages of overhead costs were determined:
  The number of activities for heavy and light duty tents is as follows:
  Required:

Accepted Answer

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Question 2

For each of the following activities, identify one potential cost driver.

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Question 3

The following overhead cost information is available for Lowman Inc. for 2008:
  During the year, 2,000 purchase orders were issued; 500 machine setups were performed; and 1,500 inspections were conducted.
Required:

Accepted Answer

The answer of The following overhead cost information is available...

Question 4

When comparing traditional product costing and activity-based costing (ABC) methods, which kind(s) of costs are allocated to products in a similar manner and which kind(s) are allocated to products in a different manner? Explain your answers.

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Question 5

Which of the following is true regarding activity-based costing (ABC)?

Accepted Answer

Although ABC can provide more accurate costing information, the method can be expensive to implement and may result in higher measurement costs, which can deter some companies from using it. A and B are incorrect because the benefits and limitations of using ABC depend on the specific circumstances of each company. C is incorrect because companies with a high-proportion of non-unit-level costs (such as overhead costs) may benefit the most from using ABC to accurately allocate those costs to products or services.

Question 6

Give two examples for each of the four types of cost classifications.

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Question 7

Which of the following would be a likely disadvantage of activity-based costing (ABC)?

Accepted Answer

The implementation of activity-based costing requires identifying and tracking various activities and their associated costs, which can increase the cost of obtaining accurate product cost information. Therefore, option D is a likely disadvantage of activity-based costing. Options A and B are unlikely disadvantages as activity-based costing provides more accurate cost information and helps identify opportunities for continuous improvement. Option C is a likely advantage of activity-based costing, rather than a disadvantage.

Question 8

The following overhead cost information is available for Millennium Inc. for 2011:
  During the year, 7,500 purchase orders were issued; 18,000 machine setups were performed; and 3,000 inspections were conducted.
Required:

Accepted Answer

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Question 9

What is meant by the term "activity" in activity-based costing (ABC)? How are costs allocated in ABC?

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Question 10

Can activity-based costing (ABC) be used by service companies? If so, is the implementation of an ABC system in a service company different than that of a manufacturing company?

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Question 11

What are the benefits and limitations of activity-based costing (ABC) systems?

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Question 12

Identify and define each of the four general types of cost classifications used with activity-based costing (ABC).

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Question 13

Discuss how the shift from labor intensive manufacturing to automation has affected product costing.

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Question 14

Which of the following is a likely advantage in activity-based costing (ABC)?

Accepted Answer

Activity-based costing (ABC) provides a better understanding of the cost drivers and activities involved in producing products or services. An advantage of ABC is an increase in the ability to trace indirect costs to specific activities. This allows for a more accurate allocation of costs to products or services, resulting in better decision-making and cost control. ABC requires the maintenance of accurate cost driver information, and thus, choice A is incorrect. Choice B is also incorrect as ABC relies heavily on accurate overhead cost information. Choice D is incorrect as the cost of accumulating, tracking, and assigning costs to products and services is generally higher in traditional costing systems than in ABC.

Question 15

Classify each of the following costs as unit-level (U), batch-level (B), product-level (P), or facility-level (F).

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Question 16

Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $600,000 in overhead costs when a total of 10,000 direct labor hours were incurred. After implementing activity-based costing (ABC), the company's accountant identified the following related information:
  The number of activities for standard and custom-made cabinets is as follows:
  During the past year, Thurman accepted a customer order for a set of custom-made cabinets that would require the following:
  Required:

Accepted Answer

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Question 17

Define "cross subsidies" and tell what kind of product costing system is likely to have them. What happens to cross subsidies in activity-based costing (ABC)?

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Question 18

Ken's Carpets sells carpet for both residential and business use. To better estimate costs, the company recently adopted an activity-based costing system. Last year, the company incurred $300,000 in overhead costs. Based on an intense study of their company, the following activities, allocation bases, and percentages of overhead costs were determined:
  The number of activities for residential and business is as follows:
  Required:

Accepted Answer

The answer of Ken's Carpets sells carpet for both residential...

Quiz 4: Activity-Based Costing

For each of the following activities, identify one potential cost driver.

The following overhead cost information is available for Lowman Inc. for 2008: During the year, 2,000 purchase orders were issued; 500 machine setups were performed; and 1,500 inspections were conducted. Required:

When comparing traditional product costing and activity-based costing (ABC) methods, which kind(s) of costs are allocated to products in a similar manner and which kind(s) are allocated to products in a different manner? Explain your answers.

Which of the following is true regarding activity-based costing (ABC) ?