Managerial Accounting Eric Noreen 5e - Test Bank

Managerial Accounting Eric Noreen 5e – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Managerial Accounting for Managers, 5e (Noreen)

Chapter 5  Activity–Based Costing: A Tool to Aid Decision Making

 

1) When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system with batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

2) In activity-based costing, as in traditional costing systems, manufacturing costs are not assigned to products.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

3) Unit-level activities are performed each time a batch is handled or processed.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

4) Organization-sustaining activities relate to specific customers and are not tied to any specific products.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

5) In activity-based costing, all manufacturing costs must be included in product costs.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

6) Activity-based costing is a costing method that is designed to provide managers with product cost information for internal decision-making.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

7) Batch-level activities are performed each time a unit is produced.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

8) When combining activities in an activity-based costing system, batch-level activities should be combined with unit-level activities whenever possible.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

9) Activity-based costing is best proposed, designed and implemented by the accounting department without requiring the time of busy managers.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

10) Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers than managing and sustaining a single product. The costs of these resources can be accurately allocated to products using activity-based costing than traditional costing which is based entirely on direct labor-hours.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

11) A traditional cost system is generally easier to set up and run than an activity-based costing system.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

12) Departmental overhead rates will correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

13) When a company implements activity-based costing, manufacturing overhead cost is often shifted from low volume products to high volume products, with a higher unit cost resulting for the high volume products.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

14) Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

15) When activity-based costing is used for internal decision-making, the costs of idle capacity should be assigned to products.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

16) A duration driver provides a simple count of the number of times that an activity occurs.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

17) Direct labor costs are usually included in the costs that are allocated to activity cost pools in an activity-based costing system.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

18) The first-stage allocation in an ABC system is the process of assigning functionally organized overhead costs derived from the company’s general ledger to activity cost pools.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

19) First-stage allocations in an ABC system should not be based on the opinions of employees about how costs should be distributed among activity cost pools.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

20) In an ABC system, departmental managers are typically interviewed to determine how the departmental non-personnel costs should be distributed across the activity cost pools.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

21) Direct materials costs are usually excluded from the costs that are allocated to activity cost pools in an activity-based costing system.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

22) In the first-stage allocation in an ABC system, some costs may be allocated to a special cost pool that are not subsequently allocated to products or customers.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Assign Overhead Costs to Cost Objects

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

23) An activity rate of $512 per product design means that on average a product design consumes resources that cost $512.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

24) In the second-stage allocation in activity-based costing, costs that were not allocated in the first stage are assigned to the company’s most profitable products.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

25) In the second-stage allocation in activity-based costing, activity rates are used to apply overhead costs to products and customers.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

26) To compute a product’s profit or product margin, the product’s sales and direct costs are needed in addition to the overhead costs computed in an activity-based costing system.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

27) In activity-based costing, a product margin may exclude costs from some of the company’s activity cost pools.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

28) Providing the power required to run production equipment is an example of a:

1. A) Unit-level activity.
2. B) Batch-level activity.
3. C) Product-level activity.
4. D) Organization-sustaining activity.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

29) Factory security and assembly activities at an appliance manufacturing plant would be best classified as unit-level, batch-level, product-level, or organization-sustaining activities?

 

 

Option	Security	Assembly
A	Product	Unit
B	Batch	Batch
C	Organization	Unit
D	Organization	Product

 

 

1. A) Option A
2. B) Option B
3. C) Option C
4. D) Option D

 

Answer:  C

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

30) Guerra Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the costs of inspecting the finished products at Guerra?

1. A) Machine-hours
2. B) Direct labor-hours
3. C) Inspection time
4. D) Number of inspections

 

Answer:  C

Difficulty: 3 Hard

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

31) An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

1. A) under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.
2. B) under activity-based costing the sum of all product costs does not equal the total costs of the company.
3. C) activity-based costing has not been approved by the United Nation’s International Accounting Board.
4. D) activity-based costing results in less accurate costs than more traditional costing methods based on direct labor-hours or machine-hours.

 

Answer:  A

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

32) Testing a prototype of a new product is an example of a:

1. A) Unit-level activity.
2. B) Batch-level activity.
3. C) Product-level activity.
4. D) Organization-sustaining activity.

 

Answer:  C

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

33) Which of the following would be an acceptable measure of activity for a material handling activity cost pool?

 

 

Options	Number of material moves	Weight of material moved
A	Yes	Yes
B	No	Yes
C	Yes	No
D	No	No

 

 

1. A) Option A
2. B) Option B
3. C) Option C
4. D) Option D

 

Answer:  A

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

34) Production order processing is an example of a:

1. A) Unit-level activity.
2. B) Batch-level activity.
3. C) Product-level activity.
4. D) Organization-sustaining activity.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

35) Purchase order processing is an example of a:

1. A) Unit-level activity.
2. B) Batch-level activity.
3. C) Product-level activity.
4. D) Organization-sustaining activity.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

36) Parts administration is an example of a:

1. A) Unit-level activity.
2. B) Batch-level activity.
3. C) Product-level activity.
4. D) Organization-sustaining.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

37) Which of the following would be classified as a product-level activity?

1. A) Setting up a machine for a batch of a standard product.
2. B) Operating a cafeteria for employees.
3. C) Running the Human Resource department.
4. D) Advertising a product.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

38) Designing a new backpack at an outdoor sports equipment company is an example of a:

1. A) Unit-level activity.
2. B) Batch-level activity.
3. C) Product-level activity.
4. D) Facility-level activity.

 

Answer:  C

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

39) Departmental overhead rates may not correctly assign overhead costs due to:

1. A) the use of direct labor hours in allocating overhead costs to products rather than machine time or quantity of materials used.
2. B) the high correlation between direct labor-hours and the incurrence of overhead costs.
3. C) overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.
4. D) difficulties associated with identifying cost pools for the first stage of the allocation process.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

40) Machining a part for a product is an example of a:

1. A) Unit-level activity.
2. B) Batch-level activity.
3. C) Product-level activity.
4. D) Organization-sustaining activity.

 

Answer:  A

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

41) In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by:

1. A) the direct labor-hours required by the product.
2. B) the machine-hours required by the product.
3. C) the total activity for the activity cost pool.
4. D) the total direct labor-hours for the activity cost pool.

 

Answer:  C

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

42) When switching from a traditional costing system to an activity-based costing system that contains some batch-level costs:

1. A) the unit product costs of both high and low volume products typically increase.
2. B) the unit product costs of both high and low volume products typically decrease.
3. C) the unit product costs of high volume products typically increase and the unit product costs of low volume products typically decrease.
4. D) the unit product costs of high volume products typically decrease and the unit product costs of low volume products typically increase.

 

Answer:  D

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

43) Bippus Corporation manufactures two products: Product X08R and Product P56L. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X08R and P56L.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	247,000	13,000	MHs
Machine setups	Number of setups	$	60,000	150	setups
Product design	Number of products	$	56,000	2	products
Order size	Direct labor-hours	$	260,000	10,000	DLHs

 

 

Activity Measure	Product X08R	Product P56L
Machine-hours	10,000	3,000
Number of setups	110	40
Number of products	1	1
Direct labor-hours	6,000	4,000

 

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P56L?

1. A) $311,500
2. B) $373,800
3. C) $249,200
4. D) $418,000

 

 

 

Answer:  C

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product P56L is computed as follows:

 

	Product P56L
Total direct labor hours (a)		4,000
Plantwide overhead rate per DLH (b)	$	62.30
Manufacturing overhead assigned (a) × (b)	$	249,200

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

44) Orear Corporation manufactures two products: Product Z34D and Product J25M. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Z34D and J25M.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	120,000	6,000	MHs
Machine setups	Number of setups	$	90,000	150	setups
Product design	Number of products	$	84,000	2	products
Order size	Direct labor-hours	$	300,000	10,000	DLHs

 

 

Activity Measure	Product Z34D	Product J25M
Machine-hours	4,000	2,000
Number of setups	90	60
Number of products	1	1
Direct labor-hours	7,000	3,000

 

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product J25M is closest to:

50. A) 50.00%
51. B) 30.00%
52. C) 15.15%
53. D) 19.87%

 

 

 

Answer:  B

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product J25M is computed as follows:

	Product J25M
Total direct labor hours (a)		3,000
Plantwide overhead rate per DLH (b)	$	59.40
Manufacturing overhead assigned (a) × (b)	$	178,200

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product J25M is computed as follows:

Manufacturing overhead cost assigned to Product J25M (a)	$	178,200
Total manufacturing overhead cost (b)	$	594,000
Percentage of total manufacturing overhead cost assigned to Product J25M (a) ÷ (b)		30%

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

45) Ben Corporation manufactures two products: Product E05G and Product L64Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products E05G and L64Y.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	285,000	15,000	MHs
Machine setups	Number of setups	$	180,000	300	setups
Product design	Number of products	$	64,000	2	products
Order size	Direct labor-hours	$	350,000	10,000	DLHs

 

 

Activity Measure	Product E05G	Product L64Y
Machine-hours	12,000	3,000
Number of setups	170	130
Number of products	1	1
Direct labor-hours	3,000	7,000

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product E05G is closest to:

27. A) 27.87%
28. B) 19.00%
29. C) 30.00%
30. D) 50.00%

 

 

 

Answer:  C

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product E05G is computed as follows:

	Product E05G
Total direct labor hours (a)		3,000
Plantwide overhead rate per DLH (b)	$	87.90
Manufacturing overhead assigned (a) × (b)	$	263,700

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product E05G is computed as follows:

Manufacturing overhead cost assigned to Product E05G (a)	$	263,700
Total manufacturing overhead cost (b)	$	879,000
Percentage of total manufacturing overhead cost assigned to Product E05G (a) ÷ (b)		30.00%

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

46) Arrojo Corporation manufactures two products: Product X71B and Product C91I. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X71B and C91I.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	275,000	11,000	MHs
Machine setups	Number of setups	$	210,000	350	setups
Product design	Number of products	$	48,000	2	products
Order size	Direct labor-hours	$	300,000	10,000	DLHs

 

 

Activity Measure	Product X71B	Product C91I
Machine-hours	5,000	6,000
Number of setups	220	130
Number of products	1	1
Direct labor-hours	6,000	4,000

 

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product X71B?

1. A) $416,500
2. B) $499,800
3. C) $333,200
4. D) $372,000

 

 

 

Answer:  B

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product X71B is computed as follows:

 

	Product X71B
Total direct labor hours (a)		6,000
Plantwide overhead rate per DLH (b)	$	83.30
Manufacturing overhead assigned (a) × (b)	$	499,800

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

47) Mayeux Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:

 

Costs:
Wages and salaries	$	320,000
Depreciation		160,000
Utilities		240,000
Total	$	720,000

 

 

Distribution of resource consumption:

 

 

 

How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool?

1. A) $360,000
2. B) $336,000
3. C) $288,000
4. D) $348,000

 

Answer:  B

Explanation:  Allocations to the Setting Up activity cost pool:

Wages and salaries (40% × $320,000)	$	128,000
Depreciation (55% × $160,000)		88,000
Utilities (50% × $240,000)		120,000
Total	$	336,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

48) Hosley Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

 

Costs:
Wages and salaries	$	360,000
Depreciation		100,000
Occupancy		120,000
Total	$	580,000

 

 

The distribution of resource consumption across the three activity cost pools is given below:

 

 

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?

1. A) $123,000
2. B) $174,000
3. C) $58,000
4. D) $203,000

 

Answer:  A

Explanation:  Allocations to the Other activity cost pool:

Wages and salaries (10% × $360,000)	$	36,000
Depreciation (45% × $100,000)		45,000
Occupancy (35% × $120,000)		42,000
Total	$	123,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

49) Gutknecht Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:

 

Costs:
Wages and salaries	$	300,000
Depreciation		180,000
Utilities		240,000
Total	$	720,000

 

 

Distribution of resource consumption:

 

 

 

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?

1. A) $138,000
2. B) $210,000
3. C) $180,000
4. D) $216,000

 

Answer:  B

Explanation:  Allocations to the Other activity cost pool:

Wages and salaries (25% × $300,000)	$	75,000
Depreciation (35% × $180,000)		63,000
Utilities (30% × $240,000)		72,000
Total	$	210,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

50) Perl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

 

Costs:
Wages and salaries	$	360,000
Depreciation		200,000
Occupancy		100,000
Total	$	660,000

 

 

The distribution of resource consumption across the three activity cost pools is given below:

 

 

How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool?

1. A) $336,000
2. B) $319,000
3. C) $330,000
4. D) $396,000

 

Answer:  A

Explanation:  Allocations to the Order Processing activity cost pool:

Wages and salaries (60% × $360,000)	$	216,000
Depreciation (35% × $200,000)		70,000
Occupancy (50% × $100,000)		50,000
Total	$	336,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

51) Lakatos Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

 

Costs:
Wages and salaries	$	420,000
Depreciation		240,000
Occupancy		220,000
Total	$	880,000

 

 

The distribution of resource consumption across the three activity cost pools is given below:

 

 

 

How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool?

1. A) $88,000
2. B) $132,000
3. C) $264,000
4. D) $120,000

 

Answer:  D

Explanation:  Allocations to the Fabricating activity cost pool:

Wages and salaries (10% × $420,000)	$	42,000
Depreciation (5% × $240,000)		12,000
Utilities (30% × $220,000)		66,000
Total	$	120,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

52) Eccles Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:

 

Costs:
Wages and salaries	$	340,000
Depreciation		180,000
Utilities		200,000
Total	$	720,000

 

 

Distribution of resource consumption:

 

 

 

How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?

1. A) $144,000
2. B) $96,000
3. C) $36,000
4. D) $105,000

 

Answer:  D

Explanation:  Allocations to the Assembly activity cost pool:

Wages and salaries (20% × $340,000)	$	68,000
Depreciation (15% × $180,000)		27,000
Utilities (5% × $200,000)		10,000
Total	$	105,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

53) Bennette Corporation has provided the following data concerning its overhead costs for the coming year:

Wages and salaries	$	340,000
Depreciation		120,000
Rent		140,000
Total	$	600,000

 

 

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

 

Activity Cost Pool	Total Activity
Assembly	30,000	labor-hours
Order processing	500	orders
Other	Not applicable

 

 

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.

 

The distribution of resource consumption across activity cost pools is given below:

 

 

 

The activity rate for the Order Processing activity cost pool is closest to:

1. A) $430 per order
2. B) $420 per order
3. C) $360 per order
4. D) $440 per order

 

 

 

Answer:  A

Explanation:  Allocations to the Order Processing activity cost pool:

Wages and salaries (35% × $340,000)	$	119,000
Depreciation (45% × $120,000)		54,000
Rent (30% × $140,000)		42,000
Total	$	215,000

 

Order Processing: $215,000 ÷ 500 orders = $430 per order

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

54) Huelskamp Corporation has provided the following data concerning its overhead costs for the coming year:

Wages and salaries	$	360,000
Depreciation		120,000
Rent		180,000
Total	$	660,000

 

 

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

 

Activity Cost Pool	Total Activity
Assembly	60,000	labor-hours
Order processing	400	orders
Other	Not applicable

 

 

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.

 

The distribution of resource consumption across activity cost pools is given below:

 

 

 

The activity rate for the Assembly activity cost pool is closest to:

2. A) $2.65 per labor-hour
3. B) $3.85 per labor-hour
4. C) $2.85 per labor-hour
5. D) $2.75 per labor-hour

 

 

 

Answer:  C

Explanation:  Allocations to the Assembly activity cost pool:

Wages and salaries (25% × $360,000)	$	90,000
Depreciation (15% × $120,000)		18,000
Rent (35% × $180,000)		63,000
Total	$	171,000

 

Assembly: $171,000 ÷ 60,000 labor-hours = $2.85 per labor-hour

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

55) Leaper Corporation uses an activity-based costing system with the following three activity cost pools:

 

Activity Cost Pool	Total Activity
Fabrication	40,000	machine-hours
Order processing	200	orders
Other	Not applicable

 

 

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.

 

The company has provided the following data concerning its costs:

Wages and salaries	$	360,000
Depreciation		140,000
Occupancy		160,000
Total	$	660,000

 

 

The distribution of resource consumption across activity cost pools is given below:

 

 

 

The activity rate for the Order Processing activity cost pool is closest to:

1. A) $1,485 per order
2. B) $1,540 per order
3. C) $1,465 per order
4. D) $1,320 per order

 

 

 

Answer:  C

Explanation:  Allocations to the Order Processing activity cost pool:

Wages and salaries (40% × $360,000)	$	144,000
Depreciation (55% × $140,000)		77,000
Occupancy (45% × $160,000)		72,000
Total	$	293,000

 

Order Processing: $293,000 ÷ 200 orders = $1,465 per order

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

56) Tatman Corporation uses an activity-based costing system with the following three activity cost pools:

 

Activity Cost Pool	Total Activity
Fabrication	10,000	machine-hours
Order processing	800	orders
Other	Not applicable

 

 

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.

 

The company has provided the following data concerning its costs:

Wages and salaries	$	320,000
Depreciation		220,000
Occupancy		120,000
Total	$	660,000

 

 

The distribution of resource consumption across activity cost pools is given below:

 

 

 

The activity rate for the Fabrication activity cost pool is closest to:

3. A) $3.30 per machine-hour
4. B) $13.20 per machine-hour
5. C) $10.30 per machine-hour
6. D) $8.80 per machine-hour

 

 

 

Answer:  C

Explanation:  Allocations to the Fabrication activity cost pool:

Wages and salaries (20% × $320,000)	$	64,000
Depreciation (15% × $220,000)		33,000
Occupancy (5% × $120,000)		6,000
Total	$	103,000

 

Fabrication: $103,000 ÷ 10,000 machine-hours = $10.30 per machine-hour

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

57) Millner Corporation has provided the following data from its activity-based costing accounting system:

 

 

Activity Cost Pool	Total Cost		Total Activity
Designing products	$	1,372,448		7,798	product design hours
Setting up batches	$	33,300		740	batch set-ups
Assembling products	$	126,160		6,640	assembly hours

 

 

The activity rate for the “designing products” activity cost pool is closest to:

1. A) $101 per product design hour
2. B) $1,372,448 per product design hour
3. C) $176 per product design hour
4. D) $57 per product design hour

 

Answer:  C

Explanation:  Designing products activity rate: $1,372,448 ÷ 7,798 product design hours = $176 per product design hour

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

58) Nick Company has two products: A and B. The company uses activity-based costing. The total cost and activity for each of the company’s three activity cost pools are as follows:

 

 

			Total Activity
Activity Cost Pool	Total Cost		Product A	Product B	Total
Activity 1	$	32,600	700	300	1,000
Activity 2	$	17,600	600	200	800
Activity 3	$	52,500	400	100	500

 

 

The activity rate under the activity-based costing system for Activity 3 is closest to:

525. A) $525.00
526. B) $44.65
527. C) $105.00
528. D) $205.00

 

Answer:  C

Explanation:  Activity 3 activity rate: $52,500 ÷ 500 = $105

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

59) Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below:

 

 

Activity Cost Pool	Total Cost		Total Activity
Researching legal issues	$	20,480		640	research hours
Meeting with clients	$	1,182,239		7,253	meeting hours
Preparing documents	$	91,840		5,740	documents

 

The activity rate for the “meeting with clients” activity cost pool is closest to:

1. A) $95 per meeting hour
2. B) $61 per meeting hour
3. C) $163 per meeting hour
4. D) $1,182,239 per meeting hour

 

Answer:  C

Explanation:  Meeting with clients activity rate: $1,182,239 ÷ 7,253 meeting hours = $163 per meeting hour

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

60) Paparo Corporation has provided the following data from its activity-based costing system:

 

 

Activity Cost Pool	Total Cost		Total Activity
Assembly	$	846,040		52,000	machine-hours
Processing orders	$	64,056		1,700	orders
Inspection	$	102,408		1,360	inspection-hours

 

 

Data concerning the company’s product Q79Y appear below:

 

Annual unit production and sales		450
Annual machine-hours		1,080
Annual number of orders		70
Annual inspection hours		20
Direct materials cost	$	44.00	per unit
Direct labor cost	$	41.03	per unit

 

According to the activity-based costing system, the average cost of product Q79Y is closest to:

133. A) $133.29 per unit
134. B) $85.03 per unit
135. C) $127.43 per unit
136. D) $129.94 per unit

 

 

 

Answer:  A

Explanation:   The activity rates for each activity cost pool are computed as follows:

 

 

	Total Cost		Total Activity			Activity Rate
Assembly	$	846,040		52,000	machine-hours		$	16.27	per machine-hour
Processing orders	$	64,056		1,700	orders		$	37.68	per order
Inspection	$	102,408		1,360	inspection-hours		$	75.30	per inspection-hour

 

 

The overhead cost charged to Product K54A is:

 

 

	Activity Rate			Activity					ABC Cost
Assembly	$	16.27	per machine-hour		1,080		machine-hours			$		17,571.60
Processing orders	$	37.68	per order		70		Orders					2,637.60
Inspection	$	75.30	per inspection-hour		20		inspection-hours					1,506.00
Total overhead cost								$			21,715.20

 

Direct materials (450 units × $44.00 per unit)	$	19,800.00
Direct labor (450 units × $41.03 per unit)		18,463.50
Overhead		21,715.20
Total cost	$	59,978.70

 

 

Cost per unit = $59,978.70 ÷ 450 units = $133.29 per unit

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

61) Dobles Corporation has provided the following data from its activity-based costing system:

 

 

Activity Cost Pool	Total Cost		Total Activity
Assembly	$	228,060		18,000	machine-hours
Processing orders	$	34,068		1,200	orders
Inspection	$	125,560		1,720	inspection-hours

 

 

The company makes 420 units of product D28K a year, requiring a total of 460 machine-hours, 80 orders, and 10 inspection-hours per year. The product’s direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit.

 

According to the activity-based costing system, the average cost of product D28K is closest to:

95. A) $95.34 per unit
96. B) $93.60 per unit
97. C) $74.32 per unit
98. D) $89.93 per unit

 

 

 

Answer:  A

Explanation:   The activity rates for each activity cost pool are computed as follows:

 

 

	Total Cost		Total Activity			Activity Rate
Assembly	$	228,060		18,000	machine-hours		$	12.67	per machine-hour
Processing orders	$	34,068		1,200	orders		$	28.39	per order
Inspection	$	125,560		1,720	inspection-hours		$	73.00	per inspection-hour

 

 

The overhead cost charged to Product D28K is:

 

 

	Activity Rate			Activity					ABC Cost
Assembly	$	12.67	per machine-hour		460		machine-hours		$		5,828.20
Processing orders	$	28.39	per order		80		Orders				2,271.20
Inspection	$	73.00	per inspection-hour		10		inspection-hours				730.00
Total overhead cost								$		8,829.40

 

 

Direct materials (420 units × $48.96 per unit)	$	20,563.20
Direct labor (420 units × $25.36 per unit)		10,651.20
Overhead		8,829.40
Total cost	$	40,043.80

 

 

Cost per unit = $40,043.80 ÷ 420 units = $95.34 per unit

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

62) Kulka Corporation manufactures two products: Product F82D and Product T05P. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products F82D and T05P.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	180,000	9,000	MHs
Machine setups	Number of setups	$	125,000	250	setups
Product design	Number of products	$	44,000	2	products
Order size	Direct labor-hours	$	260,000	10,000	DLHs

 

 

Activity Measure	Product F82D	Product T05P
Machine-hours	5,000	4,000
Number of setups	160	90
Number of products	1	1
Direct labor-hours	4,000	6,000

 

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product T05P?

1. A) $156,000
2. B) $303,000
3. C) $147,000
4. D) $304,500

 

 

 

Answer:  B

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	180,000	9,000	MHs		$	20	per MH
Machine setups	$	125,000	250	setups		$	500	per setup
Product design	$	44,000	2	products		$	22,000	per product
Order size	$	260,000	10,000	DLHs		$	26	per DLH

 

 

 

The overhead cost charged to ProductT05P under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity				ABC Cost
Machining	$	20	per MH		4,000		MHs		$		80,000
Machine setups	$	500	per setup		90		setups		$		45,000
Product design	$	22,000	per product		1		products		$		22,000
Order size	$	26	per DLH		6,000		DLHs		$		156,000
Total								$		303,000

 

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

63) Weissman Corporation manufactures two products: Product E16S and Product P17K. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products E16S and P17K.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	220,000	11,000	MHs
Machine setups	Number of setups	$	240,000	400	setups
Product design	Number of products	$	74,000	2	products
Order size	Direct labor-hours	$	270,000	10,000	DLHs

 

 

Activity Measure	Product E16S	Product P17K
Machine-hours	7,000	4,000
Number of setups	270	130
Number of products	1	1
Direct labor-hours	3,000	7,000

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product E16S is closest to:

52. A) 52.24%
53. B) 42.16%
54. C) 10.07%
55. D) 50.00%

 

 

 

Answer:  A

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	220,000	11,000	MHs	$	20	per MH
Machine setups	$	240,000	400	setups	$	600	per setup
Product design	$	74,000	2	products	$	37,000	per product
Order size	$	270,000	10,000	DLHs	$	27	per DLH
Total	$	804,000

 

 

The overhead cost charged to Product E16S under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity			ABC Cost
Machining	$	20	per MH	7,000		MHs			$		140,000
Machine setups	$	600	per setup	270		setups			$		162,000
Product design	$	37,000	per product	1		products			$		37,000
Order size	$	27	per DLH	3,000		DLHs			$		81,000
Total								$		420,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product E16S is computed as follows:

 

Manufacturing overhead cost assigned to Product E16S (a)	$	420,000
Total manufacturing overhead cost (b)	$	804,000
Percentage of total manufacturing overhead cost assigned to Product E16S (a) ÷ (b)		52.24	%

 

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

64) Fletes Corporation manufactures two products: Product O95C and Product M31N. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products O95C and M31N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	207,000		9,000	MHs
Machine setups	Number of setups	$	140,000		350	setups
Product design	Number of products	$	98,000		2	products
Order size	Direct labor-hours	$	340,000		10,000	DLHs

 

 

Activity Measure	Product O95C	Product M31N
Machine-hours	6,000	3,000
Number of setups	190	160
Number of products	1	1
Direct labor-hours	4,000	6,000

 

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product O95C?

1. A) $392,500
2. B) $136,000
3. C) $399,000
4. D) $263,000

 

 

 

Answer:  C

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	207,000	9,000	MHs		$	23	per MH
Machine setups	$	140,000	350	setups		$	400	per setup
Product design	$	98,000	2	products		$	49,000	per product
Order size	$	340,000	10,000	DLHs		$	34	per DLH

 

 

The overhead cost charged to Product O95C under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity		ABC Cost
Machining	$	23	per MH	6,000	MHs	$	138,000
Machine setups	$	400	per setup	190	setups	$	76,000
Product design	$	49,000	per product	1	products	$	49,000
Order size	$	34	per DLH	4,000	DLHs	$	136,000
Total						$	399,000

 

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

65) Annika Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There are three activity cost pools, with total cost and activity as follows:

 

 

			Total Activity
Activity Cost Pool	Total Cost		Product A	Product B	Total
Activity 1	$	18,000	700	300	1,000
Activity 2	$	24,000	500	100	600
Activity 3	$	60,000	800	400	1,200

 

The activity-based costing cost per unit of Product A is closest to:

20. A) $20.40
21. B) $10.00
22. C) $18.15
23. D) $17.00

 

Answer:  C

Explanation:  The activity rates for each activity cost pool are computed as follows:

 

	Total Cost		Total Activity		Activity Rate
Activity 1	$	18,000		1,000		$	18.00
Activity 2	$	24,000		600		$	40.00
Activity 3	$	60,000		1,200		$	50.00

 

 

The overhead cost charged to Product A is:

 

	Activity Rate		Activity		ABC Cost
Activity 1	$	18.00		700		12,600
Activity 2	$	40.00		500		20,000
Activity 3	$	50.00		800		40,000
Total cost						72,600

 

Cost per unit = $72,600 ÷ 4,000 units = $18.15 per unit

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

66) Cambra Corporation manufactures two products: Product N70E and Product F54Y. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products N70E and F54Y.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	171,000		9,000	MHs
Machine setups	Number of setups	$	150,000		250	setups
Product design	Number of products	$	78,000		2	products
Order size	Direct labor-hours	$	330,000		10,000	DLHs

 

 

Activity Measure	Product N70E	Product F54Y
Machine-hours	5,000	4,000
Number of setups	150	100
Number of products	1	1
Direct labor-hours	4,000	6,000

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product F54Y is closest to:

51. A) 51.17%
52. B) 27.16%
53. C) 50.00%
54. D) 24.01%

 

 

 

Answer:  A

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	171,000	9,000	MHs		$	19	per MH
Machine setups	$	150,000	250	setups		$	600	per setup
Product design	$	78,000	2	products		$	39,000	per product
Order size	$	330,000	10,000	DLHs		$	33	per DLH
Total	$	729,000

 

 

The overhead cost charged to Product F54Y under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity			ABC Cost
Machining	$	19	per MH	4,000		MHs			$		76,000
Machine setups	$	600	per setup	100		setups			$		60,000
Product design	$	39,000	per product	1		products			$		39,000
Order size	$	33	per DLH	6,000		DLHs			$		198,000
Total								$		373,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product F54Y is computed as follows:

 

Manufacturing overhead cost assigned to Product F54Y (a)	$	373,000
Total manufacturing overhead cost (b)	$	729,000
Percentage of total manufacturing overhead cost assigned to Product F54Y (a) ÷ (b)		51.17	%

 

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

67) Feldpausch Corporation has provided the following data from its activity-based costing system:

 

 

Activity Cost Pool	Total Cost		Total Activity
Assembly	$	1,137,360	84,000	machine-hours
Processing orders	$	28,479	1,100	orders
Inspection	$	97,155	1,270	inspection-hours

 

 

The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The product’s direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit.

 

According to the activity-based costing system, the product margin for product W26B is:

444. A) $6,444.70
445. B) $4,679.20
446. C) $3,384.70
447. D) $16,675.60

 

 

 

Answer:  C

Explanation:  The activity rates for each activity cost pool are computed as follows:

 

	Total Cost		Total Activity			Activity Rate
Assembly	$	1,137,360		84,000	machine-hours		$	13.54	per machine-hour
Processing orders	$	28,479		1,100	orders		$	25.89	per order
Inspection	$	97,155		1,270	inspection-hours		$	76.50	per inspection-hour

 

 

The overhead cost charged to Product W26B is:

 

	Activity Rate			Activity				ABC Cost
Assembly	$	13.54	per machine-hour		660		machine-hours		$		8,936.40
Processing orders	$	25.89	per order		50		Orders				1,294.50
Inspection	$	76.50	per inspection-hour		40		inspection-hours				3,060.00
Total overhead cost								$		13,290.90

 

Sales (470 units × $118.00 per unit)			$		55,460.00
Direct materials (470 units × $40.30 per unit)	$	18,941.00
Direct labor (470 units × $42.22 per unit)		19,843.40
Overhead		13,290.90			52,075.30
Product margin			$		3,384.70

 

 

Difficulty: 3 Hard

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

68) Houseal Corporation has provided the following data from its activity-based costing system:

 

 

Activity Cost Pool	Total Cost		Total Activity
Assembly	$	613,250		55,000	machine-hours
Processing orders	$	46,170		1,500	orders
Inspection	$	146,110		1,900	inspection-hours

 

 

Data concerning one of the company’s products, Product W58B, appear below:

 

Selling price per unit	$	113.70
Direct materials cost per unit	$	48.14
Direct labor cost per unit	$	11.62
Annual unit production and sales		360
Annual machine-hours		1,040
Annual orders		60
Annual inspection-hours		30

 

According to the activity-based costing system, the product margin for product W58B is:

668. A) $3,668.60
669. B) $5,975.60
670. C) $5,515.40
671. D) $19,418.40

 

 

 

Answer:  A

Explanation:  The activity rates for each activity cost pool are computed as follows:

 

	Total Cost		Total Activity			Activity Rate
Assembly	$	613,250		55,000	machine-hours		$	11.15	per machine-hour
Processing orders	$	46,170		1,500	orders		$	30.78	per order
Inspection	$	146,110		1,900	inspection-hours		$	76.90	per inspection-hour

 

 

 

The overhead cost charged to Product W58B is:

 

 

	Activity Rate			Activity					ABC Cost
Assembly	$	11.15	per machine-hour		1,040		machine-hours		$		11,596.00
Processing orders	$	30.78	per order		60		Orders				1,846.80
Inspection	$	76.90	per inspection-hour		30		inspection-hours				2,307.00
Total overhead cost								$		15,749.80

 

 

 

Sales (360 units × $113.70 per unit)			$	40,932.00
Direct materials (360 units × $48.14 per unit)	$	17,330.40
Direct labor (360 units × $11.62 per unit)		4,183.20
Overhead		15,749.80		37,263.40
Product margin			$	3,668.60

 

 

Difficulty: 3 Hard

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

69) Pilkerton Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	2.50	per DLH
Processing batches	Number of batches	$	101.80	per batch
Processing orders	Number of orders	$	72.05	per order
Serving customers	Number of customers	$	2,533.00	per customer

 

 

The cost of serving customers, $2,533.00 per customer, is the cost of serving a customer for one year.

 

Christoforou Corporation buys only one of the company’s products which Pilkerton Enterprises sells for $21.65 per unit. Last year Christoforou Corporation ordered a total of 1,300 units of this product in 3 orders. To fill the orders, 10 batches were required. The direct materials cost is $6.60 per unit and the direct labor cost is $2.75 per unit. Each unit requires 0.15 DLHs.

 

According to the ABC system, the total overhead cost for this customer this past year was closest to:

254. A) $4,254.65
255. B) $1,721.65
256. C) $12,155.00
257. D) $16,409.65

 

Answer:  A

Explanation:

Overhead Costs:
Supporting assembly ($2.50 per DLH × 0.15 DLHs per unit × 1,300 units)	$	487.50
Processing batches ($101.80 per batch × 10 batches)		1,018.00
Processing orders ($72.05 per order × 3 orders)		216.15
Servicing customers ($2,533.00 per customer × 1 customer)		2,533.00
Total overhead cost	$	4,254.65

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

70) Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

 

Activity Cost Pool	Activity Rate
Setting up batches	$	59.06	per batch
Processing customer orders	$	72.66	per customer order
Assembling products	$	3.75	per assembly hour

 

 

Data concerning two products appear below:

 

	Product K91B	Product F65O
Number of batches	84	50
Number of customer orders	32	43
Number of assembly hours	483	890

 

How much overhead cost would be assigned to Product K91B using the activity-based costing system?

97. A) $9,097.41
98. B) $81,146.53
99. C) $4,961.04
100. D) $135.47

 

Answer:  A

Explanation:  The overhead cost charged to Product K91B is:

 

 

	Activity Rate			Activity			ABC Cost
Setting up batches	$	59.06	per batch	84		batches		$		4,961.04
Processing customer orders	$	72.66	per customer order	32		orders				2,325.12
Assembling products	$	3.75	per assembly hour	483		hours				1,811.25
Total overhead cost							$		9,097.41

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

71) Bertsche Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.20	per DLH
Processing batches	Number of batches	$	103.80	per batch
Processing orders	Number of orders	$	98.65	per order
Serving customers	Number of customers	$	1,488.00	per customer

 

 

The cost of serving customers, $1,488.00 per customer, is the cost of serving a customer for one year.

 

Yousif Corporation buys only one of the company’s products which Bertsche Enterprises sells for $25.00 per unit. Last year Yousif Corporation ordered a total of 900 units of this product in 3 orders. To fill the orders, 11 batches were required. The direct materials cost is $8.20 per unit and the direct labor cost is $7.65 per unit. Each unit requires 0.40 DLHs.

 

According to the ABC system, the total cost of the activity “Supporting assembly” for this customer this past year was closest to:

880. A) $2,880.00
881. B) $1.28
882. C) $1,152.00
883. D) $360.00

 

Answer:  C

Explanation:  Supporting assembly = $3.20 per DLH × 0.40 DLHs per unit × 900 units = $1,152.00

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

72) Digerolamo Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.55	per DLH
Processing batches	Number of batches	$	189.35	per batch
Processing orders	Number of orders	$	59.35	per order
Serving customers	Number of customers	$	1,159.00	per customer

 

 

The cost of serving customers, $1,159.00 per customer, is the cost of serving a customer for one year.

 

Carlacci Corporation buys only one of the company’s products which Digerolamo Enterprises sells for $18.85 per unit. Last year Carlacci Corporation ordered a total of 1,500 units of this product in 4 orders. To fill the orders, 9 batches were required. The direct materials cost is $8.15 per unit and the direct labor cost is $2.60 per unit. Each unit requires 0.15 DLHs.

 

According to the ABC system, the total cost of the activity “Processing batches” for this customer this past year was closest to:

59. A) $59.35
60. B) $1,704.15
61. C) $1,763.50
62. D) $189.35

 

Answer:  B

Explanation:  Cost of processing batches = $189.35 per batch × 9 batches = $1,704.15

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

73) Leber Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	5.65	per DLH
Processing batches	Number of batches	$	180.00	per batch
Processing orders	Number of orders	$	68.55	per order
Serving customers	Number of customers	$	2,423.00	per customer

 

 

The cost of serving customers, $2,423.00 per customer, is the cost of serving a customer for one year. Solecki Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

Number of units purchased		900	units
Number of batches		4	batches
Number of orders		1	order
Direct labor-hour requirement		0.20	DLHs per unit
Selling price	$	30.00	per unit
Direct materials cost	$	6.65	per unit
Direct labor cost	$	3.85	per unit

 

 

According to the ABC system, the total overhead cost for this customer this past year was closest to:

805. A) $1,805.55
806. B) $4,228.55
807. C) $13,678.55
808. D) $9,450.00

 

 

 

Answer:  B

Explanation:

Overhead Costs:
Supporting assembly ($5.65 per DLH ×0.20 DLHs per unit×900 units)	$	1,017.00
Processing batches ($180.00 per batch×4 batches)		720.00
Processing orders ($68.55 per order×1order)		68.55
Servicing customers ($2,423.00 per customer× 1 customer)		2,423.00
Total overhead cost	$	4,228.55

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

74) Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

 

 

Activity Cost Pool	Activity Rate
Assembling products	$	8.90	per assembly hour
Processing customer orders	$	31.23	per customer order
Setting up batches	$	43.72	per batch

 

 

Data for one of the company’s products follow:

 

	Product U94W
Number of assembly hours	389
Number of customer orders	53
Number of batches	61

 

How much overhead cost would be assigned to Product U94W using the activity-based costing system?

176. A) $42,176.55
177. B) $83.85
178. C) $7,784.21
179. D) $2,666.92

 

Answer:  C

Explanation:  The overhead cost charged to Product U94W is:

 

	Activity Rate			Activity				ABC Cost
Assembling products	$	8.90	per assembly hour		389		hours		$		3,462.10
Processing customer orders	$	31.23	per customer order		53		orders				1,655.19
Setting up batches	$	43.72	per batch		61		batches				2,666.92
Total overhead cost								$		7,784.21

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

75) Larry Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	2.55	per DLH
Processing batches	Number of batches	$	138.35	per batch
Processing orders	Number of orders	$	77.00	per order
Serving customers	Number of customers	$	1,913.00	per customer

 

 

The cost of serving customers, $1,913.00 per customer, is the cost of serving a customer for one year. Prosonic Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

 

Number of units purchased		900	units
Number of batches		4	batches
Number of orders		1	order
Direct labor-hour requirement		0.10	DLHs per unit
Selling price	$	29.95	per unit
Direct materials cost	$	6.40	per unit
Direct labor cost	$	1.85	per unit

 

According to the ABC system, the total cost of the activity “Processing batches” for this customer this past year was closest to:

138. A) $138.35
139. B) $553.40
140. C) $77.00
141. D) $630.40

 

Answer:  B

Explanation:  Cost of processing batches = $138.35 per batch × 4 batches = $553.40

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

76) Mustafa Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	7.50	per DLH
Processing batches	Number of batches	$	111.65	per batch
Processing orders	Number of orders	$	86.00	per order
Serving customers	Number of customers	$	2,737.00	per customer

 

 

The cost of serving customers, $2,737.00 per customer, is the cost of serving a customer for one year. Dahle Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

 

Number of units purchased		800	units
Number of batches		16	batches
Number of orders		4	order
Direct labor-hour requirement		0.40	DLHs per unit
Selling price	$	24.25	per unit
Direct materials cost	$	7.45	per unit
Direct labor cost	$	7.85	per unit

 

According to the ABC system, the total cost of the activity “Supporting assembly” for this customer this past year was closest to:

1. A) $6,000.00
2. B) $3.00
3. C) $320.00
4. D) $2,400.00

 

Answer:  D

Explanation:  Supporting assembly = $7.50 per DLH × 0.40 DLHs per unit × 800 units = $2,400.00

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

77) Activity rates from Lippard Corporation’s activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products:

 

 

Activity Cost Pool	Activity Rate
Processing customer orders	$	31.62	per customer order
Assembling products	$	2.86	per assembly hour
Setting up batches	$	46.61	per batch

 

Last year, Product H50E involved 9 customer orders, 666 assembly hours, and 77 batches. How much overhead cost would be assigned to Product H50E using the activity-based costing system?

979. A) $60,979.68
980. B) $3,588.97
981. C) $5,778.31
982. D) $81.09

 

Answer:  C

Explanation:  The overhead cost charged to Product H50E is:

 

	Activity Rate			Activity				ABC Cost
Processing customer orders	$	31.62	per customer order	9		Orders		$		284.58
Assembling products	$	2.86	per assembly hour	666		hours				1,904.76
Setting up batches	$	46.61	per batch	77		batches				3,588.97
Total overhead cost							$		5,778.31

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

78) Cumberland Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	5.65	per DLH
Processing batches	Number of batches	$	146.65	per batch
Processing orders	Number of orders	$	80.05	per order
Serving customers	Number of customers	$	2,663.00	per customer

 

 

The cost of serving customers, $2,663.00 per customer, is the cost of serving a customer for one year.

 

Steckman Corporation buys only one of the company’s products which Cumberland Enterprises sells for $22.05 per unit. Last year Steckman Corporation ordered a total of 1,200 units of this product in 4 orders. To fill the orders, 8 batches were required. The direct materials cost is $7.65 per unit and the direct labor cost is $5.20 per unit. Each unit requires 0.30 DLHs.

 

According to the ABC system, the customer margin for this customer this past year was closest to:

269. A) $20,269.60
270. B) $4,849.60
271. C) $17,280.00
272. D) $11,040.00

 

 

 

Answer:  B

Explanation:   Customer Margin-ABC Analysis

 

Sales (1,200 units × $22.05 per unit)			$		26,460.00
Costs:
Direct materials ($7.65 per unit × 1,200 units)	$	9,180.00
Direct labor ($5.20 per unit × 1,200 units)		6,240.00
Supporting assembly ($5.65 per DLH × 0.30 DLHs per unit × 1,200 units)		2,034.00
Processing batches ($146.65 per batch × 8 batches)		1,173.20
Processing orders ($80.05 per order × 4 orders)		320.20
Servicing customers ($2,663.00 per customer × 1 customer)		2,663.00			21,610.40
Customer margin			$		4,849.60

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

79) Nourse Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.50	per DLH
Processing batches	Number of batches	$	114.05	per batch
Processing orders	Number of orders	$	66.95	per order
Serving customers	Number of customers	$	2,026.00	per customer

 

 

The cost of serving customers, $2,026.00 per customer, is the cost of serving a customer for one year. Koerner Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

 

Number of units purchased		900	units
Number of batches		13	batches
Number of orders		4	order
Direct labor-hour requirement		0.10	DLHs per unit
Selling price	$	25.75	per unit
Direct materials cost	$	7.95	per unit
Direct labor cost	$	1.50	per unit

 

According to the ABC system, the customer margin for this customer this past year was closest to:

670. A) $14,670.00
671. B) $10,578.55
672. C) $16,020.00
673. D) $19,083.55

 

 

 

Answer:  B

Explanation:  Customer Margin-ABC Analysis

 

Sales (900 units × $25.75 per unit)			$		23,175.00
Costs:
Direct materials ($7.95 per unit × 900 units)	$	7,155.00
Direct labor ($1.50 per unit × 900 units)		1,350.00
Supporting assembly ($3.50 per DLH × 0.10 DLHs per unit × 900 units)		315.00
Processing batches ($114.05 per batch × 13 batches)		1,482.65
Processing orders ($66.95 per order × 4 orders)		267.80
Servicing customers ($2,026 per customer × 1 customer)		2,026.00			12,596.45
Customer margin			$		10,578.55

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

80) Meli Corporation manufactures two products: Product L61P and Product B60E. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products L61P and B60E.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	280,000	14,000	MHs
Machine setups	Number of setups	$	225,000	450	setups
Product design	Number of products	$	84,000	2	products
Order size	Direct labor-hours	$	310,000	10,000	DLHs

 

 

Activity Measure	Product L61P	Product B60E
Machine-hours	6,000	8,000
Number of setups	290	160
Number of products	1	1
Direct labor-hours	7,000	3,000

 

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product L61P is closest to:

50. A) 50.00%
51. B) 31.37%
52. C) 10.34%
53. D) 70.00%

 

 

 

Answer:  D

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

Machining	$	280,000
Machine setups		225,000
Product design		84,000
Order size		310,000
Total estimated overhead cost (a)	$	899,000
Total expected direct labor-hours (b)		10,000	DLHs
Predetermined overhead rate (a) ÷ (b)	$	89.90	per DLH

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product L61P is computed as follows:

 

	Product L61P
Total direct labor hours (a)		7,000
Plantwide overhead rate per DLH (b)	$	89.90
Manufacturing overhead assigned (a) × (b)	$	629,300

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product L61P is computed as follows:

 

Manufacturing overhead cost assigned to Product L61P (a)	$	629,300
Total manufacturing overhead cost (b)	$	899,000
Percentage of total manufacturing overhead cost assigned to Product L61P (a) ÷ (b)		70.00	%

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

81) Meli Corporation manufactures two products: Product L61P and Product B60E. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products L61P and B60E.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	280,000	14,000	MHs
Machine setups	Number of setups	$	225,000	450	setups
Product design	Number of products	$	84,000	2	products
Order size	Direct labor-hours	$	310,000	10,000	DLHs

 

 

Activity Measure	Product L61P	Product B60E
Machine-hours	6,000	8,000
Number of setups	290	160
Number of products	1	1
Direct labor-hours	7,000	3,000

 

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product B60E is closest to:

31. A) 31.37%
32. B) 30.00%
33. C) 10.34%
34. D) 50.00%

 

 

 

Answer:  B

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

Machining	$	280,000
Machine setups		225,000
Product design		84,000
Order size		310,000
Total estimated overhead cost (a)	$	899,000
Total expected direct labor-hours (b)		10,000	DLHs
Predetermined overhead rate (a) ÷ (b)	$	89.90	per DLH

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product B60E is computed as follows:

 

	Product B60E
Total direct labor hours (a)		3,000
Plantwide overhead rate per DLH (b)	$	89.90
Manufacturing overhead assigned (a) × (b)	$	269,700

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product B60E is computed as follows:

 

 

Manufacturing overhead cost assigned to Product B60E (a)	$	269,700
Total manufacturing overhead cost (b)	$	899,000
Percentage of total manufacturing overhead cost assigned to Product B60E (a) ÷ (b)		30.00	%

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

82) Torello Corporation manufactures two products: Product H95V and Product V93N. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products H95V and V93N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	242,000	11,000	MHs
Machine setups	Number of setups	$	140,000	350	setups
Product design	Number of products	$	70,000	2	products
Order size	Direct labor-hours	$	270,000	10,000	DLHs

 

 

Activity Measure	Product H95V	Product V93N
Machine-hours	6,000	5,000
Number of setups	250	100
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

What is the company’s plantwide overhead rate?

180. A) $180.50 per DLH
181. B) $27.00 per DLH
182. C) $72.20 per DLH
183. D) $120.33 per DLH

 

Answer:  C

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

Machining	$	242,000
Machine setups		140,000
Product design		70,000
Order size		270,000
Total estimated overhead cost (a)	$	722,000
Total expected direct labor-hours (b)		10,000	DLHs
Predetermined overhead rate (a) ÷ (b)	$	72.20	per DLH

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

83) Torello Corporation manufactures two products: Product H95V and Product V93N. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products H95V and V93N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	242,000	11,000	MHs
Machine setups	Number of setups	$	140,000	350	setups
Product design	Number of products	$	70,000	2	products
Order size	Direct labor-hours	$	270,000	10,000	DLHs

 

 

Activity Measure	Product H95V	Product V93N
Machine-hours	6,000	5,000
Number of setups	250	100
Number of products	1	1
Direct labor-hours	6,000	4,000

 

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product H95V?

1. A) $361,000
2. B) $433,200
3. C) $288,800
4. D) $293,000

 

 

 

Answer:  B

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

Machining	$	242,000
Machine setups		140,000
Product design		70,000
Order size		270,000
Total estimated overhead cost (a)	$	722,000
Total expected direct labor-hours (b)		10,000	DLHs
Predetermined overhead rate (a) ÷ (b)	$	72.20	per DLH

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product H95V is computed as follows:

 

	Product H95V
Total direct labor hours (a)		6,000
Plantwide overhead rate per DLH (b)	$	72.20
Manufacturing overhead assigned (a) × (b)	$	433,200

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

84) Torello Corporation manufactures two products: Product H95V and Product V93N. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products H95V and V93N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	242,000	11,000	MHs
Machine setups	Number of setups	$	140,000	350	setups
Product design	Number of products	$	70,000	2	products
Order size	Direct labor-hours	$	270,000	10,000	DLHs

 

 

Activity Measure	Product H95V	Product V93N
Machine-hours	6,000	5,000
Number of setups	250	100
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product V93N?

1. A) $429,000
2. B) $433,200
3. C) $288,800
4. D) $361,000

 

 

 

Answer:  C

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

Machining	$	242,000
Machine setups		140,000
Product design		70,000
Order size		270,000
Total estimated overhead cost (a)	$	722,000
Total expected direct labor-hours (b)		10,000	DLHs
Predetermined overhead rate (a) ÷ (b)	$	72.20	per DLH

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product V93N is computed as follows:

 

	Product V93N
Total direct labor hours (a)		4,000
Plantwide overhead rate per DLH (b)	$	72.20
Manufacturing overhead assigned (a) × (b)	$	288,800

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

85) Tomasini Corporation has provided the following data from its activity-based costing accounting system:

 

Supervisory wages	$	660,000
Factory supplies	$	280,000

 

 

Distribution of Resource Consumption across Activity Cost Pools:

 

 

Activity Cost Pools	Batch Processing	Unit Processing	Other	Total
Supervisory wages	20%	70%	10%	100%
Factory supplies	45%	35%	20%	100%

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

How much supervisory wages and factory supplies cost would be assigned to the Batch Processing activity cost pool?

1. A) $940,000
2. B) $470,000
3. C) $305,500
4. D) $258,000

 

Answer:  D

Explanation:   Allocations to the Batch Processing activity cost pool:

 

 

Supervisory wages (20% × $660,000)	$	132,000
Factory supplies (45% × $280,000)		126,000
Total	$	258,000

 

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

86) Tomasini Corporation has provided the following data from its activity-based costing accounting system:

 

Supervisory wages	$	660,000
Factory supplies	$	280,000

 

 

Distribution of Resource Consumption across Activity Cost Pools:

 

 

Activity Cost Pools	Batch Processing	Unit Processing	Other	Total
Supervisory wages	20%	70%	10%	100%
Factory supplies	45%	35%	20%	100%

 

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

How much supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system?

1. A) $122,000
2. B) $660,000
3. C) $280,000
4. D) $0

 

Answer:  A

Explanation:   Allocations to the Other activity cost pool:

 

 

Supervisory wages (10% × $660,000)	$	66,000
Factory supplies (20% × $280,000)		56,000
Total	$	122,000

 

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

87) The following data have been provided by Letze Corporation from its activity-based costing accounting system:

 

 

Factory supervision	$	460,000
Indirect factory labor	$	220,000

 

 

Distribution of Resource Consumption across Activity Cost Pools:

 

 

Activity Cost Pools	Batch Set-Up	Expediting	Other	Total
Factory supervision	55%	35%	10%	100%
Indirect factory labor	60%	20%	20%	100%

 

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

How much factory supervision and indirect factory labor cost would be assigned to the Batch Set-Up activity cost pool?

1. A) $680,000
2. B) $385,000
3. C) $391,000
4. D) $340,000

 

Answer:  B

Explanation:   Allocations to the Batch Set-Up activity cost pool:

 

 

Factory supervision (55% × $460,000)	$	253,000
Indirect factory labor (60% × $220,000)		132,000
Total	$	385,000

 

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

88) The following data have been provided by Letze Corporation from its activity-based costing accounting system:

 

Factory supervision	$	460,000
Indirect factory labor	$	220,000

 

 

Distribution of Resource Consumption across Activity Cost Pools:

 

 

Activity Cost Pools	Batch Set-Up	Expediting	Other	Total
Factory supervision	55%	35%	10%	100%
Indirect factory labor	60%	20%	20%	100%

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

How much factory supervision and indirect factory labor cost would NOT be assigned to products using the activity-based costing system?

1. A) $220,000
2. B) $90,000
3. C) $0
4. D) $460,000

 

Answer:  B

Explanation:   Allocations to the Other activity cost pool:

 

 

Factory supervision (10% × $460,000)	$	46,000
Indirect factory labor (20% × $220,000)		44,000
Total	$	90,000

 

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

89) Weldon Corporation has provided the following data from its activity-based costing accounting system:

 

Indirect factory wages	$	340,000
Factory equipment depreciation	$	240,000

 

 

Distribution of Resource Consumption across Activity Cost Pools:

 

 

Activity Cost Pools	Customer Orders	Product Processing	Other	Total
Indirect factory wages	25%	65%	10%	100%
Factory equipment depreciation	40%	40%	20%	100%

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool?

1. A) $188,500
2. B) $181,000
3. C) $290,000
4. D) $580,000

 

Answer:  B

Explanation:  Allocations to the Customer Orders activity cost pool:

 

Indirect factory wages (25% × $340,000)	$	85,000
Factory equipment depreciation (40% × $240,000)		96,000
Total	$	181,000

 

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

90) Weldon Corporation has provided the following data from its activity-based costing accounting system:

 

Indirect factory wages	$	340,000
Factory equipment depreciation	$	240,000

 

 

Distribution of Resource Consumption across Activity Cost Pools:

 

 

Activity Cost Pools	Customer Orders	Product Processing	Other	Total
Indirect factory wages	25%	65%	10%	100%
Factory equipment depreciation	40%	40%	20%	100%

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system?

1. A) $340,000
2. B) $82,000
3. C) $0
4. D) $240,000

 

Answer:  B

Explanation:   Allocations to the Other activity cost pool:

 

 

Indirect factory wages (10% × $340,000)	$	34,000
Factory equipment depreciation (20% × $240,000)		48,000
Total	$	82,000

 

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

91) Immen Corporation manufactures two products: Product B82O and Product P99Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B82O and P99Y.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	300,000	500	setups
Product design	Number of products	$	46,000	2	products
Order size	Direct labor-hours	$	330,000	10,000	DLHs

 

 

Activity Measure	Product B82O	Product P99Y
Machine-hours	7,000	8,000
Number of setups	200	300
Number of products	1	1
Direct labor-hours	3,000	7,000

 

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product B82O?

1. A) $704,200
2. B) $301,800
3. C) $610,000
4. D) $503,000

 

 

 

Answer:  B

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

Machining	$	330,000
Machine setups		300,000
Product design		46,000
Order size		330,000
Total estimated overhead cost (a)	$	1,006,000
Total expected direct labor-hours (b)		10,000	DLHs
Predetermined overhead rate (a) ÷ (b)	$	100.60	per DLH

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product B82O is computed as follows:

 

	Product B82O
Total direct labor hours (a)		3,000
Plantwide overhead rate per DLH (b)	$	100.60
Manufacturing overhead assigned (a) × (b)	$	301,800

 

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

92) Immen Corporation manufactures two products: Product B82O and Product P99Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B82O and P99Y.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	300,000	500	setups
Product design	Number of products	$	46,000	2	products
Order size	Direct labor-hours	$	330,000	10,000	DLHs

 

 

Activity Measure	Product B82O	Product P99Y
Machine-hours	7,000	8,000
Number of setups	200	300
Number of products	1	1
Direct labor-hours	3,000	7,000

 

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P99Y?

1. A) $503,000
2. B) $704,200
3. C) $396,000
4. D) $301,800

 

 

 

Answer:  B

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

Machining	$	330,000
Machine setups		300,000
Product design		46,000
Order size		330,000
Total estimated overhead cost (a)	$	1,006,000
Total expected direct labor-hours (b)		10,000	DLHs
Predetermined overhead rate (a) ÷ (b)	$	100.60	per DLH

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product P99Y is computed as follows:

 

	Product P99Y
Total direct labor hours (a)		7,000
Plantwide overhead rate per DLH (b)	$	100.60
Manufacturing overhead assigned (a) × (b)	$	704,200

 

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

93) Immen Corporation manufactures two products: Product B82O and Product P99Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B82O and P99Y.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	300,000	500	setups
Product design	Number of products	$	46,000	2	products
Order size	Direct labor-hours	$	330,000	10,000	DLHs

 

 

Activity Measure	Product B82O	Product P99Y
Machine-hours	7,000	8,000
Number of setups	200	300
Number of products	1	1
Direct labor-hours	3,000	7,000

 

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product B82O?

1. A) $503,000
2. B) $297,000
3. C) $396,000
4. D) $99,000

 

 

 

Answer:  C

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	330,000	15,000	MHs		$	22	per MH
Machine setups	$	300,000	500	setups		$	600	per setup
Product design	$	46,000	2	products		$	23,000	per product
Order size	$	330,000	10,000	DLHs		$	33	per DLH

 

 

The overhead cost charged to Product B82O under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity				ABC Cost
Machining	$	22	per MH		7,000		MHs		$		154,000
Machine setups	$	600	per setup		200		setups		$		120,000
Product design	$	23,000	per product		1		products		$		23,000
Order size	$	33	per DLH		3,000		DLHs		$		99,000
Total								$		396,000

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

94) Immen Corporation manufactures two products: Product B82O and Product P99Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B82O and P99Y.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000		15,000	MHs
Machine setups	Number of setups	$	300,000		500	setups
Product design	Number of products	$	46,000		2	products
Order size	Direct labor-hours	$	330,000		10,000	DLHs

 

 

Activity Measure	Product B82O	Product P99Y
Machine-hours	7,000	8,000
Number of setups	200	300
Number of products	1	1
Direct labor-hours	3,000	7,000

 

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product P99Y?

1. A) $379,000
2. B) $610,000
3. C) $503,000
4. D) $231,000

 

 

 

Answer:  B

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	330,000	15,000	MHs		$	22	per MH
Machine setups	$	300,000	500	setups		$	600	per setup
Product design	$	46,000	2	products		$	23,000	per product
Order size	$	330,000	10,000	DLHs		$	33	per DLH

 

 

The overhead cost charged to Product P99Y under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity			ABC Cost
Machining	$	22	per MH	8,000		MHs			$		176,000
Machine setups	$	600	per setup	300		setups			$		180,000
Product design	$	23,000	per product	1		products			$		23,000
Order size	$	33	per DLH	7,000		DLHs			$		231,000
Total								$		610,000

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

95) Hails Corporation manufactures two products: Product Q21F and Product H44W. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Q21F and H44W.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	195,000	13,000	MHs
Machine setups	Number of setups	$	90,000	150	setups
Product design	Number of products	$	64,000	2	products
Order size	Direct labor-hours	$	280,000	10,000	DLHs

 

 

Activity Measure	Product Q21F	Product H44W
Machine-hours	9,000	4,000
Number of setups	80	70
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product Q21F is closest to:

21. A) 21.30%
22. B) 17.81%
23. C) 50.00%
24. D) 60.00%

 

 

 

Answer:  D

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product Q21F is computed as follows:

	Product Q21F
Total direct labor hours (a)		6,000
Plantwide overhead rate per DLH (b)	$	62.90
Manufacturing overhead assigned (a) × (b)	$	377,400

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product Q21F is computed as follows:

Manufacturing overhead cost assigned to Product Q21F (a)	$	377,400
Total manufacturing overhead cost (b)	$	629,000
Percentage of total manufacturing overhead cost assigned to Product Q21F (a) ÷ (b)		60.00	%

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

96) Hails Corporation manufactures two products: Product Q21F and Product H44W. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Q21F and H44W.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	195,000		13,000	MHs
Machine setups	Number of setups	$	90,000		150	setups
Product design	Number of products	$	64,000		2	products
Order size	Direct labor-hours	$	280,000		10,000	DLHs

 

 

Activity Measure	Product Q21F	Product H44W
Machine-hours	9,000	4,000
Number of setups	80	70
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product H44W is closest to:

40. A) 40.00%
41. B) 50.00%
42. C) 17.81%
43. D) 21.30%

 

 

 

Answer:  A

Explanation:  The company’s plantwide overhead rate is computed as follows:

 

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product H44W is computed as follows:

 

	Product H44W
Total direct labor hours (a)		4,000
Plantwide overhead rate per DLH (b)	$	62.90
Manufacturing overhead assigned (a) × (b)	$	251,600

 

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product H44W is computed as follows:

Manufacturing overhead cost assigned to Product H44W (a)	$	251,600
Total manufacturing overhead cost (b)	$	629,000
Percentage of total manufacturing overhead cost assigned to Product H44W (a) ÷ (b)		40.00	%

 

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

97) Hails Corporation manufactures two products: Product Q21F and Product H44W. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Q21F and H44W.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	195,000		13,000	MHs
Machine setups	Number of setups	$	90,000		150	setups
Product design	Number of products	$	64,000		2	products
Order size	Direct labor-hours	$	280,000		10,000	DLHs

 

 

Activity Measure	Product Q21F	Product H44W
Machine-hours	9,000	4,000
Number of setups	80	70
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product Q21F is closest to:

26. A) 26.71%
27. B) 50.00%
28. C) 34.18%
29. D) 60.89%

 

 

 

Answer:  D

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	195,000	13,000	MHs		$	15	per MH
Machine setups	$	90,000	150	setups		$	600	per setup
Product design	$	64,000	2	products		$	32,000	per product
Order size	$	280,000	10,000	DLHs		$	28	per DLH
Total	$	629,000

 

 

The overhead cost charged to Product Q21 Funder the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity				ABC Cost
Machining	$	15	per MH		9,000		MHs		$		135,000
Machine setups	$	600	per setup		80		setups		$		48,000
Product design	$	32,000	per product		1		products		$		32,000
Order size	$	28	per DLH		6,000		DLHs		$		168,000
Total								$		383,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product Q21F is computed as follows:

 

Manufacturing overhead cost assigned to Product Q21F (a)	$	383,000
Total manufacturing overhead cost (b)	$	629,000
Percentage of total manufacturing overhead cost assigned to Product Q21F (a) ÷ (b)		60.89	%

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

98) Hails Corporation manufactures two products: Product Q21F and Product H44W. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Q21F and H44W.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	195,000		13,000	MHs
Machine setups	Number of setups	$	90,000		150	setups
Product design	Number of products	$	64,000		2	products
Order size	Direct labor-hours	$	280,000		10,000	DLHs

 

 

Activity Measure	Product Q21F	Product H44W
Machine-hours	9,000	4,000
Number of setups	80	70
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product H44W is closest to:

39. A) 39.11%
40. B) 21.30%
41. C) 50.00%
42. D) 17.81%

 

 

 

Answer:  A

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	195,000	13,000	MHs		$	15	per MH
Machine setups	$	90,000	150	setups		$	600	per setup
Product design	$	64,000	2	products		$	32,000	per product
Order size	$	280,000	10,000	DLHs		$	28	per DLH
Total	$	629,000

 

 

 

The overhead cost charged to ProductH44W under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity			ABC Cost
Machining	$	15	per MH	4,000		MHs			$		60,000
Machine setups	$	600	per setup	70		setups			$		42,000
Product design	$	32,000	per product	1		products			$		32,000
Order size	$	28	per DLH	4,000		DLHs			$		112,000
Total								$		246,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product H44W is computed as follows:

 

Manufacturing overhead cost assigned to Product H44W (a)	$	246,000
Total manufacturing overhead cost (b)	$	629,000
Percentage of total manufacturing overhead cost assigned to Product H44W (a) ÷ (b)		39.11	%

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

99) Diehl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

 

Costs:
Manufacturing overhead	$	480,000
Selling and administrative expenses		100,000
Total	$	580,000

 

 

Distribution of resource consumption:

 

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

 

You have been asked to complete the first-stage allocation of costs to the activity cost pools.

 

How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool?

1. A) $348,000
2. B) $188,500
3. C) $29,000
4. D) $84,000

 

Answer:  D

Explanation:  Allocations to the Order size activity cost pool:

Manufacturing overhead (5% × $480,000)	$	24,000
Selling and administrative expenses (60% × $100,000)		60,000
Total	$	84,000

 

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

100) Diehl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

 

Costs:
Manufacturing overhead	$	480,000
Selling and administrative expenses		100,000
Total	$	580,000

 

 

Distribution of resource consumption:

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

 

You have been asked to complete the first-stage allocation of costs to the activity cost pools.

 

How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool?

1. A) $304,500
2. B) $493,000
3. C) $116,000
4. D) $428,000

 

Answer:  D

Explanation:  Allocations to the Customer Support activity cost pool:

Manufacturing overhead (85% × $480,000)	$	408,000
Selling and administrative expenses (20% × $100,000)		20,000
Total	$	428,000

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

101) Diehl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

 

Costs:
Manufacturing overhead	$	480,000
Selling and administrative expenses		100,000
Total	$	580,000

 

 

Distribution of resource consumption:

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

 

You have been asked to complete the first-stage allocation of costs to the activity cost pools.

 

How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision-making?

1. A) $68,000
2. B) $0
3. C) $116,000
4. D) $58,000

 

Answer:  A

Explanation:  Allocations to the Other activity cost pool:

Manufacturing overhead (10% × $480,000)	$	48,000
Selling and administrative expenses (20% × $100,000)		20,000
Total	$	68,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

102) Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity-based costing system:

 

Overhead costs:
Wages and salaries	$	70,000
Other expenses		50,000
Total	$	120,000

 

 

Distribution of resource consumption:

 

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

 

The amount of activity for the year is as follows:

 

 

Activity Cost Pool	Activity
Making bouquets	40,000	bouquets
Delivery	1,000	deliveries

 

 

What would be the total overhead cost per bouquet according to the activity-based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round to the nearest whole cent.)

1. A) $1.79
2. B) $1.73
3. C) $2.10
4. D) $1.35

 

 

 

Answer:  A

Explanation:  Allocations to the Making Bouquets activity cost pool:

Wages and salaries (70% × $70,000)	$	49,000
Other expenses (45% × $50,000)		22,500
Total cost	$	71,500

 

 

Overhead cost per bouquet = Total cost ÷ Number of bouquets

 

= $71,500 ÷ 40,000 bouquets = $1.79 per bouquet

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

103) Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity-based costing system:

 

Overhead costs:
Wages and salaries	$	70,000
Other expenses		50,000
Total	$	120,000

 

 

Distribution of resource consumption:

 

 

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

 

The amount of activity for the year is as follows:

 

Activity Cost Pool	Activity
Making bouquets	40,000	bouquets
Delivery	1,000	deliveries

 

 

What would be the total overhead cost per delivery according to the activity-based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round to the nearest whole cent.)

27. A) $27.00
28. B) $26.50
29. C) $30.00
30. D) $24.00

 

 

 

Answer:  B

Explanation:  Allocations to the Delivery activity cost pool:

Wages and salaries (20% × $70,000)	$	14,000
Other expenses (25% × $50,000)		12,500
Total cost	$	26,500

 

 

Overhead cost per delivery = Total cost ÷ Number of deliveries

 

= $26,500 ÷ 1,000 deliveries = $26.50 per delivery

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

104) Lysiak Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs–equipment depreciation and supervisory expense-are allocated to three activity cost pools–Machining, Order Filling, and Other–based on resource consumption. Data to perform these allocations appear below:

 

Overhead costs:
Equipment depreciation	$	47,000
Supervisory expense	$	6,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.60	0.10	0.30
Supervisory expense	0.60	0.20	0.20

 

 

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product C9	6,900	200
Product U0	3,100	800
Total	10,000	1,000

 

How much overhead cost is allocated to the Machining activity cost pool under activity-based costing in the first stage of allocation?

1. A) $31,800
2. B) $3,600
3. C) $15,300
4. D) $28,200

 

 

 

Answer:  A

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: $47,000 × 0.60 = $28,200.

 

 

	Activity Cost Pools
	Machining		Order Filling
Equipment depreciation	$	28,200	$	4,700
Supervisory expense		3,600		1,200
Total	$	31,800	$	5,900

 

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

105) Lysiak Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs–equipment depreciation and supervisory expense-are allocated to three activity cost pools–Machining, Order Filling, and Other–based on resource consumption. Data to perform these allocations appear below:

 

Overhead costs:
Equipment depreciation	$	47,000
Supervisory expense	$	6,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.60	0.10	0.30
Supervisory expense	0.60	0.20	0.20

 

 

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product C9	6,900	200
Product U0	3,100	800
Total	10,000	1,000

 

The activity rate for the Machining activity cost pool under activity-based costing is closest to:

18. A) $18.00 per MH
19. B) $5.30 per MH
20. C) $2.82 per MH
21. D) $3.18 per MH

 

Answer:  D

Explanation:  Machining: $31,800 ÷ 10,000 MHs = $3.18 per MH

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

106) Lysiak Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs–equipment depreciation and supervisory expense-are allocated to three activity cost pools–Machining, Order Filling, and Other–based on resource consumption. Data to perform these allocations appear below:

 

Overhead costs:
Equipment depreciation	$	47,000
Supervisory expense	$	6,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.60	0.10	0.30
Supervisory expense	0.60	0.20	0.20

 

 

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product C9	6,900	200
Product U0	3,100	800
Total	10,000	1,000

 

What is the overhead cost assigned to Product C9 under activity-based costing?

1. A) $26,500
2. B) $21,942
3. C) $1,180
4. D) $23,122

 

 

 

Answer:  D

Explanation:  Assign overhead costs to products:

 

Machining: $31,800 ÷ 10,000 MHs = $3.18 per MH

 

Order Filling: $5,900 ÷ 1,000 orders = $5.90 per order

 

 

Overhead cost for Product C9:

Machining $3.18 per MH × 6,900 MHs	$	21,942
Order Filling $5.90 per order × 200 orders		1,180
Total	$	23,122

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

107) Meester Corporation has an activity-based costing system with three activity cost pools–Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

Overhead costs:
Equipment depreciation	$	96,000
Supervisory expense	$	8,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.30	0.10	0.60
Supervisory expense	0.60	0.10	0.30

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product M0	4,500	400
Product H2	5,500	600
Total	10,000	1,000

 

How much overhead cost is allocated to the Order Filling activity cost pool under activity-based costing?

1. A) $60,000
2. B) $800
3. C) $10,400
4. D) $9,600

 

 

 

Answer:  C

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the second entry in the table is computed as follows: $96,000 × 0.30 = $9,600.

 

 

	Activity Cost Pools
	Machining		Order Filling
Equipment depreciation	$	28,800		$	9,600
Supervisory expense		4,800			800
Total	$	33,600		$	10,400

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

108) Meester Corporation has an activity-based costing system with three activity cost pools–Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

Overhead costs:
Equipment depreciation	$	96,000
Supervisory expense	$	8,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.30	0.10	0.60
Supervisory expense	0.60	0.10	0.30

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Machining)	Orders (Order Filling)
Product M0	4,500	400
Product H2	5,500	600
Total	10,000	1,000

 

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

8. A) $8.00 per order
9. B) $13.33 per order
10. C) $10.40 per order
11. D) $104.00 per order

 

Answer:  C

Explanation:  Order Filling: $10,400 ÷ 1,000 orders = $10.40 per order

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

109) Meester Corporation has an activity-based costing system with three activity cost pools–Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment depreciation	$	96,000
Supervisory expense	$	8,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.30	0.10	0.60
Supervisory expense	0.60	0.10	0.30

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product M0	4,500	400
Product H2	5,500	600
Total	10,000	1,000

 

What is the overhead cost assigned to Product H2 under activity-based costing?

1. A) $24,720
2. B) $6,240
3. C) $18,480
4. D) $52,000

 

 

 

Answer:  A

Explanation:  Machining: $33,600 ÷ 10,000 MHs = $3.36 per MH

 

Order Filling: $10,400 ÷ 1,000 orders = $10.40 per order

 

Overhead cost for Product H2:

 

Machining $3.36 per MH × 5,500 MHs	$	18,480
Order Filling $10.40 per order × 600 orders		6,240
Total	$	24,720

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

110) Bartow Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs–equipment expense and indirect labor–are allocated to the three activity cost pools–Processing, Supervising, and Other–based on resource consumption. Data to perform these allocations appear below:

 

 

Overhead costs:
Equipment expense	$	29,000
Indirect labor	$	8,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.20	0.60	0.20
Indirect labor	0.50	0.30	0.20

 

 

In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

	MHs (Processing)	Batches (Supervising)
Product H3	6,700	700
Product O5	3,300	1,300
Total	10,000	2,000

 

How much overhead cost is allocated to the Processing activity cost pool under activity-based costing in the first stage of allocation?

1. A) $5,800
2. B) $9,800
3. C) $4,000
4. D) $7,400

 

 

 

Answer:  B

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: $29,000 × 0.20 = $5,800.

 

 

	Activity Cost Pools
	Processing		Supervising
Equipment expense	$	5,800	$	17,400
Indirect labor		4,000		2,400
Total	$	9,800	$	19,800

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

111) Bartow Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs–equipment expense and indirect labor–are allocated to the three activity cost pools–Processing, Supervising, and Other–based on resource consumption. Data to perform these allocations appear below:

 

 

Overhead costs:
Equipment expense	$	29,000
Indirect labor	$	8,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.20	0.60	0.20
Indirect labor	0.50	0.30	0.20

 

 

In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

Activity:

	MHs (Processing)	Batches (Supervising)
Product H3	6,700	700
Product O5	3,300	1,300
Total	10,000	2,000

 

The activity rate for the Processing activity cost pool under activity-based costing is closest to:

3. A) $3.70 per MH
4. B) $5.71 per MH
5. C) $0.98 per MH
6. D) $0.58 per MH

 

Answer:  C

Explanation:  Processing: $9,800 ÷ 10,000 MHs = $0.98 per MH

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

112) Bartow Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs–equipment expense and indirect labor–are allocated to the three activity cost pools–Processing, Supervising, and Other–based on resource consumption. Data to perform these allocations appear below:

 

Overhead costs:
Equipment expense	$	29,000
Indirect labor	$	8,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.20	0.60	0.20
Indirect labor	0.50	0.30	0.20

 

 

In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

Activity:

	MHs (Processing)	Batches (Supervising)
Product H3	6,700	700
Product O5	3,300	1,300
Total	10,000	2,000

 

 

 

What is the overhead cost assigned to Product H3 under activity-based costing?

1. A) $6,930
2. B) $13,496
3. C) $18,500
4. D) $6,566

 

 

 

Answer:  B

Explanation:  Assign overhead costs to products:

 

Processing: $9,800 ÷ 10,000 MHs = $0.98 per MH

 

Supervising: $19,800 ÷ 2,000 batches = $9.90 per batch

 

Overhead cost for Product H3:

 

 

Processing $0.98 per MH × 6,700 MHs	$	6,566
Supervising $9.90 per batch × 700 batches		6,930
Total	$	13,496

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

113) Deemer Corporation has an activity-based costing system with three activity cost pools–Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	6,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.60	0.20	0.20
Indirect labor	0.40	0.20	0.40

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

	MHs (Processing)	Batches (Supervising)
Product F6	1,000	600
Product X0	9,000	400
Total	10,000	1,000

 

How much overhead cost is allocated to the Supervising activity cost pool under activity-based costing?

1. A) $15,800
2. B) $1,200
3. C) $17,000
4. D) $14,600

 

 

 

Answer:  A

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the second entry in the table is computed as follows: $73,000 × 0.60 = $14,600.

 

 

	Activity Cost Pools
	Processing		Supervising
Equipment expense	$	43,800		$	14,600
Indirect labor		2,400			1,200
Total	$	46,200		$	15,800

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

114) Deemer Corporation has an activity-based costing system with three activity cost pools–Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	6,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.60	0.20	0.20
Indirect labor	0.40	0.20	0.40

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Processing)	Batches (Supervising)
Product F6	1,000	600
Product X0	9,000	400
Total	10,000	1,000

 

The activity rate for the Supervising activity cost pool under activity-based costing is closest to:

15. A) $15.00 per batch
16. B) $79.00 per batch
17. C) $15.80 per batch
18. D) $6.00 per batch

 

Answer:  C

Explanation:  Supervising: $15,800 ÷ 1,000 batches = $15.80 per batch

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

115) Deemer Corporation has an activity-based costing system with three activity cost pools–Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	6,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.60	0.20	0.20
Indirect labor	0.40	0.20	0.40

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Processing)	Batches (Supervising)
Product F6	1,000	600
Product X0	9,000	400
Total	10,000	1,000

 

What is the overhead cost assigned to Product X0 under activity-based costing?

1. A) $41,580
2. B) $39,500
3. C) $47,900
4. D) $6,320

 

 

 

Answer:  C

Explanation:  Processing: $46,200 ÷ 10,000 MHs = $4.62 per MH

 

Supervising: $15,800 ÷ 1,000 batches = $15.80 per batch

 

Overhead cost for Product X0:

 

Processing $4.62 per MH × 9,000 MHs	$	41,580
Supervising $15.80 per batch × 400 batches		6,320
Total	$	47,900

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

116) Goertz Corporation has an activity-based costing system with three activity cost pools–Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment depreciation	$	51,000
Supervisory expense	$	3,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.40	0.10	0.50
Supervisory expense	0.20	0.30	0.50

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product J3	9,100	100
Product F7	900	900
Total	10,000	1,000

 

 

Finally, the costs of Machining and Order Filling are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product J3		Product F7
Sales (total)	$	145,200	$	90,700
Direct materials (total)	$	81,400	$	38,600
Direct labor (total)	$	37,700	$	42,400

 

 

 

 

How much overhead cost is allocated to the Order Filling activity cost pool under activity-based costing?

1. A) $5,100
2. B) $900
3. C) $27,000
4. D) $6,000

 

Answer:  D

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: $51,000 × 0.40 = $20,400.

 

 

	Activity Cost Pools
	Machining		Order Filling
Equipment depreciation	$	20,400	$	5,100
Supervisory expense		600		900
Total	$	21,000	$	6,000

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

117) Goertz Corporation has an activity-based costing system with three activity cost pools–Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment depreciation	$	51,000
Supervisory expense	$	3,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.40	0.10	0.50
Supervisory expense	0.20	0.30	0.50

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Machining)	Orders (Order Filling)
Product J3	9,100	100
Product F7	900	900
Total	10,000	1,000

 

 

Finally, the costs of Machining and Order Filling are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product J3		Product F7
Sales (total)	$	145,200	$	90,700
Direct materials (total)	$	81,400	$	38,600
Direct labor (total)	$	37,700	$	42,400

 

 

 

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

3. A) $3.33 per order
4. B) $3.00 per order
5. C) $54.00 per order
6. D) $6.00 per order

 

Answer:  D

Explanation:  Order Filling: $6,000 ÷ 1,000 orders = $6.00 per order

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

118) Goertz Corporation has an activity-based costing system with three activity cost pools–Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment depreciation	$	51,000
Supervisory expense	$	3,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.40	0.10	0.50
Supervisory expense	0.20	0.30	0.50

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product J3	9,100	100
Product F7	900	900
Total	10,000	1,000

 

 

Finally, the costs of Machining and Order Filling are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product J3		Product F7
Sales (total)	$	145,200	$	90,700
Direct materials (total)	$	81,400	$	38,600
Direct labor (total)	$	37,700	$	42,400

 

 

 

 

What is the overhead cost assigned to Product F7 under activity-based costing?

1. A) $5,400
2. B) $1,890
3. C) $27,000
4. D) $7,290

 

Answer:  D

Explanation:  Machining: $21,000 ÷ 10,000 MHs = $2.10 per MH

 

Order Filling: $6,000 ÷ 1,000 orders = $6.00 per order

 

Overhead cost for Product F7:

 

Machining $2.10 per MH × 900 MHs	$	1,890
Order Filling $6.00 per order × 900 orders		5,400
Total	$	7,290

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

119) Goertz Corporation has an activity-based costing system with three activity cost pools–Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment depreciation	$	51,000
Supervisory expense	$	3,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.40	0.10	0.50
Supervisory expense	0.20	0.30	0.50

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Machining)	Orders (Order Filling)
Product J3	9,100	100
Product F7	900	900
Total	10,000	1,000

 

 

Finally, the costs of Machining and Order Filling are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product J3		Product F7
Sales (total)	$	145,200	$	90,700
Direct materials (total)	$	81,400	$	38,600
Direct labor (total)	$	37,700	$	42,400

 

 

 

 

What is the product margin for Product F7 under activity-based costing?

1. A) $2,410
2. B) $2,710
3. C) $10,600
4. D) $9,700

 

Answer:  A

Explanation:

Sales			$		90,700
Direct materials	$	38,600
Direct labor		42,400
Machining		1,890
Order filling		5,400			88,290
Product margin			$		2,410

 

 

Difficulty: 2 Medium

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

120) Addleman Corporation has an activity-based costing system with three activity cost pools–Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	1,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.20	0.10	0.70
Indirect labor	0.20	0.20	0.60

 

 

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Processing)	Batches (Supervising)
Product W3	7,600	100
Product H3	2,400	900
Total	10,000	1,000

 

 

Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product W3		Product H3
Sales (total)	$	159,500	$	154,100
Direct materials (total)	$	66,300	$	55,300
Direct labor (total)	$	77,800	$	84,100

 

 

How much overhead cost is allocated to the Supervising activity cost pool under activity-based costing?

1. A) $7,300
2. B) $51,700
3. C) $7,500
4. D) $200

 

 

 

Answer:  C

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the second entry in the table is computed as follows: $73,000 × 0.10 = $7,300.

 

 

	Activity Cost Pools
	Processing		Supervising
Equipment expense	$	14,600		$	7,300
Indirect labor		200			200
Total	$	14,800		$	7,500

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

121) Addleman Corporation has an activity-based costing system with three activity cost pools–Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	1,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.20	0.10	0.70
Indirect labor	0.20	0.20	0.60

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Processing)	Batches (Supervising)
Product W3	7,600	100
Product H3	2,400	900
Total	10,000	1,000

 

 

Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product W3		Product H3
Sales (total)	$	159,500	$	154,100
Direct materials (total)	$	66,300	$	55,300
Direct labor (total)	$	77,800	$	84,100

 

 

The activity rate for the Supervising activity cost pool under activity-based costing is closest to:

1. A) $1.00 per batch
2. B) $1.11 per batch
3. C) $7.50 per batch
4. D) $74.00 per batch

 

Answer:  C

Explanation:  Supervising: $7,500 ÷ 1,000 batches = $7.50 per batch

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

122) Addleman Corporation has an activity-based costing system with three activity cost pools–Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	1,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.20	0.10	0.70
Indirect labor	0.20	0.20	0.60

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Processing)	Batches (Supervising)
Product W3	7,600	100
Product H3	2,400	900
Total	10,000	1,000

 

 

Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product W3		Product H3
Sales (total)	$	159,500	$	154,100
Direct materials (total)	$	66,300	$	55,300
Direct labor (total)	$	77,800	$	84,100

 

 

 

What is the overhead cost assigned to Product H3 under activity-based costing?

1. A) $10,302
2. B) $3,552
3. C) $37,000
4. D) $6,750

 

Answer:  A

Explanation:  Processing: $14,800 ÷ 10,000 MHs = $1.48 per MH

 

Supervising: $7,500 ÷ 1,000 batches = $7.50 per batch

 

Overhead cost for Product H3:

 

 

Processing $1.48 per MH × 2,400 MHs	$	3,552
Supervising $7.50 per batch × 900 batches		6,750
Total	$	10,302

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

123) Addleman Corporation has an activity-based costing system with three activity cost pools–Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

 

 

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	1,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.20	0.10	0.70
Indirect labor	0.20	0.20	0.60

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Processing)	Batches (Supervising)
Product W3	7,600	100
Product H3	2,400	900
Total	10,000	1,000

 

 

Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product W3		Product H3
Sales (total)	$	159,500	$	154,100
Direct materials (total)	$	66,300	$	55,300
Direct labor (total)	$	77,800	$	84,100

 

 

 

What is the product margin for Product H3 under activity-based costing?

1. A) $10,548
2. B) $4,398
3. C) $14,700
4. D) $36,300

 

Answer:  B

Explanation:

Sales			$		154,100
Direct materials	$	55,300
Direct labor		84,100
Processing		3,552
Supervising		6,750			149,702
Product margin			$		4,398

 

 

Difficulty: 2 Medium

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

124) Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment depreciation and supervisory expense–to three activity cost pools–Machining, Order Filling, and Other–based on resource consumption. Data to perform these allocations appear below:

 

 

Overhead costs:
Equipment depreciation	$	92,000
Supervisory expense	$	4,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.60	0.20	0.20
Supervisory expense	0.30	0.20	0.50

 

 

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.

 

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product W1	4,200	800
Product M0	15,800	200
Total	20,000	1,000

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product W1		Product M0
Sales (total)	$	236,500	$	262,000
Direct materials (total)	$	90,900	$	123,900
Direct labor (total)	$	110,400	$	76,100

 

 

 

 

How much overhead cost is allocated to the Machining activity cost pool under activity-based costing in the first stage of allocation?

1. A) $56,400
2. B) $20,400
3. C) $55,200
4. D) $1,200

 

Answer:  A

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: $92,000 × 0.60 = $55,200.

 

 

	Activity Cost Pools
	Machining		Order Filling
Equipment depreciation	$	55,200		$	18,400
Supervisory expense		1,200			800
Total	$	56,400		$	19,200

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

125) Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment depreciation and supervisory expense–to three activity cost pools–Machining, Order Filling, and Other–based on resource consumption. Data to perform these allocations appear below:

 

 

Overhead costs:
Equipment depreciation	$	92,000
Supervisory expense	$	4,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.60	0.20	0.20
Supervisory expense	0.30	0.20	0.50

 

 

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.

 

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product W1	4,200	800
Product M0	15,800	200
Total	20,000	1,000

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

Sales and Direct Cost Data:

	Product W1		Product M0
Sales (total)	$	236,500	$	262,000
Direct materials (total)	$	90,900	$	123,900
Direct labor (total)	$	110,400	$	76,100

 

 

 

 

 

The activity rate for the Machining activity cost pool under activity-based costing is closest to:

1. A) $1.50 per MH
2. B) $2.82 per MH
3. C) $4.80 per MH
4. D) $2.76 per MH

 

Answer:  B

Explanation:  Machining: $56,400 ÷ 20,000 MHs = $2.82 per MH

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

126) Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment depreciation and supervisory expense–to three activity cost pools–Machining, Order Filling, and Other–based on resource consumption. Data to perform these allocations appear below:

 

Overhead costs:
Equipment depreciation	$	92,000
Supervisory expense	$	4,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.60	0.20	0.20
Supervisory expense	0.30	0.20	0.50

 

 

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.

 

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product W1	4,200	800
Product M0	15,800	200
Total	20,000	1,000

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

Sales and Direct Cost Data:

	Product W1		Product M0
Sales (total)	$	236,500	$	262,000
Direct materials (total)	$	90,900	$	123,900
Direct labor (total)	$	110,400	$	76,100

 

 

 

 

 

 

What is the overhead cost assigned to Product W1 under activity-based costing?

1. A) $15,360
2. B) $48,000
3. C) $27,204
4. D) $11,844

 

Answer:  C

Explanation:  Assign overhead costs to products:

 

Machining: $56,400 ÷ 20,000 MHs = $2.82 per MH

 

Order Filling: $19,200 ÷ 1,000 orders = $19.20 per order

 

Overhead cost for Product W1:

 

 

Machining $2.82 per MH × 4,200 MHs	$	11,844
Order Filling $19.20 per order × 800 orders		15,360
Total	$	27,204

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

127) Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment depreciation and supervisory expense–to three activity cost pools–Machining, Order Filling, and Other–based on resource consumption. Data to perform these allocations appear below:

 

Overhead costs:
Equipment depreciation	$	92,000
Supervisory expense	$	4,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.60	0.20	0.20
Supervisory expense	0.30	0.20	0.50

 

 

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.

 

 

Activity:

	MHs (Machining)	Orders (Order Filling)
Product W1	4,200	800
Product M0	15,800	200
Total	20,000	1,000

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

Sales and Direct Cost Data:

	Product W1		Product M0
Sales (total)	$	236,500	$	262,000
Direct materials (total)	$	90,900	$	123,900
Direct labor (total)	$	110,400	$	76,100

 

 

 

 

What is the product margin for Product W1 under activity-based costing?

1. A) $7,996
2. B) $23,356
3. C) -$12,800
4. D) $35,200

 

Answer:  A

Explanation:

Sales			$	236,500
Direct materials	$	90,900
Direct labor		110,400
Machining		11,844
Order filling		15,360		228,504
Product margin			$	7,996

 

 

Difficulty: 2 Medium

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

128) Scheuer Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment expense and indirect labor–to three activity cost pools–Processing, Supervising, and Other–based on resource consumption. Data to perform these allocations appear below:

 

Overhead costs:
Equipment expense	$	55,000
Indirect labor	$	7,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.10	0.70	0.20
Indirect labor	0.50	0.10	0.40

 

 

In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

	MHs (Processing)	Batches (Supervising)
Product Q1	1,000	700
Product S6	19,000	1,300
Total	20,000	2,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product Q1		Product S6
Sales (total)	$	134,600	$	186,300
Direct materials (total)	$	76,000	$	64,800
Direct labor (total)	$	40,800	$	78,400

 

 

 

 

How much overhead cost is allocated to the Processing activity cost pool under activity-based costing in the first stage of allocation?

1. A) $3,500
2. B) $5,500
3. C) $9,000
4. D) $13,800

 

Answer:  C

Explanation:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: $55,000 × 0.10 = $5,500.

 

 

	Activity Cost Pools
	Processing		Supervising
Equipment expense	$	5,500	$	38,500
Indirect labor		3,500		700
Total	$	9,000	$	39,200

 

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

129) Scheuer Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment expense and indirect labor–to three activity cost pools–Processing, Supervising, and Other–based on resource consumption. Data to perform these allocations appear below:

 

 

Overhead costs:
Equipment expense	$	55,000
Indirect labor	$	7,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.10	0.70	0.20
Indirect labor	0.50	0.10	0.40

 

 

In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

 

	MHs (Processing)	Batches (Supervising)
Product Q1	1,000	700
Product S6	19,000	1,300
Total	20,000	2,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

Sales and Direct Cost Data:

 

	Product Q1		Product S6
Sales (total)	$	134,600	$	186,300
Direct materials (total)	$	76,000	$	64,800
Direct labor (total)	$	40,800	$	78,400

 

 

The activity rate for the Processing activity cost pool under activity-based costing is closest to:

3. A) $3.10 per MH
4. B) $0.28 per MH
5. C) $5.00 per MH
6. D) $0.45 per MH

 

Answer:  D

Explanation:  Processing: $9,000 ÷ 20,000 MHs = $0.45 per MH

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

130) Scheuer Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment expense and indirect labor–to three activity cost pools–Processing, Supervising, and Other–based on resource consumption. Data to perform these allocations appear below:

 

 

Overhead costs:
Equipment expense	$	55,000
Indirect labor	$	7,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.10	0.70	0.20
Indirect labor	0.50	0.10	0.40

 

 

In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

	MHs (Processing)	Batches (Supervising)
Product Q1	1,000	700
Product S6	19,000	1,300
Total	20,000	2,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

Sales and Direct Cost Data:

	Product Q1		Product S6
Sales (total)	$	134,600	$	186,300
Direct materials (total)	$	76,000	$	64,800
Direct labor (total)	$	40,800	$	78,400

 

 

 

 

What is the overhead cost assigned to Product Q1 under activity-based costing?

1. A) $14,170
2. B) $450
3. C) $31,000
4. D) $13,720

 

Answer:  A

Explanation:  Assign overhead costs to products:

 

Processing: $9,000 ÷ 20,000 MHs = $0.45 per MH

 

Supervising: $39,200 ÷ 2,000 batches = $19.60 per batch

 

Overhead cost for Product Q1:

 

 

Processing $0.45 per MH × 1,000 MHs	$	450
Supervising $19.60 per batch × 700 batches		13,720
Total	$	14,170

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

131) Scheuer Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts–equipment expense and indirect labor–to three activity cost pools–Processing, Supervising, and Other–based on resource consumption. Data to perform these allocations appear below:

 

 

Overhead costs:
Equipment expense	$	55,000
Indirect labor	$	7,000

 

 

Distribution of Resource Consumption Across Activity Cost Pools:

 

 

	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.10	0.70	0.20
Indirect labor	0.50	0.10	0.40

 

 

In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company’s two products follow:

 

 

Activity:

	MHs (Processing)	Batches (Supervising)
Product Q1	1,000	700
Product S6	19,000	1,300
Total	20,000	2,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

Sales and Direct Cost Data:

	Product Q1		Product S6
Sales (total)	$	134,600	$	186,300
Direct materials (total)	$	76,000	$	64,800
Direct labor (total)	$	40,800	$	78,400

 

 

 

 

What is the product margin for Product Q1 under activity-based costing?

1. A) -$13,200
2. B) $3,630
3. C) $17,800
4. D) $17,350

 

Answer:  B

Explanation:

Sales				134,600
Direct materials	$	76,000
Direct labor		40,800
Processing		450
Supervising		13,720		130,970
Product margin			$	3,630

 

 

Difficulty: 2 Medium

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

132) Provenzano Corporation manufactures two products: Product B56Z and Product D32N. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B56Z and D32N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	50,000	100	setups
Product design	Number of products	$	88,000	2	products
Order size	Direct labor-hours	$	280,000	10,000	DLHs

 

 

Activity Measure	Product B56Z	Product D32N
Machine-hours	6,000	9,000
Number of setups	80	20
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

What is the activity rate for the Machining activity cost pool?

55. A) $55.00 per MH
56. B) $22.00 per MH
57. C) $36.67 per MH
58. D) $74.80 per MH

 

Answer:  B

Explanation:  Machining activity rate = $330,000 ÷ 15,000 MHs = $22 per MH

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

133) Provenzano Corporation manufactures two products: Product B56Z and Product D32N. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B56Z and D32N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	50,000	100	setups
Product design	Number of products	$	88,000	2	products
Order size	Direct labor-hours	$	280,000	10,000	DLHs

 

 

Activity Measure	Product B56Z	Product D32N
Machine-hours	6,000	9,000
Number of setups	80	20
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

What is the activity rate for the Machine Setups activity cost pool?

625. A) $625.00 per setup
626. B) $500.00 per setup
627. C) $3.33 per setup
628. D) $2,500.00 per setup

 

Answer:  B

Explanation:  Machine setups activity rate = $50,000 ÷ 100 setups = $500 per setup

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

134) Provenzano Corporation manufactures two products: Product B56Z and Product D32N. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B56Z and D32N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	50,000	100	setups
Product design	Number of products	$	88,000	2	products
Order size	Direct labor-hours	$	280,000	10,000	DLHs

 

 

Activity Measure	Product B56Z	Product D32N
Machine-hours	6,000	9,000
Number of setups	80	20
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

What is the activity rate for the Product Design activity cost pool?

1. A) $9 per product
2. B) $88,000 per product
3. C) $44,000 per product
4. D) $880 per product

 

Answer:  C

Explanation:  Product design activity rate = $88,000 ÷ 2 products =$44,000 per product

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

135) Provenzano Corporation manufactures two products: Product B56Z and Product D32N. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B56Z and D32N.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	50,000	100	setups
Product design	Number of products	$	88,000	2	products
Order size	Direct labor-hours	$	280,000	10,000	DLHs

 

 

Activity Measure	Product B56Z	Product D32N
Machine-hours	6,000	9,000
Number of setups	80	20
Number of products	1	1
Direct labor-hours	6,000	4,000

 

 

What is the activity rate for the Order Size activity cost pool?

18. A) $18.67 per DLH
19. B) $46.67 per DLH
20. C) $70.00 per DLH
21. D) $28.00 per DLH

 

Answer:  D

Explanation:  Order Size activity rate = $280,000 ÷ 10,000 DLHs = $28 per DLH

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

136) Reck Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Machining, $11,700; Order Filling, $17,800; and Other, $13,500. Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Machining)	Orders (Order Filling)
Product P7	6,900	200
Product V8	3,100	800

 

 

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

43. A) $43.00 per order
44. B) $7.50 per order
45. C) $6.00 per order
46. D) $17.80 per order

 

Answer:  D

Explanation:  Total orders = 200 orders + 800 orders = 1,000 orders

 

Order Filling: $17,800 ÷ 1,000 orders = $17.80 per order

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

137) Reck Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Machining, $11,700; Order Filling, $17,800; and Other, $13,500. Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Machining)	Orders (Order Filling)
Product P7	6,900	200
Product V8	3,100	800

 

 

What is the overhead cost assigned to Product V8 under activity-based costing?

1. A) $14,240
2. B) $3,627
3. C) $17,867
4. D) $21,500

 

Answer:  C

Explanation:  Total MHs = 6,900 MHs + 3,100 MHs = 10,000 MHs

 

Machining: $11,700 ÷ 10,000 MHs = $1.17 per MH

 

Total orders = 200 orders + 800 orders = 1,000 orders

 

Order Filling: $17,800 ÷ 1,000 orders = $17.80 per order

 

Overhead cost for Product V8:

 

 

Machining $1.17 per MH × 3,100 MHs	$	3,627
Order Filling $17.80 per order × 800 orders		14,240
Total	$	17,867

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

138) Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Processing, $27,200; Supervising, $9,300; and Other, $9,500. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Processing)	Batches (Supervising)
Product O6	9,200	500
Product D7	10,800	1,500
Total	20,000	2,000

 

 

The activity rate for the Processing activity cost pool under activity-based costing is closest to:

2. A) $2.30 per MH
3. B) $1.35 per MH
4. C) $1.36 per MH
5. D) $0.40 per MH

 

Answer:  C

Explanation:  Processing: $27,200 ÷ 20,000 MHs = $1.36 per MH

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

139) Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Processing, $27,200; Supervising, $9,300; and Other, $9,500. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Processing)	Batches (Supervising)
Product O6	9,200	500
Product D7	10,800	1,500
Total	20,000	2,000

 

 

 

 

What is the overhead cost assigned to Product O6 under activity-based costing?

1. A) $2,325
2. B) $23,000
3. C) $14,837
4. D) $12,512

 

Answer:  C

Explanation:  Processing: $27,200 ÷ 20,000 MHs = $1.36 per MH

 

Supervising: $9,300 ÷ 2,000 batches = $4.65 per batch

 

Overhead cost for Product O6:

 

 

Processing $1.36 per MH × 9,200 MHs	$	12,512
Supervising $4.65 per batch × 500 batches		2,325
Total	$	14,837

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

140) The controller of Hendershot Corporation estimates the amount of materials handling overhead cost that should be allocated to the company’s two products using the data that are given below:

	Wall Mirrors	Specialty Windows
Total expected units produced	6,000	3,000
Total expected material moves	500	100
Expected direct labor-hours per unit	6	9

 

 

The total materials handling cost for the year is expected to be $6,123.60.

 

If the materials handling cost is allocated on the basis of direct labor-hours, the total materials handling cost allocated to the wall mirrors is closest to: (Do not round your intermediate calculations.)

1. A) $2,449
2. B) $4,144
3. C) $3,499
4. D) $3,062

 

Answer:  C

Explanation:

	Wall Mirrors	Specialty Windows	Total
Total expected units produced (a)	6,000	3,000
Expected direct labor-hours per unit (b)	6	9
Total direct labor-hours (a) × (b)	36,000	27,000	63,000

 

 

 

Cost per direct labor-hour = Total materials handling cost ÷ Total direct labor-hours

 

= $6,123.60 ÷ 63,000 direct labor-hours = $0.0972 per direct labor-hour

 

Cost allocated to wall mirrors = $0.0972 per direct labor-hour × 36,000 direct labor-hours = $3,499.20

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

141) The controller of Hendershot Corporation estimates the amount of materials handling overhead cost that should be allocated to the company’s two products using the data that are given below:

	Wall Mirrors	Specialty Windows
Total expected units produced	6,000	3,000
Total expected material moves	500	100
Expected direct labor-hours per unit	6	9

 

 

The total materials handling cost for the year is expected to be $6,123.60.

 

If the materials handling cost is allocated on the basis of material moves, the total materials handling cost allocated to the specialty windows is closest to: (Do not round your intermediate calculations.)

1. A) $1,021
2. B) $3,674
3. C) $3,062
4. D) $1,980

 

Answer:  A

Explanation:

	Wall Mirrors	Specialty Windows	Total
Total expected material moves	500	100	600

 

 

 

Cost per material move = Total materials handling cost ÷ Total expected material moves

 

= $6,123.60 ÷ 600 material moves = $10.206 per material move

 

 

 

Cost allocated to specialty windows = $10.206 per material move × 100 material moves = $1,020.60

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

142) Angara 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:

 

 

Activity Cost Pool (and Activity Measure)	Total Cost
Machine related (machine-hours)	$	137,600
Batch setup (setups)	$	532,800
Order size (direct labor-hours)	$	105,300

 

 

 

The activity rate for the batch setup activity cost pool is closest to:

66. A) $66.60
67. B) $106.60
68. C) $97.00
69. D) $177.60

 

Answer:  A

Explanation:  Activity rate = Total cost ÷ Total activity = $532,800 ÷ 8,000 setups = $66.60 per setup

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

143) Angara 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:

 

 

Activity Cost Pool (and Activity Measure)	Total Cost
Machine related (machine-hours)	$	137,600
Batch setup (setups)	$	532,800
Order size (direct labor-hours)	$	105,300

 

 

 

The total amount of overhead cost allocated to Product X would be closest to:

1. A) $298,900
2. B) $533,000
3. C) $291,000
4. D) $387,850

 

 

 

Answer:  A

Explanation:

Activity Cost Pool	Total Cost		Total Activity		Activity Rate
Machine related	$	137,600	8,000	machine-hours		$	17.20	per machine-hour
Batch setup	$	532,800	8,000	setups		$	66.60	per setup
Order size	$	105,300	9,000	direct labor-hours		$	11.70	per direct labor-hour

 

 

 

The overhead cost charged to Product X is:

 

	Activity Rate			Activity					ABC Cost
Machine related	$	17.20	per machine-hour			1,000		machine-hours			$		17,200
Batch setup	$	66.60	per setup			3,000		setups					199,800
Order size	$	11.70	per direct labor – hour			7,000		direct labor-hours					81,900
										$		298,900

 

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

144) Sorice Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Processing, $20,200; Supervising, $11,000; and Other, $66,800. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Processing)	Batches (Supervising)
Product I9	4,800	200
Product W7	15,200	800
Total	20,000	1,000

 

 

The activity rate for the Supervising activity cost pool under activity-based costing is closest to:

7. A) $7.50 per batch
8. B) $6.00 per batch
9. C) $11.00 per batch
10. D) $98.00 per batch

 

Answer:  C

Explanation:  Supervising: $11,000 ÷ 1,000 batches = $11.00 per batch

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

145) Sorice Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Processing, $20,200; Supervising, $11,000; and Other, $66,800. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Processing)	Batches (Supervising)
Product I9	4,800	200
Product W7	15,200	800
Total	20,000	1,000

 

 

What is the overhead cost assigned to Product W7 under activity-based costing?

1. A) $8,800
2. B) $15,352
3. C) $49,000
4. D) $24,152

 

Answer:  D

Explanation:  Processing: $20,200 ÷ 20,000 MHs = $1.01 per MH

 

Supervising: $11,000 ÷ 1,000 batches = $11.00 per batch

 

Overhead cost for Product W7:

 

 

Processing $1.01 per MH × 15,200 MHs	$	15,352
Supervising $11.00 per batch × 800 batches		8,800
Total	$	24,152

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

146) Dercole Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Machining, $43,200; Order Filling, $13,900; and Other, $14,900. Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Machining)	Orders (Order Filling)
Product N8	7,300	600
Product Y4	2,700	1,400

 

 

The activity rate for the Machining activity cost pool under activity-based costing is closest to:

7. A) $7.20 per MH
8. B) $4.02 per MH
9. C) $5.00 per MH
10. D) $4.32 per MH

 

Answer:  D

Explanation:  Total MHs = 7,300 MHs + 2,700 MHs = 10,000 MHs

 

Machining: $43,200 ÷ 10,000 MHs = $4.32 per MH

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

147) Dercole Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company’s three activity cost pools as follows: Machining, $43,200; Order Filling, $13,900; and Other, $14,900. Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Machining)	Orders (Order Filling)
Product N8	7,300	600
Product Y4	2,700	1,400

 

 

What is the overhead cost assigned to Product N8 under activity-based costing?

1. A) $4,170
2. B) $31,536
3. C) $35,706
4. D) $36,000

 

Answer:  C

Explanation:  Total MHs = 7,300 MHs + 2,700 MHs = 10,000 MHs

 

Total orders = 600 orders + 1,400 orders = 2,000 orders

 

Machining: $43,200 ÷ 10,000 MHs = $4.32 per MH

 

Order Filling: $13,900 ÷ 2,000 orders = $6.95 per order

 

Overhead cost for Product N8:

 

 

Machining $4.32 per MH × 7,300 MHs	$	31,536
Order Filling $6.95 per order × 600 orders		4,170
Total	$	35,706

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

148) Abel Corporation uses activity-based costing. The company makes two products: Product A and Product B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with total cost and activity as follows:

 

 

 

The activity rate for Activity 2 is closest to:

24. A) $24.91
25. B) $26.36
26. C) $16.77
27. D) $10.25

 

Answer:  D

Explanation:  $18,450 ÷ 1,800 = $10.25

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

149) Abel Corporation uses activity-based costing. The company makes two products: Product A and Product B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with total cost and activity as follows:

 

 

 

The cost per unit of Product B is closest to:

41. A) $41.58
42. B) $81.53
43. C) $74.73
44. D) $17.69

 

Answer:  A

Explanation:  The activity rates for each activity cost pool are computed as follows:

 

	Total Cost		Total Activity	Activity Rate
Activity 1	$	16,660	700	$	23.80
Activity 2	$	18,450	1,800	$	10.25
Activity 3	$	9,731	220	$	44.23

 

 

The overhead cost charged to Product B is:

 

	Activity Rate		Activity	ABC Cost
Activity 1	$	23.80	100	$	2,380
Activity 2	$	10.25	700		7,175
Activity 3	$	44.23	160		7,077
Total overhead cost				$	16,632

 

 

Cost per unit of Product B = Total overhead cost ÷ Number of units = $16,632 ÷ 400 units = $41.58 per unit

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

150) Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Processing, Supervising, and Other. The costs in those activity cost pools appear below:

 

Processing	$	3,800
Supervising	$	23,800
Other	$	10,400

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Processing)	Batches (Supervising)
Product M0	9,700	500
Product M5	300	500
Total	10,000	1,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

	Product M0		Product M5
Sales (total)	$	74,100		$	89,900
Direct materials (total)	$	28,500		$	31,400
Direct labor (total)	$	27,800		$	41,700

 

The activity rate for the Supervising activity cost pool under activity-based costing is closest to:

38. A) $38.00 per batch
39. B) $7.00 per batch
40. C) $23.80 per batch
41. D) $14.00 per batch

 

Answer:  C

Explanation:  Supervising: $23,800 ÷ 1,000 batches = $23.80 per batch

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

151) Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Processing, Supervising, and Other. The costs in those activity cost pools appear below:

 

Processing	$	3,800
Supervising	$	23,800
Other	$	10,400

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Processing)	Batches (Supervising)
Product M0	9,700	500
Product M5	300	500
Total	10,000	1,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

	Product M0		Product M5
Sales (total)	$	74,100		$	89,900
Direct materials (total)	$	28,500		$	31,400
Direct labor (total)	$	27,800		$	41,700

 

What is the overhead cost assigned to Product M5 under activity-based costing?

1. A) $11,900
2. B) $19,000
3. C) $114
4. D) $12,014

 

 

 

Answer:  D

Explanation:  Processing: $3,800 ÷ 10,000 MHs = $0.38 per MH

 

Supervising: $23,800 ÷ 1,000 batches = $23.80 per batch

 

Overhead cost for Product M5:

 

 

Processing $0.38 per MH × 300 MHs	$	114
Supervising $23.80 per batch × 500 batches		11,900
Total	$	12,014

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

152) Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Processing, Supervising, and Other. The costs in those activity cost pools appear below:

 

Processing	$	3,800
Supervising	$	23,800
Other	$	10,400

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

	MHs (Processing)	Batches (Supervising)
Product M0	9,700	500
Product M5	300	500
Total	10,000	1,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

	Product M0		Product M5
Sales (total)	$	74,100		$	89,900
Direct materials (total)	$	28,500		$	31,400
Direct labor (total)	$	27,800		$	41,700

 

What is the product margin for Product M5 under activity-based costing?

1. A) $18,000
2. B) $16,800
3. C) $4,786
4. D) $2,686

 

 

 

Answer:  C

Explanation:

Sales			$	89,900
Direct materials	$	31,400
Direct labor		41,700
Processing		114
Supervising		11,900		85,114
Product margin			$	4,786

 

 

Difficulty: 1 Easy

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

153) Bachrodt Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Processing, Supervising, and Other. The costs in those activity cost pools appear below:

Processing	$	21,600
Supervising	$	3,700
Other	$	10,700

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below

 

	MHs (Processing)	Batches (Supervising)
Product Y7	3,700	400
Product V0	6,300	600
Total	10,000	1,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

	Product Y7		Product V0
Sales (total)	$	102,200		$	78,900
Direct materials (total)	$	40,800		$	39,100
Direct labor (total)	$	47,200		$	22,300

 

The activity rate for the Processing activity cost pool under activity-based costing is closest to:

2. A) $2.10 per MH
3. B) $2.16 per MH
4. C) $3.60 per MH
5. D) $1.50 per MH

 

Answer:  B

Explanation:  Processing: $21,600 ÷ 10,000 MHs = $2.16 per MH

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

154) Bachrodt Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Processing, Supervising, and Other. The costs in those activity cost pools appear below:

 

 

Processing	$	21,600
Supervising	$	3,700
Other	$	10,700

 

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below

 

 

	MHs (Processing)	Batches (Supervising)
Product Y7	3,700	400
Product V0	6,300	600
Total	10,000	1,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

	Product Y7		Product V0
Sales (total)	$	102,200		$	78,900
Direct materials (total)	$	40,800		$	39,100
Direct labor (total)	$	47,200		$	22,300

 

What is the overhead cost assigned to Product Y7 under activity-based costing?

1. A) $7,992
2. B) $1,480
3. C) $18,000
4. D) $9,472

 

 

 

Answer:  D

Explanation:  Assign overhead costs to products:

 

Processing: $21,600 ÷ 10,000 MHs = $2.16 per MH

 

Supervising: $3,700 ÷ 1,000 batches = $3.70 per batch

 

Overhead cost for Product Y7:

 

 

Processing $2.16 per MH × 3,700 MHs	$	7,992
Supervising $3.70 per batch × 400 batches		1,480
Total	$	9,472

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

155) Bachrodt Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Processing, Supervising, and Other. The costs in those activity cost pools appear below:

 

Processing	$	21,600
Supervising	$	3,700
Other	$	10,700

 

 

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below

 

 

	MHs (Processing)	Batches (Supervising)
Product Y7	3,700	400
Product V0	6,300	600
Total	10,000	1,000

 

 

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

 

 

	Product Y7		Product V0
Sales (total)	$	102,200		$	78,900
Direct materials (total)	$	40,800		$	39,100
Direct labor (total)	$	47,200		$	22,300

 

What is the product margin for Product Y7 under activity-based costing?

1. A) -$3,800
2. B) $4,728
3. C) $14,200
4. D) $6,208

 

 

 

Answer:  B

Explanation:

Sales			$	102,200
Direct materials	$	40,800
Direct labor		47,200
Processing		7,992
Supervising		1,480		97,472
Product margin			$	4,728

 

 

Difficulty: 1 Easy

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

156) Flemming Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Machining, Order Filling, and Other. The costs in those activity cost pools appear below:

 

Machining	$	20,900
Order Filling	$	22,900
Other	$	29,200

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Machining)	Orders (Order Filling)
Product U6	9,600	600
Product Z8	400	400

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

	Product U6		Product Z8
Sales (total)	$	185,100	$	178,100
Direct materials (total)	$	56,600	$	98,600
Direct labor (total)	$	83,400	$	63,700

 

The activity rate for Machining under activity-based costing is closest to:

7. A) $7.30 per MH
8. B) $2.04 per MH
9. C) $2.09 per MH
10. D) $0.83 per MH

 

Answer:  C

Explanation:  Total MHs = 9,600 MHs + 400 MHs = 10,000 MHs

 

Machining: $20,900 ÷ 10,000 MHs = $2.09 per MH

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

157) Flemming Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Machining, Order Filling, and Other. The costs in those activity cost pools appear below:

 

 

Machining	$	20,900
Order Filling	$	22,900
Other	$	29,200

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Machining)	Orders (Order Filling)
Product U6	9,600	600
Product Z8	400	400

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

	Product U6		Product Z8
Sales (total)	$	185,100	$	178,100
Direct materials (total)	$	56,600	$	98,600
Direct labor (total)	$	83,400	$	63,700

 

What is the overhead cost assigned to Product U6 under activity-based costing?

1. A) $36,500
2. B) $20,064
3. C) $33,804
4. D) $13,740

 

 

 

Answer:  C

Explanation:  Assign overhead costs to products:

 

Total MHs = 9,600 MHs + 400 MHs = 10,000 MHs

 

Machining: $20,900 ÷ 10,000 MHs = $2.09 per MH

 

Total orders = 600 orders + 400 orders = 1,000 orders

 

Order Filling: $22,900 ÷ 1,000 orders = $22.90 per order

 

Overhead cost for Product U6:

 

 

Machining $2.09 per MH × 9,600 MHs	$	20,064
Order Filling $22.90 per order × 600 orders		13,740
Total	$	33,804

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

158) Flemming Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Machining, Order Filling, and Other. The costs in those activity cost pools appear below:

 

Machining	$	20,900
Order Filling	$	22,900
Other	$	29,200

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Machining)	Orders (Order Filling)
Product U6	9,600	600
Product Z8	400	400

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

	Product U6		Product Z8
Sales (total)	$	185,100	$	178,100
Direct materials (total)	$	56,600	$	98,600
Direct labor (total)	$	83,400	$	63,700

 

What is the product margin for Product U6 under activity-based costing?

1. A) $45,100
2. B) $11,296
3. C) $25,036
4. D) $8,600

 

 

 

Answer:  B

Explanation:

Sales			$	185,100
Direct materials	$	56,600
Direct labor		83,400
Machining		20,064
Order filling		13,740		173,804
Product margin			$	11,296

 

 

Difficulty: 2 Medium

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

159) Handal Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Machining, Order Filling, and Other. The costs in those activity cost pools appear below:

 

Machining	$	15,800
Order Filling	$	6,400
Other	$	9,800

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Machining)	Orders (Order Filling)
Product O4	4,800	300
Product S1	15,200	1,700

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

	Product O4		Product S1
Sales (total)	$	70,200		$	112,200
Direct materials (total)	$	23,900		$	44,300
Direct labor (total)	$	38,900		$	46,700

 

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

16. A) $16.00 per order
17. B) $1.00 per order
18. C) $3.20 per order
19. D) $1.18 per order

 

Answer:  C

Explanation:  Total orders = 300 orders + 1,700 orders = 2,000 orders

 

Order Filling: $6,400 ÷ 2,000 orders = $3.20 per order

Difficulty: 2 Medium

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

160) Handal Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Machining, Order Filling, and Other. The costs in those activity cost pools appear below:

 

Machining	$	15,800
Order Filling	$	6,400
Other	$	9,800

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Machining)	Orders (Order Filling)
Product O4	4,800	300
Product S1	15,200	1,700

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

	Product O4		Product S1
Sales (total)	$	70,200		$	112,200
Direct materials (total)	$	23,900		$	44,300
Direct labor (total)	$	38,900		$	46,700

 

What is the overhead cost assigned to Product S1 under activity-based costing?

1. A) $12,008
2. B) $16,000
3. C) $5,440
4. D) $17,448

 

 

 

Answer:  D

Explanation:  Total MHs = 4,800 MHs + 15,200 MHs = 20,000 MHs

 

Machining: $15,800 ÷ 20,000 MHs = $0.79 per MH

 

Total orders = 300 orders + 1,700 orders = 2,000 orders

 

Order Filling: $6,400 ÷ 2,000 orders = $3.20 per order

 

Overhead cost for Product S1:

 

 

Machining $0.79 per MH × 15,200 MHs	$	12,008
Order Filling $3.20 per order × 1,700 orders		5,440
Total	$	17,448

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

161) Handal Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company’s three activity cost pools–Machining, Order Filling, and Other. The costs in those activity cost pools appear below:

 

Machining	$	15,800
Order Filling	$	6,400
Other	$	9,800

 

 

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

 

 

	MHs (Machining)	Orders (Order Filling)
Product O4	4,800	300
Product S1	15,200	1,700

 

 

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

 

 

	Product O4		Product S1
Sales (total)	$	70,200		$	112,200
Direct materials (total)	$	23,900		$	44,300
Direct labor (total)	$	38,900		$	46,700

 

What is the product margin for Product S1 under activity-based costing?

1. A) $17,592
2. B) $29,800
3. C) $3,752
4. D) $21,200

 

 

 

Answer:  C

Explanation:

Sales			$	112,200
Direct materials	$	44,300
Direct labor		46,700
Machining		12,008
Order filling		5,440		108,448
Product margin			$	3,752

 

 

Difficulty: 2 Medium

Topic:  Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

162) Younan Corporation manufactures two products: Product E47F and Product D02M. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products E47F and D02M.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	165,000	11,000	MHs
Machine setups	Number of setups	$	150,000	250	setups
Product design	Number of products	$	70,000	2	products
Order size	Direct labor-hours	$	310,000	10,000	DLHs

 

 

Activity Measure	Product E47F	Product D02M
Machine-hours	5,000	6,000
Number of setups	200	50
Number of products	1	1
Direct labor-hours	4,000	6,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product E47F is closest to:

17. A) 17.84%
18. B) 33.09%
19. C) 50.00%
20. D) 50.94%

 

 

 

Answer:  D

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	165,000	11,000	MHs	$	15	per MH
Machine setups	$	150,000	250	setups	$	600	per setup
Product design	$	70,000	2	products	$	35,000	per product
Order size	$	310,000	10,000	DLHs	$	31	per DLH
Total	$	695,000

 

 

The overhead cost charged to Product E47F under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity				ABC Cost
Machining	$	15	per MH		5,000		MHs			$		75,000
Machine setups	$	600	per setup		200		setups			$		120,000
Product design	$	35,000	per product		1		products			$		35,000
Order size	$	31	per DLH		4,000		DLHs			$		124,000
Total									$		354,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product E47F is computed as follows:

 

Manufacturing overhead cost assigned to Product E47F (a)	$	354,000
Total manufacturing overhead cost (b)	$	695,000
Percentage of total manufacturing overhead cost assigned to Product E47F (a) ÷ (b)		50.94	%

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

163) Younan Corporation manufactures two products: Product E47F and Product D02M. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products E47F and D02M.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	165,000	11,000	MHs
Machine setups	Number of setups	$	150,000	250	setups
Product design	Number of products	$	70,000	2	products
Order size	Direct labor-hours	$	310,000	10,000	DLHs

 

 

Activity Measure	Product E47F	Product D02M
Machine-hours	5,000	6,000
Number of setups	200	50
Number of products	1	1
Direct labor-hours	4,000	6,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product D02M is closest to:

49. A) 49.06%
50. B) 22.30%
51. C) 26.76%
52. D) 50.00%

 

 

 

Answer:  A

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	165,000	11,000	MHs	$	15	per MH
Machine setups	$	150,000	250	setups	$	600	per setup
Product design	$	70,000	2	products	$	35,000	per product
Order size	$	310,000	10,000	DLHs	$	31	per DLH
Total	$	695,000

 

 

The overhead cost charged to Product D02M under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity				ABC Cost
Machining	$	15	per MH		6,000		MHs			$		90,000
Machine setups	$	600	per setup		50		setups			$		30,000
Product design	$	35,000	per product		1		products			$		35,000
Order size	$	31	per DLH		6,000		DLHs			$		186,000
Total									$		341,000

 

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product D02M is computed as follows:

 

Manufacturing overhead cost assigned to Product D02M (a)	$	341,000
Total manufacturing overhead cost (b)	$	695,000
Percentage of total manufacturing overhead cost assigned to Product D02M (a) ÷ (b)		49.06	%

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

164) Horgen Corporation manufactures two products: Product M68B and Product H27T. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products M68B and H27T.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	299,000		13,000	MHs
Machine setups	Number of setups	$	240,000		400	setups
Product design	Number of products	$	80,000		2	products
Order size	Direct labor-hours	$	290,000		10,000	DLHs

 

 

Activity Measure	Product M68B	Product H27T
Machine-hours	6,000	7,000
Number of setups	250	150
Number of products	1	1
Direct labor-hours	4,000	6,000

 

 

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product M68B?

1. A) $454,500
2. B) $116,000
3. C) $444,000
4. D) $328,000

 

 

 

Answer:  C

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	299,000	13,000	MHs	$	23	per MH
Machine setups	$	240,000	400	setups	$	600	per setup
Product design	$	80,000	2	products	$	40,000	per product
Order size	$	290,000	10,000	DLHs	$	29	per DLH

 

 

The overhead cost charged to Product M68B under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity				ABC Cost
Machining	$	23	per MH		6,000		MHs		$		138,000
Machine setups	$	600	per setup		250		setups		$		150,000
Product design	$	40,000	per product		1		products		$		40,000
Order size	$	29	per DLH		4,000		DLHs		$		116,000
Total								$		444,000

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

165) Horgen Corporation manufactures two products: Product M68B and Product H27T. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products M68B and H27T.

 

 

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	299,000		13,000	MHs
Machine setups	Number of setups	$	240,000		400	setups
Product design	Number of products	$	80,000		2	products
Order size	Direct labor-hours	$	290,000		10,000	DLHs

 

 

Activity Measure	Product M68B	Product H27T
Machine-hours	6,000	7,000
Number of setups	250	150
Number of products	1	1
Direct labor-hours	4,000	6,000

 

 

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product H27T?

1. A) $291,000
2. B) $174,000
3. C) $465,000
4. D) $454,500

 

 

 

Answer:  C

Explanation:

Activity Cost Pool	(a) Estimated Overhead Cost		(b) Expected Activity		(a) ÷ (b) Activity Rate
Machining	$	299,000	13,000	MHs	$	23	per MH
Machine setups	$	240,000	400	setups	$	600	per setup
Product design	$	80,000	2	products	$	40,000	per product
Order size	$	290,000	10,000	DLHs	$	29	per DLH

 

 

The overhead cost charged to Product H27T under the ABC system is:

 

 

Activity Cost Pools	Activity Rate			Activity				ABC Cost
Machining	$	23	per MH		7,000		MHs			$		161,000
Machine setups	$	600	per setup		150		setups			$		90,000
Product design	$	40,000	per product		1		products			$		40,000
Order size	$	29	per DLH		6,000		DLHs			$		174,000
Total									$		465,000

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

166) Delauder Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.45	per DLH
Processing batches	Number of batches	$	193.30	per batch
Processing orders	Number of orders	$	83.05	per order
Serving customers	Number of customers	$	1,608.00	per customer

 

 

The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

Number of units purchased		1,500	units
Number of batches		5	batches
Number of orders		2	orders
Direct labor-hour requirement		0.25	DLHs per unit
Selling price	$	18.55	per unit
Direct materials cost	$	8.35	per unit
Direct labor cost	$	3.95	per unit

 

According to the ABC system, the total cost of the activity “Supporting assembly” for this customer this past year was closest to:

175. A) $5,175.00
176. B) $0.86
177. C) $1,293.75
178. D) $375.00

 

Answer:  C

Explanation:  Supporting assembly = $3.45 per DLH × 0.25 DLHs per unit × 1,500 units = $1,293.75

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

167) DelauderEnterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.45	per DLH
Processing batches	Number of batches	$	193.30	per batch
Processing orders	Number of orders	$	83.05	per order
Serving customers	Number of customers	$	1,608.00	per customer

 

 

The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

Number of units purchased		1,500	units
Number of batches		5	batches
Number of orders		2	orders
Direct labor-hour requirement		0.25	DLHs per unit
Selling price	$	18.55	per unit
Direct materials cost	$	8.35	per unit
Direct labor cost	$	3.95	per unit

 

According to the ABC system, the total cost of the activity “Processing batches” for this customer this past year was closest to:

49. A) $1,049.55
50. B) $83.05
51. C) $193.30
52. D) $966.50

 

Answer:  D

Explanation:  Cost of processing batches = $193.30 per batch × 5 batches = $966.50

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

168) DelauderEnterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.45	per DLH
Processing batches	Number of batches	$	193.30	per batch
Processing orders	Number of orders	$	83.05	per order
Serving customers	Number of customers	$	1,608.00	per customer

 

 

The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

Number of units purchased		1,500	units
Number of batches		5	batches
Number of orders		2	orders
Direct labor-hour requirement		0.25	DLHs per unit
Selling price	$	18.55	per unit
Direct materials cost	$	8.35	per unit
Direct labor cost	$	3.95	per unit

 

 

According to the ABC system, the total overhead cost for this customer this past year was closest to:

34. A) $4,034.35
35. B) $22,484.35
36. C) $2,426.35
37. D) $18,450.00

 

 

 

Answer:  A

Explanation:

Overhead Costs:
Supporting assembly ($3.45 per DLH × 0.25 DLHs per unit × 1,500 units)	$	1,293.75
Processing batches ($193.30 per batch × 5 batches)		966.50
Processing orders ($83.05 per order × 2orders)		166.10
Servicing customers ($1,608.00 per customer × 1 customer)		1,608.00
Total overhead cost	$	4,034.35

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

169) DelauderEnterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.45	per DLH
Processing batches	Number of batches	$	193.30	per batch
Processing orders	Number of orders	$	83.05	per order
Serving customers	Number of customers	$	1,608.00	per customer

 

 

The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

Number of units purchased		1,500	units
Number of batches		5	batches
Number of orders		2	orders
Direct labor-hour requirement		0.25	DLHs per unit
Selling price	$	18.55	per unit
Direct materials cost	$	8.35	per unit
Direct labor cost	$	3.95	per unit

 

 

According to the ABC system, the customer margin for this customer this past year was closest to:

375. A) $9,375.00
376. B) $5,340.65
377. C) $23,790.65
378. D) $15,300.00

 

 

 

Answer:  B

Explanation:

Customer Margin-ABC Analysis
Sales (1,500 units × $18.55 per unit)			$	27,825.00
Costs:
Direct materials ($8.35 per unit × 1,500 units)	$	12,525.00
Direct labor ($3.95 per unit × 1,500 units)		5,925.00
Supporting assembly ($3.45 per DLH × 0.25 DLHs per unit×1,500 units)		1,293.75
Processing batches ($193.30 per batch × 5 batches)		966.50
Processing orders ($83.05 per order × 2orders)		166.10
Servicing customers ($1,608.00 per customer × 1 customer)		1,608.00		22,484.35
Customer margin			$	5,340.65

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

170) Scholfield Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	6.55	per DLH
Processing batches	Number of batches	$	138.20	per batch
Processing orders	Number of orders	$	52.60	per order
Serving customers	Number of customers	$	1,191.00	per customer

 

 

The cost of serving customers, $1,191.00 per customer, is the cost of serving a customer for one year.

 

Latif Corporation buys only one of the company’s products which Scholfield Enterprises sells for $15.60 per unit. Last year Latif Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 7 batches were required. The direct materials cost is $7.85 per unit and the direct labor cost is $1.90 per unit. Each unit requires 0.10 DLHs.

 

According to the ABC system, the total cost of the activity “Supporting assembly” for this customer this past year was closest to:

720. A) $720.50
721. B) $110.00
722. C) $0.66
723. D) $7,205.00

 

Answer:  A

Explanation:  Supporting assembly = $6.55 per DLH × 0.10 DLHs per unit × 1,100 units = $720.50

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

171) Scholfield Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	6.55	per DLH
Processing batches	Number of batches	$	138.20	per batch
Processing orders	Number of orders	$	52.60	per order
Serving customers	Number of customers	$	1,191.00	per customer

 

 

The cost of serving customers, $1,191.00 per customer, is the cost of serving a customer for one year.

 

Latif Corporation buys only one of the company’s products which Scholfield Enterprises sells for $15.60 per unit. Last year Latif Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 7 batches were required. The direct materials cost is $7.85 per unit and the direct labor cost is $1.90 per unit. Each unit requires 0.10 DLHs.

 

According to the ABC system, the total cost of the activity “Processing batches” for this customer this past year was closest to:

967. A) $967.40
968. B) $1,020.00
969. C) $52.60
970. D) $138.20

 

Answer:  A

Explanation:  Cost of processing batches = $138.20 per batch × 7 batches = $967.40

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

172) Scholfield Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	6.55	per DLH
Processing batches	Number of batches	$	138.20	per batch
Processing orders	Number of orders	$	52.60	per order
Serving customers	Number of customers	$	1,191.00	per customer

 

 

The cost of serving customers, $1,191.00 per customer, is the cost of serving a customer for one year.

 

Latif Corporation buys only one of the company’s products which Scholfield Enterprises sells for $15.60 per unit. Last year Latif Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 7 batches were required. The direct materials cost is $7.85 per unit and the direct labor cost is $1.90 per unit. Each unit requires 0.10 DLHs.

 

According to the ABC system, the total overhead cost for this customer this past year was closest to:

984. A) $2,984.10
985. B) $10,725.00
986. C) $1,793.10
987. D) $13,709.10

 

Answer:  A

Explanation:

Overhead Costs:
Supporting assembly ($6.55 per DLH × 0.10 DLHs per unit × 1,100 units)	$	720.50
Processing batches ($138.20 per batch × 7 batches)		967.40
Processing orders ($52.60 per order × 2 orders)		105.20
Servicing customers ($1,191.00 per customer × 1 customer)		1,191.00
Total overhead cost	$	2,984.10

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

173) Scholfield Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

 

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	6.55	per DLH
Processing batches	Number of batches	$	138.20	per batch
Processing orders	Number of orders	$	52.60	per order
Serving customers	Number of customers	$	1,191.00	per customer

 

 

The cost of serving customers, $1,191.00 per customer, is the cost of serving a customer for one year.

 

Latif Corporation buys only one of the company’s products which Scholfield Enterprises sells for $15.60 per unit. Last year Latif Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 7 batches were required. The direct materials cost is $7.85 per unit and the direct labor cost is $1.90 per unit. Each unit requires 0.10 DLHs.

 

According to the ABC system, the customer margin for this customer this past year was closest to:

175. A) $14,175.90
176. B) $6,435.00
177. C) $3,450.90
178. D) $8,525.00

 

 

 

Answer:  C

Explanation:

Customer Margin-ABC Analysis
Sales (1,100 units × $15.60 per unit)			$	17,160.00
Costs:
Direct materials ($7.85 per unit × 1,100 units)	$	8,635.00
Direct labor ($1.90 per unit × 1,100 units)		2,090.00
Supporting assembly ($6.55 per DLH × 0.10 DLHs per unit × 1,100 units)		720.50
Processing batches ($138.20 per batch × 7 batches)		967.40
Processing orders ($52.60 per order × 2 orders)		105.20
Servicing customers ($1,191.00 per customer × 1 customer)		1,191.00		13,709.10
Customer margin			$	3,450.90

 

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

174) Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

 

 

Activity Cost Pools		Activity Rate
Size-related	$	1.13	per guest
Complexity-related	$	28.22	per tier
Order-related	$	74.72	per order

 

 

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.

 

Data concerning two recent orders appear below:

	Tijerina Wedding		Twersky Wedding
Number of reception guests		49		126
Number of tiers on the cake		2		4
Cost of purchased decorations for cake	$	28.60	$	54.64

 

Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Tijerina wedding cake to just break even?

74. A) $74.72
75. B) $215.13
76. C) $28.60
77. D) $260.31

 

 

 

Answer:  B

Explanation:  The company would have to cover all of the avoidable costs of the wedding cake which are

Size related ($1.13 per guest × 49 guests)	$	55.37
Complexity-related ($28.22 per tier × 2 tiers)		56.44
Order-related ($74.72 per order × 1 order)		74.72
Cost of purchased decorations for cake		28.60
Total cost	$	215.13

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

175) Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

 

 

Activity Cost Pools		Activity Rate
Size-related	$	1.13	per guest
Complexity-related	$	28.22	per tier
Order-related	$	74.72	per order

 

 

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.

 

Data concerning two recent orders appear below:

	Tijerina Wedding		Twersky Wedding
Number of reception guests		49		126
Number of tiers on the cake		2		4
Cost of purchased decorations for cake	$	28.60	$	54.64

 

Assuming that the company charges $465.39 for the Twersky wedding cake, what would be the overall margin on the order?

135. A) $135.41
136. B) $80.77
137. C) $384.62
138. D) $155.49

 

 

 

Answer:  B

Explanation:

Price of cake			$	465.39
Costs:
Size related ($1.13 per guest × 126 guests)	$	142.38
Complexity-related ($28.22 per tier × 4 tiers)		112.88
Order-related ($74.72 per order × 1 order)		74.72
Cost of purchased decorations for cake		54.64		384.62
Customer margin			$	80.77

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

176) Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

 

 

Activity Cost Pools		Activity Rate
Size-related	$	1.13	per guest
Complexity-related	$	28.22	per tier
Order-related	$	74.72	per order

 

 

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.

 

Data concerning two recent orders appear below:

	Tijerina Wedding		Twersky Wedding
Number of reception guests		49		126
Number of tiers on the cake		2		4
Cost of purchased decorations for cake	$	28.60	$	54.64

 

Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes?

1. A) The costs of all cakes would go up.
2. B) The cost of cakes for receptions with fewer than the average number of guests would go down.
3. C) The cost of cakes for receptions with more than the average number of guests would go down.
4. D) The costs of all cakes would go down.

 

Answer:  B

Explanation:  When product-level costs are allocated based on the number of guests, too much cost is allocated to weddings that have more than the average number of guests and too little cost is allocated to weddings that have less than the average number of guests. Therefore, the cost of cakes for receptions with fewer than the average number of guests would go down.

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

177) Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $1.13 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $43.52 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $61.44 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.

 

Data concerning two recent orders appear below:

	Ericson Wedding		Haupt Wedding
Number of reception guests		60		162
Number of tiers on the cake		4		3
Cost of purchased decorations for cake	$	16.89	$	38.61

 

Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Ericson wedding cake to just break even?

61. A) $61.44
62. B) $387.45
63. C) $16.89
64. D) $320.21

 

Answer:  D

Explanation:

Size related ($1.13 per guest × 60 guests)	$	67.80
Complexity-related ($43.52 per tier × 4 tiers)		174.08
Order-related ($61.44 per order × 1 order)		61.44
Cost of purchased decorations for cake		16.89
Total cost	$	320.21

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

178) Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $1.13 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $43.52 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $61.44 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.

 

Data concerning two recent orders appear below:

	Ericson Wedding		Haupt Wedding
Number of reception guests		60		162
Number of tiers on the cake		4		3
Cost of purchased decorations for cake	$	16.89	$	38.61

 

Assuming that the company charges $500.54 for the Haupt wedding cake, what would be the overall margin on the order?

86. A) $86.87
87. B) $413.67
88. C) $148.31
89. D) $125.48

 

Answer:  A

Explanation:

Price of cake			$	500.54
Costs:
Size related ($1.13 per guest × 162 guests)	$	183.06
Complexity-related ($43.52 per tier × 3 tiers)		130.56
Order-related ($61.44 per order × 1 order)		61.44
Cost of purchased decorations for cake		38.61		413.67
Customer margin			$	86.87

 

 

Difficulty: 2 Medium

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

179) Daher Corporation manufactures two products: Product A34R and Product E05V. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products A34R and E05V.

 

	Activity Cost Pool	Activity Measure	Total Cost	Total Activity
	Machining	Machine-hours	$95,000	5,000	MHs
	Machine setups	Number of setups	$80,000	200	setups
	Product design	Number of products	$96,000	2	products
	Order size	Direct labor-hours	$310,000	10,000	DLHs

 

	Activity Measure	Product A34R	Product E05V
	Machine-hours	2,000	3,000
	Number of setups	150	50
	Number of products	1	1
	Direct labor-hours	3,000	7,000

 

Required:

1. What is the company’s plantwide overhead rate?
2. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product E05V?
3. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product A34R?

 

 

 

Answer:

1. The company’s plantwide overhead rate is computed as follows:

	Machining	$95,000
	Machine setups	80,000
	Product design	96,000
	Order size	310,000
	Total estimated overhead cost (a)	$581,000
	Total expected direct labor-hours (b)	10,000	DLHs
	Predetermined overhead rate (a) ÷ (b)	$58.10	per DLH

 

1. Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product E05V is computed as follows:

		Product E05V
	Total direct labor hours (a)	7,000
	Plantwide overhead rate per DLH (b)	$58.10
	Manufacturing overhead assigned (a) × (b)	$406,700

 

1. Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product A34R is computed as follows:

		Product A34R
	Total direct labor hours (a)	3,000
	Plantwide overhead rate per DLH (b)	$58.10
	Manufacturing overhead assigned (a) × (b)	$174,300

 

The percentage of the total overhead cost allocated to Product A34R is computed as follows:

	Manufacturing overhead cost assigned to Product A34R (a)	$174,300
	Total manufacturing overhead cost (b)	$581,000
	Percentage of total manufacturing overhead cost assigned to Product A34R (a) ÷ (b)	30.00%

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

180) Vito Corporation manufactures two products: Product F77I and Product I48D. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products F77I and I48D.

 

	Activity Cost Pool	Activity Measure	Total Cost	Total Activity
	Machining	Machine-hours	$207,000	9,000	MHs
	Machine setups	Number of setups	$120,000	300	setups
	Product design	Number of products	$76,000	2	products
	Order size	Direct labor-hours	$330,000	10,000	DLHs

 

	Activity Measure	Product F77I	Product I48D
	Machine-hours	6,000	3,000
	Number of setups	120	180
	Number of products	1	1
	Direct labor-hours	7,000	3,000

 

Required:

1. What is the company’s plantwide overhead rate?
2. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product F77I?
3. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product I48D?

 

 

 

Answer:

1. The company’s plantwide overhead rate is computed as follows:

	Machining	$207,000
	Machine setups	120,000
	Product design	76,000
	Order size	330,000
	Total estimated overhead cost (a)	$733,000
	Total expected direct labor-hours (b)	10,000	DLHs
	Predetermined overhead rate (a) ÷ (b)	$73.30	per DLH

 

1. Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product F77I is computed as follows:

		Product F77I
	Total direct labor hours (a)	7,000
	Plantwide overhead rate per DLH (b)	$73.30
	Manufacturing overhead assigned (a) × (b)	$513,100

 

1. Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product I48D is computed as follows:

		Product I48D
	Total direct labor hours (a)	3,000
	Plantwide overhead rate per DLH (b)	$73.30
	Manufacturing overhead assigned (a) × (b)	$219,900

 

The percentage of the total overhead cost allocated to Product I48D is computed as follows:

	Manufacturing overhead cost assigned to Product I48D (a)	$219,900
	Total manufacturing overhead cost (b)	$733,000
	Percentage of total manufacturing overhead cost assigned to Product I48D (a) ÷ (b)	30.00%

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

181) Desilets Corporation has provided the following data from its activity-based costing accounting system:

 

	Supervisory wages	$94,000
	Factory utilities	$128,000

 

Distribution of Resource Consumption across Activity Cost Pools:

	Activity Cost Pools	Batch Set-Ups	Unit Processing	Other	Total
	Supervisory wages	34%	64%	2%	100%
	Factory utilities	49%	35%	16%	100%

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

Required:

1. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Unit Processing activity cost pool. Show your work!
2. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!

 

Answer:

1. Allocations to the Unit Processing activity cost pool:

	Supervisory wages (64% × $94,000)	$60,160
	Factory utilities (35% × $128,000)	44,800
	Total	$104,960

 

1. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products.

	Supervisory wages (2% × $94,000)	$1,880
	Factory utilities (16% × $128,000)	20,480
	Total	$22,360

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing; The Mechanics of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.; 05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

182) The following data have been provided by Hooey Corporation from its activity-based costing accounting system:

 

	Supervisory wages	$46,000
	Factory utilities	$199,000

 

Distribution of Resource Consumption across Activity Cost Pools:

	Activity Cost Pools	Product Changeovers	Machining	Other	Total
	Supervisory wages	59%	33%	8%	100%
	Factory utilities	18%	69%	13%	100%

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

Required:

1. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Machining activity cost pool. Show your work!
2. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!

 

Answer:

1. Allocations to the Machining activity cost pool:

	Supervisory wages (33% × $46,000)	$15,180
	Factory utilities (69% × $199,000)	137,310
	Total	$152,490

 

1. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products.

	Supervisory wages (8% × $46,000)	$3,680
	Factory utilities (13% × $199,000)	25,870
	Total	$29,550

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing; The Mechanics of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.; 05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

183) Beckley Corporation has provided the following data from its activity-based costing accounting system:

 

	Indirect factory wages	$16,000
	Factory equipment depreciation	$193,000

 

Distribution of Resource Consumption across Activity Cost Pools:

 

	Activity Cost Pools	Customer Orders	Product Processing	Other	Total
	Indirect factory wages	48%	47%	5%	100%
	Factory equipment depreciation	61%	25%	14%	100%

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

 

Required:

1. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work!
2. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!

 

Answer:

1. Allocations to the Product Processing activity cost pool:

	Indirect factory wages (47% × $16,000)	$7,520
	Factory equipment depreciation (25% × $193,000)	48,250
	Total	$55,770

 

1. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products.

	Indirect factory wages (5% × $16,000)	$800
	Factory equipment depreciation (14% × $193,000)	27,020
	Total	$27,820

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing; The Mechanics of Activity-Based Costing

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.; 05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

184) Aresco Corporation manufactures two products: Product G51B and Product E48X. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products G51B and E48X.

 

	Activity Cost Pool	Activity Measure	Total Cost	Total Activity
	Machining	Machine-hours	$100,000	5,000	MHs
	Machine setups	Number of setups	$300,000	500	setups
	Product design	Number of products	$80,000	2	products
	Order size	Direct labor-hours	$350,000	10,000	DLHs

 

	Activity Measure	Product G51B	Product E48X
	Machine-hours	2,000	3,000
	Number of setups	270	230
	Number of products	1	1
	Direct labor-hours	3,000	7,000

 

Required:

1. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product G51B?
2. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product E48X?
3. Using the ABC system, what percentage of the total overhead cost is assigned to Product G51B?
4. Using the ABC system, what percentage of the total overhead cost is assigned to Product E48X?

 

 

 

Answer:

1. & b. The company’s plantwide overhead rate is computed as follows:

	Machining	$100,000
	Machine setups	300,000
	Product design	80,000
	Order size	350,000
	Total estimated overhead cost (a)	$830,000
	Total expected direct labor-hours (b)	10,000	DLHs
	Predetermined overhead rate (a) ÷ (b)	$83.00	per DLH

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product G51B is computed as follows:

		Product G51B
	Total direct labor hours (a)	3,000
	Plantwide overhead rate per DLH (b)	$83.00
	Manufacturing overhead assigned (a) × (b)	$249,000

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product E48X is computed as follows:

		Product E48X
	Total direct labor hours (a)	7,000
	Plantwide overhead rate per DLH (b)	$83.00
	Manufacturing overhead assigned (a) × (b)	$581,000

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product G51B is computed as follows:

	Manufacturing overhead cost assigned to Product G51B (a)	$249,000
	Total manufacturing overhead cost (b)	$830,000
	Percentage of total manufacturing overhead cost assigned to Product G51B (a) ÷ (b)	30.00%

 

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product E48X is computed as follows:

	Manufacturing overhead cost assigned to Product E48X (a)	$581,000
	Total manufacturing overhead cost (b)	$830,000
	Percentage of total manufacturing overhead cost assigned to Product E48X (a) ÷ (b)	70.00%

 

1. & d. The activity rates would be computed as follows for the ABC system:

	Activity Cost Pool	(a) Estimated Overhead Cost	(b) Expected Activity		(a) ÷ (b) Activity Rate
	Machining	$100,000	5,000	MHs	$20	per MH
	Machine setups	$300,000	500	setups	$600	per setup
	Product design	$80,000	2	products	$40,000	per product
	Order size	$350,000	10,000	DLHs	$35	per DLH

 

The overhead cost charged to Product G51B under the ABC system is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machining	$20	per MH	2,000	MHs	$40,000
	Machine setups	$600	per setup	270	setups	$162,000
	Product design	$40,000	per product	1	products	$40,000
	Order size	$35	per DLH	3,000	DLHs	$105,000
	Total					$347,000

 

The overhead cost charged to Product E48X under the ABC system is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machining	$20	per MH	3,000	MHs	$60,000
	Machine setups	$600	per setup	230	setups	$138,000
	Product design	$40,000	per product	1	products	$40,000
	Order size	$35	per DLH	7,000	DLHs	$245,000
	Total					$483,000

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product G51B is computed as follows:

	Manufacturing overhead cost assigned to Product G51B (a)	$347,000
	Total manufacturing overhead cost (b)	$830,000
	Percentage of total manufacturing overhead cost assigned to Product G51B (a) ÷ (b)	41.81%

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product E48X is computed as follows:

	Manufacturing overhead cost assigned to Product E48X (a)	$483,000
	Total manufacturing overhead cost (b)	$830,000
	Percentage of total manufacturing overhead cost assigned to Product E48X (a) ÷ (b)	58.19%

 

Difficulty: 2 Medium

Topic:  Overview of Activity-Based Costing; Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.; 05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.;

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

185) Losser Corporation manufactures two products: Product L73Z and Product A79B. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products L73Z and A79B.

 

	Activity Cost Pool	Activity Measure	Total Cost	Total Activity
	Machining	Machine-hours	$144,000	9,000	MHs
	Machine setups	Number of setups	$100,000	250	setups
	Product design	Number of products	$52,000	2	products
	Order size	Direct labor-hours	$280,000	10,000	DLHs

 

	Activity Measure	Product L73Z	Product A79B
	Machine-hours	5,000	4,000
	Number of setups	100	150
	Number of products	1	1
	Direct labor-hours	3,000	7,000

 

Required:

1. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product L73Z?
2. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product A79B?
3. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product A79B?
4. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product L73Z?

 

 

 

Answer:

1. & b. The company’s plantwide overhead rate is computed as follows:

	Machining	$144,000
	Machine setups	100,000
	Product design	52,000
	Order size	280,000
	Total estimated overhead cost (a)	$576,000
	Total expected direct labor-hours (b)	10,000	DLHs
	Predetermined overhead rate (a) ÷ (b)	$57.60	per DLH

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product L73Z is computed as follows:

		Product L73Z
	Total direct labor hours (a)	3,000
	Plantwide overhead rate per DLH (b)	$57.60
	Manufacturing overhead assigned (a) × (b)	$172,800

 

Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product A79B is computed as follows:

		Product A79B
	Total direct labor hours (a)	7,000
	Plantwide overhead rate per DLH (b)	$57.60
	Manufacturing overhead assigned (a) × (b)	$403,200

 

1. & d. through g. The activity rates would be computed as follows for the ABC system:

	Activity Cost Pool	(a) Estimated Overhead Cost	(b) Expected Activity		(a) ÷ (b) Activity Rate
	Machining	$144,000	9,000	MHs	$16	per MH
	Machine setups	$100,000	250	setups	$400	per setup
	Product design	$52,000	2	products	$26,000	per product
	Order size	$280,000	10,000	DLHs	$28	per DLH

 

The overhead cost charged to Product L73Z under the ABC system is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machining	$16	per MH	5,000	MHs	$80,000
	Machine setups	$400	per setup	100	setups	$40,000
	Product design	$26,000	per product	1	products	$26,000
	Order size	$28	per DLH	3,000	DLHs	$84,000
	Total					$230,000

 

 

 

The overhead cost charged to Product A79B under the ABC system is:

	Activity Cost Pools	Activity Rate			Activity			ABC Cost
	Machining	$16	per MH	4,000		MHs	$64,000
	Machine setups	$400	per setup	150		setups	$60,000
	Product design	$26,000	per product	1		products	$26,000
	Order size	$28	per DLH	7,000		DLHs	$196,000
	Total						$346,000

 

Difficulty: 1 Easy

Topic:  Overview of Activity-Based Costing; Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-01 Understand activity-based costing and how it differs from a traditional costing system.; 05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.;

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

186) Moorman Corporation has an activity-based costing system with three activity cost pools–Processing, Setting Up, and Other. The company’s overhead costs consist of equipment depreciation and indirect labor and are allocated to the cost pools in proportion to the activity cost pools’ consumption of resources. Equipment depreciation totals $53,000 and indirect labor totals $3,000. Data concerning the distribution of resource consumption across activity cost pools appear below:

 

		Processing	Setting Up	Other
	Equipment depreciation	0.60	0.10	0.30
	Indirect labor	0.20	0.10	0.70

 

Required:

Assign overhead costs to activity cost pools using activity-based costing.

 

Answer:  Assign overhead costs to activity cost pools by applying the percentages in the above table to the respective costs. For example, the first entry in the below table is computed as follows: $53,000 × 0.60 = $31,800.

 

		Activity Cost Pools
		Processing	Setting Up	Other	Total
	Equipment depreciation	$31,800	$5,300	$15,900	$53,000
	Indirect labor	600	300	2,100	3,000
	Total	$32,400	$5,600	$18,000	$56,000

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

187) Figge & Mathews PLC, a consulting firm, uses an activity-based costing in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

 

Costs:

	Wages and salaries	$420,000
	Travel expenses	120,000
	Other expenses	180,000
	Total	$720,000

 

Distribution of resource consumption:

		Activity Cost Pools
		Working On Engagements	Business Development	Other	Total
	Wages and salaries	50%	20%	30%	100%
	Travel expenses	45%	45%	10%	100%
	Other expenses	15%	45%	40%	100%

 

Required:

1. How much cost, in total, would be allocated to the Working On Engagements activity cost pool?
2. How much cost, in total, would be allocated to the Business Development activity cost pool?
3. How much cost, in total, would be allocated to the Other activity cost pool?

 

Answer:  All three parts can be answered using a first-stage allocation of costs. The amount in each cell in the table below is computed by multiplying the cost for the category by the percentage for the activity. For example, $210,000 is equal to $420,000 multiplied by 0.50.

 

		Working On Engagements	Business Development	Other	Total
	Wages and salaries	$210,000	$ 84,000	$126,000	$420,000
	Travel expenses	54,000	54,000	12,000	120,000
	Other expenses	27,000	81,000	72,000	180,000
	Total	$291,000	$219,000	$210,000	$720,000

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

188) Hagy Corporation has an activity-based costing system with three activity cost pools–Processing, Setting Up, and Other. The company’s overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools’ consumption of resources. Data concerning the company’s costs and activity-based costing system appear below:

 

	Factory utilities (total)	$97,000
	Indirect labor (total)	$8,000

 

	Distribution of Resource Consumption Across Activity Cost Pools
		Processing	Setting Up	Other
	Factory utilities	0.20	0.50	0.30
	Indirect labor	0.10	0.30	0.60

 

Required:

Assign overhead costs to activity cost pools using activity-based costing.

 

Answer:  Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: $97,000 × 0.20 = $19,400.

 

		Activity Cost Pools
		Processing	Setting Up	Other	Total
	Factory utilities	$19,400	$48,500	$29,100	$97,000
	Indirect labor	800	2,400	4,800	8,000
	Total	$20,200	$50,900	$33,900	$105,000

 

Difficulty: 1 Easy

Topic:  The Mechanics of Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

189) Groleau Corporation has an activity-based costing system with three activity cost pools–Processing, Setting Up, and Other. The company’s overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools’ consumption of resources. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company’s costs and activity-based costing system appear below:

 

	Factory utilities (total)	$24,000
	Indirect labor (total)	$3,000

 

	Distribution of Resource Consumption Across Activity Cost Pools
		Processing	Setting Up	Other
	Factory utilities	0.30	0.40	0.30
	Indirect labor	0.10	0.40	0.50

 

		MHs	Batches
	Product S8	2,200	700
	Product F1	7,800	300
	Total	10,000	1,000

 

		Product S8	Product F1
	Sales (total)	$64,000	$68,700
	Direct materials (total)	$28,000	$19,800
	Direct labor (total)	$25,300	$36,700

 

Required:

1. Assign overhead costs to activity cost pools using activity-based costing.
2. Calculate activity rates for each activity cost pool using activity-based costing.
3. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
4. Determine the product margins for each product using activity-based costing.

 

 

 

Answer:

1. Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: 0.30 × $24,000 = $7,200.

 

	Activity Cost Pools	Processing	Setting Up	Other	Total
	Factory utilities	$7,200	$9,600	$7,200	$24,000
	Indirect labor	300	1,200	1,500	3,000
	Total	$7,500	$10,800	$8,700	$27,000

 

1. Computation of activity rates:

	Activity Cost Pools	Total Cost	Total Activity		Activity Rate
	Processing	$7,500	10,000	MHs	$0.75	per MH
	Setting up	$10,800	1,000	batches	$10.80	per batch

 

1. Assign overhead costs to products:

Overhead cost for Product S8:

		Activity Rate		Activity		ABC Cost
	Processing	$0.75	per MH	2,200	MHs	$1,650
	Setting up	$10.80	per batch	700	batches	$7,560
	Total					$9,210

 

Overhead cost for Product F1:

		Activity Rate		Activity		ABC Cost
	Processing	$0.75	per MH	7,800	MHs	$5,850
	Setting up	$10.80	per batch	300	batches	$3,240
	Total					$9,090

 

1. Determine product margins:

		Product S8		Product F1
	Sales		$64,000		$68,700
	Direct materials	$28,000		$19,800
	Direct labor	25,300		36,700
	Processing	1,650		5,850
	Setting up	7,560	62,510	3,240	65,590
	Product margin		$1,490		$3,110

 

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

190) Howell Corporation’s activity-based costing system has three activity cost pools–Machining, Setting Up, and Other. The company’s overhead costs, which consist of equipment depreciation and indirect labor, are allocated to the cost pools in proportion to the activity cost pools’ consumption of resources.

 

	Equipment depreciation (total)	$86,000
	Indirect labor (total)	$5,000

 

	Distribution of Resource Consumption Across Activity Cost Pools
		Machining	Setting Up	Other
	Equipment depreciation	0.20	0.50	0.30
	Indirect labor	0.20	0.40	0.40

 

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products.

 

		MHs	Batches
	Product S4	3,700	600
	Product C0	6,300	400
	Total	10,000	1,000

 

Additional data concerning the company’s products appears below:

 

		Product S4	Product C0
	Sales (total)	$225,300	$237,500
	Direct materials (total)	$114,400	$107,500
	Direct labor (total)	$65,500	$90,600

 

Required:

1. Assign overhead costs to activity cost pools using activity-based costing.
2. Calculate activity rates for each activity cost pool using activity-based costing.
3. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
4. Determine the product margins for each product using activity-based costing.

 

 

 

 

Answer:

1. Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: 0.20 × $86,000 = $17,200.

 

		Activity Cost Pools
		Machining	Setting Up	Other	Total
	Equipment depreciation	$17,200	$43,000	$25,800	$86,000
	Indirect labor	1,000	2,000	2,000	5,000
	Total	$18,200	$45,000	$27,800	$91,000

 

1. Computation of activity rates:

	Activity Cost Pools	Total Cost	Total Activity		Activity Rate
	Machining	$18,200	10,000	MHs	$1.82	per MH
	Setting up	$45,000	1,000	batches	$45.00	per batch

 

1. Assign overhead costs to products:

Overhead cost for Product S4:

		Activity Rate		Activity		ABC Cost
	Machining	$1.82	per MH	3,700	MHs	$6,734
	Setting up	$45.00	per batch	600	batches	27,000
	Total					$33,734

 

Overhead cost for Product C0:

		Activity Rate		Activity		ABC Cost
	Machining	$1.82	per MH	6,300	MHs	$11,466
	Setting up	$45.00	per batch	400	batches	18,000
	Total					$29,466

 

1. Determine product margins:

		Product S4		Product C0
	Sales		$225,300		$237,500
	Direct materials	$114,400		$107,500
	Direct labor	65,500		90,600
	Machining	6,734		11,466
	Setting up	27,000	213,634	18,000	227,566
	Product margin		$11,666		$9,934

Difficulty: 2 Medium

Topic:  The Mechanics of Activity-Based Costing; Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-02 Assign costs to cost pools using a first-stage allocation.; 05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

191) Kretlow Corporation has provided the following data from its activity-based costing accounting system:

 

	Activity Cost Pools	Total Cost	Total Activity
	Designing products	$700,502	3,746	product design hours
	Setting up batches	$12,400	620	batch set-ups
	Assembling products	$125,440	8,960	assembly hours

 

Required:

Compute the activity rates for each of the three cost pools. Show your work!

 

Answer:

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

192) Data concerning three of Kilmon Corporation’s activity cost pools appear below:

 

	Activity Cost Pools	Total Cost	Total Activity
	Assembling products	$150,300	8,350	assembly hours
	Designing products	$1,177,535	7,597	product design hours
	Setting up batches	$14,400	600	batch set-ups

 

Required:

Compute the activity rates for each of the three cost pools. Show your work!

 

Answer:

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

193) Sukhu Corporation’s activity-based costing system has three activity cost pools–Fabricating, Setting Up, and Other. The company’s overhead costs have already been allocated to these cost pools as follows:

 

	Fabricating	$3,800
	Setting Up	$19,900
	Other	$10,300

 

Costs in the Fabricating cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. The following table shows the machine-hours and number of batches associated with each of the company’s two products:

 

		MHs	Batches
	Product M0	7,500	300
	Product P9	2,500	700
	Total	10,000	1,000

 

Required:

Calculate activity rates for each activity cost pool using activity-based costing.

 

Answer:

	Activity Cost Pools	Total Cost	Total Activity		Activity Rate
	Fabricating	$3,800	10,000	MHs	$0.38	per MH
	Setting up	$19,900	1,000	batches	$19.90	per batch

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

194) Clenney Corporation uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to the four activity cost pools shown below.

 

	Activity Cost Pool	Activity Measure	Total Cost	Total Activity
	Machining	Machine-hours	$114,000	6,000	MHs
	Machine setups	Number of setups	$100,000	200	setups
	Product design	Number of products	$96,000	2	products
	Order size	Direct labor-hours	$330,000	10,000	DLHs

 

Required:

1. Under the proposed ABC system, what is the activity rate for the Machining activity cost pool?
2. Under the proposed ABC system, what is the activity rate for the Machine Setups activity cost pool?
3. Under the proposed ABC system, what is the activity rate for the Product Design activity cost pool?
4. Under the proposed ABC system, what is the activity rate for the Order size activity cost pool?

 

Answer:

1. through d. The activity rates would be computed as follows for the ABC system:

 

	Activity Cost Pool	(a) Estimated Overhead Cost	(b) Expected Activity		(a) ÷ (b) Activity Rate
	Machining	$114,000	6,000	MHs	$19	per MH
	Machine setups	$100,000	200	setups	$500	per setup
	Product design	$96,000	2	products	$48,000	per product
	Order size	$330,000	10,000	DLHs	$33	per DLH

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates

Learning Objective:  05-03 Compute activity rates for cost pools.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

195) Lakey Corporation has an activity-based costing system with three activity cost pools–Machining, Setting Up, and Other. The company’s overhead costs have already been allocated to the cost pools and total $11,000 for the Machining cost pool, $26,200 for the Setting Up cost pool, and $9,800 for the Other cost pool. Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products appear below:

 

		MHs	Batches
	Product S7	8,400	200
	Product W3	1,600	1,800
	Total	10,000	2,000

 

Required:

1. Calculate activity rates for each activity cost pool using activity-based costing.
2. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

 

 

 

Answer:

1. Computation of activity rates:

 

	Activity Cost Pools	Total Cost	Total Activity	Activity Rate
	Machining	$11,000	10,000 MHs	$1.10 per MH
	Setting up	$26,200	2,000 batches	$13.10 per batch

 

1. Assign overhead costs to products:

 

	Overhead cost for Product S7:
		Activity Rate	Activity	ABC Cost
	Machining	$1.10 per MH	8,400 MHs	$9,240
	Setting up	$13.10 per batch	200 batches	2,620
	Total			$11,860

 

	Overhead cost for Product W3:
		Activity Rate	Activity	ABC Cost
	Machining	$1.10 per MH	1,600 MHs	$1,760
	Setting up	$13.10 per batch	1,800 batches	23,580
	Total			$25,340

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

196) EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring one hour of direct labor time per unit to manufacture compared to one-half hour of direct labor time for Product S. Product W is produced on an automated production line.

 

Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $500,000 in manufacturing overhead costs and produce 10,000 units of Product W and 60,000 units of Product S during the current year. Unit cost for materials and direct labor are:

 

		Product S	Product W
	Direct material	$10	$24
	Direct labor	$8	$12

 

Required:

1. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year.

 

1. The company’s overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

 

			Total Activity
	Activity Cost Pools	Total Cost	Product S	Product W	Total
	Machine setups required	$200,000	800	1,200	2,000
	Purchase orders issued	43,500	500	100	600
	Machine-hours required	104,000	3,000	10,000	13,000
	Maintenance requests issued	152,500	860	1,140	2,000
		$500,000

 

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

 

 

 

Answer:

1. The company expects to work 40,000 direct labor-hours during the current year, computed as follows:

 

	Product S: 60,000 units × 0.5 DLH	30,000	DLHs
	Product W: 10,000 units × 1.0 DLHs	10,000	DLHs
	Total direct labor-hours	40,000	DLHs

 

Using these hours as a base, the predetermined overhead using direct labor-hours would be:

 

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $500,000 ÷ 40,000 DLHs = $12.50 per DLH

 

Using this overhead rate, the unit product cost of each product would be:

 

		Product S	Product W
	Direct materials	$10.00	$24.00
	Direct labor	8.00	12.00
	Manufacturing overhead:
	Product S: 0.5 DLH × $12.50 per DLH	6.25
	Product W: 1 DLH × $12.50 per DLH		12.50
	Unit product cost	$24.25	$48.50

 

1. The overhead rates are computed as follows:

 

	Activity Cost Pools	Total Cost	Total Activity		Activity Rate
	Machine setups	$200,000	2,000	setups	$100.00	per setup
	Purchase orders	$43,500	600	orders	$72.50	per order
	Machine-hours	$104,000	13,000	hours	$8.00	per hour
	Maintenance requests	$152,500	2,000	requests	$76.25	per request

 

The overhead cost charged to each product is:

 

The overhead cost charged to Product S is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machine setups	$100.00	per setup	800	setups	$80,000
	Purchase orders	$72.50	per order	500	orders	36,250
	Machine-hours	$8.00	per hour	3,000	hours	24,000
	Maintenance requests	$76.25	per request	860	requests	65,575
						$205,825

 

 

 

Overhead cost per unit of Product S = $205,825 ÷ 60,000 units = $3.43 per unit (rounded)

 

The overhead cost charged to Product W is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machine setups	$100.00	per setup	1,200	setups	$120,000
	Purchase orders	$72.50	per order	100	orders	7,250
	Machine-hours	$8.00	per hour	10,000	hours	80,000
	Maintenance requests	$76.25	per request	1,140	requests	86,925
						$294,175

Overhead cost per unit of Product W = $294,175 ÷ 10,000 units = $29.42 per unit (rounded)

 

Using activity-based costing, the unit product cost of each product would be:

 

		Product S	Product W
	Direct materials	$10.00	$24.00
	Direct labor	8.00	12.00
	Manufacturing overhead	3.43	29.42
	Unit product cost	$21.43	$65.42

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

197) Boudoin Corporation manufactures two products: Product T72T and Product L34S. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products T72T and L34S.

 

	Activity Cost Pool	Activity Measure	Total Cost	Total Activity
	Machining	Machine-hours	$345,000	15,000	MHs
	Machine setups	Number of setups	$180,000	450	setups
	Product design	Number of products	$94,000	2	products
	Order size	Direct labor-hours	$280,000	10,000	DLHs

 

	Activity Measure	Product T72T	Product L34S
	Machine-hours	8,000	7,000
	Number of setups	320	130
	Number of products	1	1
	Direct labor-hours	4,000	6,000

 

Required:

1. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product T72T?
2. Using the ABC system, what percentage of the total overhead cost is assigned to Product L34S?

 

 

 

Answer:

1. The activity rates would be computed as follows for the ABC system:

	Activity Cost Pool	(a) Estimated Overhead Cost	(b) Expected Activity		(a) ÷ (b) Activity Rate
	Machining	$345,000	15,000	MHs	$23	per MH
	Machine setups	$180,000	450	setups	$400	per setup
	Product design	$94,000	2	products	$47,000	per product
	Order size	$280,000	10,000	DLHs	$28	per DLH

 

The overhead cost charged to Product T72T under the ABC system is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machining	$23	per MH	8,000	MHs	$184,000
	Machine setups	$400	per setup	320	setups	$128,000
	Product design	$47,000	per product	1	products	$47,000
	Order size	$28	per DLH	4,000	DLHs	$112,000
	Total					$471,000

 

1. The overhead cost charged to Product L34S under the ABC system is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machining	$23	per MH	7,000	MHs	$161,000
	Machine setups	$400	per setup	130	setups	$52,000
	Product design	$47,000	per product	1	products	$47,000
	Order size	$28	per DLH	6,000	DLHs	$168,000
	Total					$428,000

 

The company’s total overhead cost is computed as follows:

	Machining	$345,000
	Machine setups	180,000
	Product design	94,000
	Order size	280,000
	Total estimated overhead cost	$899,000

 

The percentage of the total overhead cost that is assigned to Product L34S is computed as follows:

	Manufacturing overhead cost assigned to Product L34S (a)	$428,000
	Total manufacturing overhead cost (b)	$899,000
	Percentage of total manufacturing overhead cost assigned to Product L34S (a) ÷ (b)	47.61%

Difficulty: 1 Easy

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

198) Ciulla Corporation manufactures two products: Product J12N and Product H63J. The company is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products J12N and H63J.

 

	Activity Cost Pool	Activity Measure	Total Cost	Total Activity
	Machining	Machine-hours	$315,000	15,000	MHs
	Machine setups	Number of setups	$250,000	500	setups
	Product design	Number of products	$42,000	2	products
	Order size	Direct labor-hours	$280,000	10,000	DLHs

 

	Activity Measure	Product J12N	Product H63J
	Machine-hours	8,000	7,000
	Number of setups	260	240
	Number of products	1	1
	Direct labor-hours	3,000	7,000

 

Required:

1. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product H63J?
2. Using the ABC system, what percentage of the total overhead cost is assigned to Product J12N?

 

 

 

Answer:

a.

	Activity Cost Pool	(a) Estimated Overhead Cost	(b) Expected Activity		(a) ÷ (b) Activity Rate
	Machining	$315,000	15,000	MHs	$21	per MH
	Machine setups	$250,000	500	setups	$500	per setup
	Product design	$42,000	2	products	$21,000	per product
	Order size	$280,000	10,000	DLHs	$28	per DLH

 

The overhead cost charged to Product H63J under the ABC system is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machining	$21	per MH	7,000	MHs	$147,000
	Machine setups	$500	per setup	240	setups	$120,000
	Product design	$21,000	per product	1	products	$21,000
	Order size	$28	per DLH	7,000	DLHs	$196,000
	Total					$484,000

 

1. The overhead cost charged to Product J12N under the ABC system is:

	Activity Cost Pools	Activity Rate		Activity		ABC Cost
	Machining	$21	per MH	8,000	MHs	$168,000
	Machine setups	$500	per setup	260	setups	$130,000
	Product design	$21,000	per product	1	products	$21,000
	Order size	$28	per DLH	3,000	DLHs	$84,000
	Total					$403,000

 

	Machining	$315,000
	Machine setups	250,000
	Product design	42,000
	Order size	280,000
	Total estimated overhead cost	$887,000

 

Using the ABC system, the percentage of the total overhead cost that is assigned to Product J12N is computed as follows:

	Manufacturing overhead cost assigned to Product J12N (a)	$403,000
	Total manufacturing overhead cost (b)	$887,000
	Percentage of total manufacturing overhead cost assigned to Product J12N (a) ÷ (b)	45.43%

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

199) Daston Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,600 units of Product F and 3,000 units of Product G during the current year. Data relating to the company’s three activity cost pools are given below for the current year:

 

			Total Activity
	Activity Cost Pool	Total Cost	Product F		Product G		Total
	Machine setups	$14,960	130	setups	90	setups	220	setups
	Purchase orders	$63,360	650	orders	1,110	orders	1,760	orders
	Order size	$32,240	1,280	hours	1,200	hours	2,480	hours

 

Required:

Using the activity-based costing approach, determine the overhead cost per unit for each product.

 

Answer:  The activity rates for each activity cost pool are computed as follows:

		Total Cost	Total Activity		Activity Rate
	Machine setups	$14,960	220	setups	$68.00	per setup
	Purchase orders	$63,360	1,760	orders	$36.00	per order
	Order size	$32,240	2,480	hours	$13.00	per hour

 

The overhead cost charged to Product F is:

		Activity Rate		Activity		ABC Cost
	Machine setups	$68.00	per setup	130	setups	$8,840
	Purchase orders	$36.00	per order	650	orders	23,400
	Order size	$13.00	hours	1,280	per hour	16,640
	Total overhead cost					$48,880

 

The overhead cost charged to Product G is:

		Activity Rate		Activity		ABC Cost
	Machine setups	$68.00	per setup	90	setups	$6,120
	Purchase orders	$36.00	per order	1,110	orders	39,960
	Order size	$13.00	hours	1,200	per hour	15,600
	Total overhead cost					$61,680

 

Overhead cost per unit:

Product F: $48,880 ÷ 1,600 units = $30.55 per unit (rounded)

Product G: $61,680 ÷ 3,000 units = $20.56 per unit (rounded)

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

200) Dane Housecleaning provides housecleaning services to its clients.     The company uses an activity-based costing system for its overhead costs.  The company has provided the following data from its activity-based costing system.

 

	Activity Cost Pool	Total Cost	Total Activity
	Cleaning	$263,784	34,800	hours
	Job support	145,180	7,000	jobs
	Client support	4,774	220	clients
	Other	170,000	Not applicable
	Total	$583,738

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

One particular client, the Hoium family, requested 45 jobs during the year that required a total of 90 hours of housecleaning. For this service, the client was charged $2,000.

 

Required:

1. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations to the nearest whole cent.
2. Using the activity-based costing system, compute the customer margin for the Hoium family. Round off all calculations to the nearest whole cent.
3. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Hoium family. Round off all calculations to the nearest whole cent.

 

 

 

Answer:

1. The computation of the activity rates follow:

		Total Cost	Total Activity		Activity Rate
	Cleaning	$263,784	34,800	hours	$7.58	per hour
	Job support	$145,180	7,000	jobs	$20.74	per job
	Client support	$4,774	220	clients	$21.70	per client

 

1. The customer margin for the family is computed as follows:

		Activity Rate		Activity		ABC Cost
	Cleaning	$7.58	per hour	90	hours		$682.20
	Job support	$20.74	per job	45	jobs		933.30
	Client support	$21.70	per client	1	client		21.70
	Total overhead cost					$1,637.20

 

The customer margin for the family is computed as follows:

	Client charges		$2,000.00
	Costs:
	Cleaning	$682.20
	Job support	933.30
	Client support	21.70	1,637.20
	Customer margin		$362.80

 

1. The margin if all costs are allocated on the basis of cleaning hours:

 

Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total amount of the allocation base = $583,738 ÷ 34,800 hours = $16.77 per hour

 

	Client charges	$2,000.00
	Allocated costs (90 hours × $16.77 per hour)	1,509.30
	Customer margin	$490.70

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

201) Musich Corporation has an activity-based costing system with three activity cost pools–Machining, Setting Up, and Other. The company’s overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.

 

		Activity Cost Pools
		Machining	Setting Up	Other	Total
	Equipment depreciation	$7,200	$43,200	$21,600	$72,000
	Indirect labor	1,200	1,800	3,000	6,000
	Total	$8,400	$45,000	$24,600	$78,000

 

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company’s costs appear below:

 

		MHs	Batches
	Product Z3	4,900	200
	Product T1	5,100	800
	Total	10,000	1,000

 

		Product Z3	Product T1
	Sales (total)	$208,800	$244,500
	Direct materials (total)	$78,500	$95,400
	Direct labor (total)	$107,800	$99,700

 

Required:

1. Calculate activity rates for each activity cost pool using activity-based costing.
2. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
3. Determine the product margins for each product using activity-based costing.

 

 

 

Answer:

1. Computation of activity rates:

	Activity Cost Pools	Total Cost	Total Activity		Activity Rate
	Machining	$8,400	10,000	MHs	$0.84	per MH
	Setting up	$45,000	1,000	batches	$45.00	per batch

 

1. Assign overhead costs to products:

	Overhead cost for Product Z3:
		Activity Rate		Activity		ABC Cost
	Machining	$0.84	per MH	4,900	MHs	$4,116
	Setting up	$45.00	per batch	200	batches	9,000
	Total					$13,116

 

	Overhead cost for Product T1:
		Activity Rate		Activity		ABC Cost
	Machining	$0.84	per MH	5,100	MHs	$4,284
	Setting up	$45.00	per batch	800	batches	36,000
	Total					$40,284

 

1. Determine product margins:

		Product Z3		Product T1
	Sales		$208,800		$244,500
	Direct materials	$78,500		$95,400
	Direct labor	107,800		99,700
	Machining	4,116		4,284
	Setting up	9,000	199,416	36,000	235,384
	Product margin		$9,384		$9,116

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

202) The Kamienski Cleaning Brigade Company provides housecleaning services to its clients.    The company uses an activity-based costing system for its overhead costs.        The company has provided the following data from its activity-based costing system.

 

	Activity Cost Pool	Total Cost	Total Activity
	Cleaning	$185,752	21,700	hours
	Job support	171,532	6,100	jobs
	Client support	15,124	760	clients
	Other	240,000	Not applicable
	Total	$612,408

 

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

One particular client, the Whiddon family, requested 15 jobs during the year that required a total of 60 hours of housecleaning. For this service, the client was charged $1,170.

 

Required:

1. Using the activity-based costing system, compute the customer margin for the Whiddon family. Round off all calculations to the nearest whole cent.
2. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Whiddon family. Round off all calculations to the nearest whole cent.

 

 

 

Answer:

1. The first step is to compute activity rates:

		Total Cost	Total Activity		Activity Rate
	Cleaning	$185,752	21,700	hours	$8.56	per hour
	Job support	$171,532	6,100	jobs	$28.12	per job
	Client support	$15,124	760	clients	$19.90	per client

 

The overhead cost charged to the family is:

		Activity Rate		Activity		ABC Cost
	Cleaning	$8.56	per hour	60	hours		$513.60
	Job support	$28.12	per job	15	jobs		421.80
	Client support	$19.90	per client	1	client		19.90
	Total overhead cost					$955.30

 

The customer margin for the family is computed as follows:

	Client charges		$1,170.00
	Costs:
	Cleaning	$513.60
	Job support	421.80
	Client support	19.90	955.30
	Customer margin		$214.70

 

1. The margin if all costs are allocated on the basis of cleaning hours:

Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total amount of the allocation base = $612,408 ÷ 21,700 hours = $28.22 per hour

 

	Client charges	$1,170.00
	Allocated costs (60 hours × $28.22 per hour)	1,693.20
	Customer margin	($523.20)

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

203) Greife Corporation’s activity-based costing system has three activity cost pools–Machining, Setting Up, and Other. The company’s overhead costs have already been allocated to these cost pools as follows:

 

	Machining	$41,200
	Setting Up	$9,000
	Other	$33,800

 

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. The following table shows the machine-hours and number of batches associated with each of the company’s two products:

 

		MHs	Batches
	Product K0	3,700	100
	Product W9	16,300	1,900
	Total	20,000	2,000

 

Additional data concerning the company’s products appears below:

 

		Product K0	Product W9
	Sales (total)	$207,300	$218,400
	Direct materials (total)	$82,200	$50,100
	Direct labor (total)	$107,100	$119,400

 

Required:

1. Calculate activity rates for each activity cost pool using activity-based costing.
2. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
3. Determine the product margins for each product using activity-based costing.

 

 

 

Answer:

1. Computation of activity rates:

	Activity Cost Pools	Total Cost	Total Activity		Activity Rate
	Machining	$41,200	20,000	MHs	$2.06	per MH
	Setting up	$9,000	2,000	batches	$4.50	per batch

 

1. Assign overhead costs to products:

	Overhead cost for Product K0:
		Activity Rate		Activity		ABC Cost
	Machining	$2.06	per MH	3,700	MHs	$7,622
	Setting up	$4.50	per batch	100	batches	450
	Total					$8,072

 

	Overhead cost for Product W9:
		Activity Rate		Activity		ABC Cost
	Machining	$2.06	per MH	16,300	MHs	$33,578
	Setting up	$4.50	per batch	1,900	batches	8,550
	Total					$42,128

 

1. Determine product margins:

		Product K0		Product W9
	Sales		$207,300		$218,400
	Direct materials	$82,200		$50,100
	Direct labor	107,100		119,400
	Machining	7,622		33,578
	Setting up	450	197,372	8,550	211,628
	Product margin		$9,928		$6,772

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

204) Neas Corporation has an activity-based costing system with three activity cost pools–Machining, Setting Up, and Other. The company’s overhead costs have already been allocated to the cost pools and total $25,200 for the Machining cost pool, $17,200 for the Setting Up cost pool, and $41,600 for the Other cost pool.

 

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company’s costs appear below:

 

		MHs	Batches
	Product R8	6,600	200
	Product N8	3,400	800
	Total	10,000	1,000

 

		Product R8	Product N8
	Sales (total)	$252,600	$172,800
	Direct materials (total)	$125,100	$96,900
	Direct labor (total)	$95,200	$48,100

 

Required:

1. Calculate activity rates for each activity cost pool using activity-based costing.
2. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
3. Determine the product margins for each product using activity-based costing.

 

 

 

Answer:

1. Computation of activity rates:

	Activity Cost Pools	Total Cost	Total Activity		Activity Rate
	Machining	$25,200	10,000	MHs	$2.52	per MH
	Setting up	$17,200	1,000	batches	$17.20	per batch

 

1. Assign overhead costs to products:

	Overhead cost for Product R8:
		Activity Rate		Activity		ABC Cost
	Machining	$2.52	per MH	6,600	MHs	$16,632
	Setting up	$17.20	per batch	200	batches	3,440
	Total					$20,072

 

	Overhead cost for Product N8:
		Activity Rate		Activity		ABC Cost
	Machining	$2.52	per MH	3,400	MHs	$8,568
	Setting up	$17.20	per batch	800	batches	13,760
	Total					$22,328

 

1. Determine product margins:

		Product R8		Product N8
	Sales		$252,600		$172,800
	Direct materials	$125,100		$96,900
	Direct labor	95,200		48,100
	Machining	16,632		8,568
	Setting up	3,440	240,372	13,760	167,328
	Product margin		$12,228		$5,472

 

Difficulty: 1 Easy

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

205) Zwahlen Corporation has an activity-based costing system with three activity cost pools–Processing, Setting Up, and Other. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company’s costs and activity-based costing system appear below:

 

	Activity Cost Pools
	Processing	$55,800
	Setting up	$12,700
	Other	$28,500

 

		MHs	Batches
	Product D7	8,000	200
	Product H0	12,000	800
	Total	20,000	1,000

 

		Product D7	Product H0
	Sales (total)	$215,300	$301,100
	Direct materials (total)	$72,600	$145,200
	Direct labor (total)	$106,400	$96,200

 

Required:

1. Calculate activity rates for each activity cost pool using activity-based costing.
2. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
3. Determine the product margins for each product using activity-based costing.

 

 

 

Answer:

1. Computation of activity rates:

		Total Cost	Total Activity		Activity Rate
	Processing	$55,800	20,000	MHs	$2.79	per MH
	Setting up	$12,700	1,000	Batches	$12.70	per batch

 

1. The overhead cost charged to Product D7 is:

		Activity Rate		Activity		ABC Cost
	Processing	$2.79	per MH	8,000	MHs	$22,320
	Setting up	$12.70	per batch	200	batches	2,540
	Total overhead cost					$24,860

 

The overhead cost charged to Product H0 is:

		Activity Rate		Activity		ABC Cost
	Processing	$2.79	per MH	12,000	MHs	$33,480
	Setting up	$12.70	per batch	800	batches	10,160
	Total overhead cost					$43,640

 

1. Determine product margins:

		Product D7		Product H0
	Sales		$215,300		$301,100
	Direct materials	$72,600		$145,200
	Direct labor	106,400		96,200
	Processing	22,320		33,480
	Setting up	2,540	203,860	10,160	285,040
	Product margin		$11,440		$16,060

 

Difficulty: 2 Medium

Topic:  Calculate Activity Rates; Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-03 Compute activity rates for cost pools.; 05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

206) Doles Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

 

	Activity Cost Pools	Activity Rate
	Setting up batches	$98.54	per batch
	Processing customer orders	$42.00	per customer order
	Assembling products	$3.53	per assembly hour

 

Data concerning two products appear below:

 

		Product K52W	Product X94T
	Number of batches	55	73
	Number of customer orders	9	17
	Number of assembly hours	697	402

 

Required:

How much overhead cost would be assigned to each of the two products using the company’s activity-based costing system?

 

 

Answer:

The overhead cost charged to Product K52W is:

		Activity Rate		Activity		ABC Cost
	Setting up batches	$98.54	per batch	55	batch		$5,419.70
	Processing customer orders	$42.00	per customer order	9	customer orders		378.00
	Assembling products	$3.53	per assembly hour	697	assembly hour		2,460.41
	Total overhead cost					$8,258.11

 

The overhead cost charged to Product X94T is:

		Activity Rate		Activity		ABC Cost
	Setting up batches	$98.54	per batch	73	batch	$7,193.42
	Processing customer orders	$42.00	per customer order	17	customer orders	714.00
	Assembling products	$3.53	per assembly hour	402	assembly hour	1,419.06
	Total overhead cost					$9,326.48

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

207) Desjarlais Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

 

	Activity Cost Pools	Activity Rate
	Setting up batches	$32.22	per batch
	Assembling products	$6.13	per assembly hour
	Processing customer orders	$72.75	per customer order

 

Data concerning two products appear below:

 

		Product S96U	Product Q06F
	Number of batches	78	24
	Number of assembly hours	412	178
	Number of customer orders	53	18

 

Required:

1. How much overhead cost would be assigned to Product S96U using the company’s activity-based costing system? Show your work!

 

1. How much overhead cost would be assigned to Product Q06F using the company’s activity-based costing system? Show your work!

 

Answer:

1. Product S96U

	Setting up batches (78 batches × $32.22 per batch)	$2,513.16
	Assembling products (412 assembly hours × $6.13 per assembly hour)	2,525.56
	Processing customer orders (53 customer orders × $72.75 per customer order)	3,855.75
	Total overhead cost	$8,894.47

 

1. Product Q06F

	Setting up batches (24 batches × $32.22 per batch)	$773.28
	Assembling products (178 assembly hours × $6.13 per assembly hour)	1,091.14
	Processing customer orders (18 customer orders × $72.75 per customer order)	1,309.50
	Total overhead cost	$3,173.92

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

208) Archie Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

 

	Activity Cost Pools	Activity Rate
	Setting up batches	$16.68	per batch
	Processing customer orders	$98.60	per customer order
	Assembling products	$7.89	per assembly hour

 

Last year, Product X26X required 18 batches, 4 customer orders, and 103 assembly hours.

 

Required:

How much overhead cost would be assigned to Product X26X using the company’s activity-based costing system? Show your work!

 

Answer:

	Setting up batches (18 batches × $16.68 per batch)	$300.24
	Processing customer orders (4 customer orders × $98.60 per customer order)	394.40
	Assembling products (103 assembly hours × $7.89 per assembly hour)	812.67
	Total overhead cost	$1,507.31

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

209) Mcnamee Corporation’s activity-based costing system has three activity cost pools–Fabricating, Setting Up, and Other. Costs in the Fabricating cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. The activity rate for Fabricating is $0.14 per MH; the activity rate for Setting Up is $3.30 per batch. The following table shows the machine-hours and number of batches associated with each of the company’s two products:

 

		MHs	Batches
	Product O0	2,800	200
	Product O1	17,200	1,800
	Total	20,000	2,000

 

Required:

Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

 

Answer:  Overhead cost for Product O0:

		Activity Rate		Activity		ABC Cost
	Fabricating	$0.14	per MH	2,800	MHs	$392
	Setting up	$3.30	per batch	200	batches	660
	Total					$1,052

 

Overhead cost for Product O1:

		Activity Rate		Activity		ABC Cost
	Fabricating	$0.14	per MH	17,200	MHs	$2,408
	Setting up	$3.30	per batch	1,800	batches	5,940
	Total					$8,348

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

210) Orick Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

	Activity Cost Pool	Activity Measure	Activity Rate
	Supporting assembly	Direct labor-hours (DLHs)	$6.25	per DLH
	Processing batches	Number of batches	$181.40	per batch
	Processing orders	Number of orders	$54.00	per order
	Serving customers	Number of customers	$2,574.00	per customer

 

The cost of serving customers, $2,574.00 per customer, is the cost of serving a customer for one year. Peiffer Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

	Number of units purchased	900	units
	Number of batches	9	batches
	Number of orders	4	orders
	Direct labor-hour requirement	0.15	DLHs per unit
	Selling price	$23.95	per unit
	Direct materials cost	$7.00	per unit
	Direct labor cost	$2.35	per unit

 

Required:

1. According to the ABC system, what is the cost of the “Supporting assembly” activity for Peiffer Corporation for the year?
2. According to the ABC system, what is the cost of the “Processing batches” activity for Peiffer Corporation for the year?
3. According to the ABC system, what is the cost of the “Processing orders” activity for Peiffer Corporation for the year?
4. According to the ABC system, what is the cost of the “Servicing customers” activity for Peiffer Corporation for the year?
5. What is the customer margin on sales to Peiffer Corporation for the year?

 

 

 

Answer:

6. Supporting assembly = $6.25 per DLH × 0.15 DLHs per unit × 900 units = $843.75

 

b Processing batches = $181.40 per batch × 9 batches = $1,632.60

 

54. Processing orders = $54.00 per order × 4 orders = $216.00

 

574. Servicing customers = $2,574.00 per customer × 1 customer = $2,574.00

 

1. Customer Margin-ABC Analysis

	Sales (900 units × $23.95 per unit)		$21,555.00
	Costs:
	Direct materials ($7.00 per unit × 900 units)	$6,300.00
	Direct labor ($2.35 per unit × 900 units)	2,115.00
	Supporting assembly	843.75
	Processing batches	1,632.60
	Processing orders	216.00
	Servicing customers	2,574.00	13,681.35
	Customer margin		$7,873.65

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

211) Mcinture Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

	Activity Cost Pool	Activity Measure	Activity Rate
	Supporting assembly	Direct labor-hours (DLHs)	$4.20	per DLH
	Processing batches	Number of batches	$123.35	per batch
	Processing orders	Number of orders	$71.00	per order
	Serving customers	Number of customers	$2,334.00	per customer

 

The cost of serving customers, $2,334.00 per customer, is the cost of serving a customer for one year.

 

Schwerin Corporation buys only one of the company’s products which Mcinture Enterprises sells for $28.40 per unit. Last year Schwerin Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 6 batches were required. The direct materials cost is $8.40 per unit and the direct labor cost is $1.80 per unit. Each unit requires 0.10 DLHs.

 

Required:

What is the customer margin on sales to Schwerin Corporation for the year?

 

Answer:

	Customer Margin-ABC Analysis
	Sales (1,100 units × $28.40 per unit)		$31,240.00
	Costs:
	Direct materials ($8.40 per unit × 1,100 units)	$9,240.00
	Direct labor ($1.80 per unit × 1,100 units)	1,980.00
	Supporting assembly ($4.20 per DLH × 0.10 DLHs per unit × 1,100 units)	462.00
	Processing batches ($123.35 per batch × 6 batches)	740.10
	Processing orders ($71.00 per order × 2 orders)	142.00
	Servicing customers ($2,334.00 per customer × 1 customer)	2,334.00	14,898.10
	Customer margin		$16,341.90

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

212) Orozco Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

	Activity Cost Pool	Activity Measure	Activity Rate
	Supporting assembly	Direct labor-hours (DLHs)	$5.20	per DLH
	Processing batches	Number of batches	$107.55	per batch
	Processing orders	Number of orders	$88.75	per order
	Serving customers	Number of customers	$1,793.00	per customer

 

The cost of serving customers, $1,793.00 per customer, is the cost of serving a customer for one year. Ellyson Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

 

	Number of units purchased	900	units
	Number of batches	8	batches
	Number of orders	2	orders
	Direct labor-hour requirement	0.25	DLHs per unit
	Selling price	$16.30	per unit
	Direct materials cost	$6.60	per unit
	Direct labor cost	$5.00	per unit

 

Required:

What is the customer margin on sales to Ellyson Corporation for the year?

 

 

 

Answer:

	Customer Margin-ABC Analysis
	Sales (900 units × $16.30 per unit)		$14,670.00
	Costs:
	Direct materials ($6.60 per unit × 900 units)	$5,940.00
	Direct labor ($5.00 per unit × 900 units)	4,500.00
	Supporting assembly ($5.20 per DLH × 0.25 DLHs per unit × 900 units)	1,170.00
	Processing batches ($107.55 per batch × 8 batches)	860.40
	Processing orders ($88.75 per order × 2 orders)	177.50
	Servicing customers ($1,793.00 per customer × 1 customer)	1,793.00	14,440.90
	Customer margin		$229.10

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

213) Spigelmyer Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

 

	Activity Cost Pool	Activity Measure	Activity Rate
	Supporting assembly	Direct labor-hours (DLHs)	$5.50	per DLH
	Processing batches	Number of batches	$176.30	per batch
	Processing orders	Number of orders	$85.20	per order
	Serving customers	Number of customers	$1,039.00	per customer

 

The cost of serving customers, $1,039.00 per customer, is the cost of serving a customer for one year.

 

Oelschlaeger Corporation buys only one of the company’s products which Spigelmyer Enterprises sells for $18.05 per unit. Last year Oelschlaeger Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 8 batches were required. The direct materials cost is $6.20 per unit and the direct labor cost is $5.70 per unit. Each unit requires 0.30 DLHs.

 

Required:

1. According to the ABC system, what is the cost of the “Supporting assembly” activity for Oelschlaeger Corporation for the year?
2. According to the ABC system, what is the cost of the “Processing batches” activity for Oelschlaeger Corporation for the year?
3. According to the ABC system, what is the cost of the “Processing orders” activity for Oelschlaeger Corporation for the year?
4. According to the ABC system, what is the cost of the “Servicing customers” activity for Oelschlaeger Corporation for the year?
5. What is the customer margin on sales to Oelschlaeger Corporation for the year?

 

 

 

Answer:

5. Supporting assembly = $5.50 per DLH × 0.30 DLHs per unit × 1,100 units = $1,815.00

 

b Processing batches = $176.30 per batch × 8 batches = $1,410.40

 

85. Processing orders = $85.20 per order × 2 orders = $170.40

 

39. Servicing customers = $1,039.00 per customer × 1 customer = $1,039.00

 

1. Customer Margin-ABC Analysis

	Sales (1,100 units × $18.05 per unit)		$19,855.00
	Costs:
	Direct materials ($6.20 per unit × 1,100 units)	$6,820.00
	Direct labor ($5.70 per unit × 1,100 units)	6,270.00
	Supporting assembly	1,815.00
	Processing batches	1,410.40
	Processing orders	170.40
	Servicing customers	1,039.00	17,524.80
	Customer margin		$2,330.20

 

Difficulty: 1 Easy

Topic:  Assign Overhead Costs to Cost Objects; Prepare Management Reports Related to Activity-Based Costing

Learning Objective:  05-04 Assign costs to a cost object using a second-stage allocation.; 05-05 Use activity-based costing to compute product and customer margins.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement