Cost Management A strategic Emphasis 7th Edition By Edward Blocher - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Activity-Based Costing and Customer Profitability Analysis Multiple Choice Questions 1. The major limitation of volume-based costing systems is the use of volume-based: …
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Cost Management A strategic Emphasis 7th Edition By Edward Blocher – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05
Activity-Based Costing and Customer Profitability Analysis
Multiple Choice Questions
| 1. | The major limitation of volume-based costing systems is the use of volume-based:
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| 2. | Volume-based rates produce inaccurate product cost when:
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| 3. | If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the:
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| 4. | Volume-based overhead rates may cause undesirable strategic effects such as:
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| 5. | Activity-based costing (ABC) differs from other costing approaches in that it more accurately measures the cost of activities that are:
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| 6. | In performing activity analysis during the design of an activity-based costing (ABC) system, the management accountant studies:
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| 7. | Effective implementation of activity-based costing (ABC) requires:
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| 8. | Elimination of low-value-added activities in a firm should:
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| 9. | When gathering activity data, which of the following would not be a question that ABC project team members typically ask employees or managers?
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| 10. | Successful activity-based costing (ABC) implementation depends upon the firm:
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| 11. | A measure of the quantity of resources consumed by an activity is:
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| 12. | A measure of frequency and intensity of demands placed on activities by cost objects is:
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| 13. | An activity that is performed for each unit of production is a(n):
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| 14. | An activity that is performed to support the production of a new custom-order product is a:
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| 15. | Which one of the following is not a unit-level cost driver?
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| 16. | The management of activities to improve the value received by the customer and the competitiveness of the organization is:
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| 17. | The examination of the efficiency of each of a firm’s activities is:
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| 18. | Which one of the following is a high value-added activity?
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| 19. | In regard to selling activities, which one of the following would not be a cost driver for selling expense?
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| 20. | Which one of the following is not a recommendation for a successful implementation of ABC/M?
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| 21. | Which of the following activities is a facility-level activity?
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| 22. | A company using a volume-based overhead assignment (allocation) method will tend to:
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| 23. | Which of the following is a batch-level cost driver?
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| 24. | Which of the following activities is a facility-level activity?
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| 25. | In an organization that makes furniture, which of the following is a high value-added activity?
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| 26. | Overhead costs are allocated to cost objects in an activity-based costing system in the following manner:
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| 27. | Which of the following is a batch-level cost driver?
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| 28. | Which of the following has the weakest linkage between activity and cost driver?
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| 29. | A volume-based rate is an appropriate overhead application base when:
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| 30. | Which of the following would likely be the most appropriate cost driver of electric power used by machines?
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| 31. | Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to:
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| 32. | Which of the following is an example of a high-value-added activity?
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| 33. | Engineering change orders, maintenance of equipment used in manufacturing, and product design costs are examples of:
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| 34. | In an activity-based costing system, overhead costs are divided into separate:
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| 35. | Which of the following would likely be the most appropriate cost driver to allocate machine set-up costs to products?
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| 36. | A firm has many products, some produced in an automated production process and some produced in a manual production process. Using direct labor hours to assign manufacturing overhead to a product manufactured with a highly automated process is likely to:
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| 37. | Activity-based costing for manufacturing operations is used to assign:
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| 38. | The use of activity-based costing is most appropriate for:
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| 39. | Which of the following is a benefit of activity-based costing?
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| 40. | Which of the following is not normally associated with activity-based costing?
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| 41. | Which of the following is not considered a benefit of activity-based costing?
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| 42. | Which of the following would be the most appropriate cost driver to allocate factory electricity costs to products?
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| 43. | Which of the following activity cost pools would most likely be allocated based on the number of production runs?
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| 44. | Which of the following is most likely to be the cost driver for the packaging and shipping activity?
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| 45. | Activity-based costing systems:
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| 46. | Which of the following is not true regarding activity-based costing (ABC) systems?
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| 47. | All of the following are low-value-added activities except:
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| 48. | Which of the following cost pools are used to classify costs under activity-based costing?
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| 49. | Purchase order, set-up, and inspection costs are examples of:
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| 50. | Which of the following would not be considered a facility-level activity?
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| 51. | Costs at the unit-level of activity should be allocated to products using cost drivers that are:
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| 52. | If a costing system uses a single base to allocate overhead costs that are results of several production activities:
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| 53. | Procurement costs such as costs of placing orders for materials and paying suppliers are usually classified as:
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| 54. | The cost of sales visits is a:
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| 55. | Freight charges based on number of units shipped to customers is a:
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| 56. | Processing sales returns and allowances is usually classified as a:
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| 57. | Invoicing cost is an example of a:
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| 58. | The cost to process monthly statements is an example of a:
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| 59. | The costs of operating a regional warehouse is an example of a:
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| 60. | General corporate sales expenditures are:
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| 61. | The general sales manager’s salary is an example of a:
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| 62. | Which of the following is a description of categorizing related customer costs into cost pools on the basis of cost drivers?
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| 63. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
If Wings uses a volume-based overhead rate based on direct labor hours, the manufacturing overhead for Job #971 is:
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| 64. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, the materials handling overhead cost assigned to Job #971 is:
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| 65. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, overhead cost assigned to Job #971 for machine setup is:
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| 66. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, overhead cost assigned to Job #971 for machine repair is:
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| 67. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, overhead cost assigned to Job #971 for inspections is:
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| 68. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
The total overhead of Job #971 under the ABC costing is:
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| 69. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
What is the overhead application rate using the firm’s volume-based costing system (rounded to the nearest percent or cents)?
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| 70. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using the firm’s volume-based costing, applied factory overhead per unit for the High F model is (rounded to the nearest cent):
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| 71. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using the firm’s volume- based costing, applied factory overhead per unit for the Great P model is (rounded to the nearest cent):
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| 72. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied engineering and design factory overhead for the High F model per unit is (rounded to the nearest cent):
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| 73. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied quality control factory overhead for the High F model per unit is (rounded to the nearest cent):
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| 74. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied machinery overhead for the High F model per unit is (rounded to the nearest cent):
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| 75. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied miscellaneous overhead for the High F model per unit is (rounded to the nearest cent):
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| 76. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, total overhead per unit of the High F model is (rounded to the nearest cent):
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| 77. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied engineering and design factory overhead for the Great P model per unit is (rounded to the nearest cent):
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| 78. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied quality control factory overhead for the Great P model per unit is (rounded to the nearest cent):
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| 79. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied machinery overhead for the Great P model per unit is (rounded to the nearest cent):
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| 80. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied miscellaneous overhead for the Great P model per unit is (rounded to the nearest cent):
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| 81. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, total overhead per unit of Great P model is (rounded to the nearest cent):
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| 82. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied quality control factory overhead for the 1,000 laser printers order is:
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| 83. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied machine repetition overhead for the 1,000 laser printers order is:
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| 84. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied materials handling factory overhead for the 1,000 laser printers order is:
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| 85. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied miscellaneous factory overhead for the 1,000 laser printers order based on direct labor hours is:
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| 86. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
What is the total overhead cost per unit of the laser printers order using activity-based costing (rounded to the nearest cent)?
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| 87. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied quality control factory overhead for the baseball cleat order is:
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| 88. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied machine overhead for the baseball cleat order is:
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| 89. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied materials handling factory overhead for the baseball cleat order is:
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| 90. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied miscellaneous factory overhead for the baseball cleat order based on direct labor hours is:
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| 91. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
ABC costing helps an organization implement its strategy through all of the following means except:
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| 92. | If Activity X had a budgeted cost of $125,000 and a budgeted activity consumption of 10,000 engineering hours, what would the activity consumption rate be?
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| 93. | Customer lifetime value is a type of analysis used to:
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| 94. | The cost of unused capacity can be determined using ABC costing for the purpose of:
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| 95. | Multistage ABC is used when:
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| 96. | An adaptation of ABC costing that simplifies ABC by assigning resource costs directly to cost objects is called:
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| 97. | The Time Equation is used in ABC to:
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| 98. | In the context of ABC, cross-subsidization refers to:
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| 99. | Important concepts in resource consumption accounting include all of the following except:
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| 100. | Time-driven ABC provides a direct way to measure:
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| 101. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
What is the total manufacturing overhead for the current product order if the firm uses a plantwide rate based on direct labor-hours?
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| 102. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
What is the total manufacturing overhead for the current product order if the firm assigns overhead costs based on machine hours?
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| 103. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much machine setup overhead is assigned to the order?
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| 104. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much material handling overhead is assigned to the order?
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| 105. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much quality control overhead is assigned to the order?
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| 106. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much other overhead is assigned to the order?
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| 107. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much total overhead is assigned to the order?
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| 108. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
What is the total manufacturing overhead assigned to the current order for Men’s Razors if the firm uses a volume-based plant wide overhead rate based on direct labor dollars?
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| 109. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
What is the total manufacturing overhead assigned to the current order for Women’s Razors if the firm uses a volume-based plant wide overhead rate based on direct labor hours?
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| 110. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much facility-level overhead is assigned to the current order for Men’s Razors?
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| 111. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much product-level overhead is assigned to the current order for Men’s Razors?
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| 112. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much product-level overhead is assigned to the current order for Women’s Razors?
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| 113. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much batch-level overhead is assigned to the current order for Women’s Razors based on pounds of raw materials?
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| 114. | Wang Company has established the following overhead cost pools and cost drivers for the month of May:
The following information pertains to the actual consumption of activity resources for two sample jobs completed during May.
What is the activity-based overhead rate per purchase order?
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| 115. | Wang Company has established the following overhead cost pools and cost drivers for the month of May:
The following information pertains to the actual consumption of activity resources for two sample jobs completed during May.
Using ABC, what is the overhead cost per unit produced for Job M2?
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| 116. | Orange, Inc. has identified the following cost drivers for its expected overhead costs for the year:
Total direct labor hours budgeted = 2,000 hours. The following data applies to Product X, one of the products completed during the year.
If a volume-based costing system based on direct labor hours to assign overhead is used, the total overhead cost for Product X will be:
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| 117. | Orange, Inc. has identified the following cost drivers for its expected overhead costs for the year:
Total direct labor hours budgeted = 2,000 hours. The following data applies to Product X, one of the products completed during the year.
If the activity-based cost drivers are used to allocate overhead cost, the total overhead cost of Product X will be:
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| 118. | Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of manufacturing overhead that should be assigned to each of the two product lines from the information given below.
Budgeted material-handling costs are $50,000. Under a costing system that allocates manufacturing overhead on the basis of direct labor hours, the material-handling cost per wall mirror is:
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| 119. | Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of manufacturing overhead that should be assigned to each of the two product lines from the information given below.
Budgeted material-handling costs are $50,000. The material-handling cost per wall mirror under ABC is:
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| 120. | Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:
With a volume-based costing system that applies overhead based on direct labor hours, the setup cost portion of overhead for each unit is (rounded to the nearest cent):
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| 121. | Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:
Use of activity-based costing would allocate the following amounts of setup cost to each unit (rounded to the nearest cent):
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| 122. | Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:
Assume the cost per setup remains at $2,000 but that the batch size for product Alpha is changed from 10 to 25 units per batch. Using activity-based and a volume-based overhead costing that uses direct labor-hours to assign overhead, the amount of setup cost applied to each unit of product Alpha would be (rounded to the nearest cent):
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| 123. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total customer-sustaining cost applicable to Ninto?
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| 124. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total customer batch-level cost applicable to Ninto?
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| 125. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total sales-sustaining cost applicable to XBT as a customer?
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| 126. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total customer unit-level cost applicable to XBT as a customer?
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| 127. | Service and not-for-profit organizations often:
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| 128. | Customer profitability analysis:
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Essay Questions
| 129. | Scott Cameras produces digital cameras and have decided to switch from a volume-based system to an activity-based system. Scott produced 100,000 digital cameras in the most recent quarter and has determined that their total activity costs were: $3,000,000 of materials cost, $500,000 of labor costs, $1,000,000 of inspection costs, and $500,000 of packaging costs. It takes 30 minutes of labor to produce each camera, inspections are done for 20% of all cameras produced, and cameras are packaged individually.
Required: What are the driver rates for each activity?
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| 130. | Plant overhead for ABC Corp in $150 million per year, a portion of which (20%) is attributable to inspection costs which are charged to products on the basis the number of parts in the products. The plant produces 500,000 units per year, and on the average, each product has 20 parts.
Required: What is the average inspection cost in a product? What is the inspection cost for a product with 50 parts?
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| 131. | Johnson Associates is a catering firm in Tucson, Arizona, with revenue of $4 million. The business began ten years ago as a one-owner bakery, but has dramatically changed in size and function during the past five years. The four partners foresee the business doubling in sales revenue within two years, and expect the firm to expand into other services including flowers, furnishings, decorations, and music. Johnson Associates employs six full-time and ten part-time employees. The four partners also work full-time, each partner managing a separate business function. The firm currently uses a volume-based costing system installed seven years ago and modified three years later.
Required: (1) With just the above information, comment on Johnson Associates changing and future costing system needs.
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| 132. | Two students in a cost accounting class were arguing about the need to gather good unit cost information for manufacturing. One student, Travis, maintained that a firm producing and selling large quantities of relatively few products would have no need for an ABC system, since an ABC system is usually more expensive to implement than a volume-based system. Alicia countered that even firms with high-volume homogeneous products could benefit from a cost management technique like activity-based costing (ABC).
Required: Choose sides in this discussion and present justifications for your choice.
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| 133. | The controller for Alabama Cooking Oil Co. established the following overhead cost pools and cost drivers:
An order of 800 barrels of cooking oil used:
Required: (1) What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? (Round your intermediate calculation to the nearest cent and final answer to the nearest whole dollar.)
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| 134. | Blackwelder Co. manufactures a variety of electric razors used by both men and women. The company’s plant is partially automated. The company uses an activity-based cost system. Listed below is cost driver information used in the product-costing system:
Two current product orders had the following requirements:
Required: 1. Using ABC costing, how much overhead is assigned to the order for men’s razors?
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| 135. | Classify each of the following costs as unit-level (U), batch-level (B), product-level (P), or facility-level (F) costs and identify an appropriate example of a possible cost driver for each item:
(1) Parts administration
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| 136. | Pairing Company has the following cost drivers identified as A through F for determining product manufacturing overhead costs.
(A) Number of pieces of equipment For each of the following activity cost pools, choose the letter of the most appropriate cost driver for each cost pool. Heating costs
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| 137. | Altima Company uses an overhead costing system based on direct labor hours for its two products X and Y. The company is considering adopting an activity-based costing system, and collects the following information for the month of October.
Required: (1) Compute the unit manufacturing cost of each product under a volume-based costing system based on direct labor hours.
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| 138. | Castenet Company uses a volume-based costing system that applies overhead cost based on direct labor hours at $250 per direct labor hour.
The company is considering adopting an activity-based costing system with the following data:
The two jobs processed in the month of June had the following characteristics:
Required: 1. Compute the unit manufacturing cost of each job under the firm’s current volume-based costing system. (a) Why do the two cost systems differ in their total cost for each job?
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| 139. | Demski Company has used a two-stage cost allocation system for many years. In the first stage, plant overhead costs are allocated to two production departments, P1 and P2, based on machine hours. In the second stage, Demski uses direct labor hours to assign overhead costs from the production departments to individual products A and B.
Budgeted factory overhead costs for the year are $300,000. Both the budgeted and actual machine hours in P1 and P2 are 12,000 and 28,000 hours, respectively. After attending a seminar to learn the potential benefits of adopting an activity-based costing system (ABC), Ted Demski, the president of Demski Company, is considering implementing an ABC system. Upon his request, the controller at Demski Company has compiled the following information for analysis:
Demski manufactures two types of product, A and B, for which the following information is available:
Required: 1. Determine the unit cost for each of the two products using the traditional two-stage allocation method. Round calculations to 2 decimal places. (a) Why do two the cost systems differ in their total cost for each product?
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| 140. | Swenson Company manufactures 4,000 units of Deluxe Product and 20,000 units of Regular Product each year. The company currently uses direct labor-hours to assign overhead cost to products. The pre-determined overhead rate is:
Suppose, however, that factory overhead costs are actually caused by the five activities listed below:
Also suppose the following transaction data has been collected:
Required: Using the activity-based costing method to calculate unit costs of Deluxe and Regular products, and compare them with the current direct labor hours-based costing system.
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| 141. | Moss Manufacturing has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company’s ten QC inspectors were charged as direct labor to the operation or job. In an effort to improve efficiency and quality, a computerized video QC system was purchased for $250,000. The system consists of a minicomputer, 15 video cameras, other peripheral hardware, and software.
The new system used cameras stationed by QC engineers at key points in the production process. Each time an operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded into the computer by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a “good” unit. Any differences are sent to a QC engineer who removes the bad units and discusses the flaws with the production supervisors. The new system has replaced the ten QC inspectors with two QC engineers. The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the company’s volume-based factory overhead rate which is based on direct labor dollars. The company’s president is confused. His vice president of production has told him how efficient the new system is, yet there is a large increase in the factory overhead rate. The computation of the rate before and after automation is shown below.
“Three hundred percent,” lamented the president, “How can we compete with such a high factory overhead rate?” Required: 1. a. Define factory overhead, and cite three examples of typical costs that would be included in factory overhead. 2. Explain why the increase in the overhead rate should not have a negative financial impact on Moss Manufacturing.
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| 142. | The controller for Ocean Sailboats Inc., a company which uses an automated process to make sailboats, established the following overhead cost pools and cost drivers:
A recent order for sailboats used:
Required: 1. What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system?
|
| 143. | Skateline Inc. designs and manufactures roller skates. The following data pertain to two of its major customers: FantasticSkates and SkateToday.
Required: Compare the net proceeds from each customer to Skateline Inc. 30 days after sale. (rounded to nearest dollar for each step where applicable).
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| 144. | Certo Health Products was formed two years ago to produce and distribute a newly-patented protein supplement. Two variations of the original supplement have since been developed and introduced for general sale. The three products are processed in essentially the same way, but Ann Marshall, the owner of Certo, anticipates that a half-dozen new products will be developed for sale in the next two years. These products will not be variations of the patented supplement, and will require a different production process other than the one currently used. Ann has asked you to review the current use of a single volume-based rate and explain the arguments for using departmental rates with activity-based drivers.
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| 145. | Cost Pools and Cost Drivers: Based on a recent study of its manufacturing operations Johnston Manufacturing Corporation has identified six resource consumption cost drivers. These cost drivers and their budgeted activity levels for the coming year are:
The firm has budgeted the following costs for the year:
With the exception of the factory space cost pool, which uses machine-hours as the activity consumption cost driver, other cost pools have identical resource and activity consumption cost drivers. Required: 1. Identify the most appropriate activity cost pool for each of the cost items and cost driver for each activity cost pool you identified.
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| 146. | Volume-Based Costing Versus ABC: Gorden Company produces a variety of electronic products. One of its plants produces two laser printers, Speedy and Deluxe. At the beginning of 2013, the following data were prepared for this plant:
The unit overhead cost is calculated using the predetermined overhead application rate based on direct labor-hours.
* Cost per unit of cost driver Required: 1. Using the projected data based on the firm’s current costing system, calculate gross profit per unit and gross profit percentage for each product. Round calculations to 2 decimal places.
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| 147. | Customer Profitability Analysis: Boston Depot sells office supplies to area corporations and organizations. Tom Delayne, founder and CEO, has been disappointed with the operating results and the profit margin for the last two years. Business forms are mostly a “commodity” business with low profit margins. To increase profit margins and gain competitive advantages, Delayne introduced “Desk-Top Delivery” service. The business seems to be as busy as ever. Yet, the operating income has been declining. To help identify the root cause of declining profits, he decided to analyze the profitability of two of the firm’s major customers: Omega International (OI) and City of Albion (CA).
According to the customer profitability analysis that Boston Depot conducts regularly, Boston Depot has the same amount of total sales with both OI and CA. However, the firm earns a higher gross margin and gross margin ratio from CA than those from the sales to OI, as demonstrated here:
Boston Depot adds a flat 17.5 percent to all sales for expenses incurred in such activities as handling customers’ requests, pick-packing, order delivery, warehousing, and data entry. However, not all customers require the same level of services. Operation Manager, Jamie Steel, points out that CA has been a much heavier service user than OI. She shows the following data to support her belief:
Controller Rod Jay has been investigating ways to determine the costs of performing various activities. He summarized his findings:
Steel points out that activities cost money. Two customers who request different service activities most likely are not costing the firm the same. Required: 1. Using activity-based costing, compute the charges per unit of service activities.
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| 148. | Customer Profitability Analysis: Spring Company collected the following data pertaining to its activities with selected customers.
Spring Company mails monthly statements on or before the first day of each month. HS pays all of its account payables within the payment discount periods. Adventix does not take the early payment discounts. In fact, the company pays half of its accounts on the date that these accounts are due and pays the remainder at the end of the following month. Baldwin also does not take advantage of discounts for early payments. However, it pays its accounts on the specified due date. Cost of goods sold is sixty percent of gross sales price. Joan Lieberman, the controller of Spring Company, has estimated that the cost of working capital is approximately 2 percent per month. Lieberman also gathered the following cost data:
Required: Prepare and interpret a customer profitability analysis for Spring Company. How does it help Spring Company become more competitive and profitable?
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| 149. | Volume-based Versus ABC Overhead Rate: Medical Arts Hospital (MAH) uses a hospital-wide overhead rate based on nurse-hours. The intensive care unit (ICU), which has 30 beds, applies overhead using patient-days. Its budgeted cost and operating data for the year follow:
In June, MAH’s intensive care unit had the following operating data: 81,000 nurse-hours Required: 1. Calculate the ICU’s overhead costs for the month of June using a. The hospital-wide rate 2. Explain the differences and determine which overhead assignment method is more appropriate. |
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Chapter 05 Activity-Based Costing and Customer Profitability Analysis Answer Key
Multiple Choice Questions
| 1. | The major limitation of volume-based costing systems is the use of volume-based:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-01 Explain the strategic role of activity-based costing. Topic: Strategic Role-Volume-Based Costing |
| 2. | Volume-based rates produce inaccurate product cost when:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 3 Hard Learning Objective: 05-01 Explain the strategic role of activity-based costing. Topic: Strategic Role-Volume-Based Costing |
| 3. | If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the strategic role of activity-based costing. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 4. | Volume-based overhead rates may cause undesirable strategic effects such as:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the strategic role of activity-based costing. Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Strategic Role-Volume-Based Costing |
| 5. | Activity-based costing (ABC) differs from other costing approaches in that it more accurately measures the cost of activities that are:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 6. | In performing activity analysis during the design of an activity-based costing (ABC) system, the management accountant studies:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 7. | Effective implementation of activity-based costing (ABC) requires:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: ABC/M-Implementation and Enhancement |
| 8. | Elimination of low-value-added activities in a firm should:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-04 Explain activity-based management (ABM). Topic: Value-Added Analysis |
| 9. | When gathering activity data, which of the following would not be a question that ABC project team members typically ask employees or managers?
|
| AACSB: Reflective Thinking AICPA: BB Resource Management AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 10. | Successful activity-based costing (ABC) implementation depends upon the firm:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: ABC/M-Implementation and Enhancement |
| 11. | A measure of the quantity of resources consumed by an activity is:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 12. | A measure of frequency and intensity of demands placed on activities by cost objects is:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 13. | An activity that is performed for each unit of production is a(n):
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 14. | An activity that is performed to support the production of a new custom-order product is a:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 15. | Which one of the following is not a unit-level cost driver?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 16. | The management of activities to improve the value received by the customer and the competitiveness of the organization is:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain activity-based management (ABM). Topic: Activity-Based Costing |
| 17. | The examination of the efficiency of each of a firm’s activities is:
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| AACSB: Reflective Thinking AICPA: BB Resource Management AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain activity-based management (ABM). Topic: Activity-Based Costing |
| 18. | Which one of the following is a high value-added activity?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain activity-based management (ABM). Topic: Value-Added Analysis |
| 19. | In regard to selling activities, which one of the following would not be a cost driver for selling expense?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 20. | Which one of the following is not a recommendation for a successful implementation of ABC/M?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: ABC/M-Implementation and Enhancement |
| 21. | Which of the following activities is a facility-level activity?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 22. | A company using a volume-based overhead assignment (allocation) method will tend to:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 23. | Which of the following is a batch-level cost driver?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 24. | Which of the following activities is a facility-level activity?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 25. | In an organization that makes furniture, which of the following is a high value-added activity?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain activity-based management (ABM). Topic: Value-Added Analysis |
| 26. | Overhead costs are allocated to cost objects in an activity-based costing system in the following manner:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Activity-Based Costing |
| 27. | Which of the following is a batch-level cost driver?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 28. | Which of the following has the weakest linkage between activity and cost driver?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 29. | A volume-based rate is an appropriate overhead application base when:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the strategic role of activity-based costing. Topic: Strategic Role-Volume-Based Costing |
| 30. | Which of the following would likely be the most appropriate cost driver of electric power used by machines?
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| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 31. | Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to:
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 32. | Which of the following is an example of a high-value-added activity?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain activity-based management (ABM). Topic: Value-Added Analysis |
| 33. | Engineering change orders, maintenance of equipment used in manufacturing, and product design costs are examples of:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 34. | In an activity-based costing system, overhead costs are divided into separate:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Activity-Based Costing |
| 35. | Which of the following would likely be the most appropriate cost driver to allocate machine set-up costs to products?
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| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 36. | A firm has many products, some produced in an automated production process and some produced in a manual production process. Using direct labor hours to assign manufacturing overhead to a product manufactured with a highly automated process is likely to:
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| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing Topic: Product Costing |
| 37. | Activity-based costing for manufacturing operations is used to assign:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Activity-Based Costing |
| 38. | The use of activity-based costing is most appropriate for:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-01 Explain the strategic role of activity-based costing. Topic: Strategic Role-Activity-Based Costing |
| 39. | Which of the following is a benefit of activity-based costing?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 40. | Which of the following is not normally associated with activity-based costing?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 41. | Which of the following is not considered a benefit of activity-based costing?
|
| AACSB: Reflective Thinking AICPA: BB Resource Management AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-01 Explain the strategic role of activity-based costing. Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 42. | Which of the following would be the most appropriate cost driver to allocate factory electricity costs to products?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 43. | Which of the following activity cost pools would most likely be allocated based on the number of production runs?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 44. | Which of the following is most likely to be the cost driver for the packaging and shipping activity?
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 45. | Activity-based costing systems:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Activity-Based Costing |
| 46. | Which of the following is not true regarding activity-based costing (ABC) systems?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 47. | All of the following are low-value-added activities except:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain activity-based management (ABM). Topic: Value-Added Analysis |
| 48. | Which of the following cost pools are used to classify costs under activity-based costing?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 49. | Purchase order, set-up, and inspection costs are examples of:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 50. | Which of the following would not be considered a facility-level activity?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 51. | Costs at the unit-level of activity should be allocated to products using cost drivers that are:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 52. | If a costing system uses a single base to allocate overhead costs that are results of several production activities:
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 53. | Procurement costs such as costs of placing orders for materials and paying suppliers are usually classified as:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 54. | The cost of sales visits is a:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 55. | Freight charges based on number of units shipped to customers is a:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 56. | Processing sales returns and allowances is usually classified as a:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 57. | Invoicing cost is an example of a:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 58. | The cost to process monthly statements is an example of a:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 59. | The costs of operating a regional warehouse is an example of a:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Profitability |
| 60. | General corporate sales expenditures are:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 61. | The general sales manager’s salary is an example of a:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 62. | Which of the following is a description of categorizing related customer costs into cost pools on the basis of cost drivers?
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 63. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
If Wings uses a volume-based overhead rate based on direct labor hours, the manufacturing overhead for Job #971 is:
1. ($160,000 + $13,260 + $1,380 + $10,560) ÷ 2,315 budgeted hours = $80 per direct labor hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 64. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, the materials handling overhead cost assigned to Job #971 is:
1. $160,000 ÷ 3,200 pounds = $50 per pound of direct materials |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 65. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, overhead cost assigned to Job #971 for machine setup is:
1. $13,260 ÷ 390 set-ups = $34 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 66. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, overhead cost assigned to Job #971 for machine repair is:
1. $1,380 ÷ 30,000 machine hours = $.046 per machine hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 67. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
Using ABC, overhead cost assigned to Job #971 for inspections is:
1. $10, 560 ÷ 160 inspections = $66 per inspection |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 68. | Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
The total overhead of Job #971 under the ABC costing is:
$6,500 + $1,020 + $690 + $990 = $9,200 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 69. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
What is the overhead application rate using the firm’s volume-based costing system (rounded to the nearest percent or cents)?
$1,349,040 ÷ [(10,000 × $17.52) + (16,000 × $13.14)] = 3.5 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 70. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using the firm’s volume-based costing, applied factory overhead per unit for the High F model is (rounded to the nearest cent):
$17.52 × 350% = $61.32 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 71. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using the firm’s volume- based costing, applied factory overhead per unit for the Great P model is (rounded to the nearest cent):
$13.14 × 350% = $45.99 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 72. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied engineering and design factory overhead for the High F model per unit is (rounded to the nearest cent):
1. $404,712 ÷ 2,409 hours = $168 per engineering & design hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 73. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied quality control factory overhead for the High F model per unit is (rounded to the nearest cent):
1. $269,808 ÷ 12,848 inspection hours = $21 per inspection hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 74. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied machinery overhead for the High F model per unit is (rounded to the nearest cent):
1. $539,616 ÷ 33,726 machine hours = $16 per machine hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 75. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied miscellaneous overhead for the High F model per unit is (rounded to the nearest cent):
1. $134,904 ÷ 26,400 = $5.11 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 76. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, total overhead per unit of the High F model is (rounded to the nearest cent):
$16.28 + $11.86 + $32.46 + $6.13 = $66.73 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 77. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied engineering and design factory overhead for the Great P model per unit is (rounded to the nearest cent):
1. $404,712 ÷ 2,409 hours = $168 per engineering & design hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 78. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied quality control factory overhead for the Great P model per unit is (rounded to the nearest cent):
1. $269,808 ÷ 12,848 inspection hours = $21 per inspection hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 79. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied machinery overhead for the Great P model per unit is (rounded to the nearest cent):
1. $539,616 ÷ 33,726 machine hours = $16 per machine hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 80. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, applied miscellaneous overhead for the Great P model per unit is (rounded to the nearest cent):
1. $134,904 ÷ 26,400 = $5.11 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 81. | National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:
Using activity-based costing, total overhead per unit of Great P model is (rounded to the nearest cent):
$15.12 + $9.45 + $13.44 + $4.60 = $42.61 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 82. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied quality control factory overhead for the 1,000 laser printers order is:
1. $64,800 ÷ 1,080 = $60 per inspection |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 83. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied machine repetition overhead for the 1,000 laser printers order is:
1. $132,000 ÷ 1,100 = $120 per machine hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 84. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied materials handling factory overhead for the 1,000 laser printers order is:
1. $900 ÷ 30 = $30 per batch |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 85. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
Using activity-based costing, applied miscellaneous factory overhead for the 1,000 laser printers order based on direct labor hours is:
1. $48,000 ÷ 4,000 direct labor hours = $12 per labor hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 86. | Sheen Co. manufacturers laser printers. It has outlined the following overhead cost drivers:
Sheen Co. has an order for 1,000 laser printers that has the following production requirements:
What is the total overhead cost per unit of the laser printers order using activity-based costing (rounded to the nearest cent)?
($10,500 + $21,600 + $150 + $7,800) ÷ 1,000 = $40.05 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 87. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied quality control factory overhead for the baseball cleat order is:
1. $78,000 ÷ 1,200 = $65 per inspection |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 88. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied machine overhead for the baseball cleat order is:
1. $188,000 ÷ 800 = $235 per machine hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 89. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied materials handling factory overhead for the baseball cleat order is:
1. $1200 ÷ 50 = $24 per batch |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 90. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
Using activity-based costing, applied miscellaneous factory overhead for the baseball cleat order based on direct labor hours is:
1. $59,000 ÷ 5,000 direct labor hours = $11.80 per labor hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 91. | Diamond Cleats Co. manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers:
Diamond Cleats Co. has an order for cleats that has the following production requirements:
ABC costing helps an organization implement its strategy through all of the following means except:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the strategic role of activity-based costing. Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Strategic Role-Activity-Based Costing |
| 92. | If Activity X had a budgeted cost of $125,000 and a budgeted activity consumption of 10,000 engineering hours, what would the activity consumption rate be?
|
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 93. | Customer lifetime value is a type of analysis used to:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: Activity-Based Costing |
| 94. | The cost of unused capacity can be determined using ABC costing for the purpose of:
|
| AACSB: Reflective Thinking AICPA: BB Resource Management AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Strategic Role-Activity-Based Costing |
| 95. | Multistage ABC is used when:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: Activity-Based Costing |
| 96. | An adaptation of ABC costing that simplifies ABC by assigning resource costs directly to cost objects is called:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: Activity-Based Costing |
| 97. | The Time Equation is used in ABC to:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: Activity-Based Costing |
| 98. | In the context of ABC, cross-subsidization refers to:
|
| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Strategic Role-Activity-Based Costing |
| 99. | Important concepts in resource consumption accounting include all of the following except:
|
| AACSB: Analytical Thinking AICPA: BB Resource Management AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: Activity-Based Costing |
| 100. | Time-driven ABC provides a direct way to measure:
|
| AACSB: Reflective Thinking AICPA: BB Resource Management AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Identify key factors for successful ABC/M implementation. Topic: Activity-Based Costing |
| 101. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
What is the total manufacturing overhead for the current product order if the firm uses a plantwide rate based on direct labor-hours?
1. $632,400 ÷ 4,800 direct labor hours = $131.75 per direct labor hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 102. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
What is the total manufacturing overhead for the current product order if the firm assigns overhead costs based on machine hours?
1. $632,400 ÷ 12,000 = $52.70 per machine hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 103. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much machine setup overhead is assigned to the order?
($120,000 ÷ 120) × 8 set-ups = $8,000 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 104. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much material handling overhead is assigned to the order?
($104,400 ÷ 8,700) × 606 barrels = $7,272 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 105. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much quality control overhead is assigned to the order?
($264,000 ÷ 1,100) × 80 inspections = $19,200 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 106. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much other overhead is assigned to the order?
($144,000 ÷ 12,000) × 830 = $9,960 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 107. | Everlast Co. manufactures a variety of drill bits. The company’s plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
A current product order has the following requirements:
Using ABC, how much total overhead is assigned to the order?
$8,000 + $7,272 + $19,200 + $9,960 = $44,432 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 108. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
What is the total manufacturing overhead assigned to the current order for Men’s Razors if the firm uses a volume-based plant wide overhead rate based on direct labor dollars?
1. ($168,640 + $127,840 + $554,400 + $1,078,000) ÷ $514,368 = $3.75 per direct-labor dollar |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 109. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
What is the total manufacturing overhead assigned to the current order for Women’s Razors if the firm uses a volume-based plant wide overhead rate based on direct labor hours?
1. ($168,640 + $127,840 + $554,400 + $1,078,000) ÷ 8,037 = $240 per direct-labor hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 110. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much facility-level overhead is assigned to the current order for Men’s Razors?
[($168,640 + $127,840) ÷ 27,200)] × 65 = $708.50 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Identify Cost Drivers |
| 111. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much product-level overhead is assigned to the current order for Men’s Razors?
($554,400 ÷ 38,500) × 20 = $288.00 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Identify Cost Drivers |
| 112. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much product-level overhead is assigned to the current order for Women’s Razors?
($554,400 ÷ $38,500) × 23 = $331.20 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Identify Cost Drivers |
| 113. | Shaver Co. manufactures a variety of electric razors for men and women. The company’s plant is partially automated. Listed below is cost driver information used in the product-costing system:
In addition, Shaver expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:
Using ABC, how much batch-level overhead is assigned to the current order for Women’s Razors based on pounds of raw materials?
($1,078,000 ÷ 134,750) × 750 = $6,000 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Identify Cost Drivers |
| 114. | Wang Company has established the following overhead cost pools and cost drivers for the month of May:
The following information pertains to the actual consumption of activity resources for two sample jobs completed during May.
What is the activity-based overhead rate per purchase order?
($30,000 ÷ 50 orders) = $600 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 115. | Wang Company has established the following overhead cost pools and cost drivers for the month of May:
The following information pertains to the actual consumption of activity resources for two sample jobs completed during May.
Using ABC, what is the overhead cost per unit produced for Job M2?
1. ($30,000 ÷ 50) × 10 + ($50,000 ÷ 100) × 10 + ($10,000 ÷ 10,000) × 1,000 = $12,000 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 116. | Orange, Inc. has identified the following cost drivers for its expected overhead costs for the year:
Total direct labor hours budgeted = 2,000 hours. The following data applies to Product X, one of the products completed during the year.
If a volume-based costing system based on direct labor hours to assign overhead is used, the total overhead cost for Product X will be:
1. ($40,000 + $20,000 + $50,000 + $10,000) ÷ 2,000 hours = $60 per direct labor hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 117. | Orange, Inc. has identified the following cost drivers for its expected overhead costs for the year:
Total direct labor hours budgeted = 2,000 hours. The following data applies to Product X, one of the products completed during the year.
If the activity-based cost drivers are used to allocate overhead cost, the total overhead cost of Product X will be:
[($40,000 ÷ 200) × 4] + [($20,000 ÷ 1,000) × 8] + [($50,000 ÷ 5,000) × 50] + [($10,000 ÷ 10,000) × 100] = $1,560 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 118. | Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of manufacturing overhead that should be assigned to each of the two product lines from the information given below.
Budgeted material-handling costs are $50,000. Under a costing system that allocates manufacturing overhead on the basis of direct labor hours, the material-handling cost per wall mirror is:
1. $50,000 budgeted material-handling costs ÷ 400 total direct labor hours = $125 per direct labor hour |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 119. | Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of manufacturing overhead that should be assigned to each of the two product lines from the information given below.
Budgeted material-handling costs are $50,000. The material-handling cost per wall mirror under ABC is:
1. $50,000 ÷ 20 material moves = $2,500 per material move |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 120. | Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:
With a volume-based costing system that applies overhead based on direct labor hours, the setup cost portion of overhead for each unit is (rounded to the nearest cent):
1. General Calculations: a. # of Alpha batches = 250 ÷ 10 = 25 2. Alpha: a. Set-up cost for Alpha = $3.25 × 1,000 Alpha direct labor hours = $3,250 3. Zeta: a. Set-up cost for Zeta = $3.25 × 39,000 Zeta direct labor hours = $126,750 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 121. | Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:
Use of activity-based costing would allocate the following amounts of setup cost to each unit (rounded to the nearest cent):
1. General Calculations: i. # of Alpha batches = 250 ÷ 10 = 25 2. Alpha: i. Total Set-up Cost = 25 × $2,000 = $50,000 3. Zeta: i. Total Set-up Cost = 40 × $2,000 = $80,000 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 122. | Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:
Assume the cost per setup remains at $2,000 but that the batch size for product Alpha is changed from 10 to 25 units per batch. Using activity-based and a volume-based overhead costing that uses direct labor-hours to assign overhead, the amount of setup cost applied to each unit of product Alpha would be (rounded to the nearest cent):
1. General Calculations: i. # of Alpha batches = 250 ÷ 25 = 10 2. Alpha Activity-Based: i. Total Set-up Cost = 10 × $2,000 = $20,000 3. Alpha Volume-Based: i. Set-up cost for Alpha = $2.50 × 1,000 Alpha direct labor hours = $2,500 |
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| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 123. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total customer-sustaining cost applicable to Ninto?
10 sales calls × $400 per sales call = $4,000 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 124. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total customer batch-level cost applicable to Ninto?
Order Processing and Number of sales returns ($100 × 2) + ($60 × 10) = $800 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 125. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total sales-sustaining cost applicable to XBT as a customer?
0 since no sales-sustaining costs are listed above |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 126. | Nerrod Company sells its products at $500 per unit, net 30. The firm’s gross margin ratio is 40 percent. The firm has estimated the following operating costs:
Nerrod Company has gathered the following data pertaining to activities it performed for two of its customers:
What is Nerrod’s total customer unit-level cost applicable to XBT as a customer?
Restocking sales returns, 4 × 40 × $3 = $480 |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis |
| 127. | Service and not-for-profit organizations often:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-05 Describe how ABC/M is used in organizations. Text Feature: Service Topic: Strategic Role-Activity-Based Costing |
| 128. | Customer profitability analysis:
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Profitability Analysis |
Essay Questions
| 129. | Scott Cameras produces digital cameras and have decided to switch from a volume-based system to an activity-based system. Scott produced 100,000 digital cameras in the most recent quarter and has determined that their total activity costs were: $3,000,000 of materials cost, $500,000 of labor costs, $1,000,000 of inspection costs, and $500,000 of packaging costs. It takes 30 minutes of labor to produce each camera, inspections are done for 20% of all cameras produced, and cameras are packaged individually.
Required: What are the driver rates for each activity? Materials Cost = $3,000,000 ÷ 100,000 = $30 per camera |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 130. | Plant overhead for ABC Corp in $150 million per year, a portion of which (20%) is attributable to inspection costs which are charged to products on the basis the number of parts in the products. The plant produces 500,000 units per year, and on the average, each product has 20 parts.
Required: What is the average inspection cost in a product? What is the inspection cost for a product with 50 parts? $150 million × .2 = $30 million $30 million ÷ 10 million = $3 per part Total inspection cost: |
| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 131. | Johnson Associates is a catering firm in Tucson, Arizona, with revenue of $4 million. The business began ten years ago as a one-owner bakery, but has dramatically changed in size and function during the past five years. The four partners foresee the business doubling in sales revenue within two years, and expect the firm to expand into other services including flowers, furnishings, decorations, and music. Johnson Associates employs six full-time and ten part-time employees. The four partners also work full-time, each partner managing a separate business function. The firm currently uses a volume-based costing system installed seven years ago and modified three years later.
Required: (1) With just the above information, comment on Johnson Associates changing and future costing system needs. (1) Johnson Associates has experienced rapid growth, and expects the same rapid growth in the near future. However, growth by itself would not necessarily create a need for a new cost accounting system. More significant is Johnson’s expanding line of service. A costing system like ABC gives a firm more precise cost information on specific products and services, which would allow Johnson to better control product and service development, manufacture and marketing. Whatever strategies Johnson Associates choose, they should have a costing system that reports costs and their causal relationships. (2) An ABC system can work for most firms, including service type firms like Johnson Associates. Future growth needs a precise cost basis for direction and control. Many, if not most, of Johnson Associates’ costs are activity driven, and the variety of service is noticeably expanding. The major potential limitations of ABC for Johnson would be the high resource cost and time commitment to develop and install an appropriate ABC system. |
| AACSB: Analytical Thinking AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Evaluate Difficulty: 1 Easy Learning Objective: 05-01 Explain the strategic role of activity-based costing. Text Feature: Service Text Feature: Strategy Topic: Strategic Role-Activity-Based Costing |
| 132. | Two students in a cost accounting class were arguing about the need to gather good unit cost information for manufacturing. One student, Travis, maintained that a firm producing and selling large quantities of relatively few products would have no need for an ABC system, since an ABC system is usually more expensive to implement than a volume-based system. Alicia countered that even firms with high-volume homogeneous products could benefit from a cost management technique like activity-based costing (ABC).
Required: Choose sides in this discussion and present justifications for your choice. ABC is most useful in firms making a wide variety of products, because ABC tracks costs to their causes, and generates more precise cost bases for individual products and services than a volume-based costing system usually does. This precision facilitates strategic analyses. Alicia would have to agree with Travis on the higher cost in resources and time to use ABC, but could argue for a favorable benefit/cost ratio that most firms experience when ABC is correctly designed and implemented. |
| AACSB: Analytical Thinking AACSB: Communication AICPA: BB Critical Thinking AICPA: Decision Making Blooms: Evaluate Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Text Feature: Strategy Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 133. | The controller for Alabama Cooking Oil Co. established the following overhead cost pools and cost drivers:
An order of 800 barrels of cooking oil used:
Required: (1) What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? (Round your intermediate calculation to the nearest cent and final answer to the nearest whole dollar.) (1)
(2) 1,100 machine hours × $69.52 per machine hour = $76,472 (3)
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| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 134. | Blackwelder Co. manufactures a variety of electric razors used by both men and women. The company’s plant is partially automated. The company uses an activity-based cost system. Listed below is cost driver information used in the product-costing system:
Two current product orders had the following requirements:
Required: 1. Using ABC costing, how much overhead is assigned to the order for men’s razors? 1. $12,082. 2. $13,271 Feedback:
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| AACSB: Knowledge Application AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: Product Costing |
| 135. | Classify each of the following costs as unit-level (U), batch-level (B), product-level (P), or facility-level (F) costs and identify an appropriate example of a possible cost driver for each item:
(1) Parts administration (1) Parts administration: (P); number of parts |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 136. | Pairing Company has the following cost drivers identified as A through F for determining product manufacturing overhead costs.
(A) Number of pieces of equipment For each of the following activity cost pools, choose the letter of the most appropriate cost driver for each cost pool. Heating costs
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| AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 137. | Altima Company uses an overhead costing system based on direct labor hours for its two products X and Y. The company is considering adopting an activity-based costing system, and collects the following information for the month of October.
Required: (1) Compute the unit manufacturing cost of each product under a volume-based costing system based on direct labor hours. 1.
2.
Note that the direct labor based costing system overcosted the high volume product X and undercosted the low volume product Y. |
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| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 138. | Castenet Company uses a volume-based costing system that applies overhead cost based on direct labor hours at $250 per direct labor hour.
The company is considering adopting an activity-based costing system with the following data:
The two jobs processed in the month of June had the following characteristics:
Required: 1. Compute the unit manufacturing cost of each job under the firm’s current volume-based costing system. (a) Why do the two cost systems differ in their total cost for each job? (below) 1. Per unit manufacturing costs under the volume-based costing system. $1,400 for Job A and $800 for Job B.
2. Per unit manufacturing costs under the ABC costing system.
3. a) The volume-based cost system ignores these differences while the ABC costing system assigns overhead costs based on usages of each of the activity areas. The two cost systems differ in their job costs because the jobs differ in the way they use each of five activity areas and activity areas differs in their factory overhead cost drivers. |
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| AACSB: Analytical Thinking AACSB: Communication AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 139. | Demski Company has used a two-stage cost allocation system for many years. In the first stage, plant overhead costs are allocated to two production departments, P1 and P2, based on machine hours. In the second stage, Demski uses direct labor hours to assign overhead costs from the production departments to individual products A and B.
Budgeted factory overhead costs for the year are $300,000. Both the budgeted and actual machine hours in P1 and P2 are 12,000 and 28,000 hours, respectively. After attending a seminar to learn the potential benefits of adopting an activity-based costing system (ABC), Ted Demski, the president of Demski Company, is considering implementing an ABC system. Upon his request, the controller at Demski Company has compiled the following information for analysis:
Demski manufactures two types of product, A and B, for which the following information is available:
Required: 1. Determine the unit cost for each of the two products using the traditional two-stage allocation method. Round calculations to 2 decimal places. (a) Why do two the cost systems differ in their total cost for each product? 1. Unit cost for each of two products using the traditional two-stage allocation method:
2. Unit cost for each product using the ABC system.
3. a) Under the volume based costing, low-volume product A was undercosted because the products differ in the way they use each of four activity areas and activity areas differ in their factory overhead cost drivers. |
| AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 140. | Swenson Company manufactures 4,000 units of Deluxe Product and 20,000 units of Regular Product each year. The company currently uses direct labor-hours to assign overhead cost to products. The pre-determined overhead rate is:
Suppose, however, that factory overhead costs are actually caused by the five activities listed below:
Also suppose the following transaction data has been collected:
Required: Using the activity-based costing method to calculate unit costs of Deluxe and Regular products, and compare them with the current direct labor hours-based costing system. Overhead rates for each of the five activities:
Assign overhead costs to products:
Product costs computed using the direct labor hours-based different methods can now be contrasted: Product costs using activity-based costing:
Product costs using the direct labor hours-based costing system:
Note that the adoption of activity-based costing usually results in a shift of overhead costs from high volume to low volume products. • The per unit costs of the low volume products increase and the per unit costs of the high volume products decrease. |
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| AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 141. | Moss Manufacturing has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company’s ten QC inspectors were charged as direct labor to the operation or job. In an effort to improve efficiency and quality, a computerized video QC system was purchased for $250,000. The system consists of a minicomputer, 15 video cameras, other peripheral hardware, and software.
The new system used cameras stationed by QC engineers at key points in the production process. Each time an operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded into the computer by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a “good” unit. Any differences are sent to a QC engineer who removes the bad units and discusses the flaws with the production supervisors. The new system has replaced the ten QC inspectors with two QC engineers. The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the company’s volume-based factory overhead rate which is based on direct labor dollars. The company’s president is confused. His vice president of production has told him how efficient the new system is, yet there is a large increase in the factory overhead rate. The computation of the rate before and after automation is shown below.
“Three hundred percent,” lamented the president, “How can we compete with such a high factory overhead rate?” Required: 1. a. Define factory overhead, and cite three examples of typical costs that would be included in factory overhead. 2. Explain why the increase in the overhead rate should not have a negative financial impact on Moss Manufacturing. 1. a. Factory overhead costs include all indirect costs (all production costs except direct material and direct labor). These costs cannot be practically or economically traced to end products and, therefore, must be assigned by some allocation method. Typical factory overhead costs include ο indirect labor, i.e., lift-truck driver’s wages, maintenance and inspection labor, engineering labor, and supervisors. b. Companies develop factory overhead rates to facilitate the costing of products as they are completed and shipped, rather than waiting until actual costs are accumulated for the period of production. 2. The overhead rate increase should not have a negative impact on Moss Manufacturing because the increase in indirect costs was offset by a decrease in direct labor. ο Separate costs into departmental overhead accounts (or other relevant pools), with one account for each production and service department. Each department would allocate its overhead to products on the basis that best reflects the use of these overhead services. |
| AACSB: Communication AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Activity-Based Costing |
| 142. | The controller for Ocean Sailboats Inc., a company which uses an automated process to make sailboats, established the following overhead cost pools and cost drivers:
A recent order for sailboats used:
Required: 1. What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? 1.
2. 2,024 machine hours × $42.50 per machine hour = $86,020 3.
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| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
| 143. | Skateline Inc. designs and manufactures roller skates. The following data pertain to two of its major customers: FantasticSkates and SkateToday.
Required: Compare the net proceeds from each customer to Skateline Inc. 30 days after sale. (rounded to nearest dollar for each step where applicable).
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| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Profitability Analysis |
| 144. | Certo Health Products was formed two years ago to produce and distribute a newly-patented protein supplement. Two variations of the original supplement have since been developed and introduced for general sale. The three products are processed in essentially the same way, but Ann Marshall, the owner of Certo, anticipates that a half-dozen new products will be developed for sale in the next two years. These products will not be variations of the patented supplement, and will require a different production process other than the one currently used. Ann has asked you to review the current use of a single volume-based rate and explain the arguments for using departmental rates with activity-based drivers.
A single volume-based rate is appropriate in situations where product are processed in similar ways and departments, and where little variation exists in the “causes” of costs. Once multiple variations of production processes are required, departmental rates probably will provide more accurate cost reporting. Different processes (departments) cause different costs to happen for different reasons. A simple example is the manufacture of writing instruments. Pencils require one set of processes, ballpoint pens a different set, and highlighting pens another set. Within the production processes of each type of writing instrument, different departments have costs “caused” by different factors, e.g., labor-intensive vs. machine-intensive departments. By using activity as a basis for allocation of overhead, a clearer distinction is made between volume-related costs and capacity-related costs. This distinction provides the basis for selection of correct cost drivers for different products in different departments, which results in more accurate cost data for product pricing and strategic operational decisions. |
| AACSB: Analytical Thinking AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Difficulty: 1 Easy Learning Objective: 05-01 Explain the strategic role of activity-based costing. Topic: A Comparison of Volume-Based and Activity-Based Costing Topic: Strategic Role-Activity-Based Costing Topic: Strategic Role-Volume-Based Costing |
| 145. | Cost Pools and Cost Drivers: Based on a recent study of its manufacturing operations Johnston Manufacturing Corporation has identified six resource consumption cost drivers. These cost drivers and their budgeted activity levels for the coming year are:
The firm has budgeted the following costs for the year:
With the exception of the factory space cost pool, which uses machine-hours as the activity consumption cost driver, other cost pools have identical resource and activity consumption cost drivers. Required: 1. Identify the most appropriate activity cost pool for each of the cost items and cost driver for each activity cost pool you identified.
Note: However, the problem indicated that the firm uses machine hours as the base for assigning facility-level costs. An alternative solution is to combine cost pools 3 and 4.
2. Overhead Rates:
Manufacturing overhead: Unit level:
Batch level:
Product-level level:
Facility-level level*:
* There are at least one alternative activity consumption drivers for assigning facility-level cost besides number of machine hours (shown below): Based on machine hours:
Alternatively, the firm may use number of units to assign facility-level cost. Based on number of units:
Unit level:
Batch level:
Facility-level level:
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| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Topic: Identify Cost Drivers |
| 146. | Volume-Based Costing Versus ABC: Gorden Company produces a variety of electronic products. One of its plants produces two laser printers, Speedy and Deluxe. At the beginning of 2013, the following data were prepared for this plant:
The unit overhead cost is calculated using the predetermined overhead application rate based on direct labor-hours.
* Cost per unit of cost driver Required: 1. Using the projected data based on the firm’s current costing system, calculate gross profit per unit and gross profit percentage for each product. Round calculations to 2 decimal places. 1. Current costing system (direct-labor hour)
2. Multiple drivers costing system
3. Using the activity-based costing, a much different picture on profitability of the Deluxe and Speedy models emerges. The Speedy model is actually more profitable than the Deluxe model. The revised cost data suggests that shifting the emphasis to the Deluxe model may very well be a mistake. The Deluxe printer is a much heavier user of overhead resources as can be seen in the table below that compares uses of overhead.
Supporting calculations
4. The ABC method is likely to provide Gordon Company a more accurate product cost picture. It also directs the management’s attention to the high volume, more profitable Speedy printers. |
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| AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits of an ABC system. Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Text Feature: Strategy Topic: A Comparison of Volume-Based and Activity-Based Costing Topic: Strategic Role-Activity-Based Costing |
| 147. | Customer Profitability Analysis: Boston Depot sells office supplies to area corporations and organizations. Tom Delayne, founder and CEO, has been disappointed with the operating results and the profit margin for the last two years. Business forms are mostly a “commodity” business with low profit margins. To increase profit margins and gain competitive advantages, Delayne introduced “Desk-Top Delivery” service. The business seems to be as busy as ever. Yet, the operating income has been declining. To help identify the root cause of declining profits, he decided to analyze the profitability of two of the firm’s major customers: Omega International (OI) and City of Albion (CA).
According to the customer profitability analysis that Boston Depot conducts regularly, Boston Depot has the same amount of total sales with both OI and CA. However, the firm earns a higher gross margin and gross margin ratio from CA than those from the sales to OI, as demonstrated here:
Boston Depot adds a flat 17.5 percent to all sales for expenses incurred in such activities as handling customers’ requests, pick-packing, order delivery, warehousing, and data entry. However, not all customers require the same level of services. Operation Manager, Jamie Steel, points out that CA has been a much heavier service user than OI. She shows the following data to support her belief:
Controller Rod Jay has been investigating ways to determine the costs of performing various activities. He summarized his findings:
Steel points out that activities cost money. Two customers who request different service activities most likely are not costing the firm the same. Required: 1. Using activity-based costing, compute the charges per unit of service activities. 1. Service cost rate per unit of activity
2. Service Costs
3. Customer Profitability Analysis-Activity Based
The above profitability analysis indicates that, under activity-based costing, Omega International, not City of Albion, is more profitable to Boston Depot. The apparent higher gross margin percentage of the City of Albion relative to the Omega International was the result of not recognizing differences in the service activities requested by different customers under the firm’s existing costing system. 4. The answer depends on the competitive strategy of the firm. The gross profit margin ratios show that Omega is the better customer of the two. Omega does not use much of the desktop delivery service Boston offers. Most likely Omega is a buyer of “commodity” items and does not need the convenience of desktop delivery. However, Boston’s pricing is likely to have incorporated the average cost of desktop deliveries. If Omega realizes that it is paying for services not used, it may buy the commodity it needs elsewhere, unless Boston lowers the price to Omega. All custom-printed business forms by different suppliers are likely to be the same. Delayne wanted to “differentiate” its forms from those of competitors’ by offering desktop delivery services. In the long-run, Omega is not likely to be a customer staying with Boston Depot. Boston Depot needs to be prepared to lower the price to Omega. |
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| AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Decision Making AICPA: FN Measurement Blooms: Apply Blooms: Evaluate Difficulty: 3 Hard Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Text Feature: Strategy Topic: Customer Cost Analysis Topic: Customer Profitability Analysis |
| 148. | Customer Profitability Analysis: Spring Company collected the following data pertaining to its activities with selected customers.
Spring Company mails monthly statements on or before the first day of each month. HS pays all of its account payables within the payment discount periods. Adventix does not take the early payment discounts. In fact, the company pays half of its accounts on the date that these accounts are due and pays the remainder at the end of the following month. Baldwin also does not take advantage of discounts for early payments. However, it pays its accounts on the specified due date. Cost of goods sold is sixty percent of gross sales price. Joan Lieberman, the controller of Spring Company, has estimated that the cost of working capital is approximately 2 percent per month. Lieberman also gathered the following cost data:
Required: Prepare and interpret a customer profitability analysis for Spring Company. How does it help Spring Company become more competitive and profitable?
1Net proceeds: $576,240 – (2% × 576,240) = 576,240 – $11,525 = $564,715 2 The net amount is carried for 60 days, when Adventix pays half of its amount due. The remainder of the balance is paid on the 90th day:
3 The net amount is carried for 30 days when Baldwin pays its balance due. 4 Restocking cost:
There are many possible ways to interpret the information contained in the customer profitability analysis, and a few suggestions are offered her. Certainly, Spring should consider a some type of billing policy for delivery charges. While some customers have only a few deliveries, a customer like Baldwin costs $15,000 with so many deliveries. Maybe there should be a set number of deliveries that would be free and then have a delivery charge for all deliveries in excess of that level. Another possibility is that the delivery charge would be on a sliding scale. Spring should also reevaluate the early payment discounts and trade discounts offered to each customer. Looking at HS, the early payment discount taken by this customer is saving $7,530 for 20 days of working capital charge; perhaps Spring should consider lowering its trade discount for Advantix and offer a larger early payment discount. Aside from working with its customers, Spring needs to look at its internal cost structure. For example, the cost of a return is $200 and this needs to be reviewed for its components. How many hours is this taking? It is a fixed cost – are there employees handling it who should be doing more advanced work? Customer profitability analysis helps the company become more competitive by identifying the most profitable and least profitable customers. This information can then be used by management to adjust pricing policies, identify ways to reduce the cost to serve customers, and change the customer mix for a more profitable group of customers. |
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| AACSB: Analytical Thinking AACSB: Communication AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Decision Making AICPA: FN Measurement Blooms: Analyze Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability. Topic: Customer Cost Analysis Topic: Customer Profitability Analysis |
| 149. | Volume-based Versus ABC Overhead Rate: Medical Arts Hospital (MAH) uses a hospital-wide overhead rate based on nurse-hours. The intensive care unit (ICU), which has 30 beds, applies overhead using patient-days. Its budgeted cost and operating data for the year follow:
In June, MAH’s intensive care unit had the following operating data: 81,000 nurse-hours Required: 1. Calculate the ICU’s overhead costs for the month of June using a. The hospital-wide rate 2. Explain the differences and determine which overhead assignment method is more appropriate.
2. The first method uses a hospital-wide overhead rate, which likely bears no relationship with the overhead activities performed in the intensive care unit (ICU). In particular, it is likely to be too low a rate because the equipment used in the ICU is more complex and expensive than in the other units of the hospital. The second method uses the patient-day overhead rate for the ICU department. This is an improvement over the first method because it uses the overhead and usage information in the ICU. But a single patient-day cost driver may not have direct relationships with some of the activities performed in the ICU department. The third method is the preferred method because it uses a cost driver for each of the cost pools that reflects the resources consumed by activities of the cost pool. Notice however that there is little difference in the costs for the second and third methods because there is a high correlation between the number patient days and nursing hours in the ICU. |
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| AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Decision Making AICPA: FN Measurement Blooms: Apply Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 05-03 Determine product costs under both the volume-based method and the activity-based method and contrast the two. Topic: A Comparison of Volume-Based and Activity-Based Costing |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
