17) Each of the following statements is true EXCEPT:
A) traditional product costing systems seek to assign all manufacturing costs to products B) ABC product costing systems seek to assign all manufacturing costs to products C) traditional product costing systems are more refined than an ABC system
D) cost distortions occur when a mismatch (incorrect association) occurs between the way indirect costs are incurred and the basis for their assignment to individual products Answer: C Diff: 1
Terms: activity-based costing (ABC) Objective: 3
AACSB: Reflective thinking
Answer the following questions using the information below:
Happy Valley Land and Snow Company provides the following ABC costing information:
Activities Total Costs Activity-cost drivers Labor hours $320,000 8,000 hours Gas $36,000 6,000 gallons Invoices $40,000 2,500 invoices Total costs $396,000
The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor hours 2,500 hours 1,200 hours 4,300 hours Gas 1,500 gallons 800 gallons 3,700 gallons Invoices 1,600 invoices 400 invoices 500 invoices
18) How much of the labor cost will be assigned to the Lawn Department? A) $100,000 B) $25,600 C) $40,000
D) None of these answers are correct. Answer: A
Explanation: A) ($32,000 / 8,000) × 2,500 = $100,000 Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
11
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19) How much of the gas cost will be assigned to the Plowing Department? A) $50,000 B) $22,200 C) $30,000
D) None of these answers are correct. Answer: B
Explanation: B) ($36,000 / 6,000) × 3,700 = $22,200 Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
20) How much of invoice cost will be assigned to the Bush Department? A) $6,400 B) $8,000 C) $25,600 D) $40,000 Answer: A
Explanation: A) ($40,000/ 2,500) × 400 = $6,400 Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
21) How much of the gas cost will be assigned to the Lawn Department? A) $4,800 B) $20,000 C) $9,000 D) $22,200 Answer: C
Explanation: C) ($36,000/ 6,000) × 1,500 = $9,000 Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
12
Copyright ? 2012 Pearson Education, Inc.
22) How much of the total cost will be assigned to the Plowing Department? A) $396,000 B) $202.200 C) $134,600 D) $172,000 Answer: B Explanation:
B) ($320,000 / 8,000) x 4,300 = $172,000 ($36,000 / 6,000) x 3,700 = $22,200 ($40,000 / 2,500) x 500 = $8,000 $202,200 Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
23) How much of the total costs will be assigned to the Lawn Department? A) $100,000 B) $49,200 C) $200,000 D) $134,600 Answer: D Explanation:
D) ($320,000 / 8,000) x 2,500 = $100,000 ($36,000 / 6,000) x 1,500 = $9,000 ($20,000 / 2,500) x 1,600 = $25,600 $134,600 Diff: 3
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
13
Copyright ? 2012 Pearson Education, Inc.
Answer the following questions using the information below:
Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:
Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor $320,000 Direct labor-hours 800,000 Machine maintenance $120,000 Machine-hours 960,000 Facility rent $200,000 Square feet of area 100,000 Total overhead costs $640,000
The accounting records show the Mossman Job consumed the following resources: Cost driver Actual level Direct labor-hours 200 Machine-hours 1,600 Square feet of area 50
24) If direct labor-hours are considered the only overhead cost driver, what is the single cost driver rate for Gregory Enterprises?
A) $0.50 per direct labor-hour B) $0.80 per direct labor-hour C) $0.40 per direct labor-hour D) $1.20 per direct labor-hour Answer: B
Explanation: B) $640,000 / 800,000 = $0.80 per dlh Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
25) Using direct labor-hours as the only overhead cost driver, what is the amount of overhead costs allocated to the Mossman Job? A) $160 B) $120 C) $240 D) $125 Answer: A
Explanation: A) 200 dlh × (640,000 / 800,000) = $160 Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
14
Copyright ? 2012 Pearson Education, Inc.
Answer the following questions using the information below:
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2010, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2010 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing
manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
Cost pool Manufacturing overhead costs Activity level Design changes $ 120,000 300 design changes Setups 640,000 5,000 setups Inspections 80,000 8,000 inspections Total manufacturing overhead costs $840,000
During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
Activity Money Managers Hospital Systems Pages 60,000 76,000 Design changes 10 0 Setups 20 10 Inspections 30 38
26) What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity? A) $0.10 per page B) $0.07 per page C) $0.70 per page D) $0.05 per page Answer: B
Explanation: B) $0.07 per page = ($840,000 / 12,000,000 pages) Diff: 2
Terms: activity-based costing (ABC) Objective: 3
AACSB: Analytical skills
15
Copyright ? 2012 Pearson Education, Inc.