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
29) Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?
A) $400 per change, $128 per setup, $10 per inspection B) $360 per change, $320 per setup, $6.40 per inspection C) $168 per change, $538 per setup, $42 per inspection D) $286 per change, $152 per setup, $20 per inspection Answer: A
Explanation:
A) Design changes: $400 per change = ($120,000 / 300 design changes) Setups: $128 per setup = ($640,000 / 5,000 setups)
Inspections: $10 per inspection = ($80,000 / 8,000 inspections) Diff: 2
Terms: activity-based costing (ABC) Objective: 5
AACSB: Analytical skills
36
Copyright ? 2012 Pearson Education, Inc.
30) Using the three cost pools to allocate overhead costs, what is the total manufacturing overhead cost estimate for Money Managers during 2010? A) $13,700 B) $6,500 C) $6,860 D) $10,192 Answer: C Explanation: C) $6,860 = (10 × $400 per change = $4,000) + (20 × $128 per setup = $2,560) + (30 × $10 per inspection = $300) Diff: 3
Terms: activity-based costing (ABC) Objective: 5
AACSB: Analytical skills
37
Copyright ? 2012 Pearson Education, Inc.
Answer the following questions using the information below:
Whitman Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2010 Whitman Printing 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 $ 120,000 200 design changes Setups 640,000 4,000 setups Inspections 80,000 16,000 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 2 Setups 20 10 Inspections 30 38
31) Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?
A) $600 per change, $160 per setup, $5.00 per inspection B) $500 per change, $400 per setup, $7.50 per inspection C) $420 per change, $210 per setup, $52.50 per inspection D) $666 per change, $250 per setup, $8.00 per inspection Answer: A Explanation:
A) Design changes: $600 per change = ($120,000 / 200 design changes) Setups: $160 per setup = ($640,000 / 4,000 setups)
Inspections $5.00 per inspection = ($80,000 / 16,000 inspections) Diff: 2
Terms: activity-based costing (ABC) Objective: 5
AACSB: Analytical skills
38
Copyright ? 2012 Pearson Education, Inc.
32) Using the activity-cost driver rates determined in the previous question, what is the manufacturing overhead cost estimate for Hospital Systems during 2010? A) $6,227.50 B) $2,990.00 C) $4,136.00 D) $6,825.00 Answer: B
Explanation: B) $2,990 = (2 × $600 per change) + (10 × $160 per setup) + (38 × $5.00 per inspection) Diff: 3
Terms: activity-based costing (ABC) Objective: 5
AACSB: Analytical skills
33) Availability of reliable data and measures should be considered when choosing a cost-allocation base. Answer: TRUE Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
34) When designing a costing system, it is easiest to calculate per-unit costs first, and then total costs. Answer: FALSE
Explanation: When designing a costing system, it is easiest to calculate total costs first, and then per-unit costs. Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
35) ABC systems attempt to trace more costs as indirect costs. Answer: FALSE
Explanation: ABC systems attempt to trace more costs as direct costs. Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
36) ABC systems create heterogeneous cost pools linked to different activities. Answer: FALSE
Explanation: ABC systems create homogeneous cost pools linked to different activities. Diff: 1
Terms: activity Objective: 5
AACSB: Reflective thinking
39
Copyright ? 2012 Pearson Education, Inc.
37) ABC systems seek a cost allocation base that has a cause-and-effect relationship with costs in the cost pool.
Answer: TRUE Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
38) For service organizations, activity-based cost systems may be used to clarify appropriate cost assignments. Answer: TRUE Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Use of Information Technology
39) For each of the following activities identify an appropriate activity-cost driver.
a. machine maintenance b. machine setup c. quality control d. material ordering
e. production scheduling f. warehouse expense g. engineering design
Answer: Any one of the listed cost drivers is correct. Activity # of machines Machine hours Actual times for various A. Machine maintenances of various machines Maintenance # of setups Setup hours Actual times for various setups for B. Machine various machines Setup # of inspections Inspection hours Actual times for various C. Quality inspections for various controls Control # of orders Ordering hours Actual times for various orders for D. Material various materials Ordering Scheduling Actual times for various runs for E. Production # of runs hours various schedules Scheduling F. Warehousing # of bins, aisles Picking hours Actual times for various parts for various warehousing activities Actual times for various G. Engineering # of engineers Engineering # of designs hours engineering designs Design Diff: 2
Terms: activity Objective: 3, 5
AACSB: Analytical skills
40
Copyright ? 2012 Pearson Education, Inc.