Costs that are expensed in the period in which they are incurred are called:
A. Direct materials costs
B. Product costs
C. Noninventoriable costs
D. Inventoriable costsChapter 4Activity-Based Costing
Student: ___________________________________________________________________________
- Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.
True False
- Management information systems can be divided into a unit-based type and activity-based type.
True False
- Predetermined overhead rates are calculated at the end of each year using the formula: overhead rate = budgeted annual driver level/budgeted annual driver level.
True False
- Unit-level drivers are factors that measure the demands placed on unit-level activities by products.
True False
- If applied overhead is greater than actual overhead it is called overapplied overhead.
True False
- Unit-based product costing assigns manufacturing and selling costs to products.
True False
- The difference between actual overhead and applied overhead is an underapplied overhead.
True False
- Overhead assignments should reflect the amount of overhead demanded by each product.
True False
- The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.
True False
- Non-unit-based drivers are factors that measure the demands that cost objects place on activities.
True False
- If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.
True False
- Activity-based costing uses only unit-level drivers for costing.
True False
- The activity-based cost assignment is the most accurate method of costing because it follows a cause-and-effect pattern of overhead consumption.
True False
- An activity-based costing system traces costs to activities and then to products and other cost objects.
True False
- The first step in designing an activity-based costing system is to identify activities.
True False
- A list of the activities identified in the design of an activity-based system is called an activity inventory.
True False
- Activity attributes are nonfinancial and financial information items that describe individual activities.
True False
- Product classification attributes define and describe activities and are the basis for product classification.
True False
- After identifying and describing activities, the next step is to determine the cost of the performance of each activity.
True False
- Classifying activities into four general categories facilitates product costing by associating the response to different types of activity drivers.
True False
- Efforts to simplify activity-based costing systems (ABC) involve either before-the-fact simplification or after-the-fact simplification.
True False
- Time driven activity-based costing (TDABC) requires the need to identify resource drivers to assign costs to activities.
True False
- Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.
True False
- After-the-fact simplification includes two approaches: the approximately relevant reduced ABC system and the equally accurate enhanced ABC system.
True False
- There are many two-driver combinations that may be used to reduce the ABC system without sacrificing accuracy.
True False
- A(n) __________ method first traces costs to a department and then to products.
________________________________________
- Offering greater product accuracy than an activity-based costing system is not a characteristic of a __________ costing system.
________________________________________
- The formula Budgeted annual overhead/Budgeted annual driver level is used to calculate a __________ rate.
________________________________________
- For labor-intensive operations, the most appropriate activity driver would be the __________ hours.
________________________________________
- The proportion of an overhead activity consumed by a product is the __________ ratio.
________________________________________
- __________ drivers create distortions when different products utilize resources differently.
________________________________________
- The use of __________ activity drivers to assign costs tends to __________ high-volume products.
________________________________________
- A(n) __________ costing system first traces costs to activities and then to products.
________________________________________
- Activity __________ are nonfinancial and financial data that describe individual activities.
________________________________________
- The activity __________ is a simple list of activities identified in an ABC system.
________________________________________
- Activity __________ helps management achieve objectives such as product or customer costing and continuous improvement.
________________________________________
- Materials handling would be classified as a __________ activity when using activity-level costing.
________________________________________
- An __________costing database is the collected data sets that are organized and interrelated for use in a companys ABC information system.
________________________________________
- A(n) __________ is a grouping of logically related information.
________________________________________
- In the __________ ABC systems, managers directly estimate the resource demands imposed by each product.
________________________________________
- Unit-level product costing assigns
A. direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
B. direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
C. direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.
D. direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.
- Which is NOT a characteristic of a unit-based costing system?
A. It uses traditional product costing definitions.
B. It uses unit-based activity drivers to assign overhead to products.
C. It offers greater product costing accuracy than an activity-based costing system.
D. It is cheaper than an activity-based costing system.
- Unit-based product costing uses which of the following procedures?
A. All overhead costs are expensed as incurred.
B. Overhead costs are traced to departments, then costs are traced to products.
C. Overhead costs are traced directly to products.
D. Overhead costs are traced to activities, then costs are traced to products.
- The method that first traces costs to a department and then to products is called:
A. direct costing
B. absorption costing
C. unit-based costing
D. indirect costing
- A predetermined overhead rate is calculated using which of the following formulas?
A. Actual annual overhead / budgeted annual driver level
B. Budgeted annual overhead / budgeted annual driver level
C. Budgeted annual overhead / actual annual driver level
D. Actual annual overhead / actual annual driver level
- The overhead rates of the traditional functional-based product costing use
A. non-unit-based activity drivers.
B. unit-based activity drivers.
C. process costing.
D. job order costing.
- A costing system that uses actual costs for direct materials and labor and predetermined overhead rates to apply overhead is called a(n)
A. actual costing system.
B. standard costing system.
C. normal costing system.
D. activity-based costing system.
- Common measures of production activity include
A. units produced.
B. direct labor hours.
C. machine hours.
D. all of these.
- If unit-based product costing is used, which of the following would be traced directly to the product?
A. setup costs
B. direct labor
C. maintenance of machinery
D. inspection costs
- Product costs can be distorted if a unit-based activity driver is used and
A. non-unit-based overhead costs are a significant proportion of total overhead.
B. the consumption ratios differ between unit-based and non-unit-based input categories.
C. both a and b.
D. neither a nor b.
- All of the following are non-unit-based activity drivers EXCEPT
A. number of direct labor hours.
B. number of inspections.
C. number of setups.
D. number of material moves.
- For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?
A. machine hours
B. direct labor hours
C. number of employees
D. units of output
- In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?
A. units produced
B. direct labor hours
C. machine hours
D. number of batches
- All of the following are unit-based activity drivers EXCEPT
A. number of setups.
B. machine hours.
C. number of units.
D. direct labor hours.
- A department that is capital-intensive most likely would use a predetermined departmental overhead rate based on which of the following activity bases?
A. units of direct material used
B. direct labor hours
C. direct labor cost
D. machine hours
- Figure 4-1
The Foremost Company predicted factory overhead for 2013 and 2014 would be $120,000 for each year. The predicted activity for 2013 and 2014 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
|
2013 |
2014 |
Sales in units |
25,000 |
25,000 |
Selling price per unit |
$20 |
$20 |
Direct materials and direct labor per unit |
$10 |
$10 |
|
|
|
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2013 and 2014 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-1. When the annual estimated factory overhead rate is used, the gross profits for 2013 and 2014, respectively, are
A. $150,000 and $150,000.
B. $150,000 and $100,000.
C. $250,000 and $250,000.
D. $100,000 and $150,000.
- Figure 4-1
The Foremost Company predicted factory overhead for 2013 and 2014 would be $120,000 for each year. The predicted activity for 2013 and 2014 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
|
2013 |
2014 |
Sales in units |
25,000 |
25,000 |
Selling price per unit |
$20 |
$20 |
Direct materials and direct labor per unit |
$10 |
$10 |
|
|
|
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2013 and 2014 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
Refer to Figure 4-1. When the normal factory overhead rate is used, the gross profits for 2013 and 2014, respectively, are
A. $80,000 and $80,000.
B. $200,000 and $200,000.
C. $120,000 and $140,000.
D. $100,000 and $100,000.
- Figure 4-2
The following information is provided by the Sandman Corporation for the year:
Actual direct labor hours worked |
46,000 |
Budgeted overhead |
$300,000 |
Budgeted direct labor hours |
30,000 |
Actual overhead costs incurred |
$460,000 |
|
|
Refer to Figure 4-2. If normal costing is used, the amount of overhead applied for the year is
A. $414,000.
B. $400,000.
C. $480,000.
D. $460,000.
- Figure 4-2
The following information is provided by the Sandman Corporation for the year:
Actual direct labor hours worked |
46,000 |
Budgeted overhead |
$300,000 |
Budgeted direct labor hours |
30,000 |
Actual overhead costs incurred |
$460,000 |
|
|
Refer to Figure 4-2. The actual overhead rate for applying manufacturing overhead is
A. $ 7.14.
B. $ 7.50.
C. $10.00.
D. $10.50.
- Avatar Corporation uses a predetermined rate to apply overhead. At the beginning of the year, Avatar estimated its overhead costs at $240,000, direct labor hours at 40,000, and machine hours at 10,000. Actual overhead costs incurred were $249,280, actual direct labor hours were 41,000, and actual machine hours were 11,000.
What is the predetermined overhead rate per machine hour for Avatar?
A. $ 6.08
B. $ 5.85
C. $22.66
D. $24.00
- Figure 4 3
The records of Family Manufacturing show the following information:
Estimated manufacturing overhead |
$690,000 |
Estimated machine hours |
46,000 |
Actual machine hours worked |
50,000 |
|
|
Actual costs incurred: |
|
Indirect materials |
$170,000 |
Indirect labor |
230,000 |
Utilities |
120,000 |
Insurance |
100,000 |
Rent |
80,000 |
|
|
Refer to Figure 4-3. The amount of overapplied or underapplied overhead is
A. $10,000 underapplied. .
B. $50,000 overapplied.
C. $60,000 overapplied.
D. $65,200 underapplied
- Figure 4 3
The records of Family Manufacturing show the following information:
Estimated manufacturing overhead |
$690,000 |
Estimated machine hours |
46,000 |
Actual machine hours worked |
50,000 |
|
|
Actual costs incurred: |
|
Indirect materials |
$170,000 |
Indirect labor |
230,000 |
Utilities |
120,000 |
Insurance |
100,000 |
Rent |
80,000 |
|
|
Refer to Figure 4-3. The company uses a predetermined overhead rate to apply overhead. Manufacturing overhead applied is
A. $750,000.
B. $700,000.
C. $690,000.
D. $648,000.
- The following information pertains to Whitestone Industries for 2014:
Estimated total overhead costs for 2014 |
$37,500 |
Estimated direct labor costs for 2014 |
25,000 |
Actual direct labor costs |
22,500 |
Actual overhead costs |
36,000 |
Activity base |
Direct labor costs |
|
|
What is the predetermined overhead rate for Whitestone Industries for 2014?
A. 66.7%
B. 150%
C. 160%
D. 62.5%
- Figure 4-4
Mannitou Company made the following predictions for 2014:
Factory overhead costs |
$300,000 |
Direct labor hours |
50,000 hours |
Machine hours |
100,000 hours |
|
|
Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is
A. $69,000.
B. $75,000.
C. $63,000.
D. $66,000.
- Figure 4-4
Mannitou Company made the following predictions for 2014:
Factory overhead costs |
$300,000 |
Direct labor hours |
50,000 hours |
Machine hours |
100,000 hours |
|
|
Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
Refer to Figure 4-4. If factory overhead is applied based on direct labor hours, the cost of Job A2 for the Mannitou Company is
A. $60,000.
B. $75,000.
C. $63,000.
D. $66,000.
- The Magnanimous Company uses a predetermined overhead rate of $12 per direct labor hour to apply overhead. During the year, 30,000 direct labor hours were worked. Actual overhead costs for the year were $320,000. The overhead variance is
A. $40,000 underapplied.
B. $35,560 underapplied.
C. $36,000 overapplied.
D. none of the above.
- The following information is provided for the year:
Actual direct labor hours worked |
27,500 |
Budgeted overhead |
$525,000 |
Budgeted direct labor hours |
30,000 |
Actual overhead costs incurred |
$481,250 |
|
|
If normal costing is used, the amount of overhead applied for the year is
A. $568,750.00.
B. $441,031.25.
C. $481,250.00.
D. $525,000.00.
- The following information is provided by the Sutton Corporation for the year:
Actual overhead |
$450,000 |
Actual machine hours worked |
25,000 |
Budgeted machine hours |
27,500 |
Applied overhead |
$487,500 |
|
|
If normal costing is used, budgeted overhead used to calculate the predetermined rate would be
A. $443,250.
B. $450,000.
C. $487,500.
D. $536,250.
- Assume the following: Actual overhead costs equaled estimated overhead. Actual direct labor hours exceeded estimated direct labor hours used to calculate the predetermined overhead rate. If overhead is applied using the predetermined overhead rate, then overhead is
A. $-0-.
B. underapplied.
C. overapplied.
D. indeterminable from the information given.
- Bear Claw Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year:
|
Molding |
Assembly |
Manufacturing overhead cost |
$700,000 |
$400,000 |
Machine hours |
10,000 |
4,000 |
Direct labor hours |
12,000 |
16,000 |
|
|
|
The following information was available for Job No. 7-29, which was started and completed during August:
|
Job No. 7-29 |
|
|
Molding |
Assembly |
Direct materials |
$3,500 |
$ 7,500 |
Direct labor |
$9,000 |
$12,500 |
Direct labor hours |
900 |
1,250 |
Machine hours |
500 |
400 |
|
|
|
The predetermined overhead rate for the molding department is
A. $100.
B. $83.
C. $70.
D. $50.
- Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 2014:
Materials placed into production |
$140,000 |
Indirect labor |
40,000 |
Direct labor (10,000 hours) |
160,000 |
Depreciation of factory building |
60,000 |
Other factory overhead |
100,000 |
Increase in work-in-process inventory |
30,000 |
|
|
Factory overhead rate is $18 per direct labor hour.
What is the amount of under- or overapplied overhead for Lonestar Corporation in 2014?
A. $40,000 overapplied
B. $20,000 overapplied
C. $40,000 underapplied
D. $20,000 underapplied
- Material amounts of underapplied or overapplied overhead should be
A. treated as an adjustment to cost of goods sold.
B. treated as an adjustment to work in process.
C. allocated to direct materials, work in process, and finished goods.
D. allocated to work in process, finished goods, and cost of goods sold.
- Account balances from the Boilermakers Company are as follows:
Manufacturing overhead |
$240,000 underapplied |
Work in process |
100,000 |
Finished goods |
300,000 |
Cost of goods sold |
800,000 |
|
|
If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of
A. $ 960,000.
B. $ 640,000.
C. $1,040,000.
D. $1,440,000.
- Figure 4-5
The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Actual overhead |
$325,000 |
Estimated Overhead |
$350,000 |
Estimated activity: |
|
9 volt battery |
100,000 direct labor hours |
AAA battery |
400,000 direct labor hours |
Actual activity: |
|
9 volt battery |
125,000 direct labor hours |
AAA battery |
400,000 direct labor hours |
Units produced: |
|
9 volt battery |
500,000 |
AAA battery |
250,000 |
|
|
Refer to Figure 4-5. What is the predetermined overhead rate? (round to 2 decimal places)
A. $0.62
B. $0.65
C. $0.67
D. $0.70
- Figure 4-5
The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
Actual overhead |
$325,000 |
Estimated Overhead |
$350,000 |
Estimated activity: |
|
9 volt battery |
100,000 direct labor hours |
AAA battery |
400,000&
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