Introduction to Managerial Accounting Canadian 5th Edition By Brewer – Test Bank

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ExamName___________________________________MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1)Which of the following would be classified as a product-level activity?1)A)Personnel administration.B)Cafeteria facilities used by all employees.C)Testing product prototypes.D)Machine setups for standard products.Answer:CExplanation:A)B)C)D)1
Reference: 05-14Brooke Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$777,40026,000MHsBatch setup (setups)$1,814,40028,000setupsGeneral factory (directlabour-hours)$478,80018,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)28,00017,00011,000Batch setup (setups)28,0007,00021,000General factory (directlabour-hours)18,0009,0009,000The actual total manufacturing overhead cost incurred for the year was $3,064,400.2)The activity rate computed at the beginning of the year for the batch setup activity costpool is closest to:2)A)$64.80.B)$259.20.C)$109.70.D)$86.40.Answer:AExplanation:A)B)C)D)2
Reference: 05-03Arthur Company has two products: S and D. The company uses activity-based costing and has prepared thefollowing analysis showing the estimated total cost and expected activity for each of its three activity cost pools:ActivityExpected ActivityCost PoolEstimated Ovhd.CostProduct SProduct DTotalActivity 1$20,000100400500Activity 2$14,600500250750Activity 3$90,0003002,7003,000The annual production and sales of Product S is 4,547 units. The annual production and sales of Product D is7,913.3)The activity rate under the activity-based costing system for Activity 3 is closest to:3)A)$41.53.B)$30.00.C)$33.33.D)$29.32.Answer:BExplanation:A)B)C)D)4)Bridget Company uses activity-based costing. The company has two products: A and B.The annual production and sales of Product A are 2,000 units and of Product B are 3,000units. There are three activity cost pools, with estimated total cost and expected activityas follows:ActivityEstimatedExpected ActivityCost PoolCostProductAProductBTotalActivity 1$9,000400350750Activity 2$12,000100400500Activity 3$48,0004001,2001,600The cost per unit of Product A under activity-based costing is closest to:4)A)$13.80.B)$6.40.C)$9.60.D)$8.63.Answer:CExplanation:A)B)C)D)3
Reference 05-15Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. The companycurrently allocated overhead on the basis of direct labor hours. This month, the company incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor cost$12,00018,000Management is considering implementing activity based costing. An analysis of estimated overhead costsrevealed the following activities:ActivityTotal CostActivityMeasureUse of ActivityMeasure by ProductLineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections2004005)What is the allocation rate for Materials Handling using Activity Based Costing?5)A)$45B)$30C)$18D)$9Answer:CExplanation:A)B)C)D)4
Reference 05-16Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been receiving complaints that the polishing mitt seems over-priced.Management is wondering if there’s merit to this claim since the washing mitt is a more complex productcompared to the polishing cloth. As such, management has gathered information on the potential activity areas tobe used.ActivityActivity MeasureEstimatedManufacturingOverhead CostDesignDesign hours$12,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric30,000ProductionMachine Hours250,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $8.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,0006)Compute the activity rate for Materials Handling using activity based costing.6)A)$7.50B)$30.00C)$6.00D)$6.64Answer:CExplanation:A)B)C)D)7)Parts administration is an example of a:7)A)product-level activity.B)batch-level activity.C)facility-level activity.D)unit-level activity.Answer:AExplanation:A)B)C)D)5
Reference 05-15Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. The companycurrently allocated overhead on the basis of direct labor hours. This month, the company incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor cost$12,00018,000Management is considering implementing activity based costing. An analysis of estimated overhead costsrevealed the following activities:ActivityTotal CostActivityMeasureUse of ActivityMeasure by ProductLineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections2004008)Assuming a current predetermined overhead rate of $10.00, what is the total overheadallocated to speedometers using the current costing system?8)A)$12,000B)$20,000C)$8,000D)$45,000Answer:AExplanation:A)B)C)D)6
Reference: 05-01Acton Company has two products: A and B. The annual production and sales of Product A are 800 units and ofProduct B are 500 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.2 direct labour-hours per unit. The total estimated overhead for next period is $92,023.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverheadCostsProduct AProduct BTotalActivity 1$14,4875006001,100Activity 2$64,8002,5005003,000General Factory$12,736240100340Total$92,023(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)9)The overhead cost per unit of Product A under the activity-based costing system isclosest to:9)A)$86.97.B)$11.24.C)$81.20.D)$70.79.Answer:AExplanation:A)B)C)D)7
Reference: 05-13Bressler Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$332,80016,000MHsBatch setup (setups)$1,580,50029,000setupsGeneral factory (directlabour-hours)$305,60016,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)15,0007,0008,000Batch setup (setups)30,00022,0008,000General factory (directlabour-hours)15,00012,0003,000The actual total manufacturing overhead cost incurred for the year was $2,202,600.10)The activity rate computed at the beginning of the year for the batch setup activity costpool is closest to:10)A)$71.80.B)$74.00.C)$197.60.D)$54.50.Answer:DExplanation:A)B)C)D)8
Reference: 05-09Aujla Corporation uses activity-based costing to determine product costs for external financial reports. Thecompany has provided the following data concerning its activity-based costing system:Activity Cost Pools (and Activity Measures)Estimated Overhead CostMachine related (machine-hours)$239,000Batch setup (setups)$234,900General factory (direct labour-hours)$159,300Expected ActivityActivity CostPoolsTotalProduct XProduct YMachine related10,0004,0006,000Batch setup9,0008,0001,000General factory9,0003,0006,00011)The activity rate for the batch setup activity cost pool is closest to:11)A)$70.40.B)$234.90.C)$26.10.D)$29.40.Answer:CExplanation:A)B)C)D)9
Reference: 05-14Brooke Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$777,40026,000MHsBatch setup (setups)$1,814,40028,000setupsGeneral factory (directlabour-hours)$478,80018,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)28,00017,00011,000Batch setup (setups)28,0007,00021,000General factory (directlabour-hours)18,0009,0009,000The actual total manufacturing overhead cost incurred for the year was $3,064,400.12)The credits to the Manufacturing Overhead control account during the year (prior toclosing out the balance) would have totalled:12)A)$3,130,400.B)$3,097,400.C)$3,064,400.D)$3,076,500.Answer:AExplanation:A)B)C)D)10
Reference: 05-13Bressler Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$332,80016,000MHsBatch setup (setups)$1,580,50029,000setupsGeneral factory (directlabour-hours)$305,60016,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)15,0007,0008,000Batch setup (setups)30,00022,0008,000General factory (directlabour-hours)15,00012,0003,000The actual total manufacturing overhead cost incurred for the year was $2,202,600.13)The credits to the Manufacturing Overhead control account during the year (prior toclosing out the balance) would have totalled:13)A)$2,202,600.B)$2,233,500.C)$2,249,700.D)$2,218,050.Answer:BExplanation:A)B)C)D)11
Reference 05-16Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been receiving complaints that the polishing mitt seems over-priced.Management is wondering if there’s merit to this claim since the washing mitt is a more complex productcompared to the polishing cloth. As such, management has gathered information on the potential activity areas tobe used.ActivityActivity MeasureEstimatedManufacturingOverhead CostDesignDesign hours$12,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric30,000ProductionMachine Hours250,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $8.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,00014)What is the allocation rate for Setups using activity based Costing?14)A)$2,000B)$6,640C)$800D)$1,333Answer:CExplanation:A)B)C)D)12
Reference 05-15Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. The companycurrently allocated overhead on the basis of direct labor hours. This month, the company incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor cost$12,00018,000Management is considering implementing activity based costing. An analysis of estimated overhead costsrevealed the following activities:ActivityTotal CostActivityMeasureUse of ActivityMeasure by ProductLineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections20040015)Assuming an allocation rate of $20 per requisition for the Materials Handling Activity,what is the total overhead allocated to speedometers?15)A)$24,000B)$12,000C)$8,000D)$20,000Answer:CExplanation:A)B)C)D)13
16)An activity-based costing that is designed for internal decision making may not conformto generally accepted accounting principles. Which of the following would cause that tobe the case?16)A)Indirect manufacturing costs for indirect labour are included.B)Some non-manufacturing costs are assigned to products.C)Indirect manufacturing costs for indirect materials are included.D)Direct manufacturing costs for labour and material are included.Answer:BExplanation:A)B)C)D)14
Reference 05-16Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been receiving complaints that the polishing mitt seems over-priced.Management is wondering if there’s merit to this claim since the washing mitt is a more complex productcompared to the polishing cloth. As such, management has gathered information on the potential activity areas tobe used.ActivityActivity MeasureEstimatedManufacturingOverhead CostDesignDesign hours$12,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric30,000ProductionMachine Hours250,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $8.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,00017)Compute the predetermined overhead rate using machine hours as the basis for allocatingoverhead costs to products.17)A)$8.30B)$6.64C)$33.20D)$5.00Answer:BExplanation:A)B)C)D)15
Reference: 05-07Alam Company uses activity-based costing to compute product costs for external reports. The company has threeactivity cost pools and applies overhead using predetermined overhead rates for each activity cost pool.Overapplied or underapplied overhead is closed to the Cost of Goods Sold account at the end of each year.Estimated costs and activities for the current year are presented below for the three activity cost pools:Estimated Overhead CostExpected ActivityActivity 1$29,3281,200Activity 2$30,0242,400Activity 3$65,1422,200Actual costs and activities for the current year were as follows:Actual Overhead CostActual ActivityActivity 1$29,2381,185Activity 2$29,8992,415Activity 3$65,1172,22518)The total credits to the Manufacturing Overhead account during the year were closest to:18)A)$125,055.B)$124,254.C)$124,494.D)$125,667.Answer:AExplanation:A)B)C)D)16
Reference: 05-02Addy Company has two products: A and B. The annual production and sales of Product A are 1,700 units and ofProduct B are 1,100 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.6 direct labour-hours per unit. The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverhead CostsProduct AProduct BTotalActivity 1$30,5281,0006001,600Activity 2$17,3851,7002001,900General Factory$50,8725106601,170Total$98,785(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)19)The predetermined overhead rate per DLH under the traditional costing system is closestto:19)A)$43.48.B)$9.15.C)$19.08.D)$84.43.Answer:DExplanation:A)B)C)D)17
Reference: 05-08Albin Company uses activity-based costing to compute product costs for external reports. The company has threeactivity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimatedcosts and activities for the current year are presented below for the three activity cost pools:Estimated Overhead CostExpected ActivityActivity 1$42,7002,000Activity 2$24,9342,600Activity 3$49,2892,300Actual costs and activities for the current year were as follows:Actual Overhead CostActual ActivityActivity 1$42,8551,995Activity 2$24,7942,595Activity 3$49,2942,29520)The total debits to the Manufacturing Overhead account during the year were closest to:20)A)$116,661.B)$116,923.C)$120,133.D)$116,943.Answer:DExplanation:A)B)C)D)21)Matt Company uses activity-based costing. The company has two products: A and B.The annual production and sales of Product A are 8,000 units and of Product B are 6,000units. There are three activity cost pools, with estimated total cost and expected activityas follows:ActivityEstimatedExpected ActivityCost PoolCostProduct AProduct BTotalActivity 1$20,000100400500Activity 2$37,0008002001,000Activity 3$91,2008003,0003,800The cost per unit of Product A under activity-based costing is closest to:21)A)$3.90.B)$2.40.C)$6.60.D)$10.59.Answer:CExplanation:A)B)C)D)18
Reference: 05-05Abel Company uses activity-based costing. The company has two products: A and B. The annual production andsales of Product A are 200 units and of Product B are 400 units. There are three activity cost pools, with estimatedcosts and expected activity as follows:ActivityExpected ActivityCost PoolEstimated CostProduct AProduct BTotalActivity 1$16,660600100700Activity 2$18,4501,1007001,800Activity 3$ 9,7316016022022)The overhead cost per unit of Product B is closest to:22)A)$41.58.B)$81.53.C)$17.69.D)$74.73.Answer:AExplanation:A)B)C)D)23)Paul Company has two products: A and B. The company uses activity-based costing. Theestimated total cost and expected activity for each of the company’s three activity costpools are as follows:ActivityEstimatedExpected ActivityCost PoolCostProduct AProduct BTotalActivity 1$22,000400100500Activity 2$16,240380200580Activity 3$14,600500250750The activity rate under the activity-based costing system for Activity 3 is closest to:23)A)$70.45.B)$19.47.C)$58.40.D)$28.87.Answer:BExplanation:A)B)C)D)19
Reference: 05-14Brooke Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$777,40026,000MHsBatch setup (setups)$1,814,40028,000setupsGeneral factory (directlabour-hours)$478,80018,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)28,00017,00011,000Batch setup (setups)28,0007,00021,000General factory (directlabour-hours)18,0009,0009,000The actual total manufacturing overhead cost incurred for the year was $3,064,400.24)The total amount of overhead cost allocated to Product X during the year would beclosest to:24)A)$1,535,000.B)$1,201,300.C)$1,814,000.D)$768,000.Answer:BExplanation:A)B)C)D)25)Which of the following would not be considered categories of quality costs?25)A)Prevention costs.B)Appraisal costs.C)Direct material costs.D)External failure costs.Answer:CExplanation:A)B)C)D)20
26)IBM is conducting a prototype testing of its newest product. This is an example of anactivity at which level?26)A)Unit level activity.B)Facility level activity.C)Product level activity.D)Batch level activity.Answer:CExplanation:A)B)C)D)Reference: 05-12Brenot Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$379,60013,000MHsBatch setup (setups)$1,144,80027,000setupsGeneral factory (direct labour-hours)$420,50029,000DLHsThe actual activity for the year was:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)13,00011,0002,000Batch setup (setups)26,0003,00023,000General factory (direct labour-hours)30,00024,0006,000The actual total manufacturing overhead cost incurred for the year was $1,942,300.27)The activity rate computed at the beginning of the year for the batch setup activity costpool is closest to:27)A)$74.80.B)$49.80.C)$42.40.D)$381.60.Answer:CExplanation:A)B)C)D)21
Reference: 05-07Alam Company uses activity-based costing to compute product costs for external reports. The company has threeactivity cost pools and applies overhead using predetermined overhead rates for each activity cost pool.Overapplied or underapplied overhead is closed to the Cost of Goods Sold account at the end of each year.Estimated costs and activities for the current year are presented below for the three activity cost pools:Estimated Overhead CostExpected ActivityActivity 1$29,3281,200Activity 2$30,0242,400Activity 3$65,1422,200Actual costs and activities for the current year were as follows:Actual Overhead CostActual ActivityActivity 1$29,2381,185Activity 2$29,8992,415Activity 3$65,1172,22528)The total debits to the Manufacturing Overhead account during the year were closest to:28)A)$125,667.B)$124,494.C)$125,055.D)$124,254.Answer:DExplanation:A)B)C)D)22
Reference: 05-01Acton Company has two products: A and B. The annual production and sales of Product A are 800 units and ofProduct B are 500 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.2 direct labour-hours per unit. The total estimated overhead for next period is $92,023.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverheadCostsProduct AProduct BTotalActivity 1$14,4875006001,100Activity 2$64,8002,5005003,000General Factory$12,736240100340Total$92,023(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)29)The predetermined overhead rate per DLH under the traditional costing system is closestto:29)A)$270.66.B)$21.60.C)$13.17.D)$37.46.Answer:AExplanation:A)B)C)D)23
Reference: 05-02Addy Company has two products: A and B. The annual production and sales of Product A are 1,700 units and ofProduct B are 1,100 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.6 direct labour-hours per unit. The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverhead CostsProduct AProduct BTotalActivity 1$30,5281,0006001,600Activity 2$17,3851,7002001,900General Factory$50,8725106601,170Total$98,785(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)30)The overhead cost per unit of Product B under the activity-based costing system isclosest to30)A)$50.66.B)$26.09.C)$35.28.D)$38.16.Answer:DExplanation:A)B)C)D)24
Reference: 05-13Bressler Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$332,80016,000MHsBatch setup (setups)$1,580,50029,000setupsGeneral factory (directlabour-hours)$305,60016,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)15,0007,0008,000Batch setup (setups)30,00022,0008,000General factory (directlabour-hours)15,00012,0003,000The actual total manufacturing overhead cost incurred for the year was $2,202,600.31)The debits to the Manufacturing Overhead control account during the year (prior toclosing out the balance) would have totalled:31)A)$2,218,050.B)$2,223,500.C)$2,249,700.D)$2,202,600.Answer:DExplanation:A)B)C)D)25
Reference: 05-06Accola Company uses activity-based costing. The company has two products: A and B. The annual productionand sales of Product A are 1,100 units and of Product B are 700 units. There are three activity cost pools, withestimated costs and expected activity as follows:ActivityExpected ActivityCost PoolEstimated CostProduct AProduct BTotalActivity 1$18,2716005001,100Activity 2$35,8911,6003001,900Activity 3$48,79644042086032)The activity rate for Activity 3 is closest to:32)A)$116.18.B)$26.67.C)$56.74.D)$119.72.Answer:CExplanation:A)B)C)D)33)Selena Company has two products: A and B. The company uses activity-based costing.The estimated total cost and expected activity for each of the company’s three activitycost pools are as follows:ActivityEstimatedExpected ActivityCost PoolCostProduct AProduct BTotalActivity 1$17,6008003001,100Activity 2$12,000500200700Activity 3$26,0008004001,200The activity rate under the activity-based costing system for Activity 3 is closest to:33)A)$21.67.B)$65.00.C)$18.53.D)$46.33.Answer:AExplanation:A)B)C)D)26
Reference: 05-05Abel Company uses activity-based costing. The company has two products: A and B. The annual production andsales of Product A are 200 units and of Product B are 400 units. There are three activity cost pools, with estimatedcosts and expected activity as follows:ActivityExpected ActivityCost PoolEstimated CostProduct AProduct BTotalActivity 1$16,660600100700Activity 2$18,4501,1007001,800Activity 3$ 9,7316016022034)The activity rate for Activity 2 is closest to34)A)$26.36.B)$24.91.C)$16.77.D)$10.25.Answer:DExplanation:A)B)C)D)Reference: 05-11Andruschack Corporation uses activity-based costing to determine product costs for external financial reports.Overapplied or underapplied overhead is closed to the Cost of Goods Sold account at the end of each year. Thecompany has provided the following data concerning its activity-based costing system:Activity Cost Pools (and ActivityMeasures)Estimated Overhead CostMachine related (machine-hours)$213,000Batch setup (setups)$339,000General factory (direct labour-hours)$193,200Expected ActivityActivity Cost PoolsTotalProduct XProduct YMachine related10,0003,0007,000Batch setup10,0004,0006,000General factory14,0007,0007,00035)The activity rate for the batch setup activity cost pool is closest to:35)A)$74.50.B)$84.80.C)$33.90.D)$56.50.Answer:CExplanation:A)B)C)D)27
Reference: 05-06Accola Company uses activity-based costing. The company has two products: A and B. The annual productionand sales of Product A are 1,100 units and of Product B are 700 units. There are three activity cost pools, withestimated costs and expected activity as follows:ActivityExpected ActivityCost PoolEstimated CostProduct AProduct BTotalActivity 1$18,2716005001,100Activity 2$35,8911,6003001,900Activity 3$48,79644042086036)The overhead cost per unit of Product A is closest to:36)A)$47.89.B)$57.20.C)$59.23.D)$22.70.Answer:CExplanation:A)B)C)D)Reference: 05-03Arthur Company has two products: S and D. The company uses activity-based costing and has prepared thefollowing analysis showing the estimated total cost and expected activity for each of its three activity cost pools:ActivityExpected ActivityCost PoolEstimated Ovhd.CostProduct SProduct DTotalActivity 1$20,000100400500Activity 2$14,600500250750Activity 3$90,0003002,7003,000The annual production and sales of Product S is 4,547 units. The annual production and sales of Product D is7,913.37)The overhead cost per unit of Product S under activity-based costing is closest to:37)A)$10.00.B)$1.98.C)$5.00.D)$1.83.Answer:CExplanation:A)B)C)D)28
Reference: 05-11Andruschack Corporation uses activity-based costing to determine product costs for external financial reports.Overapplied or underapplied overhead is closed to the Cost of Goods Sold account at the end of each year. Thecompany has provided the following data concerning its activity-based costing system:Activity Cost Pools (and ActivityMeasures)Estimated Overhead CostMachine related (machine-hours)$213,000Batch setup (setups)$339,000General factory (direct labour-hours)$193,200Expected ActivityActivity Cost PoolsTotalProduct XProduct YMachine related10,0003,0007,000Batch setup10,0004,0006,000General factory14,0007,0007,00038)Assuming that actual activity turns out to be the same as expected activity, the totalamount of overhead cost allocated to Product X would be closest to:38)A)$339,000.B)$298,000.C)$372,600.D)$296,100.Answer:DExplanation:A)B)C)D)39)Setting up equipment is an example of a:39)A)batch-level activity.B)product-level activity.C)facility-level activity.D)unit-level activity.Answer:AExplanation:A)B)C)D)29
40)Which of the following is not a limitation of activity-based costing?40)A)More accurate product costs may result in better decisions.B)Changing from a traditional direct labour based costing system to an activity-basedcosting system changes product margins and other key performance indicators usedby managers.C)In practice, most managers insist on fully allocating all costs to products, customers,and other costing objects in an activity based costing system. This results inoverstated costs.D)Implementing an activity based costing system is more costly than implementing atraditional direct labour-based costing system.Answer:AExplanation:A)B)C)D)41)The cost of worker recreational facilities is an example of a cost that would ordinarily beconsidered to be41)A)unit-level.B)product-level.C)batch-level.D)facility-level.Answer:DExplanation:A)B)C)D)42)Purchase order processing is an example of a:42)A)product-level activity.B)batch-level activity.C)unit-level activity.D)facility-level activity.Answer:BExplanation:A)B)C)D)43)Which of the following would not be considered as an internal failure cost?43)A)Scrap costs.B)Quality training.C)Rework costs.D)Investigation of cause of failure.Answer:BExplanation:A)B)C)D)30
Reference: 05-14Brooke Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$777,40026,000MHsBatch setup (setups)$1,814,40028,000setupsGeneral factory (directlabour-hours)$478,80018,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)28,00017,00011,000Batch setup (setups)28,0007,00021,000General factory (directlabour-hours)18,0009,0009,000The actual total manufacturing overhead cost incurred for the year was $3,064,400.44)The debits to the Manufacturing Overhead control account during the year (prior toclosing out the balance) would have totalled:44)A)$3,064,400.B)$3,076,500.C)$3,130,400.D)$3,097,400.Answer:AExplanation:A)B)C)D)31
Reference: 05-02Addy Company has two products: A and B. The annual production and sales of Product A are 1,700 units and ofProduct B are 1,100 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.6 direct labour-hours per unit. The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverhead CostsProduct AProduct BTotalActivity 1$30,5281,0006001,600Activity 2$17,3851,7002001,900General Factory$50,8725106601,170Total$98,785(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)45)The overhead cost per unit of Product B under the traditional costing system is closest to:45)A)$50.66.B)$26.09.C)$11.45.D)$5.49.Answer:AExplanation:A)B)C)D)32
Reference 05-16Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been receiving complaints that the polishing mitt seems over-priced.Management is wondering if there’s merit to this claim since the washing mitt is a more complex productcompared to the polishing cloth. As such, management has gathered information on the potential activity areas tobe used.ActivityActivity MeasureEstimatedManufacturingOverhead CostDesignDesign hours$12,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric30,000ProductionMachine Hours250,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $8.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,00046)Assuming the predetermined overhead rate is $10.00, what is the total overhead allocatedto each washing mitt using the current costing system?46)A)$4.00B)$2.00C)$2.67D)$10.00Answer:AExplanation:A)B)C)D)33
Reference: 05-12Brenot Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$379,60013,000MHsBatch setup (setups)$1,144,80027,000setupsGeneral factory (direct labour-hours)$420,50029,000DLHsThe actual activity for the year was:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)13,00011,0002,000Batch setup (setups)26,0003,00023,000General factory (direct labour-hours)30,00024,0006,000The actual total manufacturing overhead cost incurred for the year was $1,942,300.47)The debits to the Manufacturing Overhead control account during the year (prior toclosing out the balance) would have totalled:47)A)$1,917,000.B)$1,929,650.C)$1,942,300.D)$1,932,200.Answer:CExplanation:A)B)C)D)48)The total amount of overhead cost allocated to Product X during the year would beclosest to:48)A)$972,450.B)$224,000.C)$796,400.D)$1,145,000.Answer:CExplanation:A)B)C)D)34
Reference: 05-07Alam Company uses activity-based costing to compute product costs for external reports. The company has threeactivity cost pools and applies overhead using predetermined overhead rates for each activity cost pool.Overapplied or underapplied overhead is closed to the Cost of Goods Sold account at the end of each year.Estimated costs and activities for the current year are presented below for the three activity cost pools:Estimated Overhead CostExpected ActivityActivity 1$29,3281,200Activity 2$30,0242,400Activity 3$65,1422,200Actual costs and activities for the current year were as follows:Actual Overhead CostActual ActivityActivity 1$29,2381,185Activity 2$29,8992,415Activity 3$65,1172,22549)The entry to the Cost of Goods Sold account at the end of the year was (round your finalanswer to nearest dollar value):49)A)$1,173 credit.B)$801 credit.C)$801 debit.D)$1,173 debit.Answer:BExplanation:A)B)C)D)35
Reference: 05-01Acton Company has two products: A and B. The annual production and sales of Product A are 800 units and ofProduct B are 500 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.2 direct labour-hours per unit. The total estimated overhead for next period is $92,023.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverheadCostsProduct AProduct BTotalActivity 1$14,4875006001,100Activity 2$64,8002,5005003,000General Factory$12,736240100340Total$92,023(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)50)The overhead cost per unit of Product B under the traditional costing system is closest to:50)A)$2.63.B)$54.13.C)$7.49.D)$4.32.Answer:BExplanation:A)B)C)D)36
Reference: 05-10Austad Corporation uses activity-based costing to determine product costs for external financial reports. Thecompany has provided the following data concerning its activity-based costing system:Activity Cost Pools (and Activity Measures)EstimatedOverhead CostMachine related (machine-hours)$67,500Batch setup (setups)$273,700General factory (direct labour-hours)$204,000Expected ActivityActivity Cost PoolsTotalProduct XProduct YMachine related5,0004,0001,000Batch setup7,0003,0004,000General factory8,0001,0007,00051)The activity rate for the batch setup activity cost pool is closest to:51)A)$68.40.B)$39.10.C)$91.20.D)$77.90.Answer:BExplanation:A)B)C)D)37
Reference: 05-08Albin Company uses activity-based costing to compute product costs for external reports. The company has threeactivity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimatedcosts and activities for the current year are presented below for the three activity cost pools:Estimated Overhead CostExpected ActivityActivity 1$42,7002,000Activity 2$24,9342,600Activity 3$49,2892,300Actual costs and activities for the current year were as follows:Actual Overhead CostActual ActivityActivity 1$42,8551,995Activity 2$24,7942,595Activity 3$49,2942,29552)The total credits to the Manufacturing Overhead account during the year were closest to:52)A)$116,661.B)$116,943.C)$116,923.D)$120,133.Answer:AExplanation:A)B)C)D)38
Reference: 05-13Bressler Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$332,80016,000MHsBatch setup (setups)$1,580,50029,000setupsGeneral factory (directlabour-hours)$305,60016,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)15,0007,0008,000Batch setup (setups)30,00022,0008,000General factory (directlabour-hours)15,00012,0003,000The actual total manufacturing overhead cost incurred for the year was $2,202,600.53)The manufacturing overhead for the year is underapplied or overapplied by:53)A)($30,900).B)$30,900.C)($15,450).D)$15,450.Answer:AExplanation:A)B)C)D)39
Reference: 05-10Austad Corporation uses activity-based costing to determine product costs for external financial reports. Thecompany has provided the following data concerning its activity-based costing system:Activity Cost Pools (and Activity Measures)EstimatedOverhead CostMachine related (machine-hours)$67,500Batch setup (setups)$273,700General factory (direct labour-hours)$204,000Expected ActivityActivity Cost PoolsTotalProduct XProduct YMachine related5,0004,0001,000Batch setup7,0003,0004,000General factory8,0001,0007,00054)Assuming that actual activity turns out to be the same as expected activity, the totalamount of overhead cost allocated to Product X would be closest to:54)A)$272,600.B)$196,800.C)$274,000.D)$234,000.Answer:BExplanation:A)B)C)D)40
Reference: 05-01Acton Company has two products: A and B. The annual production and sales of Product A are 800 units and ofProduct B are 500 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.2 direct labour-hours per unit. The total estimated overhead for next period is $92,023.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverheadCostsProduct AProduct BTotalActivity 1$14,4875006001,100Activity 2$64,8002,5005003,000General Factory$12,736240100340Total$92,023(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)55)The predetermined overhead rate (i.e., activity rate) for Activity 1 under theactivity-based costing system is closest to:55)A)$83.66.B)$28.97.C)$13.17.D)$24.15.Answer:CExplanation:A)B)C)D)56)Human resource management is an example of an activity at which of the followinglevels?56)A)Unit-level activity.B)Facility-level activity.C)Batch-level activity.D)Product-level activity.Answer:BExplanation:A)B)C)D)41
Reference: 05-14Brooke Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$777,40026,000MHsBatch setup (setups)$1,814,40028,000setupsGeneral factory (directlabour-hours)$478,80018,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)28,00017,00011,000Batch setup (setups)28,0007,00021,000General factory (directlabour-hours)18,0009,0009,000The actual total manufacturing overhead cost incurred for the year was $3,064,400.57)If total overapplied or underapplied overhead is closed to the Cost of Goods Soldaccount at the end of each year, the entry to Cost of Goods Sold would have been:57)A)$33,000 credit.B)$66,000 credit.C)$66,000 debit.D)$33,000 debit.Answer:BExplanation:A)B)C)D)42
58)Suki Company uses activity-based costing to compute product costs for external reports.The company has three activity cost pools and applies overhead using predeterminedoverhead rates for each activity cost pool. Estimated costs and activities for the currentyear are presented below for the three activity cost pools:EstimatedOverheadCostExpected ActivityActivity 1$34,3001,400Activity 2$20,5201,800Activity 3$36,1121,600Actual activity for the current year was as follows:Actual ActivityActivity 11,415Activity 21,805Activity 31,585The amount of overhead applied for Activity 3 during the year was closest to58)A)$35,773.45.B)$30,026.50.C)$36,107.00.D)$36,112.00.Answer:AExplanation:A)B)C)D)43
Reference: 05-04Monson Company has two products: G and P. The company uses activity-based costing and has prepared thefollowing analysis showing the estimated total cost and expected activity for each of its three activity cost pools:ActivityExpected ActivityCost PoolEstimated Ovhd.CostProduct GProduct PTotalActivity 1$30,000200400600Activity 2$24,0006009001,500Activity 3$80,0004003,6004,000The annual production and sales of Product G is 10,640 units. The annual production and sales of Product P is26,600.59)The overhead cost per unit of Product P under activity-based costing is closest to:59)A)$6.88.B)$10.00.C)$30.16.D)$4.00.Answer:DExplanation:A)B)C)D)44
Reference: 05-12Brenot Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$379,60013,000MHsBatch setup (setups)$1,144,80027,000setupsGeneral factory (direct labour-hours)$420,50029,000DLHsThe actual activity for the year was:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)13,00011,0002,000Batch setup (setups)26,0003,00023,000General factory (direct labour-hours)30,00024,0006,000The actual total manufacturing overhead cost incurred for the year was $1,942,300.60)The credits to the Manufacturing Overhead control account during the year (prior toclosing out the balance) would have totalled:60)A)$1,929,650.B)$1,942,300.C)$1,932,300.D)$1,917,000.Answer:DExplanation:A)B)C)D)61)Departmental overhead rates may not correctly assign overhead costs due to:61)A)the use of direct labour-hours in allocating overhead costs to products rather thanmachine time or quantity of materials used.B)overreliance on volume as a basis for allocating overhead costs where productsdiffer regarding the number of units produced, lot size, or complexity of production.C)difficulties associated with identifying cost pools for the first stage of the allocationprocess.D)the high correlation between direct labour-hours and the incurrence of overheadcosts.Answer:BExplanation:A)B)C)D)45
62)Overhead allocation based on volume alone:62)A)must be used for external financial reporting.B)is a key aspect of the activity-based costing model.C)will systematically overcost low-volume products and undercost high-volumeproducts.D)will systematically overcost high-volume products and undercost low-volumeproducts.Answer:DExplanation:A)B)C)D)46
Reference 05-15Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. The companycurrently allocated overhead on the basis of direct labor hours. This month, the company incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor cost$12,00018,000Management is considering implementing activity based costing. An analysis of estimated overhead costsrevealed the following activities:ActivityTotal CostActivityMeasureUse of ActivityMeasure by ProductLineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections20040063)What is the allocation rate for Machine Set-ups using Activity Based Costing?63)A)$84.00B)$72.00C)$6.30D)$28.00Answer:DExplanation:A)B)C)D)64)Testing a prototype of a new product is an example of a:64)A)batch-level activity.B)unit-level activity.C)product-level activity.D)facility-level activity.Answer:CExplanation:A)B)C)D)47
Reference 05-16Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been receiving complaints that the polishing mitt seems over-priced.Management is wondering if there’s merit to this claim since the washing mitt is a more complex productcompared to the polishing cloth. As such, management has gathered information on the potential activity areas tobe used.ActivityActivity MeasureEstimatedManufacturingOverhead CostDesignDesign hours$12,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric30,000ProductionMachine Hours250,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $8.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,00065)Compute the activity rate for Design using activity based costing.65)A)$218B)$240C)$400D)$120Answer:AExplanation:A)B)C)D)48
Reference: 05-11Andruschack Corporation uses activity-based costing to determine product costs for external financial reports.Overapplied or underapplied overhead is closed to the Cost of Goods Sold account at the end of each year. Thecompany has provided the following data concerning its activity-based costing system:Activity Cost Pools (and ActivityMeasures)Estimated Overhead CostMachine related (machine-hours)$213,000Batch setup (setups)$339,000General factory (direct labour-hours)$193,200Expected ActivityActivity Cost PoolsTotalProduct XProduct YMachine related10,0003,0007,000Batch setup10,0004,0006,000General factory14,0007,0007,00066)Assuming that the actual overhead costs of the three pools totalled $746,000 and actualactivity was equal to expected activity, what would be the required entry to the Cost ofGoods Sold account?66)A)$800 debit.B)$600 debitC)$800 credit.D)$600 credit.Answer:AExplanation:A)B)C)D)49
67)Westin Company uses activity-based costing to compute product costs for externalreports. The company has three activity cost pools and applies overhead usingpredetermined overhead rates for each activity cost pool. Estimated costs and activitiesfor the current year are presented below for the three activity cost pools:EstimatedOverheadCostExpectedActivityActivity 1$11,916900Activity 2$12,3601,200Activity 3$19,9501,000Actual activity for the current year was as follows:ActualActivityActivity 1915Activity 21,185Activity 3965The amount of overhead applied for Activity 2 during the year was closest to:67)A)$16,905.75.B)$12,360.00.C)$12,460.00.D)$12,205.50.Answer:DExplanation:A)B)C)D)50
Reference: 05-04Monson Company has two products: G and P. The company uses activity-based costing and has prepared thefollowing analysis showing the estimated total cost and expected activity for each of its three activity cost pools:ActivityExpected ActivityCost PoolEstimated Ovhd.CostProduct GProduct PTotalActivity 1$30,000200400600Activity 2$24,0006009001,500Activity 3$80,0004003,6004,000The annual production and sales of Product G is 10,640 units. The annual production and sales of Product P is26,600.68)The activity rate under the activity-based costing system for Activity 2 is closest to:68)A)$26.67.B)$89.33.C)$16.00.D)$21.97.Answer:CExplanation:A)B)C)D)51
Reference: 05-09Aujla Corporation uses activity-based costing to determine product costs for external financial reports. Thecompany has provided the following data concerning its activity-based costing system:Activity Cost Pools (and Activity Measures)Estimated Overhead CostMachine related (machine-hours)$239,000Batch setup (setups)$234,900General factory (direct labour-hours)$159,300Expected ActivityActivity CostPoolsTotalProduct XProduct YMachine related10,0004,0006,000Batch setup9,0008,0001,000General factory9,0003,0006,00069)Assuming that actual activity turns out to be the same as expected activity, the totalamount of overhead cost allocated to Product X would be closest to:69)A)$563,000.B)$316,600.C)$357,500.D)$235,000.Answer:CExplanation:A)B)C)D)52
Reference: 05-13Bressler Corporation uses activity-based costing to determine product costs for external financial reports. Activityrates computed at the beginning of the year are used to apply manufacturing overhead costs to products. Thecompany has provided the following data concerning its activity-based costing system.The data used to develop activity rates were:Activity Cost PoolsEstimatedOverhead CostExpected ActivityMachine related (machine-hours)$332,80016,000MHsBatch setup (setups)$1,580,50029,000setupsGeneral factory (directlabour-hours)$305,60016,000DLHsThe actual activity for the yearwas:Actual Activity for the YearActivity Cost PoolsTotalProduct XProduct YMachine related (machine-hours)15,0007,0008,000Batch setup (setups)30,00022,0008,000General factory (directlabour-hours)15,00012,0003,000The actual total manufacturing overhead cost incurred for the year was $2,202,600.70)The total amount of overhead cost allocated to Product X during the year would beclosest to:70)A)$1,628,000.B)$1,580,000.C)$1,573,800.D)$1,209,450.Answer:CExplanation:A)B)C)D)71)Which of the following would be classified as a product-level activity?71)A)Cafeteria facilities available to and used by all employees.B)Human resource management.C)Machine setup for a batch of a standard product.D)Advertising a product.Answer:DExplanation:A)B)C)D)53
Reference 05-15Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. The companycurrently allocated overhead on the basis of direct labor hours. This month, the company incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor cost$12,00018,000Management is considering implementing activity based costing. An analysis of estimated overhead costsrevealed the following activities:ActivityTotal CostActivityMeasureUse of ActivityMeasure by ProductLineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections20040072)What is the company’s current predetermined overhead rate?72)A)$56.63B)$37.75C)$22.65D)$9.06Answer:CExplanation:A)B)C)D)73)The clerical activity associated with processing purchase orders to produce an order for astandard product is an example of a:73)A)batch-level activity.B)product-level activity.C)facility-level activity.D)unit-level activity.Answer:AExplanation:A)B)C)D)54
Reference: 05-02Addy Company has two products: A and B. The annual production and sales of Product A are 1,700 units and ofProduct B are 1,100 units. The company has traditionally used direct labour-hours as the basis for applying allmanufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires0.6 direct labour-hours per unit. The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costing system would have three overhead activity costpools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity asfollows:ActivityExpected ActivityCost PoolEstimatedOverhead CostsProduct AProduct BTotalActivity 1$30,5281,0006001,600Activity 2$17,3851,7002001,900General Factory$50,8725106601,170Total$98,785(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labour-hours.)74)The predetermined overhead rate (i.e., activity rate) for Activity 2 under theactivity-based costing system is closest to:74)A)$86.93.B)$10.23.C)$9.15.D)$51.99.Answer:CExplanation:A)B)C)D)75)Which of the following would be considered as a prevention cost?75)A)Inspection of completed products prior to shipment to customers.B)Scrap costs.C)Supplier management.D)Rework costs.Answer:CExplanation:A)B)C)D)55
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.76)Batch-level activities are performed each time a batch is handled or processed, regardlessof how many units are in the batch.76)Answer:TrueFalseExplanation:77)Activity-based costing is only useful in allocating manufacturing overhead costs.77)Answer:TrueFalseExplanation:78)In the initial stages of a quality improvement process, there usually will be immediatereductions in total quality costs.78)Answer:TrueFalseExplanation:79)When there are batch-level or product-level costs, in comparison to a traditional costsystem, an activity-based costing system ordinarily will shift costs from high-volume tolow-volume products.79)Answer:TrueFalseExplanation:80)In activity-based costing, a plantwide overhead rate is used to apply overhead toproducts.80)Answer:TrueFalseExplanation:81)Using activity-based costing is not useful in determining costs of quality.81)Answer:TrueFalseExplanation:82)Predetermined activity rates in activity-based costing are computed by dividing estimatedactivity costs by the estimated activity volume for each activity cost pool.82)Answer:TrueFalseExplanation:83)An activity-based costing system is generally easier to set up and run than a traditionalcost system.83)Answer:TrueFalseExplanation:84)Departmental overhead rates applied on the basis of a volume measure such as directlabour-hours or machine-hours will eliminate any distortions in unit costs due to productdiversity.84)Answer:TrueFalseExplanation:56
85)Activity-based costing uses a number of activity cost pools, each of which is allocated toproducts on the basis of direct labour-hours.85)Answer:TrueFalseExplanation:86)When activity-based costing is used, the flow of costs through the accounts is similar to asystem using one plantwide overhead application rate other than the overhead costs areapplied using multiple predetermined overhead rates.86)Answer:TrueFalseExplanation:87)Facility-level costs can be easily and accurately allocated to different products usingactivity-based costing.87)Answer:TrueFalseExplanation:88)Activity-based management involves focusing on activities to eliminate waste.88)Answer:TrueFalseExplanation:89)Unit-level activities are performed each time a unit is made.89)Answer:TrueFalseExplanation:ESSAY. Write your answer in the space provided or on a separate sheet of paper.90)EMD Corporation manufactures two products, Product S and Product W. Product W is of fairlyrecent origin, having been developed as an attempt to enter a market closely related to that ofProduct W. Product W is the more complex of the two products, requiring one hour of direct labourtime per unit to manufacture compared to one-half hour of direct labour time for Product S. ProductW is produced on an automated production line.Overhead is currently assigned to the products on the basis of direct labour-hours. The companyestimated it would incur a total of $500,000 in manufacturing overhead costs and produce 10,000units of Product W and 60,000 units of Product S during the current year. Unit cost for materials anddirect labour are:Product SProduct WDirect material$10$24Direct labour$ 8$12Required:a. Compute the predetermined overhead rate under the current method of allocation and determine theunit product cost of each product for the current year.b. The company’s overhead costs can be attributed to four major activities. These activities and the57
amount of overhead cost attributable to each for the current year are given below:Expected ActivityActivity Cost PoolsEstimatedOverheadCostsProduct SProduct WTotalMachine setups required$200,0008001,2002,000Purchase orders issued43,500500100600Machine-hours required104,0003,00010,00013,000Maintenance requestsissued152,5008601,1402,000$500,000Using the data above and an activity-based costing approach, determine the unit product cost of eachproduct for the current year.Answer:a. The company expects to work 40,000 direct labour-hours during the current year, computedas follows:Product S: 60,000 units × 0.5 hr.30,000 hoursProduct W: 10,000 units × 1.0 hrs.10,000hoursTotal direct labour-hours40,000hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Pred. ovhd. rate = $500,000 ÷ 40,000 DLHs = $12.50/DLHUsing this overhead rate, the unit product cost of each product would beProduct SProduct WDirect materials$10.00$24.00Direct labour8.0012.00Manufacturing overhead:Product S-half hour6.25Product W-one hour_____12.50Total$24.25$48.50b. The overhead rates are computed as follows:Activity Cost PoolsEstimatedOverheadCostsTotalExpectedActivityRateMachine setups$200,0002,000$100.00/setupPurchase orders43,50060072.50/orderMachine-hours104,00013,0008.00/hourMaintenance requests152,5002,00076.25/request58
Answer:Maintenance requests152,5002,00076.25/request$500,000The overhead cost attributable to each product is:Product SProduct WActivityAmountActivityAmountMachine setups, $100.00/setup800$ 80,0001,200$120,000Purchase orders, $72.50/order50036,2501007,250Machine-hours, $8.00/hour3,00024,00010,00080,000Maintenance requests, at$76.25/request86065,5751,14086,925$205,825$294,175Overhead cost per unit:Product S: $205,825 ÷ 60,000 units = $3.4304/unit.Product W: $294,175 ÷ 10,000 units = $29.4175/unit.Using activity-based costing, the unit product cost of each product would be:Product SProduct WDirect materials$10.0000$24.0000Direct labour8.000012.0000Manufacturing overhead3.430429.4175Total unit product cost$21.4304$65.417559
Reference 05-23bWashie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been contemplating implementing activity based costing and has gatheredthe following data:ActivityActivity MeasureEstimated ManufacturingOverhead CostDesignDesign hours$20,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric60,000ProductionMachine Hours600,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $6.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,00060
91)Assume that actual activity is as expected for the year. Using activity based costing:a. determine the total amount of overhead that would be applied to each product line for the year.Round to the nearest whole dollar.b. Compute the unit product cost for one unit of each product line. Round to two decimal places.c. Should the company implement activity based costing? Why or why not?Answer:a. Total overheadWashing MittPolishing ClothDesign11,7658,235Setups30,00010,000Materials Handling133,33366,667Production428,571171,429Total603,669256,331b. Unit product cost:Washing MittPolishing ClothDirect Costs62Manufacturing Overhead(603,669/100,000 units)6.04(256,331/50,000 units)5.13Total12.04$7.13The company should not implement activity based costing because the costs to gather all thedata for ABC outweigh the benefits (the amount of overhead assigned is similar under thetraditional and ABC methods).61
Reference 05-19A manufacturing company produces two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using machine hours to allocate overhead. At the beginning of the year, the companymade the following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$5$2Direct labor hours per unit21Direct labor cost per unit$24$12During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $525,000.92)Compute the plant wide overhead rate. Round to two decimal places.Answer:Total machine hours = (10,000 sweatshirts * 1 hours) + (55,000 t-shirts * 0.5 hour) = 37,500hoursRate = $525,000/37,500 = $14 per machine hour62
Reference 05-18The Clothing Company manufactures two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using labor hours to allocate overhead. At the beginning of the year, the company madethe following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$6$3Direct labor hours per unit21Direct labor cost per unit$20$10During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $1,000,000.93)Compare the per unit product costs under the traditional costing system and ABC Costing. Whichproduct is under-costed using the traditional costing system?Answer:SweatshirtT-shirtTraditional Costing52.6626.33ABC49.3426.94T-shirts are under-costed using traditional costing system.63
Reference 05-19A manufacturing company produces two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using machine hours to allocate overhead. At the beginning of the year, the companymade the following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$5$2Direct labor hours per unit21Direct labor cost per unit$24$12During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $525,000.94)Compute the unit product costs under the proposed ABC system. Round to two decimal places.Answer:SweatshirtT-shirtDirect material cost50,000110,000Direct labor cost240,000660,000MOH -Machine Hours70,000192,500MOH – DESIGN52,500210,000Total cost per productline (A)412,5001,172,500Units produced (B)10,00055,000Cost per unit (A/B)41.2321.3264
Reference 05-22Gosling Company is about to implement activity based costing and would like some assistance with calculatingrates and applying overhead. The company has provided the following information on cost pools.ActivityOverhead CostAllocation BaseExpected ActivityDesign$200,000Design Hours2,000Materials Handling$150,000MaterialsRequisitions12,500Production$350,000Machine Hours70,000Purchasing$300,000Purchase Orders12,00095)Calculate the activity rate for each of the cost pools.Answer:Design = $200,000/2,000 hours = $100Materials Handling = $150,000/12,500 = $12Production = $350,000/70,000 = $5Finishing = $300,000/12,000 = $25Reference 05-18The Clothing Company manufactures two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using labor hours to allocate overhead. At the beginning of the year, the company madethe following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$6$3Direct labor hours per unit21Direct labor cost per unit$20$10During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $1,000,000.96)Compute the plant wide overhead rate. Round to two decimal places.Answer:Total direct labor hours = (10,000 sweatshirts * 2 hours) + (55,000 t-shirts * 1 hour) = 75,000hoursRate = $1,000,000/75,000 = $13.33 per DLH65
97)Cabanos Company manufactures two products, Product C and Product D. The company estimated itwould incur a total of $160,790 in manufacturing overhead costs during the current period.Overhead currently is applied to the products on the basis of direct labour-hours. Data concerningthe current period’s operations appear below:Product CProduct DEstimated volume3,400 units4,800 unitsDirect labour-hours per unit1.40 hour1.90 hoursDirect materials cost per unit$ 7.40$12.70Direct labour cost per unit$14.00$19.00Required:a. Compute the predetermined overhead rate under the current method, and determine the unit productcost of each product for the current year.b. The company is considering using an activity-based costing system to compute unit product costsfor external financial reports instead of its traditional system based on direct labour-hours. Theactivity-based costing system would use three activity cost pools. Data relating to these activities forthe current period are given below:ActivityExpected ActivityCost PoolEstimatedOverhead CostProduct CProduct DTotalMachine setups$ 12,19080150230Purchase orders79,2007309201,650General factory69,4004,7609,12013,880$160,790Determine the unit product cost of each product for the current period using the activity-based costingapproach.Answer:a. The expected total direct labour-hours during the period are computed as follows:Product C: 3,400 units × 1.4 hr.4,760 hoursProduct D: 4,800 units × 1.9 hrs.9,120hoursTotal direct labour-hours13,880hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Estimated overhead cost, $160,790÷ Estimated direct labour-hours, 13,880 = $11.58/DLHUsing this overhead rate, the unit product costs are:Product CProduct D66
Answer:Product CProduct DDirect materials$ 7.40$12.70Direct labour14.0019.00Manufacturing overhead16.2122.00Total unit product cost$37.61$53.70b. The overhead rates for each activity center are as follows:EstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$12,190230$53.00Purchase orders$79,2001,650$48.00General factory$69,40013,880$ 5.00The overhead cost charged to each product is:Product CProduct DActivityAmountActivityAmountMachine setups80$ 4,240150$ 7,950Purchase orders73035,04092044,160General factory4,76023,8009,12045,600Total overhead cost$63,080$97,710Overhead cost per unit:Product C: $63,080 ÷ 3,400 units = $18.55 per unit.Product D: $97,710 ÷ 4,800 units = $20.36 per unit.Using activity based costing, the unit product cost of each product would be:Product CProduct DDirect materials$ 7.40$12.70Direct labour14.0019.00Manufacturing overhead18.5520.36Total unit product cost$39.95$52.0667
Reference 05-21Fields Company is a manufacturing firm that currently uses traditional costing with one plantwide overhead rate.The company is determining if they should implement activity based costing and has identified the potentialactivity areas along with the expected activity for its’ two product lines: Product A and Product B.Expected ActivityActivityOverhead CostAllocation BaseProduct AProduct BDesign$350,000Design Hours5,0002,000Production$800,000Machine Hours10,00030,000Finishing$300,000Labor Hours1,0003,00098)The company’s actual overhead costs amounted to $1,380,000. Compute the over/under appliedoverhead.Answer:Actual overhead $1,380,000Applied overhead $1,455,000Over applied overhead = $75,00099)Calculate the activity rate for each of the cost pools.Answer:Design = $350,000/70,000 hours = $50Production = $800,000/40,000 = $20Finishing = $300,000/4,000 = $7568
Reference 05-19A manufacturing company produces two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using machine hours to allocate overhead. At the beginning of the year, the companymade the following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$5$2Direct labor hours per unit21Direct labor cost per unit$24$12During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $525,000.100)Management is considering implementing activity based costing. Half of manufacturing overheadwould be allocated based on machine hours, and the remainder would be allocated based on designhours. The company expects design hours to be 1,000 hours for sweatshirts and 4,000 hours fort-shirts. A greater amount of design hours are needed for t-shirts as the company has a widerselection of t-shirt designs given the volume of sales. Round calculations to two decimal places.Answer:SweatshirtT-shirtTotalMachine hoursrequired10,00027,50037,500MOH Rate perlabor hour262,500/37,500 =$7.00Design hoursrequired1,0004,0005,000MOH Rate perdesign hour262,500/5,000=52.5069
Reference: 05-17Cummings Company has identified the following overhead activities costs and activity drivers for the comingyear:ActivityExpected costActivity DriverActivity CapacitySetting up$120,000Number of setups600Inspecting$ 90,000Inspection hours9,000Grinding$180,000Machine hours36,000Receiving?Number of parts100,000The company produces several different subassemblies used by other manufacturers. Information on separatebatches for two of these subassemblies follows:FGDirect Materials$ 1,700$1,900Direct Labour$ 1,200$ 1,200Units Completed200100Number of setups22Inspection hours84Machine hours4060Parts used4080The company’s normal activity is 20,000 direct labour hours. Each batch uses 100 hours of direct labour. Uponinvestigation, you discover that Receiving employs a worker, who spends 75% of her time on the receivingactivity and 25% of her time on inspecting products. Her salary is $80,000. Receiving also uses a forklift, at acost of $12,000 per year for depreciation and fuel. The forklift is used only in receiving.101)The amount of cost assigned to the receiving activity is?Answer:$72,000.Labour cost 60,000(75% x 80,000) + Forklift cost 12,000(100% x 12,000) = 72,00070
Reference 05-23bWashie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been contemplating implementing activity based costing and has gatheredthe following data:ActivityActivity MeasureEstimated ManufacturingOverhead CostDesignDesign hours$20,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric60,000ProductionMachine Hours600,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $6.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,000102)Use the predetermined overhead rate to compute the product cost for one unit of each product.Round answer to two decimal places.Answer:Washing MittPolishing ClothDirect Costs62ManufacturingOverhead(12.29*40,000MH)/100,000units6.14(12.29*10,000MH)/50,000 units4.91Total12.146.91103)Daston Company manufactures two products, Product F and Product G. The company expects toproduce and sell 1,600 units of Product F and 3,000 units of Product G during the current year. Thecompany uses activity-based costing to compute unit product costs for external reports. Data relatingto the company’s three activity cost pools are given below for the current year:ActivityExpected ActivityCost PoolEstimatedProduct FProduct GTotal71
Cost PoolEstimatedOverheadCostsProduct FProduct GTotalMachine setups$14,96013090220Purchase orders$63,3606501,1101,760General factory$32,2401,2801,2002,480Required:Using the activity-based costing approach, determine the overhead cost per unit for each product.Answer:The overhead rates for each activity center are as follows:ActivityCost PoolEstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$14,960220$68.00Purchase orders$63,3601,760$36.00General factory$32,2402,480$13.00The overhead cost charged to each product is:Product FProduct GActivityAmountActivityAmountMachine setups130$ 8,84090$ 6,120Purchase orders65023,4001,11039,960General factory1,28016,6401,20015,600Total overhead cost$48,880$61,680Overhead cost per unit:Product F: $48,880 ÷ 1,600 units = $30.55 per unitProduct G: $61,680 ÷ 3,000 units = $20.56 per unit72
Reference 05-24Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. This month, thecompany incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor Cost$12,000$18,000Management is considering implementing activity based costing. An analysis of estimated overhead costs revealthe following activities:ActivityTotal CostActivityMeasureUse of Activity Measure byProduct LineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections200400The company currently allocates overhead on the basis of direct labor hours.104)a. What is the total overhead allocated to odometers using the current costing system?b. What is the per unit cost of odometers using the current costing system? Round answer to twodecimal places.Answer:25.89 * 1,000=$25,886$25,886/3,000 odometers = $8.63105)Daba Company manufactures two products, Product F and Product G. The company expects toproduce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. Thecompany uses activity-based costing to compute unit product costs for external reports. Data relatingto the company’s three activity cost pools are given below for the current year:ActivityExpected ActivityCost PoolEstimatedOverheadCostsProduct FProduct GTotalMachine setups$10,8008010018073
Machine setups$10,80080100180Purchase orders$77,5205101,0101,520General factory$75,9202,2403,6005,840Required:Using the activity-based costing approach, determine the overhead cost per unit for each product.Answer:The overhead rates for each activity center are as follows:ActivityCost PoolEstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$10,800180$60.00Purchase orders$77,5201,520$51.00General factory$75,9205,840$13.00The overhead cost charged to each product is:Product FProduct GActivityAmountActivityAmountMachine setups80$ 4,800100$ 6,000Purchase orders51026,0101,01051,510General factory2,24029,1203,60046,800Total overhead cost$59,930$104,310Overhead cost per unit:Product F: $59,930 ÷ 1,400 units = $42.81 per unit.Product G: $104,310 ÷ 1,800 units = $57.95 per unit.74
Reference 05-18The Clothing Company manufactures two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using labor hours to allocate overhead. At the beginning of the year, the company madethe following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$6$3Direct labor hours per unit21Direct labor cost per unit$20$10During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $1,000,000.106)Management is considering implementing activity based costing. Half of manufacturing overheadwould be allocated based on direct labor hours, and the remainder would be allocated based ondesign hours. The company expects design hours to be 1,000 hours for sweatshirts and 4,000 hoursfor t-shirts. A greater amount of design hours are needed for t-shirts as the company has a widerselection of t-shirt designs given the volume of sales. Round calculations to two decimal places.Answer:SweatshirtT-shirtTotalDirect labor hoursrequired20,00055,00075,000MOH Rate perlabor hour500,000/75,000=6.67Design hoursrequired1,0004,0005,000MOH Rate perdesign hour500,000/5,000=10075
Reference 05-23bWashie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been contemplating implementing activity based costing and has gatheredthe following data:ActivityActivity MeasureEstimated ManufacturingOverhead CostDesignDesign hours$20,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric60,000ProductionMachine Hours600,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $6.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,000107)Compute the predetermined overhead rate using machine hours as the basis for allocating overheadcosts to products.Answer:Rate = total MOH/total machine hours=$860,000/70,00012.29 per machine hour76
Reference: 05-17Cummings Company has identified the following overhead activities costs and activity drivers for the comingyear:ActivityExpected costActivity DriverActivity CapacitySetting up$120,000Number of setups600Inspecting$ 90,000Inspection hours9,000Grinding$180,000Machine hours36,000Receiving?Number of parts100,000The company produces several different subassemblies used by other manufacturers. Information on separatebatches for two of these subassemblies follows:FGDirect Materials$ 1,700$1,900Direct Labour$ 1,200$ 1,200Units Completed200100Number of setups22Inspection hours84Machine hours4060Parts used4080The company’s normal activity is 20,000 direct labour hours. Each batch uses 100 hours of direct labour. Uponinvestigation, you discover that Receiving employs a worker, who spends 75% of her time on the receivingactivity and 25% of her time on inspecting products. Her salary is $80,000. Receiving also uses a forklift, at acost of $12,000 per year for depreciation and fuel. The forklift is used only in receiving.108)The unit cost for Dept. F, using activity rates, is?Answer:$18.044.[1,700 + 1,200 + 400 + 80 + 200 + 28.8]/200 = 18.044109)The activity rate for Grinding is?Answer:$5 per machine hour.[180,000/36,000 = $5 per machine hour]77
Reference 05-20Roberts Company is a manufacturing firm that currently uses traditional costing with machine hours as theallocation base. The company is determining if they should implement activity based costing and has identifiedthe potential activity areas along with the expected activity for its’ two high-end product lines: AB and CD.Expected ActivityActivityOverhead CostAllocation BaseABCDDesign$3,000,000Design Hours100,00050,000Production$800,000Machine Hours20,00030,000Finishing$400,000Labor Hours5,0003,000110)During the year, actual activity was recorded as follows:ActivityABCDDesign hours90,00055,000Machine Hours19,80032,000Labor Hours5,5003,200Compute the amount of overhead allocated to each product line.Answer:ABCDTotal AllocatedDesign1,800,0001,100,0002,900,000Production316,800512,000828,800Finishing275,000160,000435,000Total2,391,8001,772,0004,163,800111)Ekstein Company uses activity-based costing to compute product costs for external reports. Thecompany has three activity centers and applies overhead using predetermined overhead rates foreach activity center. Estimated costs and activities for the current year are presented below for thethree activity centers:EstimatedOverheadCostExpected ActivityBatch setups$48,6002,700Material handling$81,2002,800General factory$48,0002,000Actual costs and activities for the current year were as follows:ActualOverheadCostActual ActivityBatch setups$47,8102,62078
Batch setups$47,8102,620Material handling$79,8302,810General factory$48,8002,080Required:a. How much total overhead was applied to products during the year?b. By how much was overhead overapplied or underapplied? (Be sure to clearly label your answer asto whether the overhead was overapplied or underapplied.)Answer:a.Activity CenterEstimatedOverhead CostsExpectedActivityOverheadRateBatch setups$48,6002,700$18Material handling$81,2002,800$29General factory$48,0002,000$24The amount of overhead applied to production is determined as follows:Activity CenterEstimatedOverhead RateActualActivityOverheadAppliedBatch setups$182,620$ 47,160Material handling$292,81081,490General factory$242,08049,920Total overhead applied$178,570b.Overhead applied$178,570Actual overhead costs:Batch setups$47,810Material handling79,830General factory48,800176,440Overhead overapplied$ 2,13079
Reference 05-24Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. This month, thecompany incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor Cost$12,000$18,000Management is considering implementing activity based costing. An analysis of estimated overhead costs revealthe following activities:ActivityTotal CostActivityMeasureUse of Activity Measure byProduct LineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections200400The company currently allocates overhead on the basis of direct labor hours.112)Compute the activity rate for each of the activity cost pools.Answer:MaterialsHandlingSetupsInspectionsTotal overhead$18,000$12,600$14,700Allocation Base1,000450600Rate$18$28$24.5080
Reference: 05-17Cummings Company has identified the following overhead activities costs and activity drivers for the comingyear:ActivityExpected costActivity DriverActivity CapacitySetting up$120,000Number of setups600Inspecting$ 90,000Inspection hours9,000Grinding$180,000Machine hours36,000Receiving?Number of parts100,000The company produces several different subassemblies used by other manufacturers. Information on separatebatches for two of these subassemblies follows:FGDirect Materials$ 1,700$1,900Direct Labour$ 1,200$ 1,200Units Completed200100Number of setups22Inspection hours84Machine hours4060Parts used4080The company’s normal activity is 20,000 direct labour hours. Each batch uses 100 hours of direct labour. Uponinvestigation, you discover that Receiving employs a worker, who spends 75% of her time on the receivingactivity and 25% of her time on inspecting products. Her salary is $80,000. Receiving also uses a forklift, at acost of $12,000 per year for depreciation and fuel. The forklift is used only in receiving.113)The activity rate for receiving is?Answer:$.72 per part.(72,000/100,000 = .72)81
Reference 05-22Gosling Company is about to implement activity based costing and would like some assistance with calculatingrates and applying overhead. The company has provided the following information on cost pools.ActivityOverhead CostAllocation BaseExpected ActivityDesign$200,000Design Hours2,000Materials Handling$150,000MaterialsRequisitions12,500Production$350,000Machine Hours70,000Purchasing$300,000Purchase Orders12,000114)The company’s actual overhead costs amounted to $1,215,000. Compute the over/under appliedoverhead.Answer:Actual overhead $1,215,000Applied overhead $1,065,000Under applied overhead = $150,000115)Flyer Corporation manufactures two products, Product A and Product B. Product B is of fairlyrecent origin, having been developed as an attempt to enter a market closely related to that ofProduct A. Product B is the more complex of the two products, requiring three hours of directlabour time per unit to manufacture compared to one and one-half hours of direct labour time forProduct A. Product B is produced on an automated production line.Overhead is currently assigned to the products on the basis of direct labour-hours. The companyestimated it would incur a total of $396,000 in manufacturing overhead costs and produce 5,500 unitsof Product B and 22,000 units of Product A during the current year. Unit costs for materials and directlabour are:Product AProduct BDirect material$9$20Direct labour$7$15Required:a. Compute the predetermined overhead rate under the current method of allocation and determine theunit product cost of each product for the current year.b. The company’s overhead costs can be attributed to four major activities. These activities and theamount of overhead cost attributable to each for the current year are given below:Expected ActivityActivity Cost PoolsEstimatedProduct AProduct BTotal82
Activity Cost PoolsEstimatedOverheadCostProduct AProduct BTotalMachine setups required$170,0007001,0001,700Purchase orders issued37,000300200500Machine-hours required91,0004,0009,00013,000Maintenance requests issued98,0004006001,000$396,000Using the data above and an activity-based costing approach, determine the unit product cost of eachproduct for the current year.Answer:a. The company expects to work 49,500 direct labour-hours during the current year, computedas follows:Product A: 22,000 units × 1.5 hr.33,000 hoursProduct B: 5,500 units × 3.0 hrs.16,500hoursTotal direct labour-hours49,500hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Pred. ovhd. rate = $396,000 ÷ 49,500 DLHs = $8.00/DLHUsing this overhead rate, the unit product cost of each product would be:Product AProduct BDirect materials$ 9$20Direct labour715Manufacturing overhead:Product A-1.5 hour12Product B-3.0 hours___24Total$28$59b. The overhead rates are computed as follows:Activity Cost PoolsEstimatedOverheadCostsTotalExpectedActivityRateMachine setups$170,0001,700$100/setupPurchase orders37,00050074/orderMachine-hours91,00013,0007/hourMaintenance requests98,0001,00098/request$396,000The overhead cost attributable to each product is:83
Answer:Product AProduct BActivityAmountActivityAmountMachine setups, $100.00/setup700$ 70,0001,000$100,000Purchase orders, $74.00/order30022,20020014,800Machine-hours, $7.00/hour4,00028,0009,00063,000Maintenance requests, at$98.00/request40039,20060058,800$159,400$236,600Overhead cost per unit:Product A: $159,400 ÷ 22,000 units = $7.2455/unit.Product B: $236,600 ÷ 5,500 units = $43.0182/unit.Using activity-based costing, the unit product cost of each product would be:Product AProduct BDirect materials$ 9.0000$20.0000Direct labour7.000015.0000Manufacturing overhead7.245543.0182Total unit product cost$23.2455$78.0182116)Cabigas Company manufactures two products, Product C and Product D. The company estimated itwould incur a total of $167,140 in manufacturing overhead costs during the current period. Overheadcurrently is applied to the products on the basis of direct labour-hours. Data concerning the currentperiod’s operations appear below:Product CProduct DEstimated volume2,000 units2,700 unitsDirect labour-hours per unit2.00 hours0.80 hourDirect materials cost per unit$21.50$24.10Direct labour cost per unit$24.00$ 9.60Required:a. Compute the predetermined overhead rate under the current method, and determine the unit productcost of each product for the current year.b. The company is considering using an activity-based costing system to compute unit product costsfor external financial reports instead of its traditional system based on direct labour-hours. Theactivity-based costing system would use three activity cost pools. Data relating to these activities forthe current period are given below:84
ActivityExpected ActivityCost PoolEstimatedOverheadCostsProduct CProduct DTotalMachine setups$ 13,630130160290Purchase orders85,7507501,0001,750General factory67,7604,0002,1606,160$167,140Determine the unit product cost of each product for the current period using the activity-based costingapproach.Answer:a. The expected total direct labour-hours during the period are computed as follows:Product C: 2,000 units × 2.0 hr.4,000 hoursProduct D: 2,700 units × 0.8 hrs.2,160hoursTotal direct labour-hours6,160hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Estimated overhead cost, $167,140÷ Estimated direct labour-hours, 6,160 = $27.13/DLHUsing this overhead rate, the unit product costs are:Product CProduct DDirect materials$21.50$24.10Direct labour24.009.60Manufacturing overhead54.2621.70Total unit product cost$99.76$55.40b. The overhead rates for each activity center are as follows:EstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$13,630290$47.00Purchase orders$85,7501,750$49.00General factory$67,7606,160$11.00The overhead cost charged to each product is:Product CProduct DActivityAmountActivityAmountMachine setups130$ 6,110160$ 7,52085
Answer:Machine setups130$ 6,110160$ 7,520Purchase orders75036,7501,00049,000General factory4,00044,0002,16023,760Total overhead cost$86,860$80,280Overhead cost per unit:Product C: $86,860 ÷ 2,000 units = $43.43 per unit.Product D: $80,280 ÷ 2,700 units = $29.73 per unit.Using activity-based costing, the unit product cost of each product would be:Product CProduct DDirect materials$21.50$24.10Direct labour24.009.60Manufacturing overhead43.4329.73Total unit product cost$88.93$63.4386
Reference: 05-17Cummings Company has identified the following overhead activities costs and activity drivers for the comingyear:ActivityExpected costActivity DriverActivity CapacitySetting up$120,000Number of setups600Inspecting$ 90,000Inspection hours9,000Grinding$180,000Machine hours36,000Receiving?Number of parts100,000The company produces several different subassemblies used by other manufacturers. Information on separatebatches for two of these subassemblies follows:FGDirect Materials$ 1,700$1,900Direct Labour$ 1,200$ 1,200Units Completed200100Number of setups22Inspection hours84Machine hours4060Parts used4080The company’s normal activity is 20,000 direct labour hours. Each batch uses 100 hours of direct labour. Uponinvestigation, you discover that Receiving employs a worker, who spends 75% of her time on the receivingactivity and 25% of her time on inspecting products. Her salary is $80,000. Receiving also uses a forklift, at acost of $12,000 per year for depreciation and fuel. The forklift is used only in receiving.117)The activity rate for setting up equipment is?Answer:$200 per set.[120,000/600,000 = 200 per set up]118)What steps are included in designing and implementing an activity-based costing system?Answer:1. Identify activities and create an activity dictionary.2. Create activity pools.3. Identify the resources consumed by individual activity pools.4. Identify the activity measures for each activity pool.5. Estimate the total activity volume for each measure.6. Compute a predetermined activity rate for each activity cost pool.7. Allocate activity costs to desired cost objects.87
Reference 05-24Speed Demon Inc. manufactures two products: speedometers and odometers. During the month, it produced2,000 speedometers and 3,000 odometers and incurred estimated overhead costs of $45,300. This month, thecompany incurred the following:SpeedometersOdometersMachine Hours7501,000Labour Hours1,200800Labor Cost$12,000$18,000Management is considering implementing activity based costing. An analysis of estimated overhead costs revealthe following activities:ActivityTotal CostActivityMeasureUse of Activity Measure byProduct LineSpeedometersOdometersMaterialsHandling$18,000# ofrequisitions400600MachineSet-ups12,600# of set-ups150300QualityInspections14,700# ofinspections200400The company currently allocates overhead on the basis of direct labor hours.119)Compute the predetermined overhead rate using machine hours as the basis for allocating overheadcosts to products.Answer:Rate = total MOH/total machine hours$45,300/1,750=25.89120)a. What is the total overhead allocated to odometers using activity based costing?b. What is the per unit cost of odometers under activity based costing?Answer:a. Total overheadOdometersMaterials Handling10,800Machine Set-Ups8,400Inspections9,800Total29,000$29,000/3,000 odometers = $9.6788
Reference 05-20Roberts Company is a manufacturing firm that currently uses traditional costing with machine hours as theallocation base. The company is determining if they should implement activity based costing and has identifiedthe potential activity areas along with the expected activity for its’ two high-end product lines: AB and CD.Expected ActivityActivityOverhead CostAllocation BaseABCDDesign$3,000,000Design Hours100,00050,000Production$800,000Machine Hours20,00030,000Finishing$400,000Labor Hours5,0003,000121)Calculate the activity rate for each of the cost pools.Answer:Design = $3,000,000/150,000 hours = $20Production = $800,000/50,000 = $16Finishing = $400,000/8,000 = $50122)Lionel Corporation manufactures two products, Product B and Product H. Product H is of fairlyrecent origin, having been developed as an attempt to enter a market closely related to that ofProduct B. Product H is the more complex of the two products, requiring two hours of direct labourtime per unit to manufacture compared to one hour of direct labour time for Product B. Product H isproduced on an automated production line.Overhead is currently assigned to the products on the basis of direct labour-hours. The companyestimated it would incur a total of $450,000 in manufacturing overhead costs and produce 7,500 unitsof Product H and 30,000 units of Product B during the current year. Unit costs for materials anddirect labour are:Product BProduct HDirect material$12$25Direct labour$10$20Required:a. Compute the predetermined overhead rate under the current method of allocation and determine theunit product cost of each product for the current year.b. The company’s overhead costs can be attributed to four major activities. These activities and theamount of overhead cost attributable to each for the current year are given below:Expected ActivityActivity Cost PoolsEstimatedOverheadCostsProductBProductHTotalMachine setups required$180,0006001,2001,800Purchase orders issued38,38250010060089
Purchase orders issued38,382500100600Machine-hours required92,6506,80010,20017,000Maintenance requests issued138,9686939071,600$450,000Using the data above and an activity-based costing approach, determine the unit product cost of eachproduct for the current year.Answer:a. The company expects to work 45,000 direct labour-hours during the current year, computedas follows:Product B:30,000 units × 1 hr.30,000 hoursProduct H:7,500 units × 2 hrs.15,000hoursTotal direct labour-hours45,000hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Pred. ovhd. rate = $450,000 ÷ 45,000 DLHs = $10.00/DLHUsing this overhead rate, the unit product cost of each product would be:Product BProduct HDirect materials$12$25Direct labour1020Manufacturing overhead:Product B-one hour10Product H-two hours20Total$32$65b. The overhead rates are computed as follows:Activity Cost PoolsEstimatedOverheadCostsTotalExpectedActivityRateMachine setups$180,0001,800$100.000/setupPurchase orders38,38260063.970/orderMachine-hours92,65017,0005.450/hourMaintenance requests138,9681,60086.855/request$450,000The overhead cost attributable to each product is:Product BProduct HActivityAmountActivityAmountMachine setups, $100.00/setup600$ 60,0001,200$120,000Purchase orders, $63.97/order50031,9851006,397Machine-hours, $5.45/hour6,80037,06010,20055,59090
Answer:Machine-hours, $5.45/hour6,80037,06010,20055,590Maintenance request, at$86.855/request69360,19190778,777$189,236$260,764Overhead cost per unit:Product B: $189,236 ÷ 30,000 units = $6.3079/unit.Product H: $260,764 ÷ 7,500 units = $34.7685/unit.Using activity-based costing, the unit product cost of each product would be:Product BProduct HDirect materials$12.0000$25.0000Direct labour10.000020.0000Manufacturing overhead6.307934.7685Total unit product cost$28.3079$79.768591
Reference 05-23bWashie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up tothis point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours asthe allocation base. The company has been contemplating implementing activity based costing and has gatheredthe following data:ActivityActivity MeasureEstimated ManufacturingOverhead CostDesignDesign hours$20,000SetupsNumber of set-ups40,000Materials HandlingMeters of fabric60,000ProductionMachine Hours600,000The company expected has determined the expected activity for each of the product lines:During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $6.00 forwashing mitts and $2.00 for polishing costs.Activity MeasureWashing MittPolishing Cloth# of design hours505# of setups3020# of meters of fabric4,0001,000# of machine hours40,00010,000123)Compute the activity rate for each of the activity cost pools.Answer:DesignSetupsMaterialsHandlingProductionTotal overhead$20,000$40,000$200,000$600,000Allocation Base85409,00070,000Rate$235$1,000$22$9124)What are the four categories of quality costs and which costs are included within each?Answer:Prevention costs – costs associated with activities aimed at preventing future defects/errors.Appraisal costs – costs associated with quality inspection activities.Internal failure costs – costs associated with activities carried out when the defect is discoveredbefore the product is delivered to the customer.External failure costs – costs associated with activities undertaken after the defect/error isdiscovered by the customer.92
Reference 05-18The Clothing Company manufactures two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using labor hours to allocate overhead. At the beginning of the year, the company madethe following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$6$3Direct labor hours per unit21Direct labor cost per unit$20$10During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $1,000,000.125)Calculate the unit product costs for these two products under the current costing system.Answer:SweatshirtT-shirtDirect material cost63Direct labor cost2010MOH26.6613.33Total per unit cost52.6626.33Reference 05-20Roberts Company is a manufacturing firm that currently uses traditional costing with machine hours as theallocation base. The company is determining if they should implement activity based costing and has identifiedthe potential activity areas along with the expected activity for its’ two high-end product lines: AB and CD.Expected ActivityActivityOverhead CostAllocation BaseABCDDesign$3,000,000Design Hours100,00050,000Production$800,000Machine Hours20,00030,000Finishing$400,000Labor Hours5,0003,000126)The company’s actual overhead costs amounted to $4,280,000. Compute the over/under appliedoverhead.Answer:Actual overhead $4,280,000Applied overhead $4,163,800Under applied overhead = $116,20093
Reference 05-21Fields Company is a manufacturing firm that currently uses traditional costing with one plantwide overhead rate.The company is determining if they should implement activity based costing and has identified the potentialactivity areas along with the expected activity for its’ two product lines: Product A and Product B.Expected ActivityActivityOverhead CostAllocation BaseProduct AProduct BDesign$350,000Design Hours5,0002,000Production$800,000Machine Hours10,00030,000Finishing$300,000Labor Hours1,0003,000127)During the year, actual activity was recorded as follows:ActivityABCDDesign hours4,0002,500Machine Hours9,50032,000Labor Hours8003,200Compute the amount of overhead allocated to each product line.Answer:Product AProduct BTotal AllocatedDesign200,000125,000325,000Production190,000640,000830,000Finishing60,000240,000300,000Total450,0001,005,0001,455,00094
Reference 05-19A manufacturing company produces two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using machine hours to allocate overhead. At the beginning of the year, the companymade the following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$5$2Direct labor hours per unit21Direct labor cost per unit$24$12During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $525,000.128)Calculate the unit product costs for these two products under the current costing system.Answer:SweatshirtT-shirtDirect material cost52Direct labor cost2412MOH147Total per unit cost4321129)Compare the per unit product costs under the traditional costing system and ABC Costing. Whichproduct is under-costed using the traditional costing system?Answer:SweatshirtT-shirtTraditional Costing4321ABC41.2521.32T-shirts are under-costed using traditional costing system.95
Reference 05-23McLean Company is about to implement activity based costing and would like some assistance with calculatingrates and applying overhead. The company has provided the following information on cost pools.ActivityOverhead CostAllocation BaseExpected ActivityDesign$200,000Design Hours4,000Materials Handling$150,000MaterialsRequisitions5,000Production$350,000Labor Hours35,000Purchasing$300,000Purchase Orders24,000130)Calculate the activity rate for each of the cost pools.Answer:Design = $200,000/2,000 hours = $100Materials Handling = $150,000/12,500 = $12Production = $350,000/70,000 = $5Finishing = $300,000/12,000 = $25131)The company’s actual overhead costs amounted to $1,215,000. Compute the over/under appliedoverhead.Answer:Actual overhead $1,215,000Applied overhead $1,180,000Under applied overhead = $35,00096
Reference: 05-17Cummings Company has identified the following overhead activities costs and activity drivers for the comingyear:ActivityExpected costActivity DriverActivity CapacitySetting up$120,000Number of setups600Inspecting$ 90,000Inspection hours9,000Grinding$180,000Machine hours36,000Receiving?Number of parts100,000The company produces several different subassemblies used by other manufacturers. Information on separatebatches for two of these subassemblies follows:FGDirect Materials$ 1,700$1,900Direct Labour$ 1,200$ 1,200Units Completed200100Number of setups22Inspection hours84Machine hours4060Parts used4080The company’s normal activity is 20,000 direct labour hours. Each batch uses 100 hours of direct labour. Uponinvestigation, you discover that Receiving employs a worker, who spends 75% of her time on the receivingactivity and 25% of her time on inspecting products. Her salary is $80,000. Receiving also uses a forklift, at acost of $12,000 per year for depreciation and fuel. The forklift is used only in receiving.132)If direct labour hours are used to assign total overhead costs, what is the application rate?Answer:$23.10 per DLH.[120,000 + 90,000 + 180,000 + 72,000]/20,000 = 23.10133)The activity rate for Inspecting is?Answer:$10 per inspection hour.[90,000/9,000 = $10/inspection hour]97
Reference 05-22Gosling Company is about to implement activity based costing and would like some assistance with calculatingrates and applying overhead. The company has provided the following information on cost pools.ActivityOverhead CostAllocation BaseExpected ActivityDesign$200,000Design Hours2,000Materials Handling$150,000MaterialsRequisitions12,500Production$350,000Machine Hours70,000Purchasing$300,000Purchase Orders12,000134)During the year, actual activity was recorded as follows:Activity AreaAllocation Base IncurredDesign2,500Materials Handling12,500Production68,000Purchasing13,000Compute the amount of overhead allocated to each product line.Answer:Overhead AllocatedDesign$250,000Materials Handling$150,000Production$340,000Purchasing$325,000Total Allocated$1,065,00098
Reference 05-23McLean Company is about to implement activity based costing and would like some assistance with calculatingrates and applying overhead. The company has provided the following information on cost pools.ActivityOverhead CostAllocation BaseExpected ActivityDesign$200,000Design Hours4,000Materials Handling$150,000MaterialsRequisitions5,000Production$350,000Labor Hours35,000Purchasing$300,000Purchase Orders24,000135)During the year, actual activity was recorded as follows:Activity AreaAllocation Base IncurredDesign3,500Materials Handling12,500Production38,000Purchasing20,000Compute the amount of overhead allocated to each product line.Answer:Overhead AllocatedDesign$175,000Materials Handling$375,000Production$380,000Purchasing$250,000Total Allocated$1,180,000136)Easton Company uses activity-based costing to compute product costs for external reports. Thecompany has three activity centers and applies overhead using predetermined overhead rates foreach activity center. Estimated costs and activities for the current year are presented below for thethree activity centers:EstimatedOverhead CostExpectedActivityBatch setups$18,0001,500Material handling$43,4001,400General factory$61,6002,200Actual costs and activities for the current year were as follows:ActualActual99
ActualOverhead CostActualActivityBatch setups$18,7401,450Material handling$42,0601,400General factory$60,4402,180Required:a. How much total overhead was applied to products during the year?b. By how much was overhead overapplied or underapplied? (Be sure to clearly label your answer asto whether the overhead was overapplied or underapplied.)Answer:a.Activity CenterEstimatedOverheadCostsExpectedActivityOverheadRateBatch setups$18,0001,500$12Material handling$43,4001,400$31General factory$61,6002,200$28The amount of overhead applied to production is determined as follows:Activity CenterEstimatedOverheadRateActualActivityOverhead AppliedBatch setups$121,450$ 17,400Material handling$311,40043,400General factory$282,18061,040Total overhead applied$121,840b.Overhead applied$121,840Actual overhead costs:Batch setups$18,740Material handling42,060General factory60,440121,240Overhead overapplied$ 600100
Reference: 05-17Cummings Company has identified the following overhead activities costs and activity drivers for the comingyear:ActivityExpected costActivity DriverActivity CapacitySetting up$120,000Number of setups600Inspecting$ 90,000Inspection hours9,000Grinding$180,000Machine hours36,000Receiving?Number of parts100,000The company produces several different subassemblies used by other manufacturers. Information on separatebatches for two of these subassemblies follows:FGDirect Materials$ 1,700$1,900Direct Labour$ 1,200$ 1,200Units Completed200100Number of setups22Inspection hours84Machine hours4060Parts used4080The company’s normal activity is 20,000 direct labour hours. Each batch uses 100 hours of direct labour. Uponinvestigation, you discover that Receiving employs a worker, who spends 75% of her time on the receivingactivity and 25% of her time on inspecting products. Her salary is $80,000. Receiving also uses a forklift, at acost of $12,000 per year for depreciation and fuel. The forklift is used only in receiving.137)The unit cost for Dept. F, using direct labour hours to assign overhead is?Answer:$26.05.[1,700 + 1,200 + 2,310]/200 = 26.05101
Reference 05-18The Clothing Company manufactures two product lines: sweatshirts and T-shirts. The company currently uses aplant-wide overhead rate using labor hours to allocate overhead. At the beginning of the year, the company madethe following estimates:ProductSweatshirtsT-shirtsMachine hours per unit10.5Direct material cost per unit$6$3Direct labor hours per unit21Direct labor cost per unit$20$10During the year, the company expected to produce 10,000 sweatshirts and 55,000 t-shirts.Expected manufacturing overhead cost for the year is $1,000,000.138)Compute the unit product costs under the proposed ABC system. Round to two decimal places.Answer:SweatshirtT-shirtDirect material cost60,000165,000Direct labor cost200,000550,000MOH -DLH133,400366,850MOH – DESIGN100,000400,000Total cost per productline (A)493,4001,481,850Units produced (B)10,00055,000Cost per unit (A/B)49.3426.94102
Answer KeyTestname: C51)C2)A3)B4)C5)C6)C7)A8)A9)A10)D11)C12)A13)B14)C15)C16)B17)B18)A19)D20)D21)C22)A23)B24)B25)C26)C27)C28)D29)A30)D31)D32)C33)A34)D35)C36)C37)C38)D39)A40)A41)D42)B43)B44)A45)A46)A47)C48)C49)B50)B103
Answer KeyTestname: C551)B52)A53)A54)B55)C56)B57)B58)A59)D60)D61)B62)D63)D64)C65)A66)A67)D68)C69)C70)C71)D72)C73)A74)C75)C76)TRUE77)FALSE78)FALSE79)TRUE80)FALSE81)FALSE82)TRUE83)FALSE84)FALSE85)FALSE86)TRUE87)FALSE88)TRUE89)TRUE90)a. The company expects to work 40,000 direct labour-hours during the current year, computed as follows:Product S: 60,000 units × 0.5 hr.30,000 hoursProduct W: 10,000 units × 1.0 hrs.10,000hoursTotal direct labour-hours40,000hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Pred. ovhd. rate = $500,000 ÷ 40,000 DLHs = $12.50/DLH104
Answer KeyTestname: C5Using this overhead rate, the unit product cost of each product would beProduct SProduct WDirect materials$10.00$24.00Direct labour8.0012.00Manufacturing overhead:Product S-half hour6.25Product W-one hour_____12.50Total$24.25$48.50b. The overhead rates are computed as follows:Activity Cost PoolsEstimatedOverheadCostsTotalExpectedActivityRateMachine setups$200,0002,000$100.00/setupPurchase orders43,50060072.50/orderMachine-hours104,00013,0008.00/hourMaintenance requests152,5002,00076.25/request$500,000The overhead cost attributable to each product is:Product SProduct WActivityAmountActivityAmountMachine setups, $100.00/setup800$ 80,0001,200$120,000Purchase orders, $72.50/order50036,2501007,250Machine-hours, $8.00/hour3,00024,00010,00080,000Maintenance requests, at$76.25/request86065,5751,14086,925$205,825$294,175Overhead cost per unit:Product S: $205,825 ÷ 60,000 units = $3.4304/unit.Product W: $294,175 ÷ 10,000 units = $29.4175/unit.Using activity-based costing, the unit product cost of each product would be:Product SProduct WDirect materials$10.0000$24.0000105
Answer KeyTestname: C5Direct materials$10.0000$24.0000Direct labour8.000012.0000Manufacturing overhead3.430429.4175Total unit product cost$21.4304$65.417591)a. Total overheadWashing MittPolishing ClothDesign11,7658,235Setups30,00010,000Materials Handling133,33366,667Production428,571171,429Total603,669256,331b. Unit product cost:Washing MittPolishing ClothDirect Costs62Manufacturing Overhead(603,669/100,000 units)6.04(256,331/50,000 units)5.13Total12.04$7.13The company should not implement activity based costing because the costs to gather all the data for ABCoutweigh the benefits (the amount of overhead assigned is similar under the traditional and ABC methods).92)Total machine hours = (10,000 sweatshirts * 1 hours) + (55,000 t-shirts * 0.5 hour) = 37,500 hoursRate = $525,000/37,500 = $14 per machine hour93)SweatshirtT-shirtTraditional Costing52.6626.33ABC49.3426.94T-shirts are under-costed using traditional costing system.94)SweatshirtT-shirtDirect material cost50,000110,000Direct labor cost240,000660,000MOH -Machine Hours70,000192,500MOH – DESIGN52,500210,000Total cost per productline (A)412,5001,172,500Units produced (B)10,00055,000Cost per unit (A/B)41.2321.32106
Answer KeyTestname: C595)Design = $200,000/2,000 hours = $100Materials Handling = $150,000/12,500 = $12Production = $350,000/70,000 = $5Finishing = $300,000/12,000 = $2596)Total direct labor hours = (10,000 sweatshirts * 2 hours) + (55,000 t-shirts * 1 hour) = 75,000 hoursRate = $1,000,000/75,000 = $13.33 per DLH97)a. The expected total direct labour-hours during the period are computed as follows:Product C: 3,400 units × 1.4 hr.4,760 hoursProduct D: 4,800 units × 1.9 hrs.9,120hoursTotal direct labour-hours13,880hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Estimated overhead cost, $160,790÷ Estimated direct labour-hours, 13,880 = $11.58/DLHUsing this overhead rate, the unit product costs are:Product CProduct DDirect materials$ 7.40$12.70Direct labour14.0019.00Manufacturing overhead16.2122.00Total unit product cost$37.61$53.70b. The overhead rates for each activity center are as follows:EstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$12,190230$53.00Purchase orders$79,2001,650$48.00General factory$69,40013,880$ 5.00The overhead cost charged to each product is:Product CProduct DActivityAmountActivityAmountMachine setups80$ 4,240150$ 7,950Purchase orders73035,04092044,160General factory4,76023,8009,12045,600107
Answer KeyTestname: C5General factory4,76023,8009,12045,600Total overhead cost$63,080$97,710Overhead cost per unit:Product C: $63,080 ÷ 3,400 units = $18.55 per unit.Product D: $97,710 ÷ 4,800 units = $20.36 per unit.Using activity based costing, the unit product cost of each product would be:Product CProduct DDirect materials$ 7.40$12.70Direct labour14.0019.00Manufacturing overhead18.5520.36Total unit product cost$39.95$52.0698)Actual overhead $1,380,000Applied overhead $1,455,000Over applied overhead = $75,00099)Design = $350,000/70,000 hours = $50Production = $800,000/40,000 = $20Finishing = $300,000/4,000 = $75100)SweatshirtT-shirtTotalMachine hoursrequired10,00027,50037,500MOH Rate perlabor hour262,500/37,500 =$7.00Design hoursrequired1,0004,0005,000MOH Rate perdesign hour262,500/5,000=52.50101)$72,000.Labour cost 60,000(75% x 80,000) + Forklift cost 12,000(100% x 12,000) = 72,000108
Answer KeyTestname: C5102)Washing MittPolishing ClothDirect Costs62ManufacturingOverhead(12.29*40,000MH)/100,000units6.14(12.29*10,000MH)/50,000 units4.91Total12.146.91103)The overhead rates for each activity center are as follows:ActivityCost PoolEstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$14,960220$68.00Purchase orders$63,3601,760$36.00General factory$32,2402,480$13.00The overhead cost charged to each product is:Product FProduct GActivityAmountActivityAmountMachine setups130$ 8,84090$ 6,120Purchase orders65023,4001,11039,960General factory1,28016,6401,20015,600Total overhead cost$48,880$61,680Overhead cost per unit:Product F: $48,880 ÷ 1,600 units = $30.55 per unitProduct G: $61,680 ÷ 3,000 units = $20.56 per unit104)25.89 * 1,000=$25,886$25,886/3,000 odometers = $8.63109
Answer KeyTestname: C5105)The overhead rates for each activity center are as follows:ActivityCost PoolEstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$10,800180$60.00Purchase orders$77,5201,520$51.00General factory$75,9205,840$13.00The overhead cost charged to each product is:Product FProduct GActivityAmountActivityAmountMachine setups80$ 4,800100$ 6,000Purchase orders51026,0101,01051,510General factory2,24029,1203,60046,800Total overhead cost$59,930$104,310Overhead cost per unit:Product F: $59,930 ÷ 1,400 units = $42.81 per unit.Product G: $104,310 ÷ 1,800 units = $57.95 per unit.106)SweatshirtT-shirtTotalDirect labor hoursrequired20,00055,00075,000MOH Rate perlabor hour500,000/75,000=6.67Design hoursrequired1,0004,0005,000MOH Rate perdesign hour500,000/5,000=100107)Rate = total MOH/total machine hours=$860,000/70,00012.29 per machine hour108)$18.044.[1,700 + 1,200 + 400 + 80 + 200 + 28.8]/200 = 18.044109)$5 per machine hour.[180,000/36,000 = $5 per machine hour]110
Answer KeyTestname: C5110)ABCDTotal AllocatedDesign1,800,0001,100,0002,900,000Production316,800512,000828,800Finishing275,000160,000435,000Total2,391,8001,772,0004,163,800111)a.Activity CenterEstimatedOverhead CostsExpectedActivityOverheadRateBatch setups$48,6002,700$18Material handling$81,2002,800$29General factory$48,0002,000$24The amount of overhead applied to production is determined as follows:Activity CenterEstimatedOverhead RateActualActivityOverheadAppliedBatch setups$182,620$ 47,160Material handling$292,81081,490General factory$242,08049,920Total overhead applied$178,570b.Overhead applied$178,570Actual overhead costs:Batch setups$47,810Material handling79,830General factory48,800176,440Overhead overapplied$ 2,130112)MaterialsHandlingSetupsInspectionsTotal overhead$18,000$12,600$14,700Allocation Base1,000450600Rate$18$28$24.50113)$.72 per part.(72,000/100,000 = .72)111
Answer KeyTestname: C5114)Actual overhead $1,215,000Applied overhead $1,065,000Under applied overhead = $150,000115)a. The company expects to work 49,500 direct labour-hours during the current year, computed as follows:Product A: 22,000 units × 1.5 hr.33,000 hoursProduct B: 5,500 units × 3.0 hrs.16,500hoursTotal direct labour-hours49,500hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Pred. ovhd. rate = $396,000 ÷ 49,500 DLHs = $8.00/DLHUsing this overhead rate, the unit product cost of each product would be:Product AProduct BDirect materials$ 9$20Direct labour715Manufacturing overhead:Product A-1.5 hour12Product B-3.0 hours___24Total$28$59b. The overhead rates are computed as follows:Activity Cost PoolsEstimatedOverheadCostsTotalExpectedActivityRateMachine setups$170,0001,700$100/setupPurchase orders37,00050074/orderMachine-hours91,00013,0007/hourMaintenance requests98,0001,00098/request$396,000The overhead cost attributable to each product is:Product AProduct BActivityAmountActivityAmountMachine setups, $100.00/setup700$ 70,0001,000$100,000Purchase orders, $74.00/order30022,20020014,800Machine-hours, $7.00/hour4,00028,0009,00063,000112
Answer KeyTestname: C5Machine-hours, $7.00/hour4,00028,0009,00063,000Maintenance requests, at$98.00/request40039,20060058,800$159,400$236,600Overhead cost per unit:Product A: $159,400 ÷ 22,000 units = $7.2455/unit.Product B: $236,600 ÷ 5,500 units = $43.0182/unit.Using activity-based costing, the unit product cost of each product would be:Product AProduct BDirect materials$ 9.0000$20.0000Direct labour7.000015.0000Manufacturing overhead7.245543.0182Total unit product cost$23.2455$78.0182116)a. The expected total direct labour-hours during the period are computed as follows:Product C: 2,000 units × 2.0 hr.4,000 hoursProduct D: 2,700 units × 0.8 hrs.2,160hoursTotal direct labour-hours6,160hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Estimated overhead cost, $167,140÷ Estimated direct labour-hours, 6,160 = $27.13/DLHUsing this overhead rate, the unit product costs are:Product CProduct DDirect materials$21.50$24.10Direct labour24.009.60Manufacturing overhead54.2621.70Total unit product cost$99.76$55.40b. The overhead rates for each activity center are as follows:EstimatedExpectedOverhead113
Answer KeyTestname: C5EstimatedOverheadCostsExpectedActivityOverheadRateMachine setups$13,630290$47.00Purchase orders$85,7501,750$49.00General factory$67,7606,160$11.00The overhead cost charged to each product is:Product CProduct DActivityAmountActivityAmountMachine setups130$ 6,110160$ 7,520Purchase orders75036,7501,00049,000General factory4,00044,0002,16023,760Total overhead cost$86,860$80,280Overhead cost per unit:Product C: $86,860 ÷ 2,000 units = $43.43 per unit.Product D: $80,280 ÷ 2,700 units = $29.73 per unit.Using activity-based costing, the unit product cost of each product would be:Product CProduct DDirect materials$21.50$24.10Direct labour24.009.60Manufacturing overhead43.4329.73Total unit product cost$88.93$63.43117)$200 per set.[120,000/600,000 = 200 per set up]118)1. Identify activities and create an activity dictionary.2. Create activity pools.3. Identify the resources consumed by individual activity pools.4. Identify the activity measures for each activity pool.5. Estimate the total activity volume for each measure.6. Compute a predetermined activity rate for each activity cost pool.7. Allocate activity costs to desired cost objects.119)Rate = total MOH/total machine hours$45,300/1,750=25.89114
Answer KeyTestname: C5120)a. Total overheadOdometersMaterials Handling10,800Machine Set-Ups8,400Inspections9,800Total29,000$29,000/3,000 odometers = $9.67121)Design = $3,000,000/150,000 hours = $20Production = $800,000/50,000 = $16Finishing = $400,000/8,000 = $50122)a. The company expects to work 45,000 direct labour-hours during the current year, computed as follows:Product B:30,000 units × 1 hr.30,000 hoursProduct H:7,500 units × 2 hrs.15,000hoursTotal direct labour-hours45,000hoursUsing these hours as a base, the predetermined overhead using direct labour-hours would be:Pred. ovhd. rate = $450,000 ÷ 45,000 DLHs = $10.00/DLHUsing this overhead rate, the unit product cost of each product would be:Product BProduct HDirect materials$12$25Direct labour1020Manufacturing overhead:Product B-one hour10Product H-two hours20Total$32$65b. The overhead rates are computed as follows:Activity Cost PoolsEstimatedOverheadCostsTotalExpectedActivityRateMachine setups$180,0001,800$100.000/setupPurchase orders38,38260063.970/orderMachine-hours92,65017,0005.450/hourMaintenance requests138,9681,60086.855/request$450,000The overhead cost attributable to each product is:Product BProduct H115
Answer KeyTestname: C5Product BProduct HActivityAmountActivityAmountMachine setups, $100.00/setup600$ 60,0001,200$120,000Purchase orders, $63.97/order50031,9851006,397Machine-hours, $5.45/hour6,80037,06010,20055,590Maintenance request, at$86.855/request69360,19190778,777$189,236$260,764Overhead cost per unit:Product B: $189,236 ÷ 30,000 units = $6.3079/unit.Product H: $260,764 ÷ 7,500 units = $34.7685/unit.Using activity-based costing, the unit product cost of each product would be:Product BProduct HDirect materials$12.0000$25.0000Direct labour10.000020.0000Manufacturing overhead6.307934.7685Total unit product cost$28.3079$79.7685123)DesignSetupsMaterialsHandlingProductionTotal overhead$20,000$40,000$200,000$600,000Allocation Base85409,00070,000Rate$235$1,000$22$9124)Prevention costs – costs associated with activities aimed at preventing future defects/errors.Appraisal costs – costs associated with quality inspection activities.Internal failure costs – costs associated with activities carried out when the defect is discovered before theproduct is delivered to the customer.External failure costs – costs associated with activities undertaken after the defect/error is discovered by thecustomer.125)SweatshirtT-shirtDirect material cost63Direct labor cost2010MOH26.6613.33Total per unit cost52.6626.33116
Answer KeyTestname: C5126)Actual overhead $4,280,000Applied overhead $4,163,800Under applied overhead = $116,200127)Product AProduct BTotal AllocatedDesign200,000125,000325,000Production190,000640,000830,000Finishing60,000240,000300,000Total450,0001,005,0001,455,000128)SweatshirtT-shirtDirect material cost52Direct labor cost2412MOH147Total per unit cost4321129)SweatshirtT-shirtTraditional Costing4321ABC41.2521.32T-shirts are under-costed using traditional costing system.130)Design = $200,000/2,000 hours = $100Materials Handling = $150,000/12,500 = $12Production = $350,000/70,000 = $5Finishing = $300,000/12,000 = $25131)Actual overhead $1,215,000Applied overhead $1,180,000Under applied overhead = $35,000132)$23.10 per DLH.[120,000 + 90,000 + 180,000 + 72,000]/20,000 = 23.10133)$10 per inspection hour.[90,000/9,000 = $10/inspection hour]134)Overhead AllocatedDesign$250,000Materials Handling$150,000Production$340,000Purchasing$325,000Total Allocated$1,065,000117
Answer KeyTestname: C5135)Overhead AllocatedDesign$175,000Materials Handling$375,000Production$380,000Purchasing$250,000Total Allocated$1,180,000136)a.Activity CenterEstimatedOverheadCostsExpectedActivityOverheadRateBatch setups$18,0001,500$12Material handling$43,4001,400$31General factory$61,6002,200$28The amount of overhead applied to production is determined as follows:Activity CenterEstimatedOverheadRateActualActivityOverhead AppliedBatch setups$121,450$ 17,400Material handling$311,40043,400General factory$282,18061,040Total overhead applied$121,840b.Overhead applied$121,840Actual overhead costs:Batch setups$18,740Material handling42,060General factory60,440121,240Overhead overapplied$ 600137)$26.05.[1,700 + 1,200 + 2,310]/200 = 26.05118
Answer KeyTestname: C5138)SweatshirtT-shirtDirect material cost60,000165,000Direct labor cost200,000550,000MOH -DLH133,400366,850MOH – DESIGN100,000400,000Total cost per productline (A)493,4001,481,850Units produced (B)10,00055,000Cost per unit (A/B)49.3426.94119

 

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