285679379 Test Bank Chapter 8 ABC for Decision Making PDF

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Chapter 8Activity-Based Costing: A Tool to Aid Decision-MakingTrue/False1.TEasyWhen combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should not be combined with unit-level activities. T Easy Unit-le...

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Chapt er8 Act i vi t yBasedCost i ng:AToolt oAi dDeci si onMaki ng

True/False 1. T Easy

When combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should not be combined with unit-level activities.

2. T Easy

Unit-level activities arise as a result of the total volume of production and are performed each time a unit is produced.

3. T Easy

Unit-level production activities are performed each time a unit is made.

4. T Easy

Organization-sustaining activities are carried out regardless of how many units are made, how many batches are run, or how many different products are made.

5. F Easy

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours.

6. F Medium

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers.

7. T Easy

Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

8. T Medium

In the second-stage allocation in activity-based costing, activity rates are used to apply costs to products, customers, and other cost objects.

9. T Medium

In traditional costing systems, all manufacturing costs are assigned to products--even manufacturing costs that are not caused by the products.

10. T Hard

When there are batch-level or product-level costs, in comparison to a traditional cost system, an activity-based costing system ordinarily will shift costs from high-volume to low-volume products.

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11. F Medium

An activity-based costing system is generally easier to set up and run than a traditional cost system.

12. F Medium

Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.

13. F Medium

In activity-based costing, as in traditional costing systems, nonmanufacturing costs are not assigned to products.

14. F Medium

In activity-based costing, a plant-wide overhead rate is used to apply overhead to products.

15 F Medium

Changing a cost accounting system is likely to meet with little resistance in an organization since it is a technical matter of little interest to individuals outside of the accounting department.

Multiple Choice 16. D Medium

Which of the following levels of costs should not be allocated to products for decision-making purposes? a. Unit-level activities. b. Batch-level activities. c. Product-level activities. d. Organization-sustaining activities

17. C Easy

Testing a prototype of a new product is an example of a: a. Unit-level activity. b. Batch-level activity. c. Product-level activity. d. Organization-sustaining activity.

18. B Medium

Setting up equipment is an example of a: a. Unit-level activity. b. Batch-level activity. c. Product-level activity. d. Organization-sustaining activity.

19. B Hard

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a: a. Unit-level activity. b. Batch-level activity. c. Product-level activity. d. Organization-sustaining activity.

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20. D Medium

Worker recreational facilities is an example of a cost that would ordinarily be considered to be: a. Unit-level. b. Batch-level. c. Product-level. d. Organization-sustaining.

21. B Medium

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels? a. Unit-level activity. b. Batch-level activity. c. Customer-level activity. d. Organization-sustaining activity.

22. D Medium

Human resource management is an example of an activity at which of the following levels? a. Unit-level activity. b. Product-level activity. c. Batch-level activity. d. Organization-sustaining activity.

23. D Medium

Which of the following would be classified as a product-level activity? a. Machine setup for a batch of a standard product. b. Cafeteria facilities available to and used by all employees. c. Human resource management. d. Advertising a product.

24. C Hard

Departmental overhead rates may not correctly assign overhead costs due to: a. the use of direct labor hours in allocating overhead costs to products rather than machine time or quantity of materials used. b. the high correlation between direct labor-hours and the incurrence of overhead costs. c. over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production. d. difficulties associated with identifying cost pools for the first stage of the allocation process.

25. B Medium

Overhead allocation based on volume alone: a. is a key aspect of the activity-based costing model. b. will systematically overcost high-volume products and undercost low-volume products. c. will systematically overcost low-volume products and undercost high-volume products. d. must be used for external financial reporting.

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26. C Medium

Paul 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 activity cost pools are as follows: Activity Cost Pool Activity 1 Activity 2 Activity 3

Estimated Cost P22,000 P16,240 P14,600

Expected Activity Product A Product B Total 400 100 500 380 200 580 500 250 750

The activity rate under the activity-based costing system for Activity 3 is closest to: a. P70.45. b. P28.87. c. P19.47. d. P58.40. 27. B Medium

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 activity cost pools are as follows: Activity Cost Pool Activity 1 Activity 2 Activity 3

Estimated Cost P17,600 P12,000 P26,000

Expected Activity Product A Product B Total 800 300 1,100 500 200 700 800 400 1,200

The activity rate under the activity-based costing system for Activity 3 is closest to: a. P46.33. b. P21.67. c. P65.00. d. P18.53.

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28. D Hard

Matt Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 6,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: Activity Cost Pool Activity 1 Activity 2 Activity 3

Estimated Cost P20,000 P37,000 P91,200

Expected Activity Product A Product B 100 400 800 200 800 3,000

Total 500 1,000 3,800

The cost per unit of Product A under activity-based costing is closest to: a. P2.40. b. P3.90. c. P10.59. d. P6.60. 29.

Bridget Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 2,000 units and of Product B is 3,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: Activity Cost Pool Activity 1 Activity 2 Activity 3

Estimated Cost P9,000 P12,000 P48,000

Expected Activity Product A Product B 400 350 100 400 400 1,200

Total 750 500 1,600

The cost per unit of Product A under activity-based costing is closest to: a. P6.00. b. P9.60. c. P8.63. d. P13.80.

Reference: 8-1 Note to the Instructor: Questions 30 to 32, 33 to 35, and 36 to 38 are different versions of the same questions. Dideda Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

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Costs: Manufacturing overhead ........... Selling and admin. expenses ...... Total ..........................

P360,000 P240,000 P600,000

Distribution of resource consumption: Activity Cost Pools Order Customer Size Support Other Manufacturing overhead ......... 25% 65% 10% Selling and admin. expenses .... 60% 20% 20%

Total 100% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. 30. D Easy Refer To: 8-1

How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool? a. P150,000 b. P360,000 c. P255,000 d. P234,000

31. B Easy Refer To: 8-1

How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool? a. P255,000 b. P282,000 c. P120,000 d. P390,000

32. C Medium Refer To: 8-1

How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decisionmaking? a. P60,000. b. P0. c. P84,000. d. P120,000.

Reference: 8-2 NOTE TO THE INSTRUCTOR: Questions 30 to 32, 33 to 35, and 36 to 38 are different versions of the same questions. Diehl Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

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Costs: Manufacturing overhead ........... Selling and admin. expenses ...... Total ..........................

P480,000 P100,000 P580,000

Distribution of resource consumption:

Manufacturing overhead ........ Selling and admin. expenses ...

Activity Cost Pools Order Customer Size Support Other 5% 85% 10% 60% 20% 20%

Total 100% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. 33. D Easy Refer To: 8-2

How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool? a. P348,000 b. P188,500 c. P29,000 d. P84,000

34. D Easy Refer To: 8-2

How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool? a. P304,500 b. P493,000 c. P116,000 d. P428,000

35. A Medium Refer To: 8-2

How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decisionmaking? a. P68,000. b. P0. c. P116,000. d. P58,000.

Reference: 8-3 NOTE TO THE INSTRUCTOR: Questions 30 to 32, 33 to 35, and 36 to 38 are different versions of the same questions. Dierich Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

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Costs: Manufacturing overhead ........... Selling and admin. expenses ...... Total ..........................

P600,000 P220,000 P820,000

Distribution of resource consumption: Activity Cost Pools Order Customer Size Support Other Manufacturing overhead ........ 15% 75% 10% Selling and admin. expenses ... 60% 20% 20%

Total 100% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. 36. A Easy Refer To: 8-3

How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool? a. P222,000 b. P307,500 c. P123,000 d. P492,000

37. D Easy Refer To: 8-3

How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool? a. P389,500 b. P615,000 c. P164,000 d. P494,000

38. B Medium Refer To: 8-3

How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decisionmaking? a. P82,000. b. P104,000. c. P0. d. P164,000.

Reference: 8-4 Davis Company uses an activity-based costing system in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system: Costs: Manufacturing overhead .......... P400,000 Selling and admin. Expenses ..... P200,000 Total ......................... P600,000

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Distribution of resource consumption: Activity Cost Pools Order Customer Size Support Other Total Manufacturing overhead ........... 35% 55% 10% 100% Selling and admin. Expense ....... 50% 30% 20% 100% The "other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of the costs to the activity cost pools. 39. B Easy Refer To: 8-4

How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool? a. P210,000. b. P240,000. c. P300,000. d. P255,000.

40. D Easy Refer To: 8-4

How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool? a. P255,000. b. P180,000. c. P330,000. d. P280,000.

41. C Medium Refer To: 8-4

How much cost, in total should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decisionmaking? a. P0. b. P60,000. c. P80,000. d. P120,000.

Reference: 8-5 NOTE TO THE INSTRUCTOR: Questions 42 to 44, 45 to 47, and 48 to 50 are different versions of the same questions. Escau Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries .. Other expenses ...... Total .............

P380,000 P100,000 P480,000

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Distribution of resource consumption: Activity Cost Pools Filling Customer Orders Support Other Wages and salaries .. 30% 60% 10% Other expenses ...... 35% 45% 20%

Total 100% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The activity measures for the activity cost pools for the year are as follows: Activity Cost Pool Filling orders ...... Customer support.....

Activity 3,000 orders 20 customers

42. C Medium Refer To: 8-5

What would be the total overhead cost per order according to the activity based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.) a. P56.00 b. P48.00 c. P49.67 d. P52.00

43. A Medium Refer To: 8-5

What would be the total overhead cost per customer according to the activity based costing system? In other words, what would be the overall activity rate for the customer support activity cost pool? (Round to the nearest whole peso.) a. P13,650 b. P12,600 c. P14,400 d. P10,800

44. B Hard Refer To: 8-5

To the nearest whole peso, how much wages and salaries cost would be allocated to a customer who made 8 orders in a year? a. P14,784. b. P11,704. c. P7,392. d. P9,548.

Reference: 8-6 NOTE TO THE INSTRUCTOR: Questions 42 to 44, 45 to 47, and 48 to 50 are different versions of the same questions. Escalona Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

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Overhead costs: Wages and salaries .. Other expenses ...... Total .............

P580,000 P200,000 P780,000

Distribution of resource consumption: Activity Cost Pools Filling Customer Orders Support Other Wages and salaries .. 40% 50% 10% Other expenses ...... 35% 45% 20%

Total 100% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Filling orders ...... Customer support ....

Activity 1,000 orders 30 customers

45. B Medium Refer To: 8-6

What would be the total overhead cost per order according to the activity based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.) a. P273.00 b. P302.00 c. P312.00 d. P292.50

46. D Medium Refer To: 8-6

What would be the total overhead cost per customer according to the activity based costing system? In other words, what would be the overall activity rate for the customer support activity cost pool? (Round to the nearest whole peso.) a. P11,700 b. P13,000 c. P12,350 d. P12,667

47. C Hard Refer To: 8-6

To the nearest whole peso, how much wages and salaries cost would be allocated to a customer who made 4 orders in a year? a. P8,859. b. P7,124. c. P10,595. d. P14,248.

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Reference: 8-7 NOTE TO THE INSTRUCTOR: Questions 42 to 44, 45 to 47, and 48 to 50 are different versions of the same questions. Escoto Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries .. Other expenses ...... Total .............

P540,000 P200,000 P740,000

Distribution of resource consumption: Activity Cost Pools Filling Customer Orders Support Other Wages and salaries .. 10% 80% 10% Other expenses ...... 20% 60% 20%

Total 100% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Filling orders ...... Customer support ....

Activity 4,000 orders 40 customers

48. C Medium Refer To: 8-7

What would be the total overhead cost per order according to the activity based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.) a. P27.75 b. P37.00 c. P23.50 d. P18.50

49. D Medium Refer To: 8-7

What would be the total overhead cost per customer according to the activity based costing system? In other words, what would be the ove...