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Activity Based Costing 1) When a company implements activity-based costing, overhead cost often shifts from highvolume products to low-volume products, with a higher unit cost resulting for the low-volume products. A) True B) False 2) Assembling a product is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity. 3) 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) Facility-level activity. 4) Property taxes are an example of a cost that would be considered to be: A) Unit-level. B) Batch-level. C) Product-level. D) Facility-level. 5) Parts administration is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity. 6) Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department? A) Machine-hours B) Direct labor-hours C) Number of orders processed D) Cost of materials purchased

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7) Production order processing is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity. 8) 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) overreliance 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. 9) Purchase order processing is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity. 10) Which of the following activities would be classified as a batch-level activity? A) Setting up equipment. B) Designing a new product. C) Training employees. D) Milling a part required for the final product. 11) In activity-based costing, the total activity in an activity cost pool can be computed by: A) dividing the total overhead cost in the activity cost pool by the activity cost pool's activity rate. B) multiplying the total overhead cost in the activity cost pool by the activity cost pool's activity rate. C) dividing the activity cost pool's activity rate by the direct labor-hours required to make a product. D) multiplying the activity cost pool's activity rate by the direct labor-hours required to make a product. 12) In activity-based costing, unit product costs computed for external financial reports include: A) direct materials and manufacturing overhead. B) direct labor and manufacturing overhead. C) direct materials, direct labor, and manufacturing overhead. D) direct materials and direct labor.

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13) Overhead allocation based solely on a measure of volume such as direct labor-hours: 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. 14) Privott, Inc., manufactures and sells two products: Product Z9 and Product N0. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Activity Cost Pools Activity Measures Labor-related DLHs Product testing tests Order size MHs

Expected Activity

Overhead Cost Product Z9 Product N0 Total $ 324,018 6,400 3,000 9,400 45,747 400 500 900 471,108 4,000 4,300 8,300 $ 840,873

The activity rate for the Labor-Related activity cost pool under activity-based costing is closest to: A) $91.49 per DLH B) $934.30 per DLH C) $114.37 per DLH D) $34.47 per DLH 15) Jennifer 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 Pools Product design

Estimated Expected Activity Overhead Cost Product A Product B Total $ 23,500 400 100 500

Assembling

$ 18,000

500

200

700

Supporting customers

$ 34,600

600

300

900

The activity rate under the activity-based costing system for Supporting customers is closest to: A) $36.24 B) $38.44 C) $84.56 D) $115.33

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16) Latiker, Inc., manufactures and sells two products: Product Y9 and Product W0. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Product Y9 Product W0 Total direct labor-hours

Expected Direct LaborTotal Direct Production Hours Per Unit Labor-Hours 100 8.0 800 100 10.0 1,000 1,800

The direct labor rate is $15.40 per DLH. The direct materials cost per unit for each product is given below: Direct Materials Cost per Unit $253.00 $278.80

Product Y9 Product W0

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product Y9 Product W0 Total Labor-related DLHs $ 61,488 800 1,000 1,800 Machine setups

setups

50,687

400

Order size

MHs

155,754

5,000

300

700

5,200 10,200

$ 267,929 The activity rate for the Machine Setups activity cost pool under activity-based costing is closest to: A) $31.15 per setup B) $26.27 per setup C) $29.95 per setup D) $72.41 per setup

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17) Chrzan, Inc., manufactures and sells two products: Product E0 and Product N0. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Product E0 Product N0 Total direct labor-hours

Expected Direct LaborTotal Direct Production Hours Per Unit Labor-Hours 300 9.0 2,700 1,000 8.0 8,000 10,700

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Cost Product E0 Product N0 Total Activity Cost Pools Activity Measures Labor-related DLHs $ 296,390 2,700 8,000 10,700 Production orders

orders

55,587

300

400

700

Order size

MHs

579,866

5,000

4,700

9,700

$ 931,843 The activity rate for the Order Size activity cost pool under activity-based costing is closest to: A) $44.16 per MH B) $59.78 per MH C) $87.09 per MH D) $37.05 per MH

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18) Strama, Inc., manufactures and sells two products: Product A6 and Product I5. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product A6 Product I5 Total Labor-related

DLHs

$ 179,138

7,000

Production orders

orders

38,624

300

Order size

MHs

171,147

4,400

1,600 8,600 500

800

4,500 8,900

$ 388,909 The activity rate for the Order Size activity cost pool under activity-based costing is closest to: A) $21.25 per MH B) $111.96 per MH C) $45.22 per MH D) $19.23 per MH 19) Boesenhofer, Inc., manufactures and sells two products: Product N6 and Product N7. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product N6 Product N7 Total Labor-related DLHs $ 345,060 2,100 5,000 7,100 Machine setups

setups

128,534

600

800 1,400

Order size

MHs

107,598

4,100

3,800 7,900

$ 581,192 The activity rate for the Machine Setups activity cost pool is closest to: A) $73.57 per setup B) $91.81 per setup C) $26.24 per setup D) $28.32 per setup

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20) Porche, Inc., manufactures and sells two products: Product D4 and Product N0. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Product D4 Product N0 Total direct labor-hours

Expected Direct LaborTotal Direct Production Hours Per Unit Labor-Hours 100 5.0 500 700 2.0 1,400 1,900

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product D4 Product N0 Total Labor-related DLHs $ 32,414 500 1,400 1,900 Machine setups

setups

13,445

300

Order size

MHs

415,905

4,200

200

500

4,300 8,500

$ 461,764 The activity rate for the Labor-Related activity cost pool under activity-based costing is closest to: A) $17.06 per DLH B) $44.82 per DLH C) $67.23 per DLH D) $923.53 per DLH 21) Moyle Corporation has provided the following data from its activity-based costing accounting system: Activity Cost Pools Designing products Setting up batches Assembling products

Estimated Overhead Cost Expected Activity $ 396,900 2,450 product design hours $ 8,580 390 batch set-ups $ 115,520 7,220 assembly hours

The activity rate for the Designing Products activity cost pool is closest to: A) $396,900 per product design hour B) $62 per product design hour C) $162 per product design hour D) $52 per product design hour

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22) Data concerning three of the activity cost pools of Brevo LLC, a legal firm, have been provided below: Activity Cost Pools

Estimated Overhead Cost

Expected Activity

Researching legal issues

$

20,900

550 research hours

Meeting with clients

$

154,791

1,053 meeting hours

Preparing documents

$

90,400

5,650 documents

The activity rate for the Meeting with Clients activity cost pool is closest to: A) $147 per meeting hour B) $154,791 per meeting hour C) $37 per meeting hour D) $68 per meeting hour

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23) Aikman, Inc., manufactures and sells two products: Product O6 and Product O7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Product O6 Product O7 Total direct labor-hours

Direct LaborExpected Hours Per Total Direct Production Unit Labor-Hours 200 9.0 1,800 800 10.0 8,000 9,800

The direct labor rate is $17.50 per DLH. The direct materials cost per unit for each product is given below: Direct Materials Cost per Unit $206.50 $162.30

Product O6 Product O7

The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product O6 Product O7 Total Labor-related DLHs $ 133,770 1,800 8,000 9,800 Production orders

orders

18,501

400

Order size

MHs

145,180

3,000

300

700

3,100 6,100

$ 297,451 The unit product cost of Product O6 is closest to: (Round your intermediate calculations to 2 decimal places.) A) $637.15 per unit B) $896.71 per unit C) $721.00 per unit D) $661.45 per unit

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24) Roca, Inc., manufactures and sells two products: Product M6 and Product X7. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product M6 Product X7 Total Labor-related

DLHs

$ 152,100

3,000

Production orders

orders

63,035

400

Order size

MHs

505,452

3,700

4,800 7,800 300

700

3,600 7,300

$ 720,587 The total overhead applied to Product X7 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.) A) $360,294 B) $249,264 C) $443,424 D) $369,879 25) Ravelo Corporation has provided the following data from its activity-based costing system:

Activity Cost Pools Assembly Processing orders Inspection

Estimated Overhead Cost Expected Activity $ 498,520 44,000 machine-hours $ 54,263 1,100 orders $ 77,589 1,110 inspection-hours

Data concerning the company's product L19B appear below:

Annual unit production and sales Annual machine-hours Annual number of orders Annual inspection hours Direct materials cost Direct labor cost

430 990 70 20 $ 37.74per unit $ 10.45per unit

According to the activity-based costing system, the unit product cost of product L19B is closest to: (Round your intermediate calculations to 2 decimal places.) A) $48.19 per unit B) $82.31 per unit C) $85.56 per unit D) $77.53 per unit 10

26) Lindsey Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 5,000 units and of Product B is 2,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:

Activity Cost Pools Activity 1 Activity 2 Activity 3

Estimated Expected Activity Overhead Cost Product A Product B Total $ 24,000 200 800 1,000 $ 36,900 750 150 900 $ 63,000 1,000 800 1,800

The overhead cost per unit of Product A under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.) A) $14.11 B) $13.77 C) $7.00 D) $17.70 27) Foisy, Inc., manufactures and sells two products: Product N0 and Product U8. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Product N0 Product U8 Total direct labor-hours

Direct LaborExpected Hours Per Total Direct Production Unit Labor-Hours 1,000 6.0 6,000 200 9.0 1,800 7,800

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product N0 Product U8 Total Labor-related DLHs $ 170,664 6,000 1,800 7,800 Machine setups

setups

59,040

400

Order size

MHs

252,648

3,400

500

900

3,200 6,600

$ 482,352 The total overhead applied to Product U8 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.) A) $80,392 B) $111,312 C) $122,496 D) $194,680 11

28) Mahaley, Inc., manufactures and sells two products: Product Q9 and Product F0. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Product Q9 Product F0 Total direct labor-hours

Expected Direct LaborTotal Direct Production Hours Per Unit Labor-Hours 800 8.0 6,400 800 6.0 4,800 11,200

The direct labor rate is $21.80 per DLH. The direct materials cost per unit for each product is given below: Direct Materials Cost per Unit $174.90 $146.70

Product Q9 Product F0

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product Q9 Product F0 Total Labor-related DLHs $ 379,680 6,400 4,800 11,200 Machine setups

setups

43,830

300

200

500

Order size

MHs

284,700

3,100

2,900

6,000

$ 708,210 The unit product cost of Product F0 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.) A) $720.13 per unit B) $674.82 per unit C) $449.51 per unit D) $656.88 per unit

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29) Soehl, Inc., manufactures and sells two products: Product T4 and Product F9. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product T4 Product F9 Total Labor-related

DLHs

$ 326,650

4,500

4,900 9,400

Product testing

tests

68,572

600

800 1,400

Order size

MHs

79,690

3,200

3,300 6,500

$ 474,912 The total overhead applied to Product T4 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.) A) $267,138 B) $227,340 C) $224,995 D) $39,231

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30) Banton, Inc., manufactures and sells two products: Product N0 and Product A8. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Product N0 Product A8 Total direct labor-hours

Expected Direct Labor- Total Direct Production Hours Per Unit Labor-Hours 400 6.0 2,400 100 4.0 400 2,800

The direct labor rate is $16.50 per DLH. The direct materials cost per unit for each product is given below: Direct Materials Cost per Unit $288.50 $232.70

Product N0 Product A8

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product N0 Product A8 Total Labor-related DLHs $ 77,448 2,400 400 2,800 Machine setups

setups

28,064

300

Order size

MHs

359,134

4,000

500

800

3,900 7,900

$ 464,646 The unit product cost of Product N0 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.) A) $1,034.37 per unit B) $1,383.20 per unit C) $842.10 per unit D) $1,316.79 per unit 6

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31) Lazano, Inc., manufactures and sells two products: Product W4 and Product Z2. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: