Braun 3 04 tif - chapter 4 note summary PDF

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Managerial Accounting, 3e (Braun/Tietz) Chapter 4 Activity-Based Costing, Lean Operations, and the Costs of Quality 1) When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-1 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 2) With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-1 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 3) The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 4) To determine the amount of overhead allocated, the overhead rate is divided by the cost driver. Answer: FALSE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 5) Using departmental overhead rates is generally less accurate than using a single plantwide overhead rate. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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6) Cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 7) As a result of cost distortion, some products will be overcosted while other products will be undercosted. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 8) Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 9) Companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as they would in a traditional costing system. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 10) Only manufacturers can use refined costing systems to allocate manufacturing overhead. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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11) Refined costing systems can be used to allocate any indirect costs to any cost objects. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 12) Merchandising and service companies, as well as governmental agencies, can use refined cost allocation systems to provide their managers with better cost information. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 13) A plantwide overhead rate is calculated by dividing the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 14) A plantwide overhead rate is calculated by multiplying the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 15) If a company's plantwide overhead rate is allocated based on direct labor hours, then each job will be allocated manufacturing overhead based on the total direct labor hours incurred on the job, regardless of the manufacturing department in which those hours were incurred. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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16) One condition that favors using a departmental overhead rate, rather than plantwide overhead rates, is that different departments incur different amounts and types of manufacturing overhead . Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 17) One condition that favors using plantwide overhead rates, rather than departmental overhead rates, is that different jobs or products use the departments to a different extent. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 18) The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 19) A departmental overhead rate is calculated by dividing the total estimated departmental overhead cost pool by the estimated total amount of the department's cost allocation base. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 20) The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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21) If a company uses departmental overhead allocation rates, then the amount of manufacturing overhead allocated to the job is equal to the plantwide overhead rate multiplied by the actual use of the cost allocation base. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 22) The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 23) Direct labor hours would be the most appropriate cost allocation base for a Machining Department that uses machine robotics extensively. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 24) Departmental overhead rates typically do a better job of matching each department's overhead costs to the products that use the department's resources than do plantwide overhead rates. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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25) When a company has established separate manufacturing overhead rates for each department, it is using: A) departmental overhead rates. B) cost distortion. C) a plantwide overhead rate. D) none of the above. Answer: A Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 26) Which of the following is a result of cost distortion? A) Overcosting of all products B) Undercosting of all products C) Accurate costing of all products D) Overcosting of some products and undercosting of other products Answer: D Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 27) When calculating a departmental overhead rate, what should the numerator be? A) Total estimated amount of the departmental allocation base B) Total estimated departmental overhead cost pool C) Total estimated amount of manufacturing overhead for the factory D) Actual quantity of the departmental allocation base used by the job Answer: B Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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28) When calculating the total amount of manufacturing overhead to allocate to a particular job, the company would multiply each departmental overhead rate by ________ and then ________ together the allocated amounts from each department. A) the actual amount of the departmental allocation based used by the job; multiply B) the actual amount of the plantwide allocation based used by the job; add C) the actual amount of the departmental allocation based used by the job; add D) the actual amount of the plantwide allocation based used by the job; multiply Answer: C Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 29) Which of the following condition(s) favors using departmental overhead rates in place of a plantwide overhead rate? A) Different departments incur different amounts and types of manufacturing overhead. B) Different jobs or products use the departments to a different extent. C) Both of the above. D) Neither of the above. Answer: C Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 30) What will the use of departmental overhead rates generally result in? A) The use of a separate cost allocation base for each department in the factory B) The use of a single cost allocation base C) The use of a single overhead cost pool for the factory D) The use of separate cost allocation base for each activity in the factory Answer: A Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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31) James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $35 per machine hour, while the Sanding Department uses a departmental overhead rate of $20 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Assembly Department 8

Sanding Department 5

10

7

The cost for direct labor is $30 per direct labor hour and the cost of the direct materials used by Job 603 is $1,400. How much manufacturing overhead would be allocated to Job 603 using the departmental overhead rates? A) $450 B) $380 C) $715 D) $390 Answer: A Explanation: A) Assembly Dept $35 × 10 maching hrs = 350.00 Sanding Dept. $20 × 5 direct hrs = 100.00 Total 450.00 Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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32) James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $35 per machine hour, while the Sanding Department uses a departmental overhead rate of $20 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Assembly Department 8

Sanding Department 5

10

7

The cost for direct labor is $30 per direct labor hour and the cost of the direct materials used by Job 542 is $1,400. What was the total cost of Job 542 if James Industries used the departmental overhead rates to allocate manufacturing overhead? A) $1,850 B) $2,170 C) $2,240 D) $1,790 Answer: C Explanation: C) Labor ($30 × 8 hrs) + ($30 × 5 hrs) = 390.00 Materials = 1,400.00 Overhead Assembly dept $35 × 10 hrs = 350.00 Sanding dep $20 × 5 hrs = 100.00 Total = 2,240.00 Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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33) Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labor hour. Job A216 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Casting Department 5

Finishing Department 12

4

3

The cost for direct labor is $32 per direct labor hour and the cost of the direct materials used by Job A216 is $1,800. How much manufacturing overhead would be allocated to Job A216 using the departmental overhead rates? A) $544 B) $596 C) $1,360 D) $454 Answer: A Explanation: A) Casting Dept $52 × 4 machine hrs = 208.00 Finishing Dept. $28 × 12 direct hrs = 336.00 Total 544.00 Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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34) Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labor hour. Job A216 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Casting Department 5

Finishing Department 12

4

3

The cost for direct labor is $32 per direct labor hour and the cost of the direct materials used by Job A216 is $1,800. What was the total cost of Job A216 if Ryan Fabrication used the departmental overhead rates to allocate manufacturing overhead? A) $2,434 B) $2,344 C) $2,888 D) $2,940 Answer: C Explanation: C)

Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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35) Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plant-wide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,200 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. The plant-wide manufacturing overhead rate would be closest to A) $ 55.25 per machine hour. B) $170.00 per machine hour. C) $222.00 per machine hour. D) $202.20 per machine hour. Answer: D Explanation: D) $8,088,000 / 40,000 hours = $202.20 per hr Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 36) Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,000 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. The departmental manufacturing overhead rate for the Small Bag line would be closest to A) $202.20 per machine hour. B) $212.00 per machine hour. C) $170.00 per machine hour. D) $222.00 per machine hour. Answer: B Explanation: B) $2,459,000 / 11,600 hrs = 212.00 per hr Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

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37) Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,000 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. Which product line(s) have been overcosted or undercosted by using the plantwide manufacturing overhead rate? A) Large Bags has been undercosted; Medium and Small have been overcosted. B) Large, Medium, and Small Bags have all been overcosted. C) Large, Medium, and Small Bags have all been undercosted. D) Large Bags has been overcosted; Medium and Small have been undercosted. Answer: D Explanation: D) Large Bag Medium Bag Small Bag Depart. Allocation 170 Plantwide allocation 202 Diff. (32) Overcosted

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