Chapter 7 Practice Questions PDF

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Exam 2 Practice Questions Chapter 7 1) Providing the power required to run production equipment is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining activity. 2) Earl Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the costs of inspecting the finished products at Earl? A) Machine-hours B) Direct labor-hours C) Inspection time D) Number of inspections 3) An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because: A) under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organizationsustaining costs) will not be assigned to products. B) under activity-based costing the sum of all product costs does not equal the total costs of the company. C) activity-based costing has not been approved by the United Nation's International Accounting Board. D) activity-based costing results in less accurate costs than more traditional costing methods 4) In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by: A) the direct labor-hours required by the product. B) the machine-hours required by the product. C) the total activity for the activity cost pool. D) the total direct labor-hours for the activity cost pool. 5) When switching from a traditional costing system to an activity-based costing system that contains some batch-level costs: A) the unit product costs of both high and low volume products typically increase. B) the unit product costs of both high and low volume products typically decrease. C) the unit product costs of high volume products typically increase and the unit product costs of low volume products typically decrease. D) the unit product costs of high volume products typically decrease and the unit product costs of low volume products typically increase.

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6) Bippus Corporation manufactures two products: Product X08R and Product P56L. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X08R and P56L. Activity Cost Pool Machining Machine setups Product design Order size Activity Measure Machine-hours Number of setups Number of products Direct labor-hours

Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Product X08R 10,000 110 1 6,000

Total Cost Total Activity $ 247,000 13,000 MHs $ 60,000 150 setups $ 56,000 2 products $ 260,000 10,000 DLHs Product P56L 3,000 40 1 4,000

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P56L? A) $311,500 B) $373,800 C) $249,200 D) $418,000

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7) Orear Corporation manufactures two products: Product Z34D and Product J25M. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Z34D and J25M. Activity Cost Pool Machining Machine setups Product design Order size Activity Measure Machine-hours Number of setups Number of products Direct labor-hours

Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Product Z34D 4,000 90 1 7,000

Total Cost Total Activity $ 120,000 6,000 MHs $ 90,000 150 setups $ 84,000 2 products $ 300,000 10,000 DLHs Product J25M 2,000 60 1 3,000

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product J25M is closest to: A) 50.00% B) 30.00% C) 15.15% D) 19.87%

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8) Mayeux Corporation 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: Costs: Wages and salaries Depreciation Utilities Total

$ 320,000 160,000 240,000 $ 720,000

Distribution of resource consumption:

Wages and salaries Depreciation Utilities

Assembly 50% 10% 15%

Activity Cost Pools Setting Up Other 40% 10% 55% 35% 50% 35%

Total 100% 100% 100%

How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool? A) $360,000 B) $336,000 C) $288,000 D) $348,000

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9) Gutknecht Corporation 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: Costs: Wages and salaries Depreciation Utilities Total

$ 300,000 180,000 240,000 $ 720,000

Distribution of resource consumption:

Wages and salaries Depreciation Utilities

Assembly 35% 5% 10%

Activity Cost Pools Setting Up Other 40% 25% 60% 35% 60% 30%

Total 100% 100% 100%

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A) $138,000 B) $210,000 C) $180,000 D) $216,000

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10) Bennette Corporation has provided the following data concerning its overhead costs for the coming year: Wages and salaries

$ 340,000

Depreciation

120,000

Rent

140,000

Total

$ 600,000

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year: Activity Cost Pool Assembly Order processing Other

Total Activity 30,000 labor-hours 500 orders Not applicable

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below:

Wages and salaries Depreciation Utilities

Assembly 40% 15% 35%

Activity Cost Pools Setting Up Other 35% 25% 45% 40% 30% 35%

Total 100% 100% 100%

The activity rate for the Order Processing activity cost pool is closest to: A) $430 per order B) $420 per order C) $360 per order D) $440 per order

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11) Leaper Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Fabrication Order processing Other

Total Activity 40,000 machine-hours 200 orders Not applicable

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries Depreciation Occupancy Total

$ 360,000 140,000 160,000 $ 660,000

The distribution of resource consumption across activity cost pools is given below:

Wages and salaries Depreciation Utilities

Assembly 35% 5% 30%

Activity Cost Pools Setting Up Other 40% 25% 55% 40% 45% 25%

Total 100% 100% 100%

The activity rate for the Order Processing activity cost pool is closest to: A) $1,485 per order B) $1,540 per order C) $1,465 per order D) $1,320 per order

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12) Paparo Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost $ 846,040 $ 64,056 $ 102,408

Total Activity 52,000 machine-hours 1,700 orders 1,360 inspection hours

Data concerning the company's product Q79Y appear below: Annual unit production and sales Annual machine-hours Annual number of orders Annual inspection hours Direct materials cost Direct labor cost

450 1,080 70 20 $ 44.00 $ 41.03

per unit per unit

According to the activity-based costing system, the average cost of product Q79Y is closest to: A) $133.29 per unit B) $85.03 per unit C) $127.43 per unit D) $129.94 per unit

13) Wildcat Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost $ 228,060 $ 34,068 $ 125,560

Total Activity 18,000 machine-hours 1,200 orders 1,720 inspection hours

The company makes 420 units of product D28K a year, requiring a total of 460 machine-hours, 80 orders, and 10 inspection-hours per year. The product's direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit. According to the activity-based costing system, the average cost of product D28K is closest to: A) $95.34 per unit B) $93.60 per unit C) $74.32 per unit D) $89.93 per unit

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14) Horgen Corporation manufactures two products: Product M68B and Product H27T. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products M68B and H27T. Activity Cost Pool Machining Machine setups Product design General factory

Activity Measure Machine-hours Number of setups Number of products Direct labor-hours

Activity Measure Machine-hours Number of setups Number of products Direct labor-hours

Total Cost Total Activity $ 299,000 13,000 MHs $ 240,000 400 setups $ 80,000 2 products 290,000 10,000 DLHs

Product M68B 6,000 250 1 4,000

Product H27T 7,000 150 1 6,000

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product M68B? A) $454,500 B) $116,000 C) $444,000 D) $328,000

15) 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.

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Answers: 1. A 2. C 3. A 4. C 5. D 6. C 7. B 8. B 9. B 10. A 11. C 12. A 13. A 14. C 15. C

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