19 x12 abc b

Cost Accounting Systems(B. Activity-Based Cost System)

B. ACTIVITY-BASED COST SYSTEM

THEORIES:Outdated cost system3. Symptoms of an outdated cost system include all of the following EXCEP

A. product costs change because of changes in financial reporting.B. products that are difficult to produce show little profit.C. competitors' prices appear unrealistically low.D. the company has a highly profitable niche all to itself.

13. Which of the following is NOT a sign of poor cost data?A. Competitors' prices for high-volume products appear much too high.B. The company seems to have a highly profitable niche all to itself.C. Customers don't balk at price increases for low-volume products.D. Competitors' prices for low-volume products appear much too high.

Activity-based management1. Which system focuses on the management of activities with the objective of improving the

value received by the customer and the profit received by providing this value?A. activity-based management C. contemporary cost controlB. traditional cost management system D. standard cost system

28. Activity-based management (ABM) isA. a costing system in which multiple overhead cost pools are allocated using bases that

include one or more nonvolume related factorsB. a base used to allocate the cost of a resource to the different activities using itC. the use of information obtained from ABC to make improvements in the firmD. a base used to allocate the cost of an activity to products and customers

17. An objective of activity-based management is toA. eliminate the majority of centralized activities in an organization.B. reduce or eliminate non-value-added activities incurred to make a product or provide a

service.C. institute responsibility accounting systems in decentralized organizations.D. all of the above

5. Primary concepts under activity-based management include all of the following except:A. activity analysis C. activity-based costingB. total quality management D. cost driver analysis

18. Which of the following falls under the Activity-Based Management umbrella?

Continuousimprovement

Business processreengineering

Activity-basedcosting

A. NO NO YESB. YES NO NOC. YES YES YESD. NO YES NO

29. All of the following are ways that activities can be managed to achieve improvements in a process, exceptA. activity induction C. activity eliminationB. activity selection D. activity sharing

Traditional Costing vs. ABC system27. Which of the following is not a distinction between the traditional and ABC costing systems

A. the number of overhead cost pools tends to be higher in ABC systemsB. the number allocation bases tend to be higher in ABC systemC. costs within an ABC cost pool tend to be more homogeneous than the costs within a

traditional system’s cost poolD. all ABC systems are one-stage costing systems, while traditional systems may be one- or

two-stage

32. In contrast to a company that uses a single overhead rate, one that uses activity-based costingA. will have higher product costs than one using a single overhead rate.B. cannot compute budget variances.C. will incur additional costs for recordkeeping.D. must have a preponderance of fixed overhead costs.

Activity-based costingReason21. Of the following, which is the best reason for using activity-based costing?

A. to keep better track of overhead costsB. to more accurately assign overhead costs to cost pools so that these costs are better

controlledC. to better assign overhead costs to productsD. to assign indirect service overhead costs to direct overhead cost pools

Benefits

769


2. The primary benefit of using ABC is that it providesA. better management decisions.B. enhanced control over overhead costs.C. more cost pools.D. more accurate product costing.

10. Which of the following is not a benefit of activity-based costing?A. More accurate product costing.B. Enhanced control over overhead costs.C. Less costly to use.D. Better management decisions.

Factors suggesting need to switch to ABC4. Which of the following factors would suggest a need to switch to activity-based costing?

A. Product lines similar in volume and manufacturing complexity.B. Overhead costs constitute a significant portion of total costs.C. The manufacturing process has been stable.D. Production managers use data provided by the existing system.

7. A least likely reason to use activity-based overhead rates is thatA. some departments are labor-intensive, some are machine-intensive.B. significant amounts of overhead are driven by different factors.C. rates calculated for some departments are much higher than for other departments.D. all jobs require about the same amounts of cost-driving activities.

8. The presence of any of the following factors would suggest a switch to ABC except whenA. product line differ greatly in volume.B. overhead costs constitute a minor portion of total costs.C. the manufacturing process has changed significantly.D. production managers are ignoring data provided by the existing system.

Characteristics6. Which of the following is typical of activity-based costing systems?

A. Use of a single predetermined overhead rate.B. Use of direct labor hours or direct labor cost to assign overhead.C. Assumption of correlation between direct labor and incurrence of overhead cost.D. Use of multiple cost drivers to allocate overhead.

14. All of the following statements are correct except thatA. activity-based costing has been widely adopted in service industries.

B. the objective of installing ABC in service firms is different than it is in a manufacturing firm.C. a larger proportion of overhead costs are company-wide costs in service industries.D. the general approach to identifying activities and activity cost pools is the same in a

service company as in a manufacturing company.

Application22. ABC should be used in which of the following situations?

A. single-product firms with multiple stepsB. multiple-product firms with only a single processC. multiple-product firms with multiple processing stepsD. in all manufacturing firms

Limitation9. Which of the following is a limitation of activity-based costing?

A. More cost pools C. Poorer management decisionsB. Less control over overhead costs D. Some arbitrary allocations continue

12. Each of the following is a limitation of activity-based costing system except that:A. it can be expensive to use.B. it is more complex than the traditional costing.C. more cost pools are used.D. some arbitrary allocations still continue.

Cost behavior of high-volume & low-volume product11. As compared to a high-volume product, a low-volume product

A. usually requires less special handling.B. is usually responsible for more overhead costs per unit.C. requires relatively fewer machine setups.D. requires use of direct labor hours as the primary cost driver to ensure proper allocation

of overhead.

Cost assignment15. Which of the following lists the most to least accurate method of cost assignment?

A. direct tracing, driver tracing, allocation C. driver tracing, direct tracing, allocationB. allocation, direct tracing, driver tracing D. allocation, driver tracing, direct tracing

30. An activity-based costing system uses which of the following procedures?A. Overhead costs are traced to departments, then costs are traced to products.B. Overhead costs are traced to activities, then costs are traced to products.C. Overhead costs are traced directly to products.

770


D. All overhead costs are expensed as incurred.

Steps16. A well-designed activity-based costing system starts with

A. identifying the activity-cost pools.B. computing the activity-based overhead rate.C. assigning manufacturing overhead costs for each activity cost pool to products.D. analyzing the activities performed to manufacture a product.

25. The first step in activity-based costing is toA. assign manufacturing overhead costs for each activity cost pool to products.B. compute the activity-based overhead rate per cost driver.C. identify and classify the major activities involved in the manufacture of specific products.D. identify the cost driver that has a strong correlation to the activity cost pool.

26. The last step in activity-based costing is toA. identify the major activities that pertain to the manufacture of specific products.B. allocate manufacturing overhead costs to activity cost pools.C. identify the cost drivers that accurately measure each activity’s contribution to the

finished product.D. assign manufacturing overhead costs for each activity cost pool to products.

65. Successful activity-based costing (ABC) implementation depends upon the firm having:A. top management supportB. ABC linked to its competitive strategyC. adequate resourcesD. all of the above

Cost driver, activity driver & resource driver23. Any activity that causes resources to be consumed is called a

A. just-in-time activity C. facility-level activityB. cost driver D. nonvalue-added activity

24. A base used to allocate the cost of a resource to the different activities using that resource isA. resource driver C. activity driverB. final cost object D. driver

42. A base used to allocate the cost of products, customers, or other final cost objects is a(n)A. resource driver C. activity driverB. final cost object D. driver

38. Activity drivers differ from resource drivers in that activity driversA. are used to assign indirect costs while resource drivers are used to assign direct costsB. assign the cost of activities to cost objects while resource drivers assign the cost of

resources to activitiesC. assign the cost of activities to resources and resource drivers assign the cost of resources

to cost objectsD. are used to assign direct costs while resource drivers are used to assign indirect costs

55. An appropriate cost driver base shouldA. have a cause-and-effect relationship with the activity and the use of resourcesB. predict or explain activities' use of resources with reasonable accuracyC. be based on the practical capacity of the resource to support activitiesD. all of the above

Cost pool31. A cost pool is

A. all of the costs of a particular department.B. all costs in a group such as variable costs or discretionary fixed costs.C. all costs related to a product or product line.D. all costs that have the same driver.

Cost pool rate34. More accurate product costing information is produced by assigning costs using

A. a volume-based, plant-wide rate.B. volume-based, departmental rates.C. activity-based pool rates.D. all of the above

Cost allocation33. Activity-based overhead rates are more useful than a single plant-wide rate if

A. overhead costs are driven by several activities. B. direct labor cost varies significantly from department to department.C. all products require about the same amounts of all activities.D. manufacturing overhead costs are nearly all fixed.

20. In activity-based costing, preliminary cost allocations assign costs toA. departments. C. products.B. processes. D. activities.

771


19. In activity-based costing, final cost allocations assign costs toA. departments. C. products.B. processes. D. activities.

35. Which of the following best describes the flow of overhead costs in an activity-based costing system?A. Overhead costs => direct labor cost or hours => productsB. Overhead costs => productsC. Overhead costs => activity cost pools => cost drivers => productsD. Overhead costs => machine hours => products

36. Finding a single cost driver that changes in the same proportion as all the variable factory overhead costs is:A. simplified by breaking out the fixed portion of overhead costB. the first step in variable overhead cost managementC. difficult, but manageableD. impossible

37. Total activity cost is the sum ofA. resource driver assigned costs and activity driver assigned costsB. direct and indirect costsC. directly traceable resource costs and resource driver assigned costsD. opportunity costs and realized costs

Activity levelsUnit level46. Unit-level costs are costs that

A. inevitably increase whenever a unit is producedB. are caused by the number of batches produced and soldC. are incurred to support the number of different products producedD. are incurred to sustain capacity at a production site

44. Examples of unit-level costs areA. portions of electricity and indirect materialsB. salaries of schedulers and setup personnelC. salaries of designers and programmersD. depreciation and insurance of building

58. Examples of unit level activities areA. scheduling, setting up, and receiving C. heating, lighting, and security

B. designing, changing, and advertising D. cutting, painting, and packaging

41. All of the following are unit-based cost drivers exceptA. machine hours C. number of setupsB. number of units D. direct labor hours

62. An example of a nonvolume-related overhead base would be:A. Direct materials cost C. Direct Labor costB. Machine hours D. Number of setups

Batch level54. Batch-level resources are acquired

A. for individual units of product or serviceB. for making a group of similar productsC. to produce and sell a specific productD. to provide a general capacity to produce products and services.

45. Examples of batch-level activity drivers includeA. units of output and direct labor hoursB. number of batches and material movesC. number of products and design changesD. square footage occupied

63. Which of the following is not a batch-level activity?A. Engineering changes. C. Inspection.B. Equipment setups. D. Material handling.

Product-sustaining level43. Examples of activities at the product level of costs include

A. cutting, painting, and packagingB. scheduling, setting up, and movingC. designing, changing, and advertisingD. heating, lighting and security

40. Which of the following activities is directly traceable to a product?A. batch-level activities C. facility-level activitiesB. unit-level activities D. product-sustaining activities

57. Designing and redesigning are activities that are classified asA. Facility level C. Unit level

772


B. Batch level D. Product level

60. Which of the following is the best way to consider a product-level cost?.A. A product-level cost can be avoided when a product line is discontinued.B. A product-level cost can be avoided when a there is change in the production schedule

so the product is not produced this week.C. A product level cost can be avoided when a business segment is discontinued.D. A product level cost can be avoided when the corporation is dissolved.

61. Examples of activities at the batch level of costs includeA. scheduling, setting up, and movingB. designing, changing, and advertisingC. heating, lighting, and securityD. cutting, painting, and packaging

Facilities sustaining level39. Which of the following activities may support all the organization's processes and are the

highest level of activities?A. batch-level activities C. facility-level activitiesB. product-sustaining activities D. unit-level activities

56. In a pure activity-based cost system which of the following might be treated as period costs?A. facility-level costs C. batch-level costsB. product-level costs D. unit-level costs

47. Plant-level costs are costs thatA. inevitably increase whenever a unit is producedB. are caused by the number of batches produced and soldC. are incurred to support the number of different products producedD. are incurred to sustain capacity at a production site

59. Which of the following is not considered to be a facility-level cost?A. Cost of Property Insurance.B. Cost of personnel administration.C. Cost of Liability Insurance for only one of the product lines.D. Cost of building security.

Value adding & Non-value adding activity49. The following activity is value-added:

A. Storage of raw materials C. Moving parts from machine to machine

B. Turning a piece of metal on a lathe D. All of these

48. An activity that adds cost to the product but does not increase it market value is aA. value-added activity C. cost driverB. cost-benefit activity D. nonvalue-added activity

50. When a firm redesigns a product to reduce the number of component parts, the firm isA. increasing consumer value.B. increasing the value added to the product.C. decreasing product variety.D. decreasing non-value-added costs.

52. Under activity-based costing, benchmarks for product cost should contain an allowance forA. idle time. C. spoilage.B. idle time and scrap materials. D. none of the above.

64. Elimination of non-value-added activities in a firm should:A. be discouraged because of potential harmful effectsB. not affect customer valueC. not have priority because non-value-added activities do not affect a firm's performanceD. have priority only when a firm is operating at a loss

66. Page Company’s cost allocation and product costing procedures follow activity-based costing principles. The following activities have been identified and classified as being either value-adding or non-value adding as to each product.

1. Raw materials storage activity2. Design engineering activity3. Drill press activity4. Heat treatment activity5. Quality control inspection activity6. Issuance of purchase order activity

How are the foregoing activities classified?Value-adding Non-value adding

A. 1, 2, 5, 6 3, 4B. 1, 2, 4 3, 5, 6C. 2, 4, 5 1, 3, 6D. 2, 3, 4 1, 5, 6

Productivity Measures51. Manufacturing cycle efficiency is a measure of

773


A. bottlenecks. C. efficiency.B. effectiveness. D. quality.

53. The amount of time between the development and the production of a product isA. the product life cycle. C. production time.B. lead time. D. value-added time.

PROBLEMS:Breakeven Analysis1. Peal Company had the following information:

Activity Driver Unit Variable Cost Level of Activity DriverUnits sold P40Setups 1,000 80Engineering hours 60 2,000Other data:Total fixed costs (traditional) P400,000Total fixed costs (ABC) P150,000Units selling price P80

What is the breakeven point in units using ABC?A. 10,000 unit C. 5,000 unitsB. 5,000 units D. 8,750 units

Traditional CostingOverhead cost per unit2. Mary Manufacturing Company manufactures two products (X and Y). The overhead costs of

P29,000 have been divided into three cost pools that use the following activity drivers:Product No. of Orders No. of Labor Transactions No. of Labor HoursX 30 100 1,000Y 20 300 4,000Cost per pool P5,000 P4,000 P20,000

Using traditional costing, what is the amount of overhead cost to be assigned to Product Y using labor hours as the allocation base?A. P21,750 C. P16,000B. P 5,800 D. P23,200

Unit cost

1 . Answer: DBES (ABC) = 350,000/40 8,750

3. Arid Company produces products BH and XP. The direct cost of BH is P250 per unit and XP is P350 per unit. Fifty units of BH and 150 units of XP were produced. Overhead amounting to P130,000 is allocated to products using direct costs as the relevant cost driver. The cost of XP per unit amounts toA. P750 C. P1,050B. P1,000 D. P1,250

Activity-based CostingBatch-level costsAllocated overhead4. One of Alien Company’s activity cost pools is machine setups, with estimated overhead of

P300,000. Alien produces slacks (400 setups) and shirts (600 setups). How much of the machine setup cost pool should be assigned to slacks?A. P 0 C. P150,000B. P120,000 D. P180,000

5. The overhead rate for Machine Setups is P100 per setup. Products A and B have 80 and 60 setups, respectively. The overhead assigned to each product isA. Product A P8,000, Product B P8,000 C. Product A P8,000, Product B P6,000B. Product A, P6,000, Product B P6,000 D. Product A, P6,000, Product B P8,000

6. Sylvia Company has identified an activity cost pool to which it has allocated estimated overhead of P1,920,000 and determined the expected use of cost drivers per that activity to by 160,000 inspections. Widgets require 40,000 inspections, Gadgets 30,000 inspections, and Targets, 90,000 inspections. The overhead assigned to each product isA. Widgets P40,000, Gadgets P30,000, Targets P90,000B. Widgets P480,000, Gadgets P360,000, Targets P1,080,000C. Widgets P360,000, Gadgets P480,000, Targets P1,080,000D. Widgets P480,000, Gadgets P360,000, Targets P1,080,000

ABC fixed costs P 150,000Set ups 80 x P1,000 80,000Engineering 2,000 x 60 120,000 Total Fixed Costs P 350,000

2 . Answer: DTotal overhead (5,000 + 4,000 + 20,000) 29,000Allocated OH to Product Y based on labor hours: 4 ÷ 20 x 29,000 P23,200

774


Overhead cost per unit7. EMPIRE Company makes two products, E and M. E is being introduced this period, whereas

M has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. The only relevant overhead item is the cost of engineering change orders. E and M are expected to require eight and two change orders, respectively. E and M are expected to require 2 and 3 machine hours, respectively. The cost of a change order is P600. If EMPIRE applies engineering change order cost on the basis of machine hours, the overhead cost per unit to be assigned to E and M, respectively, areA. P2.40 and P3.60, respectively C. P4.80 and P3.60, respectivelyB. P3.60 and P2.40, respectively D. P3.60 and P4.80, respectively

8. Beltran Company produces products X and Y. The direct cost of X is P250 per unit (P100 materials and P150 labor) and Y is P350 (P230 material and P120 labor) per unit. Fifty units of X and 150 units of Y were produced. Overhead amounts to P130,000 and is composed of material handling P12,000, labor support P60,000, machine operation P48,000, and general administration P10,000. Material handling cost driver is material cost, labor support cost driver is labor cost. Machine operation cost resulted from running the machines a total of 480 hours (three-fourth of which was for product X). General administration effort related equally to product X and Y. Material handling chargeable per unit of X (rounded) amounts toA. P30; P 70 C. P60; P140

B. P40; P 80 D. P70; P 30

9. Genco manufactures two versions of a product. Production and cost infor-mation show the following:

Model A Model BUnits produced 200 400Material moves (total) 20 80Direct labor hours per unit 1 2

Material handling costs total P200,000. Under ABC, the material handling costs allocated to each unit of Model A and Model B would be:

A. B. C. D.Model A P100 P200 P333 P130Model B P333 P400 P200 P100

10. EMPIRE Company makes two products, E and M. E is being introduced this period, whereas M has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. The only relevant overhead item is the cost of engineering change orders. E and M are expected to require eight and two change orders, respectively. E and M are expected to require 2 and 3 machine hours, respectively. The cost of a change order is P600. If EMPIRE is using direct tracing, the amount of overhead per unit that will be assigned to E and M, respectively, areA. P2.40 and P3.60, respectively C. P4.80 and P1.20, respectivelyB. P3.60 and P2.40, respectively D. P1.20 and P4.80, respectively

Total allocated overhead11. Germie, Inc., has identified the following overhead costs and activity drivers for next year:

Overhead Item Expected Cost Activity Driver Expected QuantitySetup costs P100,000 Number of setups 500Ordering costs 40,000 Number of orders 3,200Maintenance 200,000 Machine hours 4,000Power 20,000 Kilowatt hours 80,000

The following are two of the jobs completed during the year:Job 500 Job 501

Direct materials P1,500 P2,000Direct labor P1,400 P2,400Units completed 100 160Direct labor hours 100 160Number of setups 2 8

775


Number of orders 8 10Machine hours 40 50Kilowatt hours 60 100

The company’s normal activity is 4,000 direct labor hours.If the four activity drivers are used to allocate overhead costs, total overhead allocated to Job 500 would beA. P2,766.50. C. P2,515.00.B. P2,415.00. D. P2,815.00

Unit cost12. Wesleyan University Hospital plans to use activity-based costing to assign hospital indirect

costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital’s indirect costs:

Activity Activity RateRoom and meals P150 per dayRadiology P 95 per imagePharmacy P 20 per physician orderChemistry lab P 85 per testOperating room P550 per operating room hour

The records of two representative patients were analyzed, using the activity rates. The activity information associated with the two patients is as follows:

Patient Flor Patient LauraNumber of days 7.0 3Number of images 4.0 2Number of physician orders 5.0 1Number of tests 6.0 2Number operating room hours 4.5 1

Determine the activity cost associated with Patient Flor:A. P4,500 C. P4,495B. P4,550 D. P4,515

Total cost13. Food Factory, Inc., has identified the following cost drivers for its expected overhead costs

for the year:

Cost PoolsBudgeted Cost

CostDriver

Cost Driver Level

Setup P 80,000 Number of setups 100Ordering 40,000 Number of orders 500Maintenance 100,000 Machine hours 2,500Power 20,000 Kilowatt hours 5,000

Total direct labor hours budgeted = 1,000 hours.The following data applies to one of the products completed during the year:

Cost Product X Activity Driver Driver ConsumptionDirect materials P2,000 Number of setups 2Direct labor P2,400 Number of orders 5Units completed 200 Machine hours 25Direct labor hours 80 Kilowatt hours 50

If the activity-based cost drivers are used to allocate overhead cost, the total cost of Product X will be:A. P7,400 C. P4,400B. P7,800 D. P7,600

14. Ray Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows:

Maintenance P510,000Material handling 250,000Setups 60,000Inspection 210,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000 direct labor hours are budgeted for next year.The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in a new business in future years. Usually bids are based upon full manufacturing costs plus 10 percent.

Estimates for the proposed job are as follows:Direct materials P30,000Direct labor (8,000 hours) P24,000Number of material moves 100Number of inspections 120Number of setups 24Number of machine hours 4,000

The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are:

Machine hours 60,000Material moves 20,000Setups 3,000Quality inspections 12,000

What is the total cost of the proposed job if Ray Manufacturing uses direct labor hours as its only activity driver?A. P144,000 C. P112,400B. P136,400 D. P106,400

776


Traditional Costing & Activity-based CostingQuestions 15 & 16 are based on the following information.Gilmore Company produces two products in a single factory. The following production and cost information has been determined:

Model 1 Model 2Units produced 1,000 200Material moves (total) 100 40Testing time (total) 250 125Direct labor hours per unit 1 5

The controller has determined total overhead to be P480,000. P140,000 relates to material moves; P150,000 relates to testing; the remainder is related to labor time.

15. If Gilmore uses direct labor hours to allocate overhead to each model, what would overhead per unit be for Model 2?A. P 158.33 C. P 950.00B. P 400.00 D. P1,200.00

16. If Gilmore uses activity-based costing to allocate overhead to each model, what would overhead per unit be for Model 2?A. P158.33 C. P925.00B. P415.93 D. P815.00

Questions 17 & 18 are based on the following information.Hughes Company produces three products with the following production and cost information:

Model A Model B Model CUnits produced 2,000 6,000 12,000Direct labor hours (total) 4,000 2,000 4,000Number of setups 100 150 250Number of shipments 200 225 275Engineering change orders 15 10 5

Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000.

17. What would be the per unit overhead cost for Model A if direct labor hours were the allocation base?A. P20.50 C. P82.00B. P41.00 D. P76.00

18. What would be the per unit overhead cost for Model A if activity-based costing were used?

A. P20.50 C. P82.00B. P74.00 D. P76.00

Question Nos. 19 and 20 are based on the following:Toylandia Company manufactures two products, X-MAN and Machman. Toylandia's overhead costs consist of setting up machines, P400,000; machining, P900,000; and inspecting, P300,000.

Information on the two products is:X-MAN Machman

Direct labor hours 15,000 25,000Machine setups 600 400Machine hours 24,000 26,000Inspections 800 700

19. Overhead applied to X-MAN using traditional costing isA. P600,000. C. P832,000.B. P768,000. D. P960,000.

20. Overhead applied to Machman using activity-based costing isA. P 640,000. C. P 832,000.B. P 768,000. D. P1,000,000.

Questions 21 & 22 are based on the following information.The Oilfield plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance P100,000Inspection 150,000

The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposed job:

Direct materials P1,000Direct labor P4,000Machine hours 500Number of inspections 4Direct labor hours 800

The total number of expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.

21. Using activity-based costing system and the appropriate activity drivers, the total cost of the potential job would be

777


A, P2,400 C. P7,400B. P3,600 D. P7,750

22. Using direct labor hours to assign overhead, the total cost of the potential job would beA. P 5,000 C. P 8,000B. P11,000 D. P 9,000

Question Nos. 23 through 25 are based on the following:Special Products recently installed an activity-based relational data base. Using the information contained in the activity relational table, the following pool rates were computed:

P200 per purchase orderP12 per machine hour, process AP15 per machine hours, process BP40 per engineering hour

Two products are produced by Special Products: A and B. Each product has an area in the plant that is dedicated to its production. The plant has two manufacturing processes, process A and process B. Other processes include engineering, product handling, and procurement. The product relational table for Special is as follows:

Activity UsageActivity Driver # and Name Product A: Product B:1 Units 200,000 25,0002 Purchase orders 250 1253 Machine hours 80,000 10,0004 Engineering hours 1,250 1,500

23. How much overhead cost will be assigned to product B using process B?A. P1,200,000 C. P120,000B. P960,000 D. P150,000

24. What is the unit cost of Product A?A. P4.71 C. P4.80B. P252.00 D. P5.30

25. Dagger Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering:

Salaries P150,000

Equipment 80,000Supplies 20,000Total P250,000

The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment’s time is used for improving processes and sixty-five percent is used for designing tools. The salaries are for two engineers. One is paid P100,000, while the other earns P50,000. The P100,000 engineer spends 40% of his time training employees in new processes and 60% of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions:

Creating BOMs 25%Studying capabilities 10%Improving processes 20%Training employees 25%Designing tooling 20%

What is the cost assigned to the designing tooling activity?A. P162,500 C. P50,000B. P 66,000 D. P250,000

Use the following data to respond to questions 26 through 29Consider the following facts for NM Company which produces product N and M

Activity Cost Driver N’s share M’s share Unused CostSetups # of set ups 10 40 5 P 5,500Ordering # of orders 5 10 5 3,200Receiving # of receipts 22 12 6 2,400Product Dev. # of parts 180 120 100 2,800Gen Mgt #, labor hrs 2,900 4,100 1,000 7,200Security Area covered 3,200 5,400 400 9,000Materials # of units produced 400 800 120,000Labor # of DLH 1,700 3,100 1,200 56,000

26. Set up cost chargeable per unit of M accounting for unused capacity amounts toA. 2.50 C. 5.00B. 2.75 D. 5.50

27. Ordering cost chargeable per unit of N ignoring unused capacity amounts toA. 2.00 C. 3.00B. 2.67 D. 4.00

28. The cost of unused capacity excluding labor costs amounts toA. 11,260 C. 11,856

778


B. 11,460 D. 14,856

779


4 . Answer: BSetup cost per setup (P300,000 ÷ 1,000) P300Setup costs assigned to slacks (400 x P300) P120,000

780


3 . Answer: DBH: (50 x P250) P 12,500XP: (150 x P350) 52,500 Total direct costs P 65,000

781


Allocated OH to XP based on direct costs: (52,500 ÷ 65,000 x P130,000) P105,000 Unit cost – Product XP:5 . Answer: C

Overhead allocated to:Product A: (80 x P100) P8,000Product B: (60 x P100) 6,000

6 . Answer: DOverhead rate per inspection: (P1,920,000 ÷ 160,000) P12Overhead assigned to:

Widgets: (40,000 x P12) P 480,000Gadgets (30,000 x P12) 360,000Targets (90,000 x P12) 1,080,000

7 . Answer: ACost of change orders 10 x 600 P6,000Cost of change order per hour P6,000/5,000 hours P1.20/MHCost of change order per unit:

E: 2 hours x P1.20 P2.40M: 3 hours x P1.20 P3.60

8 . Answer: AMaterials cost:Product X: (50 x P100) P 5,000Product Y: (150 x P230) 34,500 Total P39,500

Material handling cost based on direct materials cost: (P12,000 ÷ P39,500) P0.3038Material handling cost per unit chargeable to:Product X: (50,000 x P0.3038 ÷ 50) P 30.38Product Y: (34,500 x P0.3038 ÷ 150) P 69.87

782


Direct cost P 350 overhead (P105,000 ÷ 150) 700Total P1,050

12 . Answer: D9 . Answer: B

Handling cost per move (P200,000 ÷ 100 moves) P2,000Model A: 20 x P2,000 ÷ 200 P 200Model B: 80 x P2,000 ÷ 400 P 400

10 . Answer: CCost of change orders based on ABCE: 8 x P600 ÷ 1,000 P4.80M: 2 x P600 ÷ 1,000 P1.20

11 . Answer: CActivity Rates:

Setup (P100,000 ÷ 500) P200.00Ordering (P40,000 ÷ 3,200) 12.50Maintenance (P200,000 ÷ 4,000) 50.00Power (P20,000 ÷ 80,000) 0.25Overhead costs assigned to Job 500:Setup (2 x P200) P 400Ordering (8 x P12.50) 100Maintenance (40 x P50) 2,000Power (60 x P025) 15 Total P2,515

783


Room and meals (7 days x P150) P1,050Radiology (4 images x P95) 380Pharmacy (5 orders x P20) 100Chemistry lab (6 tests x P85) 510Operating room (4.5 hours x P550) 2,475 Total P4,515

13 . Answer: DSetupP 80,000 ÷ 100 x 2P1,600OrderingP 40,000 ÷ 500 x 5400MaintenanceP100,000 ÷ 2,500 x 251,000PowerP 20,000 ÷ 5,000 x 50 200 Total overhead assignedP3,200 Direct

materials2,000Direct labor 2,400 Total costs assignedP7,60014 . Answer: B

Direct materials P 30,000Direct labor 24,000Overhead 82,400 Total cost of the job P136,400

OH rate per DLH: (P510,000 + P250,000 + P60,000 + P210,000) ÷ 100,000 P10.30 per DLH

Overhead allocated to proposed job: 8,000 x 10.30 82,400

15 . Answer: DTotal DLH used (1,000 x 1) + (20 x 5) 2,000Overhead allocated to Model 2 (0.5 x P480,000) P240,000Overhead per unit of Model 2: (P240,000 ÷ 200) P1,200

16 . Answer: COverhead allocated to Model 2:

Handling (P140,000 ÷ 140 x 40 moves) P 40,000Testing (P150,000 ÷ 375 x 125) 50,000Labor-related (P190,000 ÷ 2) 95,000 Total P185,000

784


Overhead per unit, Model 2 (P185,000 ÷ 200) P925

19 . Answer: ATotal overhead costs: (P400,000 + P900,000 + P300,000) P1,600,000Overhead applied to X-MAN using direct labor hours

(15,000/40,0000) x P1,600,000 P600,000

20 . Answer: BActivity Rates:Setups (400,000/1,000 setups) P400 per set upMachining (900,000/50,000 MH) P 18 per MHInspection (300,000/1,500 Inspection) P200 per inspection

Overhead assigned to Machman using ABC: (400xP400) + (26,000xP18) + (700xP200) P768,000

21 . Answer: CDirect materials P1,000Direct labor 4,000Maintenance 500 x 4 2,000Inspection 4 x 100 400 Total P7,400

Activity Rate: Inspection (P150,000 ÷ 1,500) P100/inspection Maintenance (P100,000 ÷ 25,000) P4/MH

22 . Answer: DOH rate per DLH: (P250,000 ÷ 50,000 DLH) = P5.00Cost of the proposed job:Direct materials P1,000Direct labor 4,000Overhead (800 hours x P5 4,000 Total P9,000

785


17 . Answer: BOverhead rate per DLH (P410,000 ÷ 10,000) P41 Overhead applied to Model A: (4,000 x P41) P164,000

23 . Answer: DOH assigned to Product B: 6,000 MH x P15 per MH = P150,000

24 . Answer: DPurchasing cost (250 x P200) P 50,000Processing costs (80,000 x P12) 960,000Engineering cost (1,250 x P40) 50,000 Total costs assigned to Product A P1,060,000 Unit cost: (P1,060,000 ÷ 200,000) P 5.30

25 . Answer: BCost of use of equipment (0.65 x P80,000) P 52,000Supplies (0.2 x P20,000) 4,000Salary of second engineer (0.2 x P50,000) 10,000Total cost assigned to designing tool activity P 66,000

26 . Answer: CSetup cost chargeable to Product M: (40/55 x P5,50 P4,000Setup cost per unit, Product M: (P4,000 ÷ 800) P 5.00

27 . Answer: BOrdering costs chargeable to Product M: 5/15 x P3,200) P1,066.67Ordering cost per unit, Product M: (P1,066.67 ÷ 400) P 2.67

28 . Answer: DActivity rate:Setup cost: (5,500 ÷ 55) P100 per setupOrdering: (P3,200 ÷ 20) P160 per orderReceiving cost: (P2,400 ÷ 40) P60 per receiptProduct development: (P2,800 ÷ 400) P 7 per part

786


Overhead applied to Model A per unit: (P164,000 ÷ 2,000) P82

18 . Answer: BActivity rates;Setups: (P90,000 ÷ 500 setups) P 180Shipping: (P140,000 ÷ 700 shipments) 200Engineering (P180,000 ÷ 30 change orders) 6,000

Overhead assigned to Model A Setups (100 x P180) P 18,000 Shipping (200 x P200) 40,000 Engineering (15 x P6,000) 90,000Total P148,000Overhead per unit of Model A (P148,000 ÷ 2,000) P 74

General management: (P7,200 ÷ 8,000) P 0.90 per hourSecurity: (P9,000 ÷ 9,000) P1.00 per sq. m.Labor cost: (P56,000 ÷ 6,000) P9.33 per DLH

Cost of unused capacity: (5 x P100) + (5 x P160) + (6 x P60) + (100 x P7) + (1,000 x P0.90) + (400 x P1) + (1,200 x P9.33) P14,856

787

19 x12 abc b

Documents