Chapter 03Activity-Based Costing

True / False Questions 1. Direct labor-hours should never be used as a measure of activity in an activity-based costing system. 2. If a company has a great deal of product diversity, activity-based costing will generally yield more accurate product costs than traditional overhead application rates based on direct labor or machine hours. 3. Facility-level activities are activities that support specific products. 4. Product-level activities relate to specific products and typically must be carried out regardless of how many batches are run or units of product are made. 5. The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to activity cost pools. 6. In the second-stage allocation in activity-based costing, costs that were not allocated in the first stage are assigned to the company's most profitable products. 7. In activity-based costing, there are a number of activity cost pools, each of which is allocated to products using its own unique measure of activity. 8. Costs classified as batch-level costs should depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume. 9. The activity rates in activity-based costing are computed by dividing the overhead in each production department by its direct labor-hours. 10. The activity rates in activity-based costing are not intended to set targets for how quickly a task should be completed. 11. In activity-based costing, unit product costs computed for external financial reports include manufacturing overhead costs that are computed by multiplying activity rates by the direct labor-hours required to produce a product. 12. When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.

Multiple Choice Questions 13. Personnel administration is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Facility-level activity. 14. Would plant security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or facility-level? A. Product, UnitB. Batch, BatchC. Facility, UnitD. Facility, Product 15. Guerra 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 cost of inspecting the finished products at Guerra? A. Machine-hoursB. Direct labor-hoursC. Inspection timeD. Number of inspections 16. 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. Facility-level activity. 17. Designing a new product is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Facility-level activity. 18. 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. Facility-level activity. 19. Product engineering is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Facility-level activity.

20. Machining a part for a car axle is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Facility-level activity. 21. In activity-based costing, the total overhead cost in an activity cost pool can be computed by: A. dividing the total activity in the activity cost pool by the activity rate for the activity cost pool.B. multiplying the total activity in the activity cost pool by the activity rate for the activity cost pool.C. dividing the total direct labor-hours in the activity cost pool by the activity rate for the activity cost pool.D. multiplying the total direct labor-hours in the activity cost pool by the activity rate for the activity cost pool. 22. In activity-based costing, unit product costs computed for external financial reports include manufacturing overhead computed by: A. multiplying the predetermined overhead rate by the direct labor-hours required per unit of the product.B. multiplying the activity rate for each cost pool by the direct labor-hours required per unit of the product.C. multiplying the activity rate for each cost pool by the corresponding amount of activity required per unit of the product.D. tracing the manufacturing overhead cost to the product. 23. When switching from a traditional costing system to an activity-based costing system that includes some batch-level costs: A. the unit product costs of high volume products typically change less than the unit product costs of low volume products.B. the unit product costs of high volume products typically change more than the unit product costs of low volume products.C. the unit product costs of high volume products change as much as the unit product costs of low volume products.D. the unit product costs of high volume do not change. 24. Petitte Corporation has provided the following data from its activity-based costing system:

Data concerning the company's product K54A appear below:

According to the activity-based costing system, the unit product cost of product K54A is closest to: A. $112.64 per unitB. $114.99 per unitC. $116.98 per unitD. $76.91 per unit 25. 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:

The overhead cost per unit of Product A under activity-based costing is closest to: A. $6.00B. $9.60C. $8.63D. $13.80 26. Drewniak Corporation has provided the following data from its activity-based costing system:

The company makes 430 units of product O37W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit.According to the activity-based costing system, the unit product cost of product O37W is closest to: A. $94.11 per unitB. $89.72 per unitC. $65.18 per unitD. $92.49 per unit

27. Data concerning three of the activity cost pools of Burlingame LLC, a legal firm, have been provided below:

The activity rate for the "meeting with clients" activity cost pool is closest to: A. $1,102,050 per meeting hourB. $63 per meeting hourC. $116 per meeting hourD. $158 per meeting hour 28. Gaucher Corporation has provided the following data from its activity-based costing accounting system:

The activity rate for the "designing products" activity cost pool is closest to: A. $78 per product design hourB. $582,016 per product design hourC. $128 per product design hourD. $89 per product design hour 29. 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:

The activity rate under the activity-based costing system for Supporting Customers is closest to: A. $46.33B. $21.67C. $65.00D. $18.53

30. Wecker Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data concerning two products appear below:

How much overhead cost would be assigned to Product V09X using the activity-based costing system? A. $157.87B. $91,722.47C. $10,385.22D. $5,485.50 31. Activity rates from Quattrone Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products:

Last year, Product F76D included the following activities: 2 customer orders, 434 assembly hours, and 20 batches. How much overhead cost would be assigned to Product F76D using the activity-based costing system? A. $1,041.80B. $2,000.04C. $66,908.88D. $146.73 32. Ekmark Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data for one of the company's products follow:

How much overhead cost would be assigned to Product P59G using the activity-based costing system? A. $54,482.56B. $5,301.76C. $10,014.40D. $154.78 33. Butscher Company allocates materials handling cost to the company's two products using the below data:

The total materials handling cost for the year is expected to be $9,072.If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost should be allocated to the prefab barns? (Round off your answer to the nearest whole dollar.) A. $3,187B. $1,134C. $9,072D. $4,536 34. Butscher Company allocates materials handling cost to the company's two products using the below data:

The total materials handling cost for the year is expected to be $9,072.If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost should be allocated to the modular homes? (Round off your answer to the nearest whole dollar.) A. $5,885B. $7,056C. $7,938D. $4,536 35. The controller of Ferrence Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below:

The total materials handling cost for the year is expected to be $16,486.40.If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost should be allocated to the wall mirrors? (Round off your answer to the nearest whole dollar.) A. $13,220B. $15,053C. $9,892D. $8,243 36. The controller of Ferrence Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below:

The total materials handling cost for the year is expected to be $16,486.40.If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost should be allocated to the specialty windows? (Round off your answer to the nearest whole dollar.) A. $3,266B. $9,274C. $8,243D. $6,595 37. Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)The predetermined overhead rate under the traditional costing system is closest to: A. $9.15B. $43.48C. $84.43

D. $19.08

38. Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)The overhead cost per unit of Product B under the traditional costing system is closest to: A. $50.66B. $5.49C. $26.09D. $11.45 39. Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)

The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to: A. $9.15B. $51.99C. $86.93D. $10.23