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Exam 5: Activity-Based Costing and Activity-Based Management

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Question 41

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Answer the following questions using the information below: Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. $\begin{array}{lrr}&\text { Car Rental }&\text { Truck Rental }\\\text { Number of Vehicles in fleet } & 850 & 430 \\\text { Number of employees } & 125 & 75 \\\text { Sales } & \$ 750,000 & \$ 375,000\end{array}$ -If administrative expense of $62,500 is allocated on the basis of number of employees,the cost per cost driver rate would be ________.

A) $500.00
B) $312.50
C) $833.33
D) $572.50

E) None of the above
F) B) and C)

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Question 42

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Trintal Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: $\begin{array}{lrrr}&\text { Number of }&\text { Number of }&\text { Number of } \\\text { Product }&\text { Setups }&\text { Components }&\text { Direct Labor Hours }\\\text { Standard } & 15 & 10 & 750 \\\text { Del uxe } & 35 & 15 & 500 \\\text { Overhead costs } & \$ 16,500 & \$ 23,500 \end{array}$ -Number of setups and number of components are identified as activity-cost drivers for overhead.Assuming an activity-based costing system is used,what is the total amount of overhead cost assigned to the standard model?

A) $13,450
B) $14,350
C) $14,650
D) $15,150

E) A) and B)
F) None of the above

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Question 43

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ABC systems provide greater insight than traditional systems into the management of indirect costs.

For a company which produce its products in batches,the CEO's salary is a(n) ________ cost.

ABC costing systems cannot be used in marketing decisions.

An activity-based costing system is necessary for costing services that are similar.

Answer the following questions using the information below: Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: $\begin{array} { l r l r } \text { Cost Pool } & \text { Overhead Costs } & \text { Cost driver } & \text { Activity level } \\\text { Supervision of direct labor } & \$ 380,000 & \text { Direct labor-hours } & 760,000 \\\text { Machine maintenance } & \$ 120,000 & \text { Machine-hours } & 960,000 \\\text { Facility rent } & \$ 200,000 & \text { Square feet of area } & 125,000 \\\text { Total overhead costs } & \$ 640,000 & &\end{array}$ The accounting records show the Mossman Job consumed the following resources: $\begin{array}{ll}\text { Cost driver } & \text { Actual level } \\\text { Direct labor-hours } & 200 \\\text { Machine-hours } & 1,600 \\\text { Square feet of area } & 50\end{array}$ -Using the three cost pools to allocate overhead costs,what is the total amount of overhead costs to be allocated to the Mossman Job?

Answer the following questions using the information below: Comfort Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: $\begin{array}{lrrr}&\text { Number of }&\text { Number of }&\text { Number of } \\\text { Product }&\text { Setups }&\text { Components }&\text { Direct Labor Hours }\\\text { Standard } & 12 & 8 & 255 \\\text { Deluxe } & 28 & 12 & 245 \\\text { Overhead costs } & \$ 52,000 & \$ 78,000 \end{array}$ -Assume a traditional costing system applies the overhead costs based on direct labor hours.What is the total amount of overhead costs assigned to the standard model?

Answer the following questions using the information below: Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: $\begin{array}{lrr}&\text { T-SHIRTS }&\text { SWEATSHIRTS }\\\text { Production and sales volume } & 60,000 \text { units } & 35,000 \text { units } \\\text { Selling price } & \$ 16.00 & \$ 29.00 \\\text { Direct material } & \$ 2.00 & \$ 5.00 \\\text { Direct labor } & \$ 4.50 & \$ 7.20 \\\text { Manufacturing overhead } & \$ 2.00 & \$ 3.00\\\text { Gross profit } & \$ 7.50 & \$ 13.80 \\\text { Selling and administrative } & \$ 4.00 & \$ 7.00 \\\text { Operating profit } & \$ 3.50 & \$ 6.80\end{array}$ What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of Sweatshirts increase to $8.20 per unit? -Using an ABC system,next year's estimates show manufacturing overhead costs will total $228,300 for 52,000 T-shirts.If all other T-shirt costs and sales prices remain the same,the profitability that can be expected is ________.

What are the four parts of the cost hierarchy.Briefly explain each part,and contrast this cost hierarchy to the fixed-variable dichotomy?

The homogeneous cost pools and the choice of cost-allocation bases give managers greater confidence in the activity and product cost numbers from single indirect-cost pool systems.

Which of the following statements is true of costing systems?

Teecorp Company provides the following ABC costing information: $\begin{array} { l c c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Labor } & \$ 320,000 & 8,000 \text { hours } \\\text { Gas } & \$ 36,000 & 6,000 \text { gallons } \\\text { Invoices } & \$ 40,000 & 2,500 \text { invoices } \\\quad \text { Total costs } & \$ 396,000 &\end{array}$ The above activities used by their three departments are: $\begin{array} { c c c } &\text { Lawn Department } & \text { Bush Department } & \text { Plowing Department } \\\text { Labor } & 2,500 \text { hours } & 1,200 \text { hours } & 4,300 \text { hours } \\\text { Gas } & 1,700 \text { gallons } & 800 \text { gallons } & 3,500 \text { gallons } \\\text { Invoices } & 1,600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }\end{array}$ -How much of the total costs will be assigned to the Lawn Department?

Refining a cost system includes ________.

Even though there are no inventories for service companies,ABC systems are of great use for service companies.Explain why and how.

In activity based costing systems,limiting cost-allocation bases to only units of output strengthens the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool.

Which of the following statements is true of ABC systems?

Put the following ABC implementation steps in order ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases.

Product-cost cross-subsidization is very common when costs are uniformly spread across various products.

Answer the following questions using the information below: Comfort Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: $\begin{array}{lrrr}&\text { Number of }&\text { Number of }&\text { Number of } \\\text { Product }&\text { Setups }&\text { Components }&\text { Direct Labor Hours }\\\text { Standard } & 12 & 8 & 255 \\\text { Deluxe } & 28 & 12 & 245 \\\text { Overhead costs } & \$ 52,000 & \$ 78,000 \end{array}$ -Number of setups and number of components are identified as activity-cost drivers for overhead.Assuming an activity-based costing system is used,what is the total amount of overhead costs assigned to the deluxe model?