True/False Questions

1. If a manufacturing company is using activity-based costing for internal purposes only, then organization-sustaining overhead costs should not be allocated to any of the products.

2. Batch-level activities are performed each time a batch of goods is handled or processed.

3. Organization-sustaining activities are carried out regardless of how many units are made, how many batches are run, or how many different products are made.

4. Direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system.

5. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore "fixed" costs.

6. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.

7. A duration driver provides a measure of the amount of time required to perform an activity.

8. In general, transaction drivers are more accurate measures of the consumption of resources than duration drivers.

9. The costs of idle capacity should not be assigned to products in activity-based costing.

10. In traditional costing systems, all manufacturing costs are assigned to products--even manufacturing costs that are not caused by the products.

11. Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs on the basis of direct labor hours.

12. In activity-based costing, some costs may be broken down and assigned to two activity cost pools. For example, part of a supervisor's salary may be classified as a product-level activity and part of it may be classified as a batch-level activity.

13. Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.

14. In the second-stage allocation in activity-based costing, activity rates are used to apply costs to products, customers, and other cost objects.

15. 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

16. Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _________ percentage of total product cost and where there is ___________ diversity among the various products that they produce.

A) low, little

B) low, considerable

C) high, little

D) high, considerable

17. Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-sustaining?

18.  Which of the following would be an acceptable measure of activity for a material handling activity cost pool?

19.  An activity-based costing system that is designed for internal decision-making generally will not conform to generally accepted accounting principles. Which of the following is NOT a reason for this happening?

A) Some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.

B) Some nonmanufacturing costs are assigned to products.

C) Allocation bases other than direct labor-hours, direct labor cost, and machine-hours are used.

D) First-stage allocations may be based on subjective interview data.

20. 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.

21.  Parts administration is an example of a:

A) Unit-level activity.

B) Batch-level activity.

C) Product-level activity.

D) Organization-sustaining.

22.  If a cost object such as a product or customer has a negative green margin, then:

A) its red margin will be positive.

B) its red margin may be either positive or negative.

C) its red margin will be negative.

D) its red margin will be zero.

23.  Tatman Corporation uses an activity-based costing system with the following three activity cost pools:

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:

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

The activity rate for the Fabrication activity cost pool is closest to:

A) $3.30 per machine-hour

B) $13.20 per machine-hour

C) $10.30 per machine-hour

D) $8.80 per machine-hour

24.  Leaper Corporation uses an activity-based costing system with the following three activity cost pools:

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:

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

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

25.  Huelskamp Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

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:

The activity rate for the Assembly activity cost pool is closest to:

A) $2.65 per labor-hour

B) $3.85 per labor-hour

C) $2.85 per labor-hour

D) $2.75 per labor-hour

26.  Bennette Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

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:

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

27.  Eccles 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:

Distribution of resource consumption:

How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?

A) $144,000

B) $96,000

C) $36,000

D) $105,000

28.  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:

Distribution of resource consumption:

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

29.  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:

Distribution of resource consumption:

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

30.  Lakatos Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

Costs:

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

How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool?

A) $88,000

B) $132,000

C) $264,000

D) $120,000

31.  Perl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

Costs:

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

How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool?

A) $336,000

B) $319,000

C) $330,000

D) $396,000

32.  Hosley Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

Costs:

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

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?

A) $123,000

B) $174,000

C) $58,000

D) $203,000

33.  Feldpausch Corporation has provided the following data from its activity-based costing system:

The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit. According to the activity-based costing system, the product margin for product W26B is:

A) $6,444.70 per unit

B) $4,679.20 per unit

C) $3,384.70 per unit

D) $16,675.60 per unit

34.  Houseal Corporation has provided the following data from its activity-based costing system:

Data concerning one of the company's products, Product W58B, appear below:

According to the activity-based costing system, the product margin for product W58B is:

A) $3,668.60

B) $5,975.60

C) $5,515.40

D) $19,418.40

35.  Dobles Corporation has provided the following data from its activity-based costing system:

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

36.  Paparo Corporation has provided the following data from its activity-based costing system:

Data concerning the company's product Q79Y appear below:

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

37. Millner 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) $101 per product design hour

B) $1,372,448 per product design hour

C) $176 per product design hour

D) $57 per product design hour

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

The activity rate for the "meeting with clients" activity cost pool is closest to:

A) $95 per meeting hour

B) $61 per meeting hour

C) $163 per meeting hour

D) $1,182,239 per meeting hour

39. Gould 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 K91B using the activity-based costing system?

A) $9,097.41

B) $81,146.53

C) $4,961.04

D) $135.47

40.  Hane 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 U94W using the activity-based costing system?

A) $42,176.55

B) $83.85

C) $7,784.21

D) $2,666.92

41.  Activity rates from Lippard Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products:

Last year, Product H50E involved 9 customer orders, 666 assembly hours, and 77 batches. How much overhead cost would be assigned to Product H50E using the activity-based costing system?

A) $60,979.68

B) $3,588.97

C) $5,778.31

D) $81.09