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Exam 8: Activity-Based Costing

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Question 41

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Which of the following statements is false regarding the identification of activities in activity-based costing (ABC) ?

A) The identification of activities that drive overhead costs is done before cost drivers are selected.
B) An activity can be thought of as a procedure or process that causes work to be accomplished.
C) Each type of overhead cost should be traced to only one activity.
D) An activity that drives overhead costs can occur outside the physical manufacturing facility.

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

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Question 42

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Which of the following would be a likely disadvantage of activity-based costing (ABC) ?

A) A decrease in a company's ability to accurately prepare budgets for the upcoming period
B) A decrease in a company's ability to find opportunities for continuous improvement
C) An increase in the accuracy of product cost information
D) An increase in the cost of obtaining accurate product cost information

E) B) and D)
F) A) and C)

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Question 43

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Johnson Manufacturing Johnson Manufacturing anticipates incurring $500 000 in overhead costs this year. After implementing activity-based costing (ABC) , the company’s controller identified the following related information: $\begin{array} { l l c } \text { Activity } & \text { Allocation Base } & \text { Proportion of Overhead Cost } \\\hline \text { Purchasing } & \text { Number of purchase orders } & 20 \% \\\text { Machine setups } & \text { Number of setups } & 15 \% \\\text { Production } & \text { Number of machine hours } & 65 \%\end{array}$ The number of activities expected is as follows: $\begin{array}{llcc} \text { Total number of purchase orders } &4000\\ \text { Total number of setups } &2000\\ \text { Total number of machine hours} &10000\\\end{array}$ -How much total overhead will be allocated to the production activity?

Herndon Brothers Inc.produces a variety of 'all natural' household cleaning supplies that it manufactures and distributes to various grocery stores along the west coast.Which of the following types of costs would most likely be a batch-level cost?

Which of the following would be the least likely cost driver for an activity such as the repair and maintenance of factory equipment?

Which of the following statements regarding service companies and activity-based costing (ABC) is true?

Which of the following items might cause activity-based costing (ABC) to be more difficult to implement in a service company than in a manufacturing company?

Troxler Inc.produces various types of floor rugs with many different designs.They typically produce at least 200 rugs with a single machine setup.A cost incurred to sustain the overall manufacturing process is called a(n) :

Which of the following would most likely be a product-level cost?

Which of the following is a key feature of activity-based costing?

Which of the following is not a benefit of activity-based costing (ABC) ?

Which of the following types of costs are usually not allocated to products?

Aunt Lucy’s Candies Aunt Lucy’s Candies sells standard and premium chocolate confectionary through its catalogue business. Many of the confectionary are sold in bulk to other companies. Last year, the company incurred $300 000 in overhead costs. After implementing activity-based costing (ABC) , the company’s controller identified the following information: $\begin{array} { l l c } \text { Activity } & \text { Allocation Base } & \text { Proportion of Overhead Cost } \\\hline \text { Purchasing } & \text { Number of purchase orders } & 30 \% \\\text { Processing } & \text { Number of units } & 50 \% \\\text { Sales } & \text { Number of sales orders } & 20 \%\end{array}$ The number of activities for standard and premium confectionary is as follows: $\begin{array}{lrr}&\underline{\text { Standard} } &\underline{ \text { Premium }} \\\text {Number of purchase orders}&4000& 2000 \\\text { Number of units }&200000 & 100000 \\\text {Number of sales orders}&3000 & 1000\end{array}$ -What is the overhead rate for the processing activity?

Activity-based costing is a method of cost allocation that is useful for assigning _______ costs to products or services.

Compton Corporation The following overhead cost information is available for Compton Corporation for 2006: $\begin{array} { l l c } \text { Activity } & \text { Allocation Base } & \text { Overhead Cost } \\\hline \text { Purchasing } & \text { Number of purchase orders } & \$ 100000 \\\text { Receiving } & \text { Number of shipments received } & 60000 \\\text { Machine setups } & \text { Number of setups } & 150000 \\\text { Quality control } & \text { Number of inspections } & 50000\end{array}$ During the year, 5000 purchase orders were issued; 20 000 shipments were received; 3000 machine setups were performed; and 4000 inspections were conducted. -What is the overhead rate for the receiving activity?

The following overhead cost information is available for Henderson Inc.for 2006: $\begin{array}{llc}\text { Activity } & \text { Allocation Base } & \text { Overhead Cost } \\\hline \text { Purchasing } & \text { Number of purchase orders } & \$ 40000 \\\text { Receiving } & \text { Number of shipments received } & 25000 \\\text { Machine setups } & \text { Number of setups } & 30000 \\\text { Ouality control } & \text { Number of inspections } & 20000\end{array}$ During the year,2000 purchase orders were issued;800 shipments were received;3000 machine setups were performed;and 2500 inspections were conducted. If Job #101 required 3 purchase orders,4 shipments,4 machine setups,and 2 inspections to complete,how much overhead should be assigned to Job #101?

Which of the following statements is true regarding activity-based costing (ABC) ?

Discuss how the shift from labour intensive manufacturing to automation has affected product costing.