Exam 9: Activity-Based Costing

Which of the following statements is (are)true regarding the potential effects of using reported product costs for decision making? (A)Traditional product costing systems (e.g. ,job and process costing)are designed primarily to accumulate cost information for financial reporting.(B)If a single cost driver is used as the allocation base,applied manufacturing overhead for product costing purposes may lead to inappropriate managerial decisions.

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 of indirect costs.The bankwide rate could be based on either direct labor hours (DLH)or the number of loans processed.The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans.The following information was gathered for the upcoming period: If Muskego uses a bankwide rate based on the number of loans processed,what would be the total costs for the Consumer Department?

Which of the following statements is (are)false regarding first-stage and second-stage cost allocation methods? (A)The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.(B)Predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.

RS Company manufactures and distributes two products,R and S.Overhead costs are currently allocated using the number of units produced as the allocation base.The controller has recommended changing to an activity-based costing (ABC)system.She has collected the following information: What is the total overhead allocated to Product S using the current system?

RS Company manufactures and distributes two products,R and S.Overhead costs are currently allocated using the number of units produced as the allocation base.The controller has recommended changing to an activity-based costing (ABC)system.She has collected the following information: What is the total overhead per unit allocated to Product R using activity-based costing (ABC)?

Scottso Enterprises has identified the following overhead costs and cost drivers for the coming year: Budgeted direct labor cost was $200,000 and budgeted direct material cost was $800,000.The following information was collected on three jobs that were completed during the month: The company prices its products at 150% of cost.If the company uses activity-based costing (ABC),the price of each unit of Job B-32 would be:

Which of the following statements is true?

RS Company manufactures and distributes two products,R and S.Overhead costs are currently allocated using the number of units produced as the allocation base.The controller has recommended changing to an activity-based costing (ABC)system.She has collected the following information: What is the total overhead allocated to Product R using the current system?

The plantwide cost allocation method should be used by companies that manufacture products that are similar and use the same resources.Since the products are similar and use the same resources,all of the products should cost roughly the same.

The LMN Company recently switched to activity-based costing (ABC)from the department allocation method.The department method allocated overhead costs at a rate of $60 per machine hour.The cost accountant for Department XZ has gathered the following data: During April,LMN purchased and used $100,000 of direct materials at $20 per ton.There were eight (8)production runs using a total of 12,000 machine hours in April.The manager of Department XZ needed 12 inspections.Actual overhead costs totaled $820,000 for the month.How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing?

Smelly Perfume Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Cindy is the department manager of Department C which produces Products J and P.Department C has $16,200 in traceable overhead.Diane is the department manager of Department D which manufactures Product X.Department D has $11,100 in traceable overhead.The product costs (per case of 24 bottles)and other information are as follows: If Smelly changes its overhead allocation to departmental rates,what is the product cost per case for Product X assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

Which of the following statements is (are)true? (1)Activity-based costs per unit are always greater than volume-based costs per unit.(2)Volume-based costing has typically resulted in lower gross margins for high volume products and higher gross margins for low volume products.

Scottso Enterprises has identified the following overhead costs and cost drivers for the coming year: Budgeted direct labor cost was $200,000 and budgeted direct material cost was $800,000.The following information was collected on three jobs that were completed during the month: If the company uses activity-based costing (ABC),what is the cost of each unit of Job A-28?

The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.Cost pools are used in both first-stage and second-stage cost allocations.

Scottso Enterprises has identified the following overhead costs and cost drivers for the coming year: Budgeted direct labor cost was $200,000 and budgeted direct material cost was $800,000.The following information was collected on three jobs that were completed during the month: If the company uses activity-based costing (ABC),how much overhead cost should be assigned to Job A-15?

It is possible to apply activity-based costing (ABC)to segments of an organization without applying it to the entire organization.ABC can be applied in a single portion or segment of an organization as well as the entire organization.

Activity-based costing (ABC)is a two-stage cost allocation system that (1)allocates costs to activities and (2)then to products based on their use of the activities.This is a fundamental concept of ABC.

Predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.Predetermined overhead rates are used in both first-stage and second-stage cost allocations.

Using direct labor costs to allocate overhead costs in an activity-based costing (ABC)system will encourage management to reduce labor costs.Allocating overhead on the basis of direct labor sends signals that direct labor is more expensive than it really is.This also creates tremendous incentives to reduce the labor content of products.

Activity-based costing (ABC)is a costing technique that uses a two stage allocation process.Which of the following statements best describes these two stages?