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

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Question 81

Multiple Choice

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The inspections activity-cost driver rate is ________.

A) $5.50
B) $6.00
C) $6.50
D) $5.00

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Question 82

Multiple Choice

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Answer the following questions using the information below: Cannady produces six products. Under their traditional cost system using one cost driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of SR6 was determined to be $178.00 per unit. -The total amount of indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC.

A) more than
B) less than
C) identical to
D) None of these answers are correct.

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Question 83

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Answer the following questions using the information below: Eagle Eye Company produces two types of lenses-L7 and L9. $\begin{array} { | l | c | c | } \hline & \begin{array} { l } \text { Single Indirect-Cost } \\\text { Pool System }\end{array} & \text { ABC System } \\\hline \text { Total direct costs } & \$ 77,500 & \$ 58,000 \\\hline \text { Total indirect costs } & \$ 37,500 & \text { (a) } \\\hline \text { Total costs assigned to L7 } & \$ 62,000 & \$ 49,500 \\\hline \text { Total costs assigned to L9 } & \text { (b) } & \$ 65,500 \\\hline\end{array}$ -What is the total indirect costs (a) under ABC system?

A well-designed,activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________.

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 advertising expense of $112,500 is allocated on the basis of sales,the cost per cost driver rate would be ________.

Smaller cost distortions occur when the traditional systems' single indirect-cost rate and the activity-cost-driver rates ________.

Answer the following questions using the information below: Luzent Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. $\begin{array}{lrr}& \text { Small Department}& \text { Large Department}\\\text { Square footage } & 6,750 & 17,250 \\\text { Number of employees } & 1,120 & 480 \\\text { Sales } & \$ 350,000 & \$ 1,750,000\end{array}$ -If total payroll processing costs of $64,000 are allocated on the basis of number of employees,the amount allocated to the Large Department would be ________.

Recognizing ABC information is not always perfect because ________.

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? -Under the revised ABC system,supervision costs allocated to Sweatshirts will be ________.

Answer the following questions using the information below: Xylon Corp. has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 10 million pages. For 2015, Xylon decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: $\begin{array}{lrc}\text { Cost pool }&\text { Manufacturing overhead costs }&\text { Activity level }\\\text { Design changes } & \$ 160,000 & 200 \text { design changes } \\\text { Setups } & 670,000 & 4,000 \text { setups } \\\text { Inspections } & \underline{80,000} & 16,000 \text { inspections } \\\text { Total manufacturing overhead costs } & \$ 910,000 &\end{array}$ During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: $\begin{array} { l r r } \text { Activity } & \text { Money Managers } & \text { Hospital Systems } \\\text { Pages } & 60,000 & 76,000 \\\text { Design changes } & 10 & 2 \\\text { Setups } & 20 & 10 \\\text { Inspections } & 30 & 38\end{array}$ -Under ABC costing,what is the inspection cost allocated to Xylon Corp.?

Answer the following questions using the information below: Luzent Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. $\begin{array}{lrr}& \text { Small Department}& \text { Large Department}\\\text { Square footage } & 6,750 & 17,250 \\\text { Number of employees } & 1,120 & 480 \\\text { Sales } & \$ 350,000 & \$ 1,750,000\end{array}$ -If total payroll processing costs of $64,000 are allocated on the basis of number of employees,the amount allocated to the Small Department would be ________.

Premium Company provides the following ABC costing information: $\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$ The above activities are used by Departments A and B as follows: $\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$ -How much of the account inquiry cost will be assigned to Department A?

________ costs support the organization as a whole.

Premium Company provides the following ABC costing information: $\begin{array} { l r c } \text { Activities } & \text { Total Costs } & \text { Activity-cost drivers } \\\text { Account inquiry } & \$ 200,000 & 10,000 \text { hours } \\\text { Account billing } & \$ 140,000 & 4,000,000 \text { lines } \\\text { Account verificationaccounts } & \$ 75,000 & 40,000 \text { accounts } \\\text { Correspondence letters } & \$ 25,000 & 4,000 \text { letters } \\\text { Total costs } & \$ 440,000 &\end{array}$ The above activities are used by Departments A and B as follows: $\begin{array} { l c c } & \text { Department } \mathrm { A } & \text { Department } \mathrm { B } \\\text { Account inquiry hours } & 2,500 \text { hours } & 4,000 \text { hours } \\\text { Account billing lines } & 400,000 \text { lines } & 250,000 \text { lines } \\\text { Account verification accounts } & 10,000 \text { accounts } & 8,000 \text { accounts } \\\text { Correspondence letters } & 1,200 \text { letters } & 1,600 \text { letters }\end{array}$ -How much of the account billing cost will be assigned to Department B?

Answer the following questions using the information below: Luzent Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. $\begin{array}{lrr}& \text { Small Department}& \text { Large Department}\\\text { Square footage } & 6,750 & 17,250 \\\text { Number of employees } & 1,120 & 480 \\\text { Sales } & \$ 350,000 & \$ 1,750,000\end{array}$ -If total rent expense of $180,000 is allocated on the basis of square footage,the amount allocated to the Large Department would be ________.

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? -Under the revised ABC system,overhead costs per unit for the Sweatshirts will be ________.

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.

For a company with diverse products,undercosting overhead of a product will lead to ________.

Answer the following questions using the information below: Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours) , the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. -Given this change in the cost structure ________.

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 the facility lease expense of $384,000 is allocated on the basis of vehicles in the fleet,the amount allocated to the Car Rental Department would be ________.