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Introduction to Managerial Accounting

Jeannie M. Folk
Ray H. Garrison
Eric Noreen

Systems Design: Activity-Based Costing

Multiple Choice Quiz

All of the following are examples of product-level activities except:

Human resource management.

Advertising a product.

Testing a prototype of a new product.

Parts administration.

All of the following are examples of batch-level activities except:

Purchase order processing.

Setting up equipment.

The clerical activity associated with processing purchase orders to produce an order for a standard product.

Worker recreational facilities.

Angelina Company uses activity-based costing to determine the costs of its two products: A and B. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:

Activity	Estimated	Expected Activity
Cost Pool	Cost	Product A	Product B	Total
Activity 1	$19,800	800	300	1,100
Activity 2	$16,000	2,200	1,800	4,000
Activity 3	$14,000	400	300	700

The activity rate under the activity-based costing system for Activity 3 is closest to:

$4.00.

$8.59.

$18.00.

$20.00.

Flaherty Company uses activity-based costing to compute product costs for external reports. The company has three activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimated costs and activities for the current year are presented below for the three activity cost pools:

	Estimated
	Overhead	Expected
	Cost	Activity
Activity 1	$36,000	1,800
Activity 2	$20,000	2,000
Activity 3	$40,000	2,500

Actual activity for the current year was as follows:

	Actual
	Activity
Activity 1	1,815
Activity 2	2,005
Activity 3	2,490

The amount of overhead applied for Activity 3 during the year was closest to:

$36,300.

$39,840.

$40,000.

$96,190.

Charles Company has two products: A and B. The company uses activity-based costing and has prepared the following analysis showing the estimated total cost and expected activity for each of its three activity cost pools:

Activity	Estimated
Cost	Overhead	Expected Activity
Pool	Cost	Product S	Product D	Total
Activity 1	$ 40,000	200	800	1,000
Activity 2	$ 29,200	1,000	500	1,500
Activity 3	$180,000	600	5,400	6,000

The annual production and sales level of Product A is 9,094 units. The annual production and sales level of Product B is 15,826. The activity rate under the activity-based costing system for Activity 3 is closest to:

$29.32.

$30.00.

$33.33.

$41.53.

Activity	Estimated
Cost	Overhead	Expected Activity
Pool	Cost	Product S	Product D	Total
Activity 1	$ 40,000	200	800	1,000
Activity 2	$ 29,200	1,000	500	1,500
Activity 3	$180,000	600	5,400	6,000

The annual production and sales level of Product A is 9,094 units. The annual production and sales level of Product B is 15,826. (Note that this is the same information as provided for the previous question.) The overhead cost per unit of Product S under activity-based costing is closest to:

$1.83.

$1.98.

$5.00.

$10.00.

DuPage Company uses activity-based costing to compute product costs for external reports. The company has three activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimated costs and activities for the current year are presented below for the three activity cost pools:

	Estimated
	Overhead	Expected
	Cost	Activity
Activity 1	$ 58,656	2,400
Activity 2	$ 60,048	4,800
Activity 3	$130,324	4,400

Actual costs and activities for the current year were as follows:

	Actual
	Overhead	Actual
	Cost	Activity
Activity 1	$ 58,476	2,370
Activity 2	$ 59,798	4,830
Activity 3	$130,234	4,450

The total debits to the Manufacturing Overhead account during the year were closest to:

$248,508.

$248,988.

$251,110.

$250,334

	Estimated
	Overhead	Expected
	Cost	Activity
Activity 1	$ 58,656	2,400
Activity 2	$ 60,048	4,800
Activity 3	$130,324	4,400

Actual costs and activities for the current year were as follows:

	Actual
	Overhead	Actual
	Cost	Activity
Activity 1	$ 58,476	2,370
Activity 2	$ 59,798	4,830
Activity 3	$130,234	4,450

The total credits to the Manufacturing Overhead account during the year were closest to:

$248,508.

$248,988.

$250,151.

$251,334.

Which of the following statements is (are) true?

An activity-based costing system is generally easier to implement and maintain than a traditional costing system.

One of the goals of activity-based management is the elimination of waste by allocating costs to products that waste resources.

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours.

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.

When there are batch-level or product-level costs, in comparison to a traditional cost system, an activity-based costing system ordinarily will:

Shift costs from low-volume to high-volume products.

Shift costs from high-volume to low-volume products.

Shift costs from standardized to specialized products.

Shift costs from specialized to standardized products.

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