Exam 2 Practice
1. Razorback Inc. uses an activity based costing system with the following 3 activity cost pools:
Activity Cost Pool Total Activity
Fabrication 50,000 machine hours
Order Processing 200 orders
Customer Service 50 customers
Razorback Inc. has provided the following data concerning its costs:
Wages and Salaries $400,000
Depreciation $240,000
Occupancy $110,000
The distribution of resource consumption across activity cost pools is given below
Fabrication Order Processing Customer Service Total
Wages and Salaries 40% 30% 30% 100%
Depreciation 5% 75% 20% 100%
Occupancy 15% 45% 40% 100%
What is the activity rate for the Customer Service cost pool?
A. $4,500 per machine hour
B. $6,990 per order
C. $4,240 per customer
D. $6,990 per customer
2. What are the elements of period cost when using the Absorption costing method?
A. Fixed Manufacturing Overhead, Variable Selling and Administrative Expenses, Fixed Selling
and Administrative Expenses
B. Direct Materials, Direct Labor, Variable Manufacturing Overhead
C. Direct Materials, Direct Labor, Variable Manufacturing Overhead, Fixed Manufacturing
Overhead
D. Variable Selling and Administrative Expenses, Fixed Selling and Administrative Expenses
3. Which of the following is not a difference between ABC and traditional costing as it relates to
the allocation of costs to products?
A) ABC may include nonmanufacturing costs, whereas traditional will not
B) ABC may exclude manufacturing costs, whereas traditional includes all manufacturing
costs
C) ABC will tend to overcost high-volume products and traditional will undercost high
volume products
D) ABC uses a variety of cost pools whereas traditional typically uses one allocation base
4. BJ Jammerz Company introduced a new product last year for which it is trying to find an
optimal selling price. Marketing studies suggest that the company can increase sales by 5,000
units for a $2 reduction in the selling price. The company’s present selling price is $70 per unit,
and variable expenses are $40 per unit. Fixed expenses are $540,000 per year. The present annual
sales volume (at the $70 selling price) is 15,000 units.
If the marketing studies are correct and BJ Jammerz decides to implement the price cut, what
will be the change in net operating income?
a) $110,000 increase
b) $20,000 increase
c) $110,000 decrease
