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Chapter 17
Activity-Based Costing and Analysis
True / False Questions
1. In competitive markets, the price of a given product is established through the forces of supply
and demand.
2. Product costs consist of direct labor, direct materials, manufacturing overhead, and indirect
costs.
3. Distorted product cost information can result in poor decisions.
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4. The cost to heat a manufacturing facility can be directly linked to the number of units
produced.
5. Examples of volume-related measures include direct labor hours, direct labor cost dollars, and
machine hours.
6. Departments are the cost objects when the plantwide overhead rate method is used.
7. The plantwide overhead rate is determined by using volume-related measures.
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8. Data concerning volume-related measures are readily available in most manufacturing
settings.
9. The departmental overhead rate method uses a different overhead rate for each production
department.
10. By definition, costs classified as overhead are consumed in basically the same manner
regardless of the process involved.
11. Products are the first stage cost objects when using a departmental overhead rate method.
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12. The departmental overhead rate method allows each department to have its own overhead
rate and its own allocation base.
13. The premise of ABC is that it takes activities to make products and provide services and
these activities drive costs.
14. Activities are the cost objects of the second stage of ABC.
15. A cost pool is a collection of costs that are related to the same or similar activity.
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16. Activity-based costing first assigns costs to products and then uses these product costs to
assign costs to manufacturing activities.
17. Multiple cost pools are used when allocating overhead using the plantwide overhead rate
method.
18. Management’s pricing and cost decisions for a product are influenced by that product’s cost
assignments.
19. A major disadvantage of using a plantwide overhead rate is the extreme difficulty in
gathering the needed information.
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20. The usefulness of overhead allocations based on a plantwide overhead rate depends on two
crucial assumptions: (1) the overhead cost is correlated with the allocation base; and (2) all
products use overhead cost in dissimilar proportions.
21. Some companies allocate their overhead cost using a plantwide overhead rate largely because
of its simplicity.
22. Allocated overhead costs vary depending upon the allocation methods used.
23. When products differ in batch size and complexity, they usually consume different amounts
of overhead resources.
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24. Overhead costs are often affected by many issues and are frequently too complex to be
explained by any one factor.
25. Compared to the departmental overhead rate method, the plantwide overhead rate method
usually results in more accurate overhead allocations.
26. Because departmental overhead costs are allocated based on measures closely related to
production volume, they accurately assign overhead, such as utility costs.
27. The use of a plantwide overhead rate is not acceptable for external reporting under GAAP .
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28. ABC allocates overhead costs to products based on input measures rather than output
measures .
29. ABC can be used to assign costs to any cost object that is of management interest.
30. ABC is significantly less costly to implement and maintain than more traditional overhead
costing systems.
31. When using the plantwide overhead rate method, total budgeted overhead costs are combined
into one overhead cost pool.
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32. Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for
indirect labor and $400,000 for factory utilities. The company uses direct labor hours as its
overhead allocation base. If 50,000 direct labor hours are planned for this next year, then the
plantwide overhead rate is $.025 per direct labor hour.
33. A company estimates that costs for the next year will be $500,000 for indirect labor,
$50,000 for factory utilities, and $1,000,000 for the CEO’s salary. The company uses machine
hours as its overhead allocation base. If 25,000 machine hours are planned for this next year,
then the plantwide overhead rate is $22 per machine hour.
34. A company estimates total overhead costs for the next year to be $1,200,000 and wishes to
use direct labor hours as its overhead allocation base. This company makes two products: (1)
Fancy X , which requires three direct labor hours per unit, and (2) Plain X, which requires one
direct labor hour per unit. If the company plans to make 10,000 units of Fancy X and 10,000
units of Plain X, then each unit produced will be allocated the same amount of overhead.
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35. Malone has 33,000 total estimated direct labor hours for next year.
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36. Malone’s plantwide overhead rate will be $20.98 per direct labor hour next year.
37. If the direct labor time estimates are met, Malone will allocate $10.49 of overhead cost to
each unit of Little X.
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38. The first step in using the departmental overhead rate method requires that overhead be
traced to each of the company’s departments.
39. The departmental overhead rate method traces costs to each department and then determines
an allocation base for each department.
40. Turtle Company produces t-shirts that go through two operations, cutting and sewing, before
they are complete. Expected costs and activities for the two departments are shown below. Given
this information, the departmental overhead rate for the cutting department based on direct labor
hours is $2.69 per direct labor hour (rounded to two decimals).
Cutting Sewing
Direct labor hours 250,000
DLH
75,000 DLH
Machine hours 125,000
MH
150,000 MH
Overhead costs $500,000 $375,000
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41. A company produces heating elements that go through two operations, casting and
assembling, before they are complete. Expected costs and activities for the two departments are
shown below. Given this information, the departmental overhead rate for the assembling
department based on direct labor hours is $5 per direct labor hour.
Casting Assembling
Direct labor hours 1,875 DLH 7,500 DLH
Machine hours 12,500 MH 3,750 MH
Overhead costs $75,000 $37,500
42. A company produces paint that goes through two operations, operation A and operation B,
before it is complete. Expected costs and activities for the two departments are shown below.
Given this information, the departmental overhead rate for Department B based on machine
hours is $4 per machine hour.
Department
A
Department
B
Machine hours 50,000 MH 60,000 MH
Direct labor hours 78,500 DLH 100,800 DLH
Overhead costs $392,500 $403,200
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43. A company produces computer chips that go through two operations, operation A1 and
operation B2, before they are complete. Expected costs and activities for the two departments are
shown below. Departmental overhead rates are based on machine hours in department A1 and
direct labor hours in department B2. Therefore, the overhead rates for department A1 and
department B2 are $3.62 per machine hour and $5.73 per direct labor hour, respectively.
Department
A1
Department
B2
Machine hours 40,000 MH 30,000 MH
Direct labor hours 36,200 DLH 28,650 DLH
Overhead costs $144,800 $171,900
44. A company produces garden benches that go through two operations, operation 1A1 and
operation 2B2, before they are complete. Expected costs and activities for the two departments
are shown below. Both departments have departmental overhead rates based on machine hours.
Therefore, the overhead rates for department 1A1 and department 2B2 are the same.
Department
1A1
Department
2B2
Machine hours 70,000 MH 60,000 MH
Direct labor hours 56,350 DLH 50,160 DLH
Overhead costs $225,400 $250,800
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45. A company produces surgical equipment that goes through threes processes, 1A1, 2B2, and
3C3, before they are complete. Expected costs and activities for the three departments are shown
below. All departments have departmental overhead rates based on direct labor hours. Therefore,
the overhead rate for each department is $5 per direct labor hour.
Department
1A1
Department
2B2
Department
3C3
Machine hours 15,000 MH 25,000 MH 20,000 MH
Direct labor hours 22,830 DLH 10,650 DLH 29,200 DLH
Overhead costs $114,150 $213,000 $73,000
46. Activity-based costing involves four steps: (1) identify activities and the costs they cause, (2)
group similar activities into cost pools, (3) determine an activity rate for each activity cost pool,
and (4) allocate overhead costs to products using those activity rates.
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47. The more activities tracked by activity-based costing, the more accurately overhead costs are
assigned.
48. In activity-based costing, an activity can involve several related tasks.
49. Activities causing overhead cost in an organization are typically separated into four levels:
(1) direct activities, (2) indirect activities, (3) batch level activities, and (4) facility level
activities.
50. Machine setup costs are an example of a batch level activity.
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51. Product design costs are an example of a unit level activity.
52. Facility level costs are not traceable to individual product lines, batches or units.
53. Activity-based costing eliminates the need for overhead allocation rates.
54. Activity-based costing often shifts overhead costs from large volume, standardized products
to low-volume, specialty products that consume disproportionate resources.
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55. The final step of activity-based costing assigns overhead costs to pools rather than to
products.
56. Batch level costs vary with the number of units produced.
57. Product level costs do not vary with the number of units or batches produced.
58. Facility level costs vary with the number of units or batches produced.
59. A quality-inspection cost is an example of unit-level costs.
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60. Plantwide overhead rates typically do a better job of matching each department’s overhead
costs to the products using the department’s resources than do departmental overhead rates.
61. Two big benefits of ABC costing are a) more accurate product cost information and b) more
detailed information on costs and the drivers of those costs.
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62. A method of assigning overhead costs to a product using a single overhead rate is:
A. Plantwide overhead rate method.
B. Cost pool overhead rate method.
C. Departmental overhead rate method.
D. Activity-based costing.
E. Overhead cost allocation method.
63. Which types of overhead allocation methods result in the use of more than one overhead rate
during the same time period?
A. Plantwide overhead rate method and departmental overhead rate method.
B. Cost pool overhead rate method and plantwide overhead rate method.
C. Departmental overhead rate method and activity-based costing.
D. Activity-based costing and plantwide overhead rate method.
E. Departmental overhead rate method and cost pool overhead rate method.
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64. Which of the following would not be considered a product cost?
A. Direct labor costs.
B. Factory supervisor’s salary.
C. Factory line worker’s salary.
D. Cost accountant’s salary.
E. Manufacturing overhead costs.
65. Overhead costs:
A. Are directly related to production.
B. Can be traced to units of product in the same way that direct materials can.
C. Cannot be traced to units of product in the same way that direct labor can.
D. Are period costs.
E. Include only fixed costs.
66. The cost object of the plantwide overhead rate method is:
A. The unit of product.
B. The production departments of the company.
C. The production activities of the company.
D. Manufacturing cost pools.
E. the time period.
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67. Which of the following statements is true with regard to the plantwide overhead rate method?
A. The rate is determined using volume-related measures.
B. It is logical to use this method when overhead costs are not closely tied to volume-related
measures.
C. This method uses multiple overhead rates.
D. The rate is determined using measures that are not closely related to volume.
E. The method provides the most accurate means of allocating overhead costs.
68. The cost object(s) of the departmental overhead rate method is:
A. The unit of product.
B. The production departments of the company.
C. The production departments in the first stage and the unit of product in the second stage.
D. The unit of product in the first stage and the production departments in the second stage.
E. The production activities of the company.
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69. Which of the following statements is true with regard to the departmental overhead rate
method?
A. It is logical to use this method when overhead resources are consumed by various products in
substantially the same way throughout multiple departments.
B. It is logical to use this method when overhead resources are consumed by various products in
substantially different ways throughout multiple departments.
C. Each department has the same rate for the same activity pool.
D. It requires one overhead cost pool and one rate.
E. It is synonymous with activity-based costing.
70. The cost object(s) of the activity-based costing method is(are):
A. The unit of product.
B. The production departments of the company.
C. The production activities of the company.
D. The production activities in the first stage and the unit of product in the second stage.
E. The unit of product in the first stage and the production activities in the second stage.
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71. From an ABC perspective, what causes costs to be incurred?
A. Financial transactions.
B. The volume of units produced.
C. Debits and credits.
D. Management decisions.
E. Activities.
72. Which of the following statements is true with regard to activity-based costing rates?
A. The premise of ABC is that activities are what cause costs to be incurred.
B. ABC is another way to refer to a multiple departmental rate situation.
C. There one basic stage to ABC.
D. ABC is simpler and less expensive to implement than other traditional methods of allocating
overhead costs.
E. All cost drivers used to determine the rates will be unit-level drivers.
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73. What is the reason for pooling costs?
A. To shift costs from low-volume to high-volume products.
B. It is a budgeting technique designed to accurately track fixed costs.
C. Determining a pool rate for all costs incurred by the same activity reduces the number of cost
assignments required.
D. This procedure helps to determine which costs are directly related to production volume.
E. It simplifies departmental overhead costing procedures.
74. Which of the following are advantages of using the plantwide overhead rate method?
A. The use of cost pools is considerably more accurate than other overhead allocations.
B. The necessary information is readily available.
C. It is more accurate than traditional overhead allocations.
D. Each department has its own overhead rate and its own allocation base.
E. It takes into account that when products differ in batch size and complexity, they usually
consume different amounts of overhead resources.
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75. Which of the following companies would be best served by a plantwide overhead rate?
A. A company that manufactures many different products and whose operations are an equal
mix of labor and mechanized work.
B. A company that manufactures few products and whose operations are labor intensive.
C. A company that manufactures many different products and whose operations are highly
mechanized.
D. A company whose products use overhead resources in very different ways.
E. A company whose products differ in batch size and complexity and consume different
amounts of overhead resources.
76. Which of the following is true?
A. Overhead costs are often affected by many issues and are frequently too complex to be
explained by any one factor.
B. The departmental overhead rate is not usually based on measures closely related to
production volume.
C. The departmental overhead rate is most accurate in assigning overhead costs that are not
driven by production volume.
D. Allocated overhead costs will be the same no matter which allocation method is used.
E. When cost analysts are able to logically trace cost objects to costs, costing accuracy is
improved.
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77. Which of the following is a disadvantage of the departmental overhead rate method?
A. The departmental overhead rate method assigns overhead on the basis of volume-related
measures.
B. The departmental overhead rate method is more refined than the plantwide overhead rate
method.
C. The departmental overhead rate method does not assign overhead on the basis of volume-
related measures.
D. The departmental overhead rate method is simpler and less costly to implement than the
plantwide rate method.
E. There are no disadvantages of the departmental overhead rate method.
78. Which of the following is not true?
A. The departmental overhead method assigns overhead on the basis of volume-related
measures.
B. The departmental overhead rate method is more refined than the plantwide overhead rate
method.
C. Overhead costing accuracy is improved by the use of multiple departmental rates rather than
a single overhead rate.
D. The departmental overhead rate method does not assign overhead on the basis of volume-
related measures.
E. The departmental overhead rate method is more costly to implement than the traditional
overhead rate method.
79. What are three advantages of activity-based costing over traditional volume-based allocation
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methods?
A. Ease of use, more accurate product costing, and more effective cost control.
B. Fewer allocation bases, ease of use, and a direct correlation to production volume.
C. More accurate product costing, more effective cost control, and better focus on the relevant
factors for decision making.
D. More accurate product costing, fewer cost objects, and a direct correlation to production
volume.
E. More accurate product costing, ease of use, less costly to implement.
80. What are the main advantages of traditional volume-based allocation methods compared to
activity-based costing?
A. Traditional volume-based methods are easier to use and less costly to implement and
maintain.
B. Traditional volume-based methods are more accurate and allowed by GAAP.
C. Traditional volume-based methods are less accurate and easier to use.
D. Traditional volume-based methods are harder to use and more costly to implement and
maintain.
E. There are no advantages to using traditional volume-based methods.
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81. K Company estimates that overhead costs for the next year will be $2,900,000 for indirect
labor and $800,000 for factory utilities. The company uses direct labor hours as its overhead
allocation base. If 80,000 direct labor hours are planned for this next year, what is the company’s
plantwide overhead rate?
A. $.02 per direct labor hour.
B. $46.25 per direct labor hour.
C. $36.25 per direct labor hour.
D. $10 per direct labor hour.
E. $.10 per direct labor hour.
82. Peterson Company estimates that overhead costs for the next year will be $6,520,000 for
indirect labor and $550,000 for factory utilities. The company uses machine hours as its
overhead allocation base. If 140,000 machine hours are planned for this next year, what is the
company’s plantwide overhead rate?
A. $.02147 per machine hour.
B. $50.50 per machine hour.
C. $45.75 per machine hour.
D. $3.9286 per machine hour.
E. $.2545 per machine hour.
83. A company estimates that overhead costs for the next year will be $8,320,000 for indirect
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labor and $155,500 for factory utilities. The company uses machine hours as its overhead
allocation base. If 400,000 machine hours are planned for this next year, what is the company’s
plantwide overhead rate? (Round to two decimal places)
A. $0.05 per machine hour.
B. $ 21.19 per machine hour.
C. $ 20.80 per machine hour.
D. $0.39 per machine hour.
E. $2.57 per machine hour.
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84. The following data relates to Spurrier Company’s estimated amounts for next year.
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$1,100,000 $3,300,000
Direct labor hours 540,000 DLH 790,000 DLH
Machine hours 90,000 MH 24,000 MH
What is the company’s plantwide overhead rate if direct labor hours are the allocation base?
(Round to two decimal places)
A. $3.31 per direct labor hour.
B. $3.43 per direct labor hour.
C. $2.04 per direct labor hour.
D. $.30 per direct labor hour.
E. $.50 per direct labor hour.
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85. The following data relates to Black-Out Company’s estimated amounts for next year.
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$300,000 $400,000
Direct labor hours 60,000 DLH 80,000 DLH
Machine hours 1,000 MH 2,000 MH
What is the company’s plantwide overhead rate if machine hours are the allocation base?
(Round to two decimal places.)
A. $233.33 per MH
B. $150.00 per MH
C. $100.00 per MH
D. $4.90 per MH
E. $5.00 per MH
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86. The following data relates to Patterson Company’s estimated amounts for next year.
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$50,000 $60,000
Direct labor hours 180,000 DLH 200,000 DLH
Machine hours 200,000 MH 400,000 MH
What is the company’s plantwide overhead rate if direct labor hours are the allocation base?
(Round to two decimal places.)
A. $3.45 per DLH
B. $5.45 per DLH
C. $0.29 per DLH
D. $0.26 per DLHE. $0.20 per DLH
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87. Lake Erie Company uses a plantwide overhead rate with machine hours as the allocation
base. Next year, 600,000 units are expected to be produced taking .75 machine hours each. How
much overhead will be assigned to each unit produced given the following estimated amounts?
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$3,107,500 $1,520,000
Direct labor hours 150,000 DLH 250,000 DLH
Machine hours 250,000 MH 175,000 MH
A. $11.57 per unit
B. $8.17 per unit
C. $5.61 per unit
D. $12.43 per unit
E. $10.89 per unit
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88. Red Raider Company uses a plantwide overhead rate with direct labor hours as the
allocation base. Next year, 400,000 units are expected to be produced taking .90 direct-labor
hours each. How much overhead will be assigned to each unit produced given the following
estimated amounts?
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$2,530,000 $900,000
Direct labor hours 168,000 DLH 110,000 DLH
Machine hours 30,000 MH 8,000 MH
A. $63.95 per unit
B. $11.11 per unit
C. $15.06 per unit
D. $7.32 per unit
E. $12.34 per unit
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89. Western Company allocates $10.00 overhead to each unit produced. The company uses a
plantwide overhead rate with machine hours as the allocation base. Given the amounts below,
how many machine hours does the company expect in department 2?
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$250,000 $150,000
Direct labor hours 8,000 DLH 12,000 DLH
Machine hours 15,000 MH ? MH
A. 33,000 MH
B. 137,500 MH
C. 82,500 MH
D. 88,000 MH
E. 25,000 MH
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90. A company allocates $7.50 overhead to each unit produced. The company uses a plantwide
overhead rate with direct labor hours as the allocation base. Given the amounts below, how many
direct labor hours does the company expect in department 2?
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$74,358 $49,572
Direct labor hours 6,610 DLH ? DLH
Machine hours 700 MH 800 MH
A. 9,914 DLH
B. 6,612 DLH
C. 3,109 DLH
D. 7,454 DLH
E. 16,254 DLH
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91. Gray Company uses a plantwide overhead rate with machine hours as the allocation base.
Use the following information to solve for the amount of machine hours estimated per unit of
product Q.
Direct material cost per unit of Q $15
Total estimated manufacturing overhead $100,000
Total cost per unit of Q $60
Total estimated machine hours 200,000
MH
Direct labor cost per unit of Q $30
A. 50 MH per unit of Q.
B. .50 MH per unit of Q.
C. .75 MH per unit of Q.
D. 17.5 MH per unit of Q.
E. 30 MH per unit of Q.
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92. Gold Company uses a plantwide overhead rate with machine hours as the allocation base.
Use the following information to solve for the amount of machine hours estimated per unit of
product RST.
Direct material cost per unit of RST $15
Total estimated manufacturing overhead $300,000
Total cost per unit of RST $80
Total estimated machine hours 150,000
MH
Direct labor cost per unit of RST $23
A. 21 MH per unit of RST.
B. 2 MH per unit of RST.
C. 20 MH per unit of RST.
D. 37.5 MH per unit of RST.
E. 38 MH per unit of RST.
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93. Bond Company uses a plantwide overhead rate with direct labor hours as the allocation base. Use the following
information to solve for the amount of direct labor hours estimated per unit of product G2.
Direct material cost per unit of G2 $7
Total estimated manufacturing overhead $787,500
Total cost per unit of G2 $22
Total estimated direct labor hours 450,000
DLH
Direct labor cost per unit of G2 $4.25
A. 1.75 DLH per unit of G2.
B. 6.14 DLH per unit of G2.
C. 9.3 DLH per unit of G2.
D. .66 DLH per unit of G2.
E. 11.25 DLH per unit of G2.
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94. Kamper Company sells two products Big Z and Little Z. Current direct
material and direct labor costs are detailed below. Next year, the company
wishes to use a plantwide overhead rate with direct labor hours as its
allocation base. Next year’s overhead is estimated to be $475,000. The
direct labor and direct materials costs are estimated to be consistent with
the current year. Direct labor costs $20 per hour and the company expects to
manufacture 32,000 units of Big Z and 9,000 units of Little Z next year.
Direct
Material
per Unit
Direct
Labor Dollars
per Unit
Big Z $6 $17
Little Z $12 $8
What are total estimated direct labor hours for this next year?
A. 30,800 total DLH.
B. 616,000 total DLH.
C. 300,000 total DLH.
D. 1,025,000 total DLH.
E. 916,000 total DLH.
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95. Crinkle Cut Clothes Company manufactures two products CC1 and CC2.
Current direct material and direct labor costs are detailed below. Next year
the company wishes to use a plantwide overhead rate with direct labor hours
as its allocation base. Next year’s overhead is estimated to be $338,250. The
direct labor and direct materials costs are estimated to be consistent with
the current year. Direct labor costs $28 per hour and the company expects to
manufacture 22,000 units of CC1 and 91,000 units of CC2 next year.
Direct
Material
per Unit
Direct
Labor Dollars
per Unit
CC1 $37.10 $22.40
CC2 $25.20 $15.40
Compute the plantwide overhead rate for next year.
A. $28.00 per DLH.
B. $37.80 per DLH.
C. $1.35 per DLH.
D. $5.00 per DLH.
E. $.20 per DLH.
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96. Compute Aztec’s departmental overhead rate for the mixing department based on direct labor
hours.
A. $1.50 per DLH.
B. $5.00 per DLH.
C. $0.75 per DLH.
D. $0.50 per DLH.
E. $2.08 per DLH.
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97. Compute Aztec’s departmental overhead rate for the mixing department based on machine
hours.
A. $1.50 per MH.
B. $5.00 per MH.
C. $0.75 per MH.
D. $0.50 per MH.
E. $2.08 per MH.
98. Compute Aztec’s departmental overhead rate for the baking department based on direct labor
hours.
A. $1.50 per DLH
B. $5.00 per DLH
C. $0.75 per DLH
D. $0.50 per DLH
E. $2.08 per DLH
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99. Compute Aztec’s departmental overhead rate for the baking department based on machine
hours.
A. $1.50 per MH
B. $5.00 per MH
C. $0.75 per MH
D. $0.50 per MH
E. $2.08 per MH
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100. Tarnish Industries uses departmental overhead rates and is planning on a $2 per direct labor
hour overhead rate for the molding department. Compute the estimated manufacturing overhead
cost for the molding department given the information shown in the table.
A. $225,000
B. $196,000
C. $150,000
D. $321,000
E. $471,000
101. Tarnish Industries uses departmental overhead rates and is planning on a $1.80 per direct
labor hour overhead rate for the finishing department. Compute the estimated manufacturing
overhead cost for the finishing department given the information shown in the table.
A. $41,667
B. $288,900
C. $256,800
D. $146,700
E. $323,100
102. Tarnish Industries uses departmental overhead rates and is planning on a $2 per machine
hour overhead rate for the molding department. Compute the estimated manufacturing overhead
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17-46
cost for the molding department given the information shown in the table.
A. $195,000
B. $196,000
C. $163,000
D. $321,000
E. $471,000
103. Tarnish Industries uses departmental overhead rates and is planning on a $4.10 per
machine hour overhead rate for the finishing department. Compute the estimated manufacturing
overhead cost for the finishing department given the information shown in the table.
A. $307,500
B. $658,050
C. $401,800
D. $334,150
E. $735,950
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costs
104. Use the data for Wall Nuts, Inc. to compute departmental overhead rates based on machine
hours in Department A and machine hours in Department B.
A. $4.50 per MH in Dept A; $4.50 per MH in Dept B.
B. $7.50 per MH in Dept A; $7.50 per MH in Dept. B.
C. $4.50 per MH in Dept A; $7.50 per MH in Dept B.
D. $2.70 per MH in Dept A; $6.00 per MH in Dept B.
E. $0.60 per MH in Dept A; $0.80 per MH in Dept B.
105. Use the data for Wall Nuts, Inc. to compute the dollar amount of overhead applied to each
unit of oak paneling, assuming the company uses departmental overhead rates based on machine
hours in Department A and machine hours in Department B.
A. $8.70
B. $1.40
C. $14.40
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D. $26.25
E. $41.00
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106. Use the above data for Wall Nuts, Inc. to compute the total manufacturing cost per unit of
oak paneling assuming the company uses departmental overhead rates based on machine hours in
Department A and machine hours in Department B.
A. $8.70
B. $18.20
C. $21.95
D. $27.30
E. $36.00
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107. Aurora Corporation produces outdoor security lighting products. All products go through
three processes before completion. Use the expected overhead costs and related data shown
below to compute departmental overhead rates based on machine hours in Department A1A;
based on direct labor hours in Department B2B; and machine hours in Department C3C.
Department
A1A
Department
B2B
Department
C3C
Direct labor hours 90,000 DLH 80,000 DLH 72,000 DLH
Machine hours 54,000 MH 32,000 MH 54,000 MH
Manufacturing overhead
costs
$540,000 $160,000 $216,000
A. Dept. A: $10 per MH; Dept B: $2 per DLH; Dept C: $4 per MH.
B. Dept. A: $6 per MH; Dept B: $5 per DLH; Dept C: $3 per MH.
C. Dept. A: $10 per MH; Dept B: $5 per DLH; Dept C: $4 per MH.
D. Dept. A: $6 per MH; Dept B: $5 per DLH; Dept C: $4 per MH.
E. Dept. A: $10 per MH; Dept B: $2 per DLH; Dept C: $3 per MH.
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108. Consider the following activities that take place in a veterinary clinic.
(a.) Cleaning cages.
(b.) Heating and air conditioning the clinic.
(c.) Sending blood work to a lab.
(d.) Dispensing medicine.
Which of the following statements is true?
A. Service entities cannot use ABC for overhead allocation.
B. Cleaning cages is a facility level activity.
C. Dispensing medicine is a facility level activity.
D. Heating and air conditioning the clinic is a facility level activity.
E. Sending blood work to a lab is a facility level activity.
109. Consider the following activities that take place in a medical clinic.
(a.) Cleaning exam rooms.
(b.) Heating and air conditioning the clinic.
(c.) Sending blood work to a lab.
(d.) Dispensing medicine.
Which of the following statements is true?
A. Cleaning rooms and heating the clinic are both unit level activities.
B. Sending blood work to the lab is a batch level activity.
C. Sending blood work and dispensing medicine are both batch level activities.
D. Cleaning rooms and dispensing medication are both product or service level activities.
E. Heating the clinic and dispensing medication are both batch level activities.
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110. All of the following are examples of facility sustaining costs except:
A. Costs of cleaning the workplace.
B. Costs of custodial work.
C. Costs of personnel support.
D. Costs of sampling product quality.
E. Costs of employee recreational facilities.
111. A company uses activity-based costing to determine the costs of its three products: A, B,
and C. The budgeted cost and activity for each of the company’s three activity cost pools are
shown in the following table:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A Product B Product C
Activity 1 $70,000 6,000 9,000 20,000
Activity 2 $45,000 7,000 15,000 8,000
Activity 3 $82,000 2,500 1,000 1,625
Which of the following statements is true regarding this company’s activity rates?
A. The activity rate under the activity-based costing system for Activity 2 is
$2.00.
B. The activity rate under the activity-based costing system for Activity 2 is $16.00.
C. The activity rate under the activity-based costing system for Activity 2 is $1.50.
D. The activity rate under the activity-based costing system for Activity 2 is $19.50.
E. The activity rate under the activity-based costing system for Activity 2 is $2.81.
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112. A company uses activity-based costing to determine the costs of its three products: A, B,
and C. The budgeted cost and activity for each of the company’s three activity cost pools are
shown in the following table:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A Product B Product C
Activity 1 $70,000 6,000 9,000 20,000
Activity 2 $45,000 7,000 15,000 8,000
Activity 3 $82,000 2,500 1,000 1,625
What are the activity rates for the three activities under activity based costing?
A. (1) $2.00; (2) $3.00; (3) $3.50.
B. (1) $3.50; (2) $1.50; (3) $32,80.
C. (1) $3.50; (2) $3.00; (3) $16.00.
D. (1) $2.00; (2) $1.50; (3) $16.00.
E. (1) $2.00; (2) $1.50; (3) $32.80.
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113. A company uses activity-based costing to determine the costs of its three products: A, B and
C. The budgeted cost and activity for each of the company’s three activity cost pools are shown
in the following table:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A Product B Product C
Activity 1 $70,000 6,000 9,000 20,000
Activity 2 $45,000 7,000 15,000 8,000
Activity 3 $82,000 2,500 1,000 1,625
How much overhead will be assigned to Product B using activity-based costing?
A. $56,500
B. $78,000
C. $62,500
D. $197,000
E. $70,000
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114. A company has two products: A and B. It uses activity-based costing and has prepared the
following analysis showing budgeted cost and activity for each of its three activity cost pools:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A Product B
Activity 1 $87,000 3,000 2,800
Activity 2 $62,000 4,500 5,500
Activity 3 $93,000 2,500 5,250
Annual production and sales level of Product A is 34,300 units, and the annual production and
sales level of Product B is 69,550 units. What is the approximate overhead cost per unit of
Product B under activity-based costing?
A. $3.00
B. $2.00
C. $10.28
D. $15.00
E. $2.33
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115. A company has two products: A and B. It uses activity-based costing and has prepared the
following analysis showing budgeted cost and activity for each of its three activity cost pools:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A Product B
Activity 1 $87,000 3,000 2,800
Activity 2 $62,000 4,500 5,500
Activity 3 $93,000 2,500 5,250
Annual production and sales level of Product A is 34,300 units, and the annual production and
sales level of Product B is 69,550 units. What is the approximate overhead cost per unit of
Product A under activity-based costing?
A. $3.00
B. $2.00
C. $10.28
D. $15.00
E. $2.33
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116. A company has two products: A1 and B2. It uses activity-based costing and has prepared the
following analysis showing budgeted cost and activity for each of its three activity cost pools:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A1 Product B2
Activity 1 $48,000 1,200 4,800
Activity 2 $63,000 2,240 4,760
Activity 3 $80,000 7,200 800
Annual production and sales level of Product A1 is 8,480 units, and the annual production and
sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of
Product A1 under activity-based costing?
A. $8.00
B. $9.00
C. $10.00
D. $12.00
E. $4.00
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117. A company has two products: A1 and B2. It uses activity-based costing and has prepared the
following analysis showing budgeted cost and activity for each of its three activity cost pools:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A1 Product B2
Activity 1 $48,000 1,200 4,800
Activity 2 $63,000 2,240 4,760
Activity 3 $80,000 7,200 800
Annual production and sales level of Product A1 is 8,480 units, and the annual production and
sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of
Product B2 under activity-based costing?
A. $8.00
B. $9.00
C. $10.00
D. $12.00
E. $4.00
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118. Refer to the data above. What are the overhead rates used to apply material handling (MH)
and storage costs (SC. using activity-based costing?
A. MH $300/batch; SC $2.73/unit.
B. MH $300/batch; SC $.20/lb.
C. MH $525/batch; SC $.205/unit.
D. MH $700/batch; SC $.205/lb.
E. MH $700/batch; SC $8.20/lb.
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119. Refer to the data in the preceding tables. How much overhead cost will be assigned to each
product line using activity-based costing (ABC.?
A. Dog food: $462,500; cat food: $462,500.
B. Dog food: $860,000; cat food: $65,000.
C. Dog food: $60,000; cat food: $45,000.
D. Dog food: $800,000; cat food: $20,000.
E. Dog food: $320; cat food: $320.
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120. Refer to the data above. How much overhead cost will be assigned to each unit of product
using activity-based costing (ABC.?
A. Dog food: $4.62; cat food: $4.62.
B. Dog food: $2.64; cat food: $2.64.
C. Dog food: $8.60; cat food: $0.33.
D. Dog food: $0.26; cat food: $8.60.
E. Dog food: $0.12; cat food: $3.85.
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121. Refer to the data in the preceding tables. How much overhead cost will be assigned to the
ice cream sandwich product line using activity-based costing (ABC.?
A. $340,000
B. $368,000
C. $28,000
D. $850.08
E. $433,682
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122. Refer to the data above. How much overhead cost will be assigned to the dessert bar
product line using activity-based costing (ABC.?
A. 340,750
B. $247,818
C. $16,000
D. $297,500
E. $313,500
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123. A company identified the following partial list of activities, costs, and activity drivers
expected for the next year:
Activity Expected Costs Cost Driver
Extrusion costs $83,600 Number batches made
Handling costs $8,800 Number of orders filled
Packaging costs $40,500 Number of units made
Product A Product B
Production volume 750,000 units 600,000 units
Batches made 200 batches 750 batches
Orders filled 75 200
Calculate activity rates for each of the three activities using activity-based costing (ABC).
A. Extrusion: $304 per batch; handling: $32 per unit; packaging: $.03 per unit.
B. Extrusion: $88 per batch; handling: $32 per order; packaging: $.03 per unit.
C. Extrusion: $88 per order; handling: $32 per unit; packaging: $.03 per batch.
D. Extrusion: $418 per batch; handling: $117.33 per order; packaging: $.054 per unit.
E. Extrusion: $118.13 per batch; handling: $44 per order; packaging: $.0675 per unit.
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124. A company identified the following partial list of activities, costs, and activity drivers
expected for the next year:
Activity Expected Costs Cost Driver
Extrusion costs $83,600 Number batches made
Handling costs $8,800 Number of orders filled
Packaging costs $40,500 Number of units made
Product A Product B
Production volume 750,000 units 600,000 units
Batches made 200 batches 750 batches
Orders filled 75 200
How much overhead in total will be assigned to the Product A line using activity based costing?
A. $42,500.
B. $132,900.
C. $90,400.
D. $66,000.
E. $66,450.
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125. Which of the following would not be considered a product cost?
A. Direct material costs.
B. Factory supervisor’s salary.
C. Direct labor costs.
D. Budget accountant’s salary.
E. Manufacturing overhead costs.
126. The use of which of the following costing systems is most likely to reduce over- or
undercosting, and keep it to a minimum?
A. Departmental overhead allocation rates
B. Plantwide overhead rate
C. Activity-based costing
D. Traditional costing system
127. Which of the following statements is true of activity-based costing?
A. ABC ignores the allocation of marketing costs.
B. ABC classifies some indirect costs as direct costs.
C. ABC is more likely to result in big differences from a traditional costing system if the
business makes only one product rather than multiple products.
D. Activities are the cost objects of the second stage of ABC.
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128. ABC assumes all costs are ________ because over the long run the company can adjust the
amount of assets utilized.
A. variable
B. fixed
C. direct
D. nondiscretionary
E. committed
129. Put the following ABC implementation steps in order ________.
A Use the activity overhead rates to assign overhead costs to cost objects.
B Compute the allocation rates.
C Trace overhead costs to cost pools.
D Identify the activities and the overhead costs they cause.
A. DACB
B. DBCA
C. BADC
D. CDAB
E. DCBA
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130. ________ is considered while choosing a cost allocation base for activity costs in ABC
costing.
A. The marketing strategy of the products being produced
B. The product sales price
C. The availability of reliable data and metrics
D. The number of employees in direct labor
131. Would the following activities at a manufacturer of shampoo be best classified as unit-level,
batch-level, product-level, or facility level activities?
Researching new formulas Shipping orders to stores
A. Batch Batch
B. Unit Unit
C. Product Batch
D. Product Unit
A. Choice A
B. Choice B
C. Choice C
D. Choice D
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132. All of the following are examples of facility level costs except:
A. Costs of cleaning the workplace.
B. Costs of custodial work.
C. Costs of personnel support.
D. Costs of receiving shipments.
E. Costs of providing electricity.
133. _____________ costs support the company as a whole.
A. Batch-level
B. Product-level
C. Unit-level
D. Facility-level
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134. Which of the following is a disadvantage of the departmental overhead rate method?
A) It may fail to accurately assign many overhead costs that are not driven by production
volume.
B) Allows each department to have its own overhead rate.
C) Allows each department to have its own allocation base.
D) The departmental overhead rate is usually more accurate in overhead allocations than the
plantwide overhead rate.
135. The use of departmental overhead rates will generally result in:
A) The use of a single cost allocation base
B) The use of a single overhead cost pool for the shop
C) The use of a separate cost allocation base for each department in the shop
D) The use of a separate cost allocation base for each activity in the shop
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136. ABC systems ________.
A. usually will undercost complicated or complex products
B. will limit cost drivers to units of output
C. highlight the different levels of activities
D. will allocate costs based on the overall level of activity
137. ABC costing might lead to:
A. increasing the sales price of low-volume products
B. increasing the sales price of high-volume products
C. increasing low-volume products that appear to be profitable
D. decreasing high-volume products that appear to be unprofitable
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138. Costs incurred in detecting poor quality products are referred to as:
A. appraisal costs
B. external failure costs
C. internal failure costs
D. prevention costs
139. West Company estimates that overhead costs for the next year will be $5,240,000 for
indirect labor and $550,000 for factory utilities. The company uses machine hours as its
overhead allocation base. If 150,000 machine hours are planned for this next year, what is the
company’s plantwide overhead rate?
A. $.0259 per machine hour.
B. $34.93 per machine hour.
C. $38.60 per machine hour.
D. $3.67 per machine hour.
E. $.2727 per machine hour.
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140. The following data relates to Mangini Company’s estimated amounts for next year.
Estimated: Department 1 Department 2
Manufacturing overhead
costs
$320,000 $400,000
Direct labor hours 65,000 DLH 75,000 DLH
Machine hours 2,000 MH 2,500 MH
What is the company’s plantwide overhead rate if machine hours are the allocation base?
(Round to two decimal places.)
A. $200.00 per MH
B. $150.00 per MH
C. $160.00 per MH
D. $31.11 per MH
E. $5.14 per MH
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141. Compute Tasty’s departmental overhead rate for the mixing department based on direct
labor hours.
A. $1.50 per DLH.
B. $5.00 per DLH.
C. $0.75 per DLH.
D. $0.60 per DLH.
E. $1.67 per DLH.
142. Compute Tasty’s departmental overhead rate for the mixing department based on machine
hours.
A. $1.50 per MH.
B. $3.33 per MH.
C. $0.60 per MH.
D. $0.50 per MH.
E. $2.00 per MH.
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143. When calculating the departmental overhead rate, the numerator should be?
A) The total estimated departmental overhead cost
B) The total amount of departmental allocation base
C) The total budgeted overhead cost
D) The actual quantity of the departmental allocation base used by the job
144. Cleveland Choppers manufactures two types of motorcycles, a Base and a Loaded model. The following
activity and costs have been gathered:
Number of Number of Number of
Product Components Setups Direct Labor Hrs
Base 15 20 700
Loaded 25 40 600
Overhead costs $27,000 $22,500
The number of components and number of setups are chosen as activity-cost drivers for
overhead. Assuming an ABC costing system is being used, what is the total overhead cost
assigned to the Base model?
A) $15,450
B) $21,375
C) $13,500
D) $17,625
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145. The number of components and number of setups are chosen as activity-cost drivers for
overhead. Assuming an ABC costing system is being used, what is the total overhead cost
assigned to the Loaded model?
A) $31,875
B) $36,000
C) $28,125
D) $34,050
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146. Match each of the following terms a through j with the appropriate definitions 1 through 10.
(a) Cost object
(b) Activity
(c) Cost driver
(d) Activity-based costing
(e) Batch level activities
(f) Activity-based management
(g) Pool rate
(h) Activity cost driver
(i) Activity driver
(j) Cost pool
_____ (1) A measure of activity level.
_____ (2) Actions which cause resources to be used.
_____ (3) A collection of costs that are related to the same or similar activity.
_____ (4) An outgrowth of ABC that draws on the link between activities and cost incurrence
for better management.
_____ (5) The target of a cost assignment.
_____ (6) Actions performed only on groups of units.
_____ (7) Variable that causes an activity’s cost to go up or down.
_____ (8) An allocation rate used to assign a collection of related costs to a cost object.
_____ (9) A cost allocation method that focuses on activities performed.
_____(10) Variable that causes a cost to go up or down.
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147. Identify each of the following activities as unit level (U), batch level (B., product level (P),
or facility level (F) to indicate the way each is incurred with respect to production.
_____ (1) Providing electricity
_____ (2) Sampling product quality
_____ (3) Cutting parts
_____ (4) Receiving shipments
_____ (5) Organizing production
_____ (6) Printing checks
_____ (7) Providing personnel support
_____ (8) Calibrating machines
_____ (9) Cleaning workplace
_____ (10) Assembling components
148. Direct labor, direct materials, and manufacturing overhead are all product costs. Why is
overhead more difficult to account for than either direct labor or direct materials?
149. Name and briefly describe three overhead rate methods.
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150. Explain cost flows for the plantwide overhead rate method.
151. Explain cost flows for the departmental overhead rate method.
152. Explain cost flows for activity-based costing.
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153. What is the basic principle underlying activity-based costing?
154. How does ABC differ from using multiple departmental rates?
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155. What are the major advantages of using a plantwide overhead rate?
156. Explain some of the disadvantages of the departmental overhead rate method.
157. Why is overhead allocation under ABC usually more accurate than either the plantwide
overhead allocation method or the departmental overhead allocation method?
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158. Identify and explain the four control levels associated with activity-based costing.
159. A company estimates that overhead costs for the next year will be $7,200,000 for indirect
labor, $400,000 for factory utilities, and $43,000 for depreciation on factory machinery. The
company uses direct labor hours as its overhead allocation base. If 955,375 direct labor hours are
planned for this next year, what is the company’s plantwide overhead rate?
160. A company estimates that overhead costs for the next year will be $3,600,000 for indirect
labor, $200,000 for factory utilities, and $21,500 for depreciation on factory machinery. The
company uses machine hours as its overhead allocation base. If 764,300 machine hours are
planned for this next year, what is the company’s plantwide overhead rate?
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161. A company has two products: A and B. It uses a plantwide overhead allocation method
based on activity 2 and has prepared the following analysis showing budgeted costs and
activities. Use this information to compute (a) the company’s plantwide overhead rate and (b) the
amount of overhead allocated to Product A.
Activity Cost Pool
Budgeted
Overhead Cost
Budgeted Activity
Product A Product B Total
Activity 1 $160,000 400 1,600 2,000
Activity 2 $110,000 2,000 1,000 3,000
Activity 3 $180,000 1,200 10,800 12,000
Total budgeted
overhead
$450,000
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162. A company has two products: A and B. It uses activity-based costing and has prepared the
following analysis showing budgeted costs and activities. Use this information to compute (a) the
company’s overhead rates for each of the three activities and (b) the amount of overhead allocated to Product
A.
Activity Cost Pool
Budgeted
Overhead Cost
Budgeted Activity
Product A Product B Total
Activity 1 $160,000 400 1,600 2,000
Activity 2 $110,000 2,000 1,000 3,000
Activity 3 $180,000 1,200 10,800 12,000
Total budgeted
overhead
$450,000
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163. A company has two products: AA and BB. It uses a plantwide overhead allocation method
based on activity 33 and has prepared the following analysis showing budgeted costs and
activities. Use this information to compute the company’s plantwide overhead rate.
Activity Cost Pool
Budgeted
Overhead Cost
Budgeted Activity
Product
AA
Product
BB Total
Activity 11 $40,000 100 400 500
Activity 22 $55,000 500 250 750
Activity 33 $90,000 300 1,700 2,000
Total budgeted
overhead
$185,000
164. A company expects next year’s overhead costs to be $400,000. During this time, the
company also expects to produce 1,000,000 units, have 200,000 direct labor hours, and 800,000
machine hours.
Make the following independent calculations.
a. Compute a plantwide overhead rate using units of production as the allocation base.
b. Compute a plantwide overhead rate using direct labor hours as the allocation base.
c. Compute a plantwide overhead rate using machine hours as the allocation base.
165. Superior Products Manufacturing identified the following data in its two production
departments.
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17-86
Assembly Finishing
Manufacturing overhead costs $225,000 $420,000
Direct labor hours worked 6,600 DLH 9,000 DLH
Machine hours used 2,400 MH 5,200 MH
Make the following independent calculations (Round to two decimals).
a. Compute a plantwide overhead rate using machine hours as the allocation base.
b. Compute a plantwide overhead rate using direct labor hours as the allocation base.
166. Superior Products Manufacturing identified the following data in its two production
departments:
Assembly Finishing
Manufacturing overhead costs $225,000 $420,000
Direct labor hours worked 6,600 DLH 10,000 DLH
Machine hours used 2,400 MH 5,200 MH
Compute departmental overhead rates assuming the Assembly rate is based on machine hours
and the Finishing rate is based on direct labor hours.
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167. Fischer Company identified the following activities, costs, and activity drivers:
Activity Expected Costs Expected Activity
Handling parts $425,000 25,000 parts in
stock
Inspecting product $390,000 940 batches
Processing purchase
orders
$220,000 440 orders
Designing packaging $230,000 5 models
a. Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000
budgeted direct labor hours (Round to two decimals).
b. Compute separate rates for each of the four activities using the activity based costing.
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168. Assume New Belgium Brewing Company manufactures and distributes three types of beer
and that estimated per unit product costs and related information for the next year are shown in
the following table:
Blue
Paddle Somersault
Cocoa
Mole Ale
Cost data per unit:
Direct materials $100,000 $500,000 $750,000
Direct labor $3,600 $4,800 $6,000
Overhead $12,000 $16,000 $20,000
Total product cost per unit $115,600 $520,800 $776,000
Machine hours per unit 30 MH 40 MH 50 MH
Number of units produced per year 30 units 20 units 10 units
a. If New Belgium Brewing Company uses a plantwide overhead rate based on machine hours,
what is the total product cost per unit of Cocoa Mole Ale?
b. Blue Paddle is a traditional brew made in large quantities with long production runs.
Somersault is a seasonal beer made in small batches. Cocoa Mole Ale is a specialty beer also
made in small batches. Which of the overhead allocation methods studied in this chapter would
you recommend that New Belgium Brewing Company use and why?
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169. Time Bender Company makes watches and clocks. The following estimated data are
available for the company’s next fiscal year:
Total direct labor costs: $1,700,000
Total setup costs: $190,000
Watches Clocks
Expected production 800,000 100,000
Direct labor hours needed 68,000 DLH 17,000 DLH
Machine setups needed 1,000 setups 1,000 setups
Determine the setup cost per unit for the watches and the clocks if setup costs are assigned using
a plantwide overhead rate based on direct labor hours. (Round to two decimal places.)
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170. Base Runner, Inc. manufactures baseball bats that go through two operations, cutting and
sanding, before they are complete. Expected costs and activities for the two departments are
shown in the following table:
Cutting Sanding
Direct labor hours 50,000 DLH 5,000 DLH
Machine hours 25,000 MH 50,000 MH
Overhead costs $50,000 $37,500
a. Compute a departmental overhead rate for the cutting department based on machine hours.
b. Compute a departmental overhead rate for the sanding department based on machine hours.
171. Blast Rocket Company manufactures candy-coated popcorn treats that go through two
operations, popping and baking, before they are complete. Expected costs and activities for the
two departments are shown in the following table:
Popping Baking
Direct labor hours 238,000 DLH 50,000 DLH
Machine hours 25,000 MH 141,500 MH
Overhead costs $357,000 $452,800
a. Compute a departmental overhead rate for the popping department based on direct labor
hours.
b. Compute a departmental overhead rate for the baking department based on machine hours.
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172. Freeze Frame, Inc. produces cameras that require three processes, A, B, and C, to complete.
Digital camera model #789 is the best-selling of all the many types of cameras produced.
Information related to the 550,000 units of digital camera model #789 produced annually is
shown below.
Direct materials $450,000
Direct labor
Department A (7,000 DLH x $21 per DLH) $147,000
Department B (25,000 DLH x $19 per DLH) $475,000
Department C (10,000 DLH x $26 per DLH) $260,000
Machine Hours
Department A 42,000 MH
Department B 23,000 MH
Department C 38,000 MH
Freeze Frame’s total expected overhead costs and related overhead data are shown below:
Department A Department
B
Department
C
Direct labor hours 90,000 DLH 75,000 DLH 42,000 DLH
Machine hours 67,500 MH 135,000 MH 53,200 MH
Manufacturing overhead
costs
$540,000 $675,000 $399,000
a. Compute a departmental overhead rate for department A based on direct labor hours.
b. How much overhead is associated with model 789 from department A?
c. Compute a departmental overhead rate for department B based on direct labor hours.
d. How much overhead is associated with model 789 from department B?
e. Compute a departmental overhead rate for department C based on direct labor hours.
f. How much overhead is associated with model 789 from department C?
g. What is the per unit cost of the 550,000 units of model 789?
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173. Freeze Frame, Inc. produces cameras that require three processes, A, B, and C, to complete.
Digital camera model #789 is the best-selling of all the many types of cameras produced.
Information related to the 550,000 units of digital camera model #789 produced annually is
shown below:
Direct materials $450,000
Direct Labor
Department A (7,000 DLH x $21 per DLH) $147,000
Department B (25,000 DLH x $19 per DLH) $475,000
Department C (10,000 DLH x $26 per DLH) $260,000
Machine Hours
Department A 42,000 MH
Department B 23,000 MH
Department C 38,000 MH
Freeze Frame’s total expected overhead costs and related overhead data are shown in the
following table:
Department A Department B Department C
Direct labor hours 90,000 DLH 75,000 DLH 42,000 DLH
Machine hours 67,500 MH 135,000 MH 53,200 MH
Manufacturing overhead
costs
$540,000 $675,000 $399,000
a. Compute a departmental overhead rate for department A based on machine hours.
b. How much overhead is associated with model 789 from department A?
c. Compute a departmental overhead rate for department B based on direct labor hours.
d. How much overhead is associated with model 789 from department B?
e. Compute a departmental overhead rate for department C based on machine hours.
f. How much overhead is associated with model 789 from department C?
g What is the per unit cost of the 550,000 units of model 789?
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174. Outer Limits, Inc. produces fencing units which require two processes, A and B, to
complete. The best-selling type of fence is made of pvc. Information related to the 8,000 units of
pvc fencing produced annually is shown below.
Direct materials $450,000
Direct labor
Department A (5,000 DLH x $23 per DLH) $115,000
Department B (4,000 DLH x $25 per DLH) $100,000
Machine hours
Department A 2,000 MH
Department B 3,000 MH
Outer Limits’ total expected overhead costs and related overhead data are shown below. The
company uses departmental overhead rates based on machine hours in department A and direct
labor hours in department B.
Department A Department B
Direct labor hours 9,000 DLH 7,000 DLH
Machine hours 6,500 MH 13,000 MH
Manufacturing overhead
costs
$54,600 $67,060
Determine the total amount of overhead assigned to each unit of pvc fencing.
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175. A company’s total expected overhead costs and related overhead data are shown below.
Department A Department B
Direct labor hours 75,000 DLH 30,000 DLH
Machine hours 3,000 MH 6,000 MH
Manufacturing overhead
costs
? ?
Departmental overhead
rate
$2.40 per DLH $36 per MH
a. Compute estimated manufacturing overhead costs for Department A.
b. Compute estimated manufacturing overhead costs for Department B.
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176. A company’s total expected overhead costs and related overhead data are shown in the
following table:
Department A Department B
Direct labor hours 85,000 DLH 72,000 DLH
Machine hours 79,050 MH 37,395 MH
Manufacturing overhead
costs
? ?
Departmental overhead
rate
$4 per MH $8.31 per
DLH
a. Compute estimated manufacturing overhead costs for Department A.
(b. Compute estimated manufacturing overhead costs for Department B.
c. Compute the departmental overhead rate based on direct labor hours for Department A.
d. Compute the departmental overhead rate based on machine hours for Department B.
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177. Rising Sun, Inc. produces granola that requires two processes, mixing and baking, to
complete. The best-selling type of granola is cherry almond delight. Information related to the
100,000 units of cherry almond delight produced annually is shown in the following table:
Direct materials $230,000
Direct labor
Mixing Department (600 DLH x $24 per
DLH)
$14,400
Baking Department (400 DLH x $22 per
DLH)
$8,800
Machine hours
Mixing Department 200 MH
Baking Department 300 MH
Rising Sun’s total expected overhead costs and related overhead data are shown below. The
company uses departmental overhead rates based on machine hours in the mixing department
and direct labor hours in the baking department.
Mixing
Department
Baking
Department
Direct labor hours 11,000 DLH 5,000 DLH
Machine hours 4,000 MH 3,000 MH
Manufacturing overhead
costs
$80,000 $12,500
Determine the total product cost of this product line and each unit of cherry almond delight.
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178. Slosh, Inc. produces washing machines that require two processes, assembling and
finishing, to complete. The company’s bestselling machine is the commercial washer.
Information related to the 500 commercial washers produced annually is shown below.
Direct materials $161,000
Direct labor
Assembling Department (1,000 DLH x $25 per
DLH)
$25,000
Finishing Department (250 DLH x $22 per
DLH)
$5,500
Machine hours
Assembling Department 1,500 MH
Finishing Department 400 MH
Slosh’s total expected overhead costs and related overhead data are shown below. The company
uses departmental overhead rates based on direct labor hours in the Assembling Department and
machine hours in the Finishing Department.
Assembling
Department
Finishing
Department
Direct labor hours 50,000
DLH
275,000 DLH
Machine hours 37,500 MH 8,000 MH
Manufacturing overhead costs $4,000
,000
$60,000
Determine the total product cost of this product line and each individual commercial washer.
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179. Lemon Yellow Company produces children’s clothing that requires two processes, cutting
and sewing, to complete. The company is concerned about one product, a hooded jacket, which
hasn’t been selling as well as it had in past years. Information related to the 20,000 jackets
produced annually is shown in the following table:
Direct materials $26,000
Direct labor
Cutting Department (200 DLH x $20 per DLH) $4,000
Sewing Department (2,000 DLH x $22 per DLH) $44,000
Machine hours
Cutting Department 160 MH
Sewing Department 1,500 MH
Lemon Yellow’s total expected overhead costs and related overhead data are shown below. The
company uses departmental overhead rates based on direct labor hours in the Cutting Department
and machine hours in the Sewing Department.
Cutting
Department
Sewing
Department
Direct labor hours 16,000 DLH 175,000 DLH
Machine hours 3,200 MH 30,000 MH
Manufacturing overhead
costs
$480,000 $240,000
Assume this jacket currently sells for $10. How much profit does the company make per jacket?
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17-99
180. A company uses activity-based costing to determine the costs of its three products: A, B,
and C. The budgeted cost and activity for each of the company’s three activity cost pools are
shown below.
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A Product B Product C
Activity 1 $140,000 7,500 4,000 6,000
Activity 2 $54,000 2,500 2,000 1,500
Activity 3 $28,000 15,000 25,000 30,000
Compute the company’s activity rates under activity-based costing for each of the three
activities.
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181. A company uses activity-based costing to determine the costs of its three products: A, B,
and C. The budgeted cost and activity for each of the company’s three activity cost pools are
shown in the following table:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product A Product B Product C
Activity 1 $425,000 1,700 680 1,870
Activity 2 $144,900 1,890 1,575 2,835
Activity 3 $85,000 2,400 1,000 1,600
Compute the company’s activity rates under activity-based costing for each of the three
activities.
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182. A company uses activity-based costing to determine the costs of its three products: A, B,
and C. The activity rates and activity levels for each of the company’s three activity cost pools
are shown below.
Budgeted Activity
Activity Cost
Pool Activity Rate Product A Product B Product C
Activity 1 $19 700 1,150 650
Activity 2 $27 2,400 2,100 1,500
Activity 3 $62 600 1,350 1,050
Compute the company’s budgeted cost for each of the three activities under activity-based
costing.
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183. A company uses activity-based costing to determine the costs of its three products: A, B
and C. The activity rates and activity levels for each of the company’s three activity cost pools
are shown in the following table:
Budgeted Activity
Activity Cost
Pool Activity Rate Product A Product B Product C
Activity 1 $48 3,500 1,000 500
Activity 2 $51 300 2,100 600
Activity 3 $73 400 200 1,400
Compute the company’s budgeted overhead cost for each of the three products under activity-
based costing.
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184. A company has two products: X and Y. It uses activity-based costing and has prepared the
following analysis showing budgeted cost and activity for each of its three activity cost pools.
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Product X Product Y
Activity 1 $3,600 25,200 46,800
Activity 2 $4,800 36,000 44,000
Activity 3 $6,300 43,200 46,800
Annual production and sales level of Product X is 161,100 units, and the annual production and
sales level of Product Y is 275,200 units.
a. Compute the approximate overhead cost per unit of Product X under activity-based costing.
b. Compute the approximate overhead cost per unit of Product Y under activity-based costing.
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185. A company has two products: Big and Little. It uses activity-based costing and has prepared
the following analysis showing budgeted cost and activity for each of its three activity cost
pools:
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Big Product Little Product
Activity 1 $72,000 1,200 2,800
Activity 2 $91,000 5,250 1,750
Activity 3 $88,000 3,200 4,800
Annual production and sales level of big product is 62,525 units, and the annual production and
sales level of little product is 251,900 units.
a. Compute the approximate overhead cost per unit of big product under activity-based costing.
b. Compute the approximate overhead cost per unit of little product under activity-based costing.
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186. Bark Mode, Incorporated produces and distributes two types of security systems, Standard
and Deluxe. Budgeted cost and activity for each of its three activity cost pools are shown below.
The company plans to produce and sell 120,000 standard units and 80,000 deluxe units.
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost
Standard Deluxe
Packaging $100,000 120,000 finished
units
80,000 finished
units
Material
handling
$49,600 600,000 total
parts
640,000 total
parts
Production
setups
$120,000 6 total setups 14 total setups
a. Compute the approximate overhead cost per unit of standard under activity-based costing.
b. Compute the approximate overhead cost per unit of deluxe under activity-based costing.
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187. Sparks Company produces and distributes two types of garden sculptures, Plain and Fancy.
Budgeted cost and activity for each of its three activity cost pools are shown below. The
company plans to produce and sell 64,000 plain units and 49,150 fancy units.
Budgeted Activity
Activity Cost
Pool
Budgeted
Cost Plain Fancy
Packaging $360,000 70,000
finished units
130,000 finished
units
Material
handling
$262,500 140,000 total
parts
210,000 total
parts
Production
setups
$125,000 5 total setups 20 total setups
a. Compute the approximate overhead cost per unit of Plain under activity-based costing.
b. Compute the approximate overhead cost per unit of Fancy under activity-based costing.
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188. Upside Down, Incorporated designs custom storage spaces to eliminate clutter in both
residential and business settings. The following data pertain to a recent reporting period:
Required
a. Use ABC to compute overhead rates for each activity.
b. Assign costs to a 3,000 square foot job that requires 70 contact hours, 20 design hours, and 14
days to complete.
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189. Inside Out, Company designs custom showroom spaces in interior design marts across the
country. The following data pertain to a recent reporting period.
Design Department
Client consultation 750 contact hours $127,500
Drawing 1,200 design hours $96,000
Models 15,000 square feet $21,000
Project Management
Supervision 225 days $40,500
Billings 150 jobs $54,000
Required
a. Use ABC to compute overhead rates for each activity.
b. Assign costs to a 3,000 square-foot job that requires 70 contact hours, 20 design hours, and 14
days to complete.
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190. Product pricing, product mix decisions, and cost control are examples of
_________________ activities.
191. In competitive markets, price is established through the forces of _______________ and
_______________.
192. Product costs consist of direct labor, direct materials, and ______________.
193. Overhead costs cannot be ________________________ in the same way that direct
materials and direct labor can.
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194. The ________________________ overhead rate method uses a single rate for allocating
overhead costs to products.
195. The ________________________ overhead rate method uses multiple volume-based
measures to allocate overhead costs to products.
196. ________________________focuses on activities and the cost of carrying out activities.
197. The ________________________ is the target of the cost assignment.
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198. A _______________________ overhead rate is a single overhead rate determined by using
volume-related measures.
199. The ______________________ overhead rate method uses a different overhead rate for
each production department.
200. The departmental overhead rate method allows each department to have its own overhead
rate and its own ____________________.
201. The premise of ABC is that it takes ____________________ to make products and provide
services.
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202. The _______________ stage of ABC is to compute an activity rate for each cost pool and
then use this rate to allocate overhead costs to products.
203. A _____________________ is a collection of costs that are related to the same or similar
activity.
204. The major advantages of using a single plantwide overhead rate are
____________________ and ____________________.
205. Allocated overhead ____________________________ vary depending upon the allocation
method used.
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206. When products differ in batch size and complexity, they usually consume different amounts
of ____________________________.
207. ____________________________ is an outgrowth of ABC that draws on the link between
activities and cost incurrence for better management.
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