AAPPENDIX C
ACTIVITY-BASED COSTING
1. Activity-based costing attempts to better allocate costs to the proper users of overhead by
focusing on activities.
2. Activity-based costing assigns costs first to activity pools, and then costs from activity cost
pools are assigned to the cost objects benefiting from the activities.
3. An activity-based costing system usually involves a fewer number of allocations compared
with a traditional cost allocation system.
4. Activity-based costing can be especially effective in situations where many different
products are manufactured in the same department or departments.
5. Activity cost pools are an important part of the allocation of overhead costs using activity-
based costing.
6. Unit costs can be significantly different when using activity-based costing compared to
traditional cost allocation methods.
7. Activity-based costing is a costing method that is designed to provide managers with
product cost information for external financial reports.
8. In activity-based costing, some manufacturing costs may be excluded from product costs.
9. In activity-based costing, there are a number of activity cost pools, each of which is
allocated to products and other costing objects using its own unique measure of activity.
10. Activity based costing can be applied to:
A. Manufacturing activities only.
B. Service activities only.
C. Merchandising activities only.
D. Any company in any industry.
E. Government only.
11. A system of assigning costs to departments and products on the basis of a variety of
activities instead of only one allocation base is called:
A. A responsibility accounting system.
B. A cost center accounting system.
C. Controllable costing.
D. Activity-based costing.
E. Performance costing.
12. A factor that causes the cost of an activity to go up or down is a(n):
A. Direct factor.
B. Indirect factor.
C. Cost driver.
D. Product cost.
E. Contribution factor.
13. An activity-based cost allocation system:
A. Is one form of a direct or variable costing system.
B. Does not provide total unit cost data.
C. Traces costs to products on the basis of activities performed on them.
D. Does not provide for the allocation of any cost to products that cannot be directly
attributable to those products.
E. Does not involve the level of detail and the number of allocations that companies make
with traditional allocation methods.
14. A basis for allocating the cost of a resource to an activity cost pool or allocating the cost
of an activity cost pool to a cost object is a(n):
A. Direct factor.
B. Indirect factor.
C. Cost driver.
D. Joint cost.
E. Opportunity cost.
15. If a firm uses activity-based costing to allocate costs, it must:
A. Combine costs in appropriate pools.
B. Select appropriate cost drivers.
C. Calculate an appropriate rate for each pool.
D. Allocate costs based on predetermined rates for cost pools.
E. Perform all of these steps.
16. The following is taken from Ames Company’s internal records of its factory with two
operating departments. The cost driver for indirect labor is direct labor costs, and the cost
driver for the remaining items is number of hours of machine use. Compute the total amount
of overhead allocated to Dept.1 using activity-based costing.
Direct Labor
Machine
Use Hours
Operating Dept. 1
$21,800
2,300
Operating Dept. 2
15,600
1,500
Totals
$37,400
3,800
Factory overhead costs
Rent and utilities
$12,900
Indirect labor
11,220
Depreciation – Equipment
8,000
Total factory overhead
$32,120
A. $18,720.
B. $12,930.
C. $13,400.
D. $19,190.
E. $19,440.
17. The following is taken from Ames Company’s internal records of its factory with two
operating departments. The cost driver for indirect labor is direct labor costs, and the cost
driver for the remaining items is number of hours of machine use. Compute the total amount
of overhead allocated to Dept.2 using activity-based costing.
Direct Labor
Machine
Use Hours
Operating Dept. 1
$21,800
2,300
Operating Dept. 2
15,600
1,500
Totals
$37,400
3,800
Factory overhead costs
Rent and utilities
$12,900
Indirect labor
11,220
Depreciation – Equipment
8,000
Total factory overhead
$32,120
A. $18,720.
B. $12,930.
C. $13,400.
D. $19,190.
E. $19,440.
18. Which of the following is not a limitation of activity-based costing?
A. Maintaining an activity-based costing system is more costly than maintaining a traditional
direct labor-based costing system.
B. Changing from a traditional direct labor-based costing system to an activity-based costing
system changes product margins and other key performance indicators used by managers.
Such changes are often resisted by managers.
C. In practice, most managers insist on fully allocating all costs to products, customers, and
other costing objects in an activity-based costing system. This results in overstated costs.
D. More accurate product costs may result in increasing the selling prices of some products.
E. All of the choices are not limitations of activity-based costing.
19. Bossie Corporation uses an activity-based costing system with three activity cost pools.
The company has provided the following data concerning its costs and its activity based
costing system:
How much cost, in total, would be allocated in the first-stage allocation to the Assembly
activity cost pool?
A. $196,333
B. $209,000
C. $310,000
D. $155,000
E. $200,000
20. Spendlove Corporation has provided the following data from its activity-based costing
system:
The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-
hours, 40 orders, and 30 inspection-hours per year. The product’s direct materials cost is
$49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per
unit. According to the activity-based costing system, the product margin for product S78N
is:
A. $4,116.50
B. $29,132.50
C. $6,180.50
D. $5,161.30
E. $4,981.00
21. Maccarone Corporation has provided the following data from its activity-based costing
system:
Data concerning one of the company’s products, Product A43V, appear below:
According to the activity-based costing system, the product margin for product A43V is:
A. $2,891.90
B. $5,931.30
C. $11,917.50
D. $2,236.90
E. $3,178.20
22. Reach Consulting Corporation has its headquarters in Chicago and operates from three
branch offices in Portland, Dallas, and Miami. Two of the company’s activity cost pools are
General Service and Research Service. These costs are allocated to the three branch offices
using an activity-based costing system. Information for next year follows:
Estimated branch data for next year is as follows:
How much of the headquarters cost allocation should Dallas expect to receive next year?
A. $280,000
B. $409,500
C. $472,500
D. $504,000
E. $560,000
23. Drewniak Corporation has provided the following data from its activity-based costing
system:
The company makes 430 units of product O37W a year, requiring a total of 690 machine-
hours, 40 orders, and 10 inspection-hours per year. The product’s direct materials cost is
$35.72 per unit and its direct labor cost is $29.46 per unit. According to the activity-based
costing system, the average cost of product O37W is closest to:
A. $94.11 per unit
B. $89.72 per unit
C. $65.18 per unit
D. $92.49 per unit
E. $64.99 per unit
24. Paul Company has two products: A and B. The company uses activity-based costing. The
total cost and activity for each of the company’s three activity cost pools are as follows:
The activity rate under the activity-based costing system for Activity 3 is closest to:
A. $70.45
B. $28.87
C. $19.47
D. $58.40
E. $32.55
25. Wecker Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products:
Data concerning two products appear below:
How much overhead cost would be assigned to Product V09X using the activity-based costing
system?
A. $157.87
B. $91,722.47
C. $10,385.22
D. $5,485.50
E. $16,640.87
26. Ekmark Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products:
Data for one of the company’s products follow:
How much overhead cost would be assigned to Product P59G using the activity-based costing
system?
A. $54,482.56
B. $5,301.76
C. $10,014.40
D. $154.78
E. $5,301.76