Chapter 6 Cost Allocation and Activity-Based Costing
6-21
112. Ernst & Gray, CPAs has three divisions: audit, tax, and business consulting. When the
specifications for the new computer system were established, the audit division needed
50% of the capacity, the tax division required 30%, and business consulting required
20%. The fixed computer department costs are allocated based on computer needs. The
variable costs of the computer department are allocated based on the minutes of
computer time that each department uses. The computer division budget for fixed costs
is $450,000, and the budget for variable costs is $145,600. The company anticipates
using 520,000 minutes of computer time. If the business consulting division uses 78,000
minutes of computer time, what is the total amount of computer department costs that
will be allocated to the business consulting division (round your intermediate calculation
to two decimal places)?
A. $21,840
B. $89,340
C. $111,840
D. $119,120
113. Bayard Backup is a manufacturer of data storage devices. Bayard operates two service
departments—maintenance and technology, and two production departments—
assembly and testing. Maintenance costs are allocated on the basis of square footage
occupied, and technology costs are allocated on the basis of the number of
workstations. The following data relate to allocations of service department costs:
Maintenance Technology Assembly Testing
Service department costs $400,000 $230,000
Square footage 2,000 3,000 20,000 30,000
Workstations 4 16 10 30
How much maintenance costs will be allocated to the assembly department using the
direct method?
A. $160,000
B. $133,333
C. $266,667
D. $4,000
114. Bayard Backup is a manufacturer of data storage devices. Bayard operates two service
departments—maintenance and technology, and two production departments—
assembly and testing. Maintenance costs are allocated on the basis of square footage
occupied, and technology costs are allocated on the basis of the number of
workstations. The following data relate to allocations of service department costs:
Maintenance Technology Assembly Testing
Service department costs $400,000 $230,000
Square footage 2,000 3,000 20,000 30,000
Workstations 4 16 10 30
How much technology department costs will be allocated to the testing department using
the direct method?
A. $92,000
B. $65,714
C. $172,500
D. $115,000
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-22
115. VelCraft allocates costs from its payroll department and the maintenance department to
its production departments using the direct method of allocation. Payroll department
costs are allocated based on the number of employees in the department and
maintenance department costs are allocated based on the number of square feet that
the production department occupies within the factory. Information about the
departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll $150,000 2 2,000
Maintenance $220,000 8 64,000
Molding 75 100,000
Finishing 50 60,000
Packaging 25 40,000
What amount of the payroll department costs will be allocated to the molding
department?
A. $70,313
B. $185,000
C. $75,000
D. $132,353
116. VelCraft allocates costs from its payroll department and the maintenance department to
its production departments using the direct method of allocation. Payroll department
costs are allocated based on the number of employees in the department and
maintenance department costs are allocated based on the number of square feet that
the production department occupies within the factory. Information about the
departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll $150,000 2 2,000
Maintenance $220,000 8 64,000
Molding 75 100,000
Finishing 50 60,000
Packaging 25 40,000
When the payroll department costs are allocated, what is the amount per employee that
will be charged to each of the departments?
A. $937.50
B. $15,000
C. $6.67
D. $1,000
Chapter 6 Cost Allocation and Activity-Based Costing
6-23
117. VelCraft allocates costs from its payroll department and the maintenance department to
its production departments using the direct method of allocation. Payroll department
costs are allocated based on the number of employees in the department and
maintenance department costs are allocated based on the number of square feet that
the production department occupies within the factory. Information about the
departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll $150,000 2 2,000
Maintenance $220,000 8 64,000
Molding 75 100,000
Finishing 50 60,000
Packaging 25 40,000
What amount of the payroll department costs will be allocated to the packaging
department?
A. $23,438
B. $73,333
C. $25,000
D. $36,667
118. VelCraft allocates costs from its payroll department and the maintenance department to
its production departments using the direct method of allocation. Payroll department
costs are allocated based on the number of employees in the department and
maintenance department costs are allocated based on the number of square feet that
the production department occupies within the factory. Information about the
departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll $150,000 2 2,000
Maintenance $220,000 8 64,000
Molding 75 100,000
Finishing 50 60,000
Packaging 25 40,000
When the maintenance department costs are allocated, what amount will be charged to
the packaging department? (Round your intermediate calculation to two decimal places)
A. $44,000
B. $33,083
C. $70,400
D. $52,932
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-24
119. VelCraft allocates costs from its payroll department and the maintenance department to
its production departments using the direct method of allocation. Payroll department
costs are allocated based on the number of employees in the department and
maintenance department costs are allocated based on the number of square feet that
the production department occupies within the factory. Information about the
departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll $150,000 2 2,000
Maintenance $220,000 8 64,000
Molding 75 100,000
Finishing 50 60,000
Packaging 25 40,000
When the maintenance department costs are allocated, what amount will be charged to
the molding department? (Round your intermediate calculation to two decimal places)
A. $44,000
B. $82,707
C. $110,000
D. $52,932
120. The manager of the molding department at the Category Products Company is
evaluated based on the profit performance of his department. Personnel costs at
Category Products are estimated to be $40,000. These costs are allocated based on the
number of employees in each production department. The welding department has 40
employees, and the molding department has 60 employees. The personnel department
actually incurred $52,000 in personnel costs. The profit of the molding department is
down this year because the molding department’s share of allocated personnel costs is
much higher than last year. The allocation of personnel costs to the molding department
is higher in the current year. This is most likely due to
A. the increase in the company’s total production costs.
B. allocating actual personnel costs to the production departments.
C. more number of efficient employees in the welding department.
D. more number of employees in the molding department.
121. Vystar Credit Union has six service departments (human resources, duplicating,
janitorial, accounting, graphic design, and food services) whose fixed costs are allocated
to the company’s two subsidiaries (Vystar Personal Banking and Vystar Business
Banking) on the basis of their relative revenue. What type of costs will the president of
Vystar Business Banking subsidiary perceive the allocated service department costs to
be?
A. Fixed costs
B. Opportunity costs
C. Direct costs
D. Variable costs
Chapter 6 Cost Allocation and Activity-Based Costing
6-25
122. Unique Finds sells fine collectible statues and has implemented activity-based costing.
Costs in the shipping department have been divided into three cost pools. The first cost
pool contains costs that are related to packaging and shipping. Unique has determined
that the number of boxes shipped is an appropriate cost driver for these costs. The
second cost pool is made up of costs related to the final inspection of each item before it
is shipped and the cost driver for this pool is the number of individual items that are
inspected. The final cost pool is used for general operations of the department and the
cost driver is the number of orders. Information about the activities is summarized below:
Cost Pool
Estimated
Total
Costs
Cost Driver
Estimated
Annual
Activity
Packaging and
shipping
$ 67,200
Number of boxes shipped
16,000
boxes
Final inspection
200,000
Number of individual items
inspected
100,000
items
General
operations
85,000
Number of orders
10,000
orders
During June, 2,100 boxes were packed and shipped. How much is the packaging and
shipping cost for each box shipped?
A. $0.24
B. $7.62
C. $4.20
D. $32.00
123. Unique Finds sells fine collectible statues and has implemented activity-based costing.
Costs in the shipping department have been divided into three cost pools. The first cost
pool contains costs that are related to packaging and shipping. Unique has determined
that the number of boxes shipped is an appropriate cost driver for these costs. The
second cost pool is made up of costs related to the final inspection of each item before it
is shipped and the cost driver for this pool is the number of individual items that are
inspected. The final cost pool is used for general operations of the department and the
cost driver is the number of orders. Information about the activities is summarized below:
Estimated
Total
Costs
Cost Driver
Estimated
Annual
Activity
$ 67,200
Number of boxes shipped
16,000 boxes
200,000
Number of individual items
inspected
100,000 items
85,000
Number of orders
10,000 orders
During June, 4,000 items were sold reflecting 800 orders that were packed and shipped
in 2,100 boxes. What amount is allocated to each order for general operations of the
department?
A. $4.20
B. $29.53
C. $8.50
D. $10.00
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-26
124. Unique Finds sells fine collectible statues and has implemented activity-based costing.
Costs in the shipping department have been divided into three cost pools. The first cost
pool contains costs that are related to packaging and shipping. Unique has determined
that the number of boxes shipped is an appropriate cost driver for these costs. The
second cost pool is made up of costs related to the final inspection of each item before it
is shipped and the cost driver for this pool is the number of individual items that are
inspected. The final cost pool is used for general operations of the department and the
cost driver is the number of orders. Information about the activities is summarized below:
Estimated
Total
Costs
Cost Driver
Estimated
Annual
Activity
$ 67,200
Number of boxes shipped
16,000 boxes
200,000
Number of individual items
inspected
100,000 items
85,000
Number of orders
10,000 orders
An order is shipped to a retail customer who has ordered 6 individual items. This order
will be shipped in 3 separate boxes. What is the packing and shipping cost that will be
allocated to the order?
A. $4.20
B. $4.03
C. $25.20
D. $12.60
125. Unique Finds sells fine collectible statues and has implemented activity-based costing.
Costs in the shipping department have been divided into three cost pools. The first cost
pool contains costs that are related to packaging and shipping. Unique has determined
that the number of boxes shipped is an appropriate cost driver for these costs. The
second cost pool is made up of costs related to the final inspection of each item before it
is shipped and the cost driver for this pool is the number of individual items that are
inspected. The final cost pool is used for general operations of the department and the
cost driver is the number of orders. Information about the activities is summarized below:
Estimated
Total
Costs
Cost Driver
Estimated
Annual
Activity
$ 67,200
Number of boxes shipped
16,000 boxes
200,000
Number of individual items
inspected
100,000 items
85,000
Number of orders
10,000 orders
A new customer orders two items that can be shipped in a single box. What is the total
shipping department cost that will be allocated to this order?
A. $16.70
B. $14.70
C. $8.20
D. None of these answer choices are correct.
Chapter 6 Cost Allocation and Activity-Based Costing
6-27
126. Unique Finds sells fine collectible statues and has implemented activity-based costing.
Costs in the shipping department have been divided into three cost pools. The first cost
pool contains costs that are related to packaging and shipping. Unique has determined
that the number of boxes shipped is an appropriate cost driver for these costs. The
second cost pool is made up of costs related to the final inspection of each item before it
is shipped and the cost driver for this pool is the number of individual items that are
inspected. The final cost pool is used for general operations of the department and the
cost driver is the number of orders. Information about the activities is summarized below:
Estimated
Total
Costs
Cost Driver
Estimated
Annual
Activity
$ 67,200
Number of boxes shipped
16,000 boxes
200,000
Number of individual items
inspected
100,000 items
85,000
Number of orders
10,000 orders
During the period, the Eastern sales office generated 240 orders for a total of 3,560
items of which were shipped in 1,200 boxes. What amount of shipping department costs
should be allocated to these sales?
A. $9,480
B. $5,040
C. $14,200
D. None of these answer choices are correct.
127. Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats.
The company makes 50,000 jackets and 20,000 hats each year. Information for
overhead costs and for the two products appears below.
Activity
Driver
Estimated
Total
Overhead
Cost
Jackets
Hats
Setups
# of setups
$ 200,000
500 setups
1,500 setups
Ordering
parts
# of parts
300,000
60,000 parts
40,000 parts
Machining
# of machine
hours
600,000
12,000 machine
hrs.
6,000 machine
hrs.
Inspections
# of inspections
400,000
10,000 inspections
40,000 inspections
Shipping
# of shipments
300,000
10,000 shipments
10,000 shipments
Total
overhead
$1,800,000
Assume that all overhead is assigned to products using machine hours. How much
overhead will be assigned to each jacket?
A. $100,000 per jacket
B. $24 per jacket
C. $150 per jacket
D. $17.20 per jacket
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-28
128. Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats.
The company makes 50,000 jackets and 20,000 hats each year. Information for
overhead costs and for the two products appears below.
Activity
Driver
Estimated
Total
Overhead
Cost
Jackets
Hats
Setups
# of setups
$ 200,000
500 setups
1,500 setups
Ordering
parts
# of parts
300,000
60,000 parts
40,000 parts
Machining
# of machine
hours
600,000
12,000 machine
hrs.
6,000 machine
hrs.
Inspections
# of inspections
400,000
10,000 inspections
40,000 inspections
Shipping
# of shipments
300,000
10,000 shipments
10,000 shipments
Total
overhead
$1,800,000
Assume that activity-based costing is used. What is the rate per setup that should be
used to assign setup cost to hats?
A. $100 per setup
B. $200,000 per setup
C. $133.33 per setup
D. $900 per setup
129. Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats.
The company makes 50,000 jackets and 20,000 hats each year. Information for
overhead costs and for the two products appears below.
Activity
Driver
Estimated
Total
Overhead
Cost
Jackets
Hats
Setups
# of setups
$ 200,000
500 setups
1,500 setups
Ordering
parts
# of parts
300,000
60,000 parts
40,000 parts
Machining
# of machine
hours
600,000
12,000 machine
hrs.
6,000 machine
hrs.
Inspections
# of inspections
400,000
10,000 inspections
40,000 inspections
Shipping
# of shipments
300,000
10,000 shipments
10,000 shipments
Total
overhead
$1,800,000
How much is the overhead cost of each hat if all overhead is assigned using ABC?
A. $159.33 per hat
B. $24.00 per hat
C. $100.00 per hat
D. $47.00 per hat
Chapter 6 Cost Allocation and Activity-Based Costing
6-29
130. Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats.
The company makes 50,000 jackets and 20,000 hats each year. Information for
overhead costs and for the two products appears below.
Activity
Driver
Estimated
Total
Overhead
Cost
Jackets
Hats
Setups
# of setups
$ 200,000
500 setups
1,500 setups
Ordering
parts
# of parts
300,000
60,000 parts
40,000 parts
Machining
# of machine
hours
600,000
12,000 machine
hrs.
6,000 machine
hrs.
Inspections
# of inspections
400,000
10,000 inspections
40,000 inspections
Shipping
# of shipments
300,000
10,000 shipments
10,000 shipments
Total
overhead
$1,800,000
If the company uses a single cost pool and assigns overhead using machine hours, how
much overhead will be assigned to each hat?
A. $24.00 per hat
B. $100 per hat
C. $30.00 per hat
D. $300.00 per hat
131. Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats.
The company makes 50,000 jackets and 20,000 hats each year. Information for
overhead costs and for the two products appears below.
Activity
Driver
Estimated
Total
Overhead
Cost
Jackets
Hats
Setups
# of setups
$ 200,000
500 setups
1,500 setups
Ordering
parts
# of parts
300,000
60,000 parts
40,000 parts
Machining
# of machine
hours
600,000
12,000 machine
hrs.
6,000 machine
hrs.
Inspections
# of inspections
400,000
10,000 inspections
40,000 inspections
Shipping
# of shipments
300,000
10,000 shipments
10,000 shipments
Total
overhead
$1,800,000
Fox Hunting Gear uses activity-based costing. What is the rate per inspection that
should be used to assign inspection cost to hats?
A. $10 per inspection
B. $40 per inspection
C. $8 per inspection
D. $16 per inspection
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-30
132. Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats.
The company makes 50,000 jackets and 20,000 hats each year. Information for
overhead costs and for the two products appears below.
Activity
Driver
Estimated
Total
Overhead
Cost
Jackets
Hats
Setups
# of setups
$ 200,000
500 setups
1,500 setups
Ordering
parts
# of parts
300,000
60,000 parts
40,000 parts
Machining
# of machine
hours
600,000
12,000 machine
hrs.
6,000 machine
hrs.
Inspections
# of inspections
400,000
10,000 inspections
40,000 inspections
Shipping
# of shipments
300,000
10,000 shipments
10,000 shipments
Total
overhead
$1,800,000
What will be the overhead cost of each jacket if overhead is assigned using ABC?
A. $159.33 per jacket
B. $100 per jacket
C. $47 per jacket
D. $17.20 per jacket
133. Rather Bedding makes two types of pillow—down and foam. It is currently implementing
an activity-based costing system. In the past, all overhead had been applied on the basis
of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows
per year.
Cost Pool
Driver and
Level
Estimated
Costs
Use of Driver by
Down Pillows
Use of Driver by
Foam Pillows
Equipment
setup
360 setups
$216,000
120 setups
240 setups
Materials
ordering
6,000 orders
$60,000
2,400 orders
3,600 orders
Quality control
2,000
inspections
$36,000
800 inspections
1,200 inspections
Machining
8,000
machine
hours
$86,800
4,200 machine
hours
3,800 machine
hours
What is the overhead cost for each foam pillow when all overhead is applied based on
machine hours?
A. $10.52 per foam pillow
B. $638.85 per foam pillow
C. $49.85 per foam pillow
D. $20.67 per foam pillow
Chapter 6 Cost Allocation and Activity-Based Costing
6-31
134. Rather Bedding makes two types of pillow—down and foam. It is currently implementing
an activity-based costing system. In the past, all overhead had been applied on the basis
of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows
per year.
Cost Pool
Driver and
Level
Estimated
Costs
Use of Driver by
Down Pillows
Use of Driver by
Foam Pillows
Equipment
setup
360 setups
$216,000
120 setups
240 setups
Materials
ordering
6,000 orders
$60,000
2,400 orders
3,600 orders
Quality control
2,000
inspections
$36,000
800 inspections
1,200 inspections
Machining
8,000
machine
hours
$86,800
4,200 machine
hours
3,800 machine
hours
What is the overhead cost for each down pillow using ABC?
A. $50.00 per down pillow
B. $26.00 per down pillow
C. $13.49 per down pillow
D. $16.67 per down pillow
135. Rather Bedding makes two types of pillow—down and foam. It is currently implementing
an activity-based costing system. In the past, all overhead had been applied on the basis
of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows
per year.
Cost Pool
Driver and
Level
Estimated
Costs
Use of Driver by
Down Pillows
Use of Driver by
Foam Pillows
Equipment
setup
360 setups
$216,000
120 setups
240 setups
Materials
ordering
6,000 orders
$60,000
2,400 orders
3,600 orders
Quality control
2,000
inspections
$36,000
800 inspections
1,200 inspections
Machining
8,000
machine
hours
$86,800
4,200 machine
hours
3,800 machine
hours
Which two cost pools could be combined without affecting the unit costs using ABC?
A. Equipment setup and machining
B. Materials ordering and quality control
C. Materials ordering and machining
D. None. The drivers for each activity differ.
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-32
136. Rather Bedding makes two types of pillow—down and foam. It is currently implementing
an activity-based costing system. In the past, all overhead had been applied on the basis
of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows
per year.
Cost Pool
Driver and
Level
Estimated
Costs
Use of Driver by
Down Pillows
Use of Driver by
Foam Pillows
Equipment
setup
360 setups
$216,000
120 setups
240 setups
Materials
ordering
6,000 orders
$60,000
2,400 orders
3,600 orders
Quality control
2,000
inspections
$36,000
800 inspections
1,200 inspections
Machining
8,000
machine
hours
$86,800
4,200 machine
hours
3,800 machine
hours
Using ABC, what is the cost per setup to be assigned to down pillows?
A. $600 per setup
B. $0.10 per setup
C, $3.02 per setup
D. None of these answer choices are correct.
137. Rather Bedding makes two types of pillow—down and foam. It is currently implementing
an activity-based costing system. In the past, all overhead had been applied on the basis
of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows
per year.
Cost Pool
Driver and
Level
Estimated
Costs
Use of Driver by
Down Pillows
Use of Driver by
Foam Pillows
Equipment
setup
360 setups
$216,000
120 setups
240 setups
Materials
ordering
6,000 orders
$60,000
2,400 orders
3,600 orders
Quality control
2,000
inspections
$36,000
800 inspections
1,200 inspections
Machining
8,000
machine
hours
$86,800
4,200 machine
hours
3,800 machine
hours
What is the overhead cost for each down pillow when all overhead is applied based on
machine hours?
A. $34.90 per down pillow
B. $49.85 per down pillow
C. $10.85 per down pillow
D. None of these answer choices are correct.
Chapter 6 Cost Allocation and Activity-Based Costing
6-33
138. Rather Bedding makes two types of pillow—down and foam. It is currently implementing
an activity-based costing system. In the past, all overhead had been applied on the basis
of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows
per year.
Cost Pool
Driver and
Level
Estimated
Costs
Use of Driver by
Down Pillows
Use of Driver by
Foam Pillows
Equipment
setup
360 setups
$216,000
120 setups
240 setups
Materials
ordering
6,000 orders
$60,000
2,400 orders
3,600 orders
Quality control
2,000
inspections
$36,000
800 inspections
1,200 inspections
Machining
8,000
machine
hours
$86,800
4,200 machine
hours
3,800 machine
hours
What is the overhead cost for each foam pillow using ABC?
A. $10.56 per foam pillow
B. $26.00 per foam pillow
C. $13.49 per foam pillow
D. $50.00 per foam pillow
139. Rather Bedding makes two types of pillow—down and foam. It is currently implementing
an activity-based costing system. In the past, all overhead had been applied on the basis
of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows
per year.
Cost Pool
Driver and
Level
Estimated
Costs
Use of Driver by
Down Pillows
Use of Driver by
Foam Pillows
Equipment
setup
360 setups
$216,000
120 setups
240 setups
Materials
ordering
6,000 orders
$60,000
2,400 orders
3,600 orders
Quality control
2,000
inspections
$36,000
800 inspections
1,200 inspections
Machining
8,000
machine
hours
$86,800
4,200 machine
hours
3,800 machine
hours
Using ABC, what is the cost per machine hour in the machining pool?
A. $10.85 per machine hour
B. $20.67 per machine hour
C. $50.00 per machine hour
D. None of these answer choices are correct.
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-34
140. Recker Recreational uses activity-based costing. The company produces wooden
playground equipment. It has two models manufactured in its Texas plant—swings and
slides. The estimated costs and expected activity for each of the overhead activity pools
follow:
Activity Estimated Expected Activity
Cost Pool Cost Swings Slides Total
Activity 1 $15,675 800 300 1,100
Activity 2 $11,900 500 200 700
Activity 3 $36,000 800 400 1,200
Which of the following is the rate for Activity 3 that will used to allocate costs to swings?
A. $90
B. $12,000
C. $30
D. There is not enough information provided to determine the answer.
141. Random House uses activity-based costing. The company produces soft and hardcover
books. The estimated costs and expected activity for each of the overhead activity pools
follow:
Activity Estimated Expected Activity
Cost Pool Cost Hard-Cover Soft-Cover Total
Activity 1 $15,000 800 700 1,500
Activity 2 $14,900 500 1,500 2,000
Activity 3 $27,600 800 400 1,200
How much are total overhead costs to be charged to hardcover books?
A. $30,125
B. $8,000
C. $84,945
D. $25,691
142. Hurst Productions uses activity-based costing. The company produces weekly and
monthly magazines. The estimated costs and expected activity for each of the activity
pools follow:
Expected Activity
Cost Pool
Estimated
Cost
Weekly
Monthly
Total
Pressing
$24,600
600
400
1,000
Printing
6,250
400
100
500
Binding
9,000
800
1,200
2,000
How much pressing cost will be assigned to monthly magazines?
A. $24.60
B. $9,840
C. $61.50
D. None of these answer choices are correct.
Chapter 6 Cost Allocation and Activity-Based Costing
6-35
143. Hurst Productions uses activity-based costing. The company produces weekly and
monthly magazines. The estimated costs and expected activity for each of the activity
pools follow:
Expected Activity
Cost Pool
Estimated
Cost
Weekly
Monthly
Total
Pressing
$24,600
600
400
1,000
Printing
6,250
400
100
500
Binding
9,000
800
1,200
2,000
How much are the total costs to be allocated to monthly magazines?
A. $16,490
B. $41.60
C. $131.50
D. None of these answer choices are correct.
144. PaperPro produces two models of staplers—Executive and Basic. The annual
production and sales of Executive and Basic are 800 and 500 units, respectively. The
company has traditionally used direct labor hours to apply manufacturing overhead.
Executive requires 0.3 labor hours per unit and Basic requires 0.2 labor hours per unit.
The company has decided to utilize activity-based costing with three cost pools.
Estimated costs for each pool are as follows:
Estimated
Activity Overhead Expected Activity
Cost Pool Costs Executive Basic Total
Assembly $24,025 450 420 870
Packaging 16,880 2,000 750 2,750
General Factory 32,014 120 150 270
Total $72,919
Which of the following is closest to the overhead rate for assembly using activity-based
costing?
A. $81.81
B. $53.39
C. $57.20
D. $27.61
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-36
145. Kamber Designs produces floral bouquets for commercial businesses (i.e. hotels) and
uses an activity-based costing system. The company estimated that it would design
15,000 bouquets, make 2,000 deliveries totaling 25,000 miles, and accept 300 online
orders. Data concerning overhead costs and activity pools is as follows:
Bouquet designs $60,000
Deliveries 21,000
Online ordering 6,000
Total $87,000
During May, the company made 1,400 bouquets using 1,300 designs, made 420
deliveries, and accepted 30 online orders. Using activity-based costing, what is the
approximate overhead cost per bouquet during May?
A. $16.50
B. $7.29
C. $62.14
D. None of these answer choices are correct.
146. Gator Dockside produces two products, A and B. The annual production and sales of
product A and B are 600 and 400 units, respectively. The company has traditionally used
direct labor hours to apply manufacturing overhead. Product A requires 0.5 labor hours
per unit and product B requires 1.2 labor hours per unit. The company has decided to
utilize activity-based costing with three cost pools. Estimated costs for each pool are as
follows:
Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product A Product B Total
Activity 1 $24,000 1,500 500 2,000
Activity 2 10,800 450 1,350 1,800
General factory 19,200 80 320 400
Total $54,000
When using activity-based costing, to which of the following amounts is the total
overhead cost for one unit of product A closest?
A. $66.00
B. $280.00
C. $40.90
D. $61.35
Chapter 6 Cost Allocation and Activity-Based Costing
6-37
147. Fifth Third Bank is a banking services company that offers several different types of
checking accounts. The bank has recently adopted an activity-based costing system to
assign costs to its checking accounts. The following data relate to the Mind Your Money
checking accounts and the ABC cost pools:
Annual number of accounts = 60,000 accounts
Cost Pool Cost Cost Drivers
Returned check costs $3,000,000 Number of returned checks
Account reconciliation costs 60,000 Number of account reconciliation requests
New account setup 650,000 Number of new accounts
Archive requests 400,000 Number of archive requests
Web site costs 195,000 Per account type
Total checking account costs $4,305,000
Annual activity information related to cost drivers:
Cost Pool All Products Mind Your Money Checking
Returned checks 200,000 returned checks 18,000
Account reconciliation costs 3,000 reconciliation requests 420
New account setups 60,000 new accounts 15,000
Archive requests 100,000 archive requests 60,000
Web site costs 10 types of accounts 1
How much is the rate to be used to apply the cost of new accounts to each Mind Your
Money checking account?
A. $10.83
B. $43.33
C. $71.75
D. $60.39
148. Kamber Designs produces floral bouquets for commercial businesses (i.e. hotels) and
uses an activity-based costing system. The company estimated that it would design
15,000 bouquets, make 2,000 deliveries totaling 25,000 miles, and accept 300 online
orders. Data concerning overhead costs and activity pools is as follows:
Bouquet designs $60,000
Deliveries 21,000
Online ordering 6,000
Total $87,000
During June, the company made 1,500 bouquets using 1,100 designs, made 325
deliveries and accepted 45 online orders. Using activity-based costing, what is the
approximate overhead cost per bouquet during June?
A. $7.92
B. $5.81
C. $5
D. None of these answer choices are correct.
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
6-38
149. Fifth Third Bank is a banking services company that offers several different types of
checking accounts. The bank has recently adopted an activity-based costing system to
assign costs to its checking accounts. The following data relate to the Mind Your Money
checking accounts and the ABC cost pools:
Annual number of accounts = 60,000 accounts
Cost Pool Cost Cost Drivers
Returned check costs $3,000,000 Number of returned checks
Account reconciliation costs 60,000 Number of account reconciliation requests
New account setup 650,000 Number of new accounts
Archive requests 400,000 Number of archive requests
Web site costs 195,000 Per account type
Total checking account costs $4,305,000
Annual activity information related to cost drivers:
Cost Pool All Products Mind Your Money Checking
Returned checks 200,000 returned checks 18,000
Account reconciliation costs 3,000 reconciliation requests 420
New account setups 60,000 new accounts 15,000
Archive requests 100,000 archive requests 60,000
Web site costs 10 types of accounts 1
How much is the rate to be used to allocate account reconciliation cost to each Mind
Your Money checking account?
A. $20.00
B. $1.00
C. $0.14
D. $142.85
150. Retirement Planning is a consulting firm with clients across the nation. Within the
company is a travel group that arranges flights and hotel accommodations for its 250
consultants. The overhead cost of operating the travel group amounts to approximately
$204,000 annually. Recently the company conducted an ABM study that has determined
the following:
• Each consultant completed approximately 15 business trips per year.
• On average, 17 trips are scheduled, with 2 trips cancelled and rescheduled.
• Benchmarking with a Retirement Planning’s client indicates that the client
incurs a cost of $60 per scheduled trip to book travel.
How much overhead cost should be allocated to each completed trip?
A. $54.40
B. $48.00
C. $60.00
D. None of these answer choices are correct.