Accounting Chapter 9 3 Terri Martin CPA Provides Bookkeeping And

55. Terri Martin, CPA provides bookkeeping and tax services to her clients. She charges a fee

of $60 per hour for bookkeeping and $90 per hour for tax services. Martin estimates the following

costs for the upcoming year:

Operating profits declined last year and Ms. Martin has decided to use activity–based costing

(ABC) procedures to evaluate her hourly fees. She gathered the following information from last

year’s records:

A major client has requested bookkeeping services. However, Martin is already billing 100% of her

capacity (i.e., 2,000 hours per year) and would need to shift 100 hours from her tax services to

meet this client’s request. What is the minimum fee per hour that Martin could charge this client

for bookkeeping services and be no worse off than last year?

56. Zela Company is preparing its annual profit plan. As part of its analysis of the profitability

of individual products, the controller estimates the amount of overhead that should be allocated to

the individual product lines from the information provided below. (CMA based)

Budgeted material handling costs: $50,000

Under a traditional costing system that allocates overhead on the basis of direct labor hours, the

materials handling costs allocated to one unit of wall mirrors would be:

57. Zela Company is preparing its annual profit plan. As part of its analysis of the profitability

of individual products, the controller estimates the amount of overhead that should be allocated to

the individual product lines from the information provided below. (CMA based)

Budgeted material handling costs: $50,000

Under a traditional costing system that allocates overhead on the basis of direct labor hours, the

materials handling costs allocated to one unit of specialty windows would be:

58. Zela Company is preparing its annual profit plan. As part of its analysis of the profitability

of individual products, the controller estimates the amount of overhead that should be allocated to

the individual product lines from the information provided below. (CMA based)

Budgeted material handling costs: $50,000

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit

of wall mirrors would be:

59. Zela Company is preparing its annual profit plan. As part of its analysis of the profitability

of individual products, the controller estimates the amount of overhead that should be allocated to

the individual product lines from the information provided below. (CMA based)

Budgeted material handling costs: $50,000

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit

of specialty windows would be:

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60. The LMN Company recently switched to activity–based costing (ABC) from the

department allocation method. The department method allocated overhead costs at a rate of $60

per machine hour. The cost accountant for Department XZ has gathered the following data:

During April, LMN purchased and used $100,000 of direct materials at $20 per ton. There were

eight (8) production runs using a total of 12,000 machine hours in April. The manager of

Department XZ needed 12 inspections. Actual overhead costs totaled $820,000 for the month.

How much overhead costs were applied to the Work–in-Process Inventory during April using

activity-based costing?

61. The LMN Company recently switched to activity-based costing (ABC) from the

department allocation method. The department method allocated overhead costs at a rate of $60

per machine hour. The cost accountant for Department XZ has gathered the following data:

During April, LMN purchased and used $100,000 of direct materials at $20 per ton. There were

eight (8) production runs using a total of 12,000 machine hours in April. The manager of

Department XZ needed 12 inspections. Actual overhead costs totaled $820,000 for the month.

How much overhead costs were applied to the Work–in-Process Inventory during April using

traditional costing?

62. The Muskego National Bank is considering either a bankwide overhead rate or department

overhead rates to allocate $250,000 of indirect costs. The bankwide rate could be based on either

direct labor hours (DLH) or the number of loans processed. The departmental rates would be

based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and

the number of loans processed for Commercial Loans. The following information was gathered for

the upcoming period:

If Muskego uses a bankwide rate based on direct labor hours, what would be the indirect costs

allocated to the Consumer Department?

63. The Muskego National Bank is considering either a bankwide overhead rate or department

overhead rates to allocate $250,000 of indirect costs. The bankwide rate could be based on either

direct labor hours (DLH) or the number of loans processed. The departmental rates would be

based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and

the number of loans processed for Commercial Loans. The following information was gathered for

the upcoming period:

If Muskego uses a bankwide rate based on direct labor hours, what would be the indirect costs

allocated to the Commercial Department?

64. The Muskego National Bank is considering either a bankwide overhead rate or department

overhead rates to allocate $250,000 of indirect costs. The bankwide rate could be based on either

direct labor hours (DLH) or the number of loans processed. The departmental rates would be

based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and

the number of loans processed for Commercial Loans. The following information was gathered for

the upcoming period:

If Muskego uses a bankwide rate based on the number of loans processed, what would be the

total costs for the Commercial Department?

65. The Muskego National Bank is considering either a bankwide overhead rate or department

overhead rates to allocate $250,000 of indirect costs. The bankwide rate could be based on either

direct labor hours (DLH) or the number of loans processed. The departmental rates would be

based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and

the number of loans processed for Commercial Loans. The following information was gathered for

the upcoming period:

If Muskego uses a bankwide rate based on the number of loans processed, what would be the

total costs for the Consumer Department?

66. Management estimates that it costs $500 to analyze and close a commercial loan. This

amount has been included in the $250,000 of indirect costs. How much of the $250,000 indirect

costs should be allocated to the Commercial Department?

67. Management estimates that it costs $500 to analyze and close a commercial loan. This

amount has been included in the $250,000 of indirect costs. How much of the $250,000 indirect

costs should be allocated to the Consumer Department?

68. Management estimates that it costs $400 to analyze and close a commercial loan. What is

the overhead rate if Muskego allocates the remaining indirect costs using direct labor hours?

69. Multiple (departmental) manufacturing overhead rates are considered preferable to a

single (plantwide) overhead rate when: (CMA adapted)

70. What is the typical effect on the numbers of cost pools and cost assignment bases when

an activity-based costing (ABC) system replaces a traditional costing system? (CPA adapted)

71. Which of the following would be a reasonable basis for assigning the materials handling

costs to the units produced in an activity–based costing (ABC) system?

72. Companies using activity-based costing (ABC) have learned that costs are a function of:

73. A company has identified the following overhead costs and cost drivers for the coming

year: (CIA adapted)

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000. The

following information was collected on three jobs that were completed during the year:

If the company uses activity-based costing (ABC), how much overhead cost should be assigned to

Job 101?

74. A company has identified the following overhead costs and cost drivers for the coming

year: (CIA adapted)

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000. The

following information was collected on three jobs that were completed during the year:

If the company uses activity-based costing (ABC), what is the cost of each unit of Job 102?

75. A company has identified the following overhead costs and cost drivers for the coming

year: (CIA adapted)

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000. The

following information was collected on three jobs that were completed during the year:

If the company uses activity-based costing (ABC), how much overhead cost should be assigned to

Job 103?

76. A company has identified the following overhead costs and cost drivers for the coming

year: (CIA adapted)

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000. The

following information was collected on three jobs that were completed during the year:

The company prices its products at 140% of cost. If the company uses activity–based costing

(ABC), the price of each unit of Job 103 would be

77. A company has identified the following overhead costs and cost drivers for the coming

year: (CIA adapted)

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000. The

following information was collected on three jobs that were completed during the year:

If the company uses traditional costing and allocates overhead using direct labor cost, how much

overhead cost should be assigned to Job 101?