Chapter 17—Activity-Based Costing Key
1. Assume that direct labor and direct materials are the major cost components of a product and that the small
amount of overhead cost can easily be associated with products using a simple overhead allocation basis such as
direct labor hours. Which one of the following statements is the most correct?
2. Historically, a plant-wide manufacturing overhead rate would usually be assigned on the basis of:
3. The allocation of which of the following can cause the greatest errors when computing product costs?
4. Traditional product costing systems (e.g. job order costing and process costing) usually assume that:
5. Activity-based costing systems assume that:
6. Which method for allocating manufacturing overhead costs is usually more accurate?
7. Activity-based costing deals with the allocation of:
8. Activity-based costing differs from traditional product costing in the allocation of:
9. Activity-based costing is most useful when there are variations in:
10. Usually activity-based costing would be significantly more accurate than traditional product costing in a:
11. Which of the following types of costing systems identifies business activities that create overhead costs and
then assigns overhead to products or divisions according to these activities?
12. Which of the following is the correct sequence of the five steps of implementing and using an activity-based
costing system?
13. Which of the following costs is usually NOT directly attributable to specific products?
14. Which of the following activities would most likely NOT be considered a batch activity:
15. Tracing overhead costs to activities involves dividing overhead costs into:
16. For greater accuracy when using activity-based costing, management accountants should:
17. If activity-based costing is used, purchase orders would be classified as a:
18. If activity-based costing is used, assembly would be classified as a:
19. If activity-based costing is used, receiving docks would be classified as a:
20. If activity-based costing is used, property taxes would be classified as a:
21. Which of the following would most likely NOT be considered a source of a product line activity?
22. When using activity-based costing, the cost associated with producing each batch is an example of a:
23. Which of the following would most likely NOT be considered a facility support activity?
24. Exhibit 17-1
Maggie’s Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an activity–
based costing system. She has started by identifying four overhead cost activities. Listed below is the table that
Maggie created identifying the cost activities and the percentage of time spent on each activity by various
factory employees.
Ordering
Repairing
Inspecting
Engineering
parts
equipment
motors
changes
Maintenance person
0%
75%
0%
25%
Production foreman
15%
15%
40%
30%
Factory superintendent
10%
0%
50%
40%
Accountant
50%
0%
0%
50%
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Maintenance person
$ 75,000
Production foreman
90,000
Factory superintendent
105,000
Accountant
85,000
Refer to Exhibit 17-1. Using the information above, compute the amount of the cost pool associated with ordering parts.
25. Exhibit 17-1
Maggie’s Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an activity–
based costing system. She has started by identifying four overhead cost activities. Listed below is the table that
Maggie created identifying the cost activities and the percentage of time spent on each activity by various
factory employees.
Ordering
Repairing
Inspecting
Engineering
parts
equipment
motors
changes
Maintenance person
0%
75%
0%
25%
Production foreman
15%
15%
40%
30%
Factory superintendent
10%
0%
50%
40%
Accountant
50%
0%
0%
50%
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Maintenance person
$ 75,000
Production foreman
90,000
Factory superintendent
105,000
Accountant
85,000
Refer to Exhibit 17-1. Using the information above, compute the amount of the cost pool associated with repairing equipment.
26. Exhibit 17-1
Maggie’s Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an activity–
based costing system. She has started by identifying four overhead cost activities. Listed below is the table that
Maggie created identifying the cost activities and the percentage of time spent on each activity by various
factory employees.
Ordering
Repairing
Inspecting
Engineering
parts
equipment
motors
changes
Maintenance person
0%
75%
0%
25%
Production foreman
15%
15%
40%
30%
Factory superintendent
10%
0%
50%
40%
Accountant
50%
0%
0%
50%
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Maintenance person
$ 75,000
Production foreman
90,000
Factory superintendent
105,000
Accountant
85,000
Refer to Exhibit 17-1. Using the information above, compute the amount of the cost pool associated with engineering changes.
27. A more accurate allocation of manufacturing overhead and product costing can take place when costs are
assigned on the basis of:
28. An activity that affects a particular cost is a(n):
29. Which of the following is an example of a cost driver?
30. Company A allocates one type of overhead cost on the basis of movement of materials. The number of
movement of materials processed is an example of a(n):
31. The traditional overhead cost allocation system focuses the accumulation of overhead cost on:
32. Number of purchase orders is an example of a(n):
33. With activity-based costing, overhead costs are assigned using:
34. When assigning cost drivers to facility support activities, an appropriate cost driver would be:
35. If a cost activity does NOT have any production-related cost driver that matches up with changes in the
amount of overhead cost associated with the activity then:
36. An appropriate cost driver for inspection costs is:
37. An appropriate cost driver for engineering changes is:
38. Exhibit 17-2
BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The
company has recently implemented an activity-based costing system. BigView has identified five different
production activities as well as the best cost driver for each activity. Each activity and driver is listed below,
along with the budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Parts handling
Number of parts
$ 90,000
Parts insertion
Number of parts
990,000
Automated processing
Machine hours
336,000
Testing
Labor hours
68,000
Packaging
Orders shipped
68,000
Total indirect manufacturing cost
$1,552,000
The following information relates to each size of monitor and next year’s anticipated manufacturing operations:
20-inch
17-inch
15-inch
Units to be produced
2,000
3,000
5,000
Orders to be shipped
200
500
800
Number of parts per unit
30
20
10
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-2. What is BigView’s cost per cost driver for parts handling for next year (rounded)?
39. Exhibit 17-2
BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The
company has recently implemented an activity-based costing system. BigView has identified five different
production activities as well as the best cost driver for each activity. Each activity and driver is listed below,
along with the budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Parts handling
Number of parts
$ 90,000
Parts insertion
Number of parts
990,000
Automated processing
Machine hours
336,000
Testing
Labor hours
68,000
Packaging
Orders shipped
68,000
Total indirect manufacturing cost
$1,552,000
The following information relates to each size of monitor and next year’s anticipated manufacturing operations:
20-inch
17-inch
15-inch
Units to be produced
2,000
3,000
5,000
Orders to be shipped
200
500
800
Number of parts per unit
30
20
10
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-2. What is BigView’s cost per cost driver for automated processing for next year (rounded)?
40. Exhibit 17-2
BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The
company has recently implemented an activity-based costing system. BigView has identified five different
production activities as well as the best cost driver for each activity. Each activity and driver is listed below,
along with the budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Parts handling
Number of parts
$ 90,000
Parts insertion
Number of parts
990,000
Automated processing
Machine hours
336,000
Testing
Labor hours
68,000
Packaging
Orders shipped
68,000
Total indirect manufacturing cost
$1,552,000
The following information relates to each size of monitor and next year’s anticipated manufacturing operations:
20-inch
17-inch
15-inch
Units to be produced
2,000
3,000
5,000
Orders to be shipped
200
500
800
Number of parts per unit
30
20
10
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-2. What is BigView’s cost per cost driver for testing for next year (rounded)?
41. Exhibit 17-2
BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The
company has recently implemented an activity-based costing system. BigView has identified five different
production activities as well as the best cost driver for each activity. Each activity and driver is listed below,
along with the budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Parts handling
Number of parts
$ 90,000
Parts insertion
Number of parts
990,000
Automated processing
Machine hours
336,000
Testing
Labor hours
68,000
Packaging
Orders shipped
68,000
Total indirect manufacturing cost
$1,552,000
The following information relates to each size of monitor and next year’s anticipated manufacturing operations:
20-inch
17-inch
15-inch
Units to be produced
2,000
3,000
5,000
Orders to be shipped
200
500
800
Number of parts per unit
30
20
10
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-2. Under an activity-based product costing system, what is the per unit cost for manufacturing overhead of 15-inch monitors
(rounded)?
42. Exhibit 17-2
BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The
company has recently implemented an activity-based costing system. BigView has identified five different
production activities as well as the best cost driver for each activity. Each activity and driver is listed below,
along with the budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Parts handling
Number of parts
$ 90,000
Parts insertion
Number of parts
990,000
Automated processing
Machine hours
336,000
Testing
Labor hours
68,000
Packaging
Orders shipped
68,000
Total indirect manufacturing cost
$1,552,000
The following information relates to each size of monitor and next year’s anticipated manufacturing operations:
20-inch
17-inch
15-inch
Units to be produced
2,000
3,000
5,000
Orders to be shipped
200
500
800
Number of parts per unit
30
20
10
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-2. Under an activity-based product costing system, what is the per unit cost for manufacturing overhead of 17-inch monitors
(rounded)?
43. Exhibit 17-2
BigView Monitors manufactures three different sizes of computer monitors: 15-inch, 17-inch, and 20-inch. The
company has recently implemented an activity-based costing system. BigView has identified five different
production activities as well as the best cost driver for each activity. Each activity and driver is listed below,
along with the budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Parts handling
Number of parts
$ 90,000
Parts insertion
Number of parts
990,000
Automated processing
Machine hours
336,000
Testing
Labor hours
68,000
Packaging
Orders shipped
68,000
Total indirect manufacturing cost
$1,552,000
The following information relates to each size of monitor and next year’s anticipated manufacturing operations:
20-inch
17-inch
15-inch
Units to be produced
2,000
3,000
5,000
Orders to be shipped
200
500
800
Number of parts per unit
30
20
10
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-2. Under an activity-based product costing system, what is the per unit cost for manufacturing overhead of 20-inch monitors
(rounded)?
44. Exhibit 17-3
Bird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Materials handling
Labor hours
$ 55,000
Automated processing
Machine hours
40,000
Plastic parts insertion
Number of parts
6,000
Inspections
Labor hours
29,000
Packaging
Orders shipped
31,000
Total indirect manufacturing cost
$161,000