CHAPTER 26(11): COST ALLOCATION AND ACTIVITY-BASED COSTING
1.
Product costing consists of only direct materials and direct labor.
a.
True
b.
False
2.
The selection of the factory overhead allocation method is important because the method selected determines
the
accuracy of the product cost.
a.
True
b.
False
3.
Managers depend on accurate factory overhead allocation to make decisions regarding product mix and
product
price.
a.
True
b.
False
4.
Managers depend on product costing to make decisions regarding continuing operations and product mix.
a.
True
b.
False
5.
A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the
plantwide
allocation base.
a.
True
b.
False
6.
Zorn Co. budgeted $600,000 of factory overhead cost for the coming year. Its plantwide allocation base,
machine
hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Zorn’s plantwide
factory
overhead rate is $6.00 per unit.
a.
True
b.
False
7.
Bob’s Biscuit Corporation budgeted $1,200,000 of factory overhead cost for the coming year. Its plantwide
allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000
units.
Bob’s plantwide factory overhead rate is $12.00 per machine hour.
a.
True
b.
False
8.
When a plantwide factory overhead rate is used, the total overhead costs allocated to all products are the same.
a.
True
b.
False
9.
When a plantwide factory overhead rate is used, overhead costs are applied to all products by a single rate.
a.
True
b.
False
10.
Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are the same across
all departments and products.
a.
True
b.
False
11.
Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are different across
different departments and products.
a.
True
b.
False
12.
If the activities causing overhead costs are different across different departments and products, use of a plantwide
factory overhead rate will cause distorted product costs.
a.
True
b.
False
13.
If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual
direct
labor hours is 6,700 for the month, the amount of factory overhead to be allocated is $38,525 (if the
allocation is
based on direct labor hours).
a.
True
b.
False
14.
If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual
direct
labor hours is 6,700 for the month, the factory overhead rate for the month is $68.65 (if the allocation is
based on
direct labor hours).
a.
True
b.
False
15.
A single plantwide overhead rate method is very expensive to apply.
a.
True
b.
False
16.
A plantwide factory overhead rate assumes that all overhead is directly related to one activity representing
the
entire plant.
a.
True
b.
False
17.
Multiple production department factory overhead rates are most useful when production departments are
very
similar in their manufacturing processes.
a.
True
b.
False
18.
Multiple production department factory overhead rates are most useful when production departments
significantly
differ in their manufacturing processes.
a.
True
b.
False
19.
Multiple production department factory overhead rates are more accurate than are plantwide factory
overhead
rates.
a.
True
b.
False
20.
Multiple production department factory overhead rates are less accurate than are plantwide factory overhead rates.
a.
True
b.
False
21.
Use of a plantwide factory overhead rate does not distort product costs when there are differences in the factory
overhead rates across different production departments.
a.
True
b.
False
22.
Use of a plantwide factory overhead rate does not distort product costs when products require different ratios of
allocation-base usage in each production department.
a.
True
b.
False
23.
Use of a plantwide factory overhead rate distorts product costs when there are differences in the factory overhead
rates across different production departments and when products require different ratios of allocation-base usage
in
each production department.
a.
True
b.
False
24.
When production departments differ significantly in their manufacturing process, it is recommended that the
single
plantwide factory overhead rate be used for allocating factory overhead.
a.
True
b.
False
25.
In an effort to simplify the multiple production department factory overhead rate method, the same rate can be
used
for all departments.
a.
True
b.
False
26.
Activity cost pools are assigned to products, using factory overhead rates for each activity.
a.
True
b.
False
27.
Activity cost pools are cost accumulations associated with a given activity.
a.
True
b.
False
28.
Activity rates are computed by dividing the cost budgeted for each activity pool by the estimated activity base
for
that pool.
a.
True
b.
False
29.
Direct labor hours is not a cost pool that is regularly used in the activity-based costing method.
a.
True
b.
False
30.
Estimated activity-base usage quantities are the total activity-base quantities related to each product.
a.
True
b.
False
31.
Activity-based costing is much easier to apply than single plantwide factory overhead allocation.
a.
True
b.
False
32.
Service organizations can use activity-based costing to allocate selling and administrative costs to services provided.
a.
True
b.
False
33.
ABC is used to allocate selling and administrative expenses to each product based on the product’s individual
differences in consuming these activities.
a.
True
b.
False
34.
Activity-based costing can be used to allocate period costs to various products that the company sells.
a.
True
b.
False
35.
Activity-based costing can only be used to allocate manufacturing factory overhead.
a.
True
b.
False
36.
In a service organization, the multiple department overhead rate method is the most effective in
providing
information about the cost of services.
a.
True
b.
False
37.
Service companies can effectively use multiple department overhead rate costing to compute product
(service)
costs.
a.
True
b.
False
38.
Service companies can effectively use single facility-wide overhead costing to compute product (service) costs.
a.
True
b.
False
39.
Service companies can effectively use activity-based costing to compute product (service) costs.
a.
True
b.
False
40.
Which of the following does not rely on managerial decisions involving accurate product costing?
a.
product constraints
b.
emphasis of a product line
c.
product mix
d.
product price
41.
Which of the following is not a factory overhead allocation method?
a.
single plantwide rate
b.
multiple departmental rates
c.
factory costing
d.
activity-based costing
42.
Pinacle Corp. budgeted $700,000 of overhead cost for the current year. Actual overhead costs for the year were
$650,000. Pinacle’s plantwide allocation base, machine hours, was budgeted at 100,000 hours. Actual machine
hours were 80,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually
produced.
Pinacle’s plantwide factory overhead rate for the current year is:
a.
$8.13 per machine hour
b.
$7.00 per machine hour
c.
$6.50 per machine hour
d.
$8.75 per machine hour
43.
Everest Co. uses a plantwide factory overhead rate based on direct labor hours. Overhead costs would be
overcharged to which of the following departments?
a.
A labor-intensive department
b.
A capital-intensive department
c.
A materials-intensive department
d.
All of the above
Chapter 26(11): Cost Allocation and Activity-Based Costing
Adirondak Marketing Inc. manufactures two products, A and B. Presently; the company uses a single
plantwide
factory overhead rate for allocating overhead to products. However, management is considering
moving to a
multiple department rate system for allocating overhead.
Overhead
Total Direct
Labor Hours
DLH per Product
A
B
Painting Dept.
$250,000
10,000
16
4
Finishing Dept.
75,000
12,000
4
16
Totals
$325,000
22,000
20
20
44.
Calculate the plantwide factory overhead rate for Adirondack Marketing Inc.
a.
$25.00 per dlh
b.
$0.07 per dlh
c.
$14.77 per dlh
d.
$ 6.25 per dlh
45.
Calculate the overhead rate per unit for Product A in the painting department of Adirondack Marketing Inc.
a.
$236.32 per unit
b.
$325.00 per unit
c.
$147.70 per unit
d.
$161.00 per unit
Chapter 26(11): Cost Allocation and Activity-Based Costing
Blue Ridge Marketing Inc. manufactures two products, A and B. Presently; the company uses a single plantwide
factory overhead rate for allocating overhead to products. However, management is considering moving to a
multiple department rate system for allocating overhead. The following table presents information about
estimated
overhead and direct labor hours.
Overhead
Direct Labor
Hours (dlh)
Product
B
Painting Dept.
$248,000
10,000 dlh
4 dlh
Finishing Dept.
72,000
10,000
16
Totals
$320,000
20,000 dlh
20 dlh
46.
Using a single plantwide rate, determine the overhead rate per unit for Blue Ridge Marketing Inc.’s Product B.
a. $496.00
b. $144.00
c. $640.00
d. $320.00
The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments,
Fabrication and Assembly. Data for the products and departments are listed below.
Product
Number of
Units
Labor Hours
Per Unit
Machine Hours
Per Unit
Blinks
1,000
4
5
Dinks
2,000
2
8
All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000.
All
of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000.
47.
The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the
overhead cost per unit for Blinks?
a. $78.00
b. $19.50
c. $37.45
d. $56.00
48.
The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the
overhead cost per unit for Dinks?
a. $77.00
b. $39.00
c. $19.50
d. $59.92
49.
The Ramapo Company uses a single overhead rate to apply all overhead costs. What would the single
plantwide
rate be if it was based on machine hours instead of labor hours?
a.
$9.00 per machine hour
b.
$19.50 per machine hour
c.
$7.43 per machine hour
d.
$4.00 per machine hour
50.
Common allocation bases are
a.
direct labor dollars, direct labor hours, direct material dollars
b.
direct labor dollars, direct labor hours, machine hours
c.
direct labor dollars, direct labor hours, machine dollars
d.
machine dollars, direct labor dollars, direct labor hours
51.
The Roget Factory has determined that its budgeted factory overhead budget for the year is $15,500,000.
They
plan to produce 2,000,000 units. Budgeted direct labor hours are 1,050,000 and budgeted machine
hours are
750,000. Using the single plantwide factory overhead rate based on direct labor hours, calculate the
factory
overhead rate for the year.
a. $14.76
b. $20.67
c. $7.75
d. $77.50
52.
The Botosan Factory has determined that its budgeted factory overhead budget for the year is $13,500,000 and
budgeted direct labor hours are 10,000,000. If the actual direct labor hours for the period are 350,000, how
much
overhead would be allocated to the period?
a. $675,000
b. $470,630
c. $472,500
d. $236,250
Blackwelder Factory produces two similar products—small lamps and desk lamps. The total plant overhead
budget
is $640,000 with 400,000 estimated direct labor hours. It is further estimated that small lamp production
will require
275,000 direct labor hours and desk lamp production will need 125,000 direct labor hours.
53.
Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory
overhead will Blackwelder Factory allocate to small lamp production if actual direct hours for the period is 285,000?
a. $275,000
b. $285,000
c. $440,000
d. $456,000
54.
Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory
overhead will Blackwelder Factory allocate to desk lamp production if actual direct hours for the period is
118,000?
a. $118,000
b. $200,000
c. $188,800
d. $125,000
Challenger Factory produces two similar products—regular widgets and deluxe widgets. The total plant
overhead
budget is $675,000 with 300,000 estimated direct labor hours. It is further estimated that deluxe widget
production
will need 3 direct labor hours for each unit and regular widget production will require 2 direct labor
hours for each
unit.
55.
Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much
factory
overhead will Challenger Factory allocate to regular widget production if budgeted production for the
period is
75,000 units and actual production for the period is 72,000 units?
a. $168,750
b. $324,000
c. $162,000
d. $337,500
56.
Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much
factory
overhead will Challenger Factory allocate to deluxe widget production if budgeted production for the
period is
50,000 units and actual production for the period is 58,000 units?
a. $391,500
b. $225,000
c. $261,000
d. $337,500
Chapter 26(11): Cost Allocation and Activity-Based Costing
Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide
factory overhead rate for allocating overhead to products. However, management is considering moving to a
multiple department rate system for allocating overhead. The following table presents information about
estimated
overhead and direct labor hours.
Overhead
Direct Labor
Hours (dlh)
Product
B
Painting Dept.
$248,000
10,000 dlh
4 dlh
Finishing Dept.
72,000
10,000
16
Totals
$320,000
20,000 dlh
20 dlh
57.
Determine the overhead rate in the Painting Department for each unit of Product B if Blue Ridge Marketing
Inc.
uses a multiple department rate system.
a.
$49.60 per unit
b.
$99.20 per unit
c.
$28.80 per unit
d.
$64.00 per unit
58.
Determine the overhead rate in the Finishing Department for each unit of Product A if Blue Ridge Marketing
Inc.
uses a multiple department rate system.
a.
$99.20 per unit
b.
$49.60 per unit
c.
$64.00 per unit
d.
$28.80 per unit