Many traditional costing systems: combine widely varying elements of overhead into a single
1.
cost pool.
2. The following tasks are associated with an activity-based costing system : Identification of cost
pools; Identification of cost drivers; Calculation of pool rates; Assignment of cost to products.
3. The division of activities into unit-level, batch-level, product-sustaining level, and facility-level
categories is commonly known as a cost: hierarchy.
Riverside Florists uses an activity-based costing system to compute the cost of making floral
$7.15.
bouquets and delivering the bouquets to its commercial customers. Company personnel who earn
$180,000 typically perform both tasks; other firm-wide overhead is expected to total $70,000.
These costs are allocated as follows:
Riverside anticipates making 20,000 bouquets and 4,000 deliveries in the upcoming year.
The cost of wages and salaries and other overhead that would be charged to each bouquet made
is: $7.15
($180,000*60%)/20,000+($70,000*50%)/20,000=5.4+1.75=7.15
The cost of wages and salaries and other overhead that would be charged to each delivery is closest to:
$19.63
($180,000*30%)/4,000+($70,000*35%)/4,000=13.5+6.125=19.625
4. HiTech Products manufactures three types of remote-control devices: Economy, Standard, and
Deluxe. The company, which uses activity-based costing, has identified five activities (and related
cost drivers). Each activity, its budgeted cost, and related cost driver is identified below.
The following information pertains to the three product lines for next year:
Q1.What is HiTech's pool rate for the material-handling activity? $1.00 per part.
Q2. What is HiTech's pool rate for the automated machinery activity? $24.00 per machine hour.
Q3. What is HiTech's pool rate for the finishing activity? $5.00 per labor hour.
Q4. What is HiTech's pool rate for the packaging activity? $100.00 per order shipped.
Q5. Under an activity-based costing system, what is the per-unit overhead cost of Economy? $164.
Q6. Under an activity-based costing system, what is the per-unit overhead cost of Standard? $272.
Q7. Under an activity-based costing system, what is the per-unit overhead cost of Deluxe? $440.
Q8. Assume that HiTech is using a volume-based costing system, and the preceding overhead costs are
applied to all products on the basis of direct labor hours. The overhead cost that would be assigned to the
Deluxe product line is closest to: $456,471.
Q9. Assume that HiTech is using a volume-based costing system, and the preceding overhead costs are
applied to all products on the basis of direct labor hours. The overhead cost that would be assigned to the
Standard product line is closest to: $1,141,176.
St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products
Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based
costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups
(SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver
volumes follow.
Q1. The overhead cost allocated to Beta by using traditional costing procedures would be: $240,000.
Q2. The overhead cost allocated to Zeta by using traditional costing procedures would be: $560,000.
Q3. The overhead cost allocated to Beta by using activity-based costing procedures would be: $444,000.
Q4. The overhead cost allocated to Zeta by using activity-based costing procedures would be: $356,000.
Martin and Beasley, an accounting firm, provides consulting and tax planning services. For many years,
the firm's total administrative cost (currently $270,000) has been allocated to services on this basis of
billable hours to clients. A recent analysis found that 55% of the firm's billable hours to clients resulted
from tax planning services, while 45% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of
administrative cost, as follows:
A recent analysis of staff support found a strong correlation with the number of clients served. In contrast,
in-house computing and miscellaneous office cost varied directly with the number of computer hours
logged and number of client transactions, respectively. Consulting clients served totaled 35% of the total
client base, consumed 30% of the firm's computer hours, and accounted for 20% of the total client
transactions.
Q1. If Martin and Beasley switched from its current accounting method to an activity-based costing
system, the amount of administrative cost chargeable to consulting services would: decrease by
$32,500.
Kelly and Logan, an accounting firm, provides consulting and tax planning services. For many years, the
firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable
hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax
planning services, while 35% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of
administrative cost, as follows:
A recent analysis of staff support found a strong correlation between the number of staff personnel and
the number of clients served (consulting, 20; tax planning, 60). In contrast, in-house computing and
miscellaneous office cost varied directly with the number of computer hours logged and number of client
transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the
total client transactions.
Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs
to tax planning services is: Kelly and Logan, an accounting firm, provides consulting and tax planning
services. For many years, the firm's total administrative cost (currently $250,000) has been allocated to
services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable
hours to clients resulted from tax planning services, while 35% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of
administrative cost, as follows:
A recent analysis of staff support found a strong correlation between the number of staff personnel and
the number of clients served (consulting, 20; tax planning, 60). In contrast, in-house computing and
miscellaneous office cost varied directly with the number of computer hours logged and number of client
transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the
total client transactions.
Q1. Assuming the use of activity-based costing, the proper percentage to use in allocating staff support
costs to tax planning services is: 75%
Q2. If Kelly and Logan switched from its current accounting method to an activity-based costing system,
the amount of administrative cost chargeable to consulting services would: Decreasing by $23,500
Dreyson Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A
recent study of product no. 519 revealed a traditionally-derived total cost of $1,019, a selling price of
$1,850 based on that figure, and a newly computed activity-based total cost of $1,215. Which of the
following statements is true? The company may have been extremely competitive in the marketplace
from a price perspective.
Drake Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent
study of product no. 520 revealed a traditionally-derived total cost of $1,623 and a selling price of $1,850
based on that figure. A newly computed activity-based total cost is $1,215. Which of the following
statements is true? A: Product no. 520 could be labeled as being overcosted by Drake's traditional
costing procedures.
51.Consider the following statements:
I. Product diversity creates costing problems because diverse products tend to utilize manufacturing activities in differen
II. Overhead costs that are not incurred at the unit level create costing problems because such costs do not vary with tra
application bases such as direct labor hours or machine hours.
III. Product diversity typically exists when a single product (e.g., a ballpoint pen) is made in different colors.
Which of the above statements is (are) true?
C. I and II.
Consumption ratios are useful in determining: the existence of product-line diversity.
Widely varying consumption ratios: are reflective of product-line diversity
In comparison with a system that uses a single, volume-based cost driver, an activity-based costing system is prefer
company has: product-line diversity and a large proportion of nonunit-level activities
Cost drive:
I. The degree of correlation between consumption of an activity and consumption of a particular cost driver.
II. The likelihood that a particular cost driver will induce a desired behavioral effect.
III. The likelihood that a particular cost driver will cause an increase in the cost of measurement.