Cost Accounting Systems

(B. Activity-Based Cost System)

B. ACTIVITY-BASED COST SYSTEM 5. Primary concepts under activity-based management include all of the following except:
A. activity analysis C. activity-based costing
B. total quality management D. cost driver analysis
THEORIES:
Outdated cost system 18. Which of the following falls under the Activity-Based Management umbrella?
3. Symptoms of an outdated cost system include all of the following EXCEP Continuous Business process Activity-based
A. product costs change because of changes in financial reporting. improvement reengineering costing
B. products that are difficult to produce show little profit. A. NO NO YES
C. competitors' prices appear unrealistically low. B. YES NO NO
D. the company has a highly profitable niche all to itself. C. YES YES YES
D. NO YES NO
13. Which of the following is NOT a sign of poor cost data?
A. Competitors' prices for high-volume products appear much too high. 29. All of the following are ways that activities can be managed to achieve improvements in a
B. The company seems to have a highly profitable niche all to itself. process, except
C. Customers don't balk at price increases for low-volume products. A. activity induction C. activity elimination
D. Competitors' prices for low-volume products appear much too high. B. activity selection D. activity sharing

Activity-based management Traditional Costing vs. ABC system

1. Which system focuses on the management of activities with the objective of improving the
value received by the customer and the profit received by providing this value?
A. activity-based management C. contemporary cost control
B. traditional cost management system D. standard cost system
28. Activity-based management (ABM) is
A. a costing system in which multiple overhead cost pools are allocated using bases that
include one or more nonvolume related factors
B. a base used to allocate the cost of a resource to the different activities using it
C. the use of information obtained from ABC to make improvements in the firm
D. a base used to allocate the cost of an activity to products and customers
17. An objective of activity-based management is to
A. eliminate the majority of centralized activities in an organization.
B. reduce or eliminate non-value-added activities incurred to make a product or provide a
service.
C. institute responsibility accounting systems in decentralized organizations.
D. all of the above
27. Which of the following is not a distinction between the traditional and ABC costing systems
A. the number of overhead cost pools tends to be higher in ABC systems
B. the number allocation bases tend to be higher in ABC system
C. costs within an ABC cost pool tend to be more homogeneous than the costs within a
traditional system’s cost pool
D. all ABC systems are one-stage costing systems, while traditional systems may be one- or
two-stage
32. In contrast to a company that uses a single overhead rate, one that uses activity-based costing
A. will have higher product costs than one using a single overhead rate.
B. cannot compute budget variances.
C. will incur additional costs for recordkeeping.
D. must have a preponderance of fixed overhead costs.
Activity-based costing
Reason
21. Of the following, which is the best reason for using activity-based costing?
A. to keep better track of overhead costs
B. to more accurately assign overhead costs to cost pools so that these costs are better

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C. to better assign overhead costs to products
D. to assign indirect service overhead costs to direct overhead cost pools
Benefits
2. The primary benefit of using ABC is that it provides
A. better management decisions.
B. enhanced control over overhead costs.
C. more cost pools.
D. more accurate product costing.
10. Which of the following is not a benefit of activity-based costing?
A. More accurate product costing.
B. Enhanced control over overhead costs.
C. Less costly to use.
D. Better management decisions.
Factors suggesting need to switch to ABC
4. Which of the following factors would suggest a need to switch to activity-based costing?
A. Product lines similar in volume and manufacturing complexity.
B. Overhead costs constitute a significant portion of total costs.
C. The manufacturing process has been stable.
D. Production managers use data provided by the existing system.
7. A least likely reason to use activity-based overhead rates is that
A. some departments are labor-intensive, some are machine-intensive.
B. significant amounts of overhead are driven by different factors.
C. rates calculated for some departments are much higher than for other departments.
D. all jobs require about the same amounts of cost-driving activities.
8. The presence of any of the following factors would suggest a switch to ABC except when
A. product line differ greatly in volume.
B. overhead costs constitute a minor portion of total costs.
C. the manufacturing process has changed significantly.
D. production managers are ignoring data provided by the existing system.
Characteristics
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Cost Accounting Systems
(B. Activity-Based Cost System)
6. Which of the following is typical of activity-based costing systems?
A. Use of a single predetermined overhead rate.
B. Use of direct labor hours or direct labor cost to assign overhead.
C. Assumption of correlation between direct labor and incurrence of overhead cost.
D. Use of multiple cost drivers to allocate overhead.
14. All of the following statements are correct except that
A. activity-based costing has been widely adopted in service industries.
B. the objective of installing ABC in service firms is different than it is in a manufacturing firm.
C. a larger proportion of overhead costs are company-wide costs in service industries.
D. the general approach to identifying activities and activity cost pools is the same in a
service company as in a manufacturing company.
Application
22. ABC should be used in which of the following situations?
A. single-product firms with multiple steps
B. multiple-product firms with only a single process
C. multiple-product firms with multiple processing steps
D. in all manufacturing firms
Limitation
9. Which of the following is a limitation of activity-based costing?
A. More cost pools C. Poorer management decisions
B. Less control over overhead costs D. Some arbitrary allocations continue
12. Each of the following is a limitation of activity-based costing system except that:
A. it can be expensive to use.
B. it is more complex than the traditional costing.
C. more cost pools are used.
D. some arbitrary allocations still continue.
Cost behavior of high-volume & low-volume product
11. As compared to a high-volume product, a low-volume product
A. usually requires less special handling.
B. is usually responsible for more overhead costs per unit.
C. requires relatively fewer machine setups.
D. requires use of direct labor hours as the primary cost driver to ensure proper allocation
 Cost Accounting Systems
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of overhead. D. all of the above

Cost assignment Cost driver, activity driver & resource driver

15. Which of the following lists the most to least accurate method of cost assignment? 23. Any activity that causes resources to be consumed is called a
A. direct tracing, driver tracing, allocation C. driver tracing, direct tracing, allocation A. just-in-time activity C. facility-level activity
B. allocation, direct tracing, driver tracing D. allocation, driver tracing, direct tracing B. cost driver D. nonvalue-added activity

30. An activity-based costing system uses which of the following procedures? 24. A base used to allocate the cost of a resource to the different activities using that resource is
A. Overhead costs are traced to departments, then costs are traced to products. A. resource driver C. activity driver
B. Overhead costs are traced to activities, then costs are traced to products. B. final cost object D. driver
C. Overhead costs are traced directly to products.
D. All overhead costs are expensed as incurred. 42. A base used to allocate the cost of products, customers, or other final cost objects is a(n)
A. resource driver C. activity driver
Steps B. final cost object D. driver
16. A well-designed activity-based costing system starts with
A. identifying the activity-cost pools. 38. Activity drivers differ from resource drivers in that activity drivers
B. computing the activity-based overhead rate. A. are used to assign indirect costs while resource drivers are used to assign direct costs
C. assigning manufacturing overhead costs for each activity cost pool to products. B. assign the cost of activities to cost objects while resource drivers assign the cost of
D. analyzing the activities performed to manufacture a product. resources to activities
C. assign the cost of activities to resources and resource drivers assign the cost of resources
25. The first step in activity-based costing is to to cost objects
A. assign manufacturing overhead costs for each activity cost pool to products. D. are used to assign direct costs while resource drivers are used to assign indirect costs
B. compute the activity-based overhead rate per cost driver.
C. identify and classify the major activities involved in the manufacture of specific products. 55. An appropriate cost driver base should
D. identify the cost driver that has a strong correlation to the activity cost pool. A. have a cause-and-effect relationship with the activity and the use of resources
B. predict or explain activities' use of resources with reasonable accuracy
26. The last step in activity-based costing is to C. be based on the practical capacity of the resource to support activities
A. identify the major activities that pertain to the manufacture of specific products. D. all of the above
B. allocate manufacturing overhead costs to activity cost pools.
C. identify the cost drivers that accurately measure each activity’s contribution to the Cost pool
finished product. 31. A cost pool is
D. assign manufacturing overhead costs for each activity cost pool to products. A. all of the costs of a particular department.
B. all costs in a group such as variable costs or discretionary fixed costs.
65. Successful activity-based costing (ABC) implementation depends upon the firm having: C. all costs related to a product or product line.
A. top management support D. all costs that have the same driver.
B. ABC linked to its competitive strategy
C. adequate resources Cost pool rate

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34. More accurate product costing information is produced by assigning costs using B. direct and indirect costs
A. a volume-based, plant-wide rate. C. directly traceable resource costs and resource driver assigned costs
B. volume-based, departmental rates. D. opportunity costs and realized costs
C. activity-based pool rates.
D. all of the above Activity levels
Unit level
Cost allocation 46. Unit-level costs are costs that
33. Activity-based overhead rates are more useful than a single plant-wide rate if A. inevitably increase whenever a unit is produced
A. overhead costs are driven by several activities. B. are caused by the number of batches produced and sold
B. direct labor cost varies significantly from department to department. C. are incurred to support the number of different products produced
C. all products require about the same amounts of all activities. D. are incurred to sustain capacity at a production site
D. manufacturing overhead costs are nearly all fixed.
44. Examples of unit-level costs are
20. In activity-based costing, preliminary cost allocations assign costs to A. portions of electricity and indirect materials
A. departments. C. products. B. salaries of schedulers and setup personnel
B. processes. D. activities. C. salaries of designers and programmers
D. depreciation and insurance of building
19. In activity-based costing, final cost allocations assign costs to
A. departments. C. products. 58. Examples of unit level activities are
B. processes. D. activities. A. scheduling, setting up, and receiving C. heating, lighting, and security
B. designing, changing, and advertising D. cutting, painting, and packaging
35. Which of the following best describes the flow of overhead costs in an activity-based costing
system? 41. All of the following are unit-based cost drivers except
A. Overhead costs => direct labor cost or hours => products A. machine hours C. number of setups
B. Overhead costs => products B. number of units D. direct labor hours
C. Overhead costs => activity cost pools => cost drivers => products
D. Overhead costs => machine hours => products 62. An example of a nonvolume-related overhead base would be:
A. Direct materials cost C. Direct Labor cost
36. Finding a single cost driver that changes in the same proportion as all the variable factory B. Machine hours D. Number of setups
overhead costs is:
A. simplified by breaking out the fixed portion of overhead cost Batch level
B. the first step in variable overhead cost management 54. Batch-level resources are acquired
C. difficult, but manageable A. for individual units of product or service
D. impossible B. for making a group of similar products
C. to produce and sell a specific product
37. Total activity cost is the sum of D. to provide a general capacity to produce products and services.
A. resource driver assigned costs and activity driver assigned costs

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45. Examples of batch-level activity drivers include

A. units of output and direct labor hours Facilities sustaining level
B. number of batches and material moves 39. Which of the following activities may support all the organization's processes and are the
C. number of products and design changes highest level of activities?
D. square footage occupied A. batch-level activities C. facility-level activities
B. product-sustaining activities D. unit-level activities
63. Which of the following is not a batch-level activity?
A. Engineering changes. C. Inspection. 56. In a pure activity-based cost system which of the following might be treated as period costs?
B. Equipment setups. D. Material handling. A. facility-level costs C. batch-level costs
B. product-level costs D. unit-level costs
Product-sustaining level
43. Examples of activities at the product level of costs include 47. Plant-level costs are costs that
A. cutting, painting, and packaging A. inevitably increase whenever a unit is produced
B. scheduling, setting up, and moving B. are caused by the number of batches produced and sold
C. designing, changing, and advertising C. are incurred to support the number of different products produced
D. heating, lighting and security D. are incurred to sustain capacity at a production site

40. Which of the following activities is directly traceable to a product? 59. Which of the following is not considered to be a facility-level cost?
A. batch-level activities C. facility-level activities A. Cost of Property Insurance.
B. unit-level activities D. product-sustaining activities B. Cost of personnel administration.
C. Cost of Liability Insurance for only one of the product lines.
57. Designing and redesigning are activities that are classified as D. Cost of building security.
A. Facility level C. Unit level
B. Batch level D. Product level Value adding & Non-value adding activity
49. The following activity is value-added:
60. Which of the following is the best way to consider a product-level cost?. A. Storage of raw materials C. Moving parts from machine to machine
A. A product-level cost can be avoided when a product line is discontinued. B. Turning a piece of metal on a lathe D. All of these
B. A product-level cost can be avoided when a there is change in the production schedule
so the product is not produced this week. 48. An activity that adds cost to the product but does not increase it market value is a
C. A product level cost can be avoided when a business segment is discontinued. A. value-added activity C. cost driver
D. A product level cost can be avoided when the corporation is dissolved. B. cost-benefit activity D. nonvalue-added activity

61. Examples of activities at the batch level of costs include 50. When a firm redesigns a product to reduce the number of component parts, the firm is
A. scheduling, setting up, and moving A. increasing consumer value.
B. designing, changing, and advertising B. increasing the value added to the product.
C. heating, lighting, and security C. decreasing product variety.
D. cutting, painting, and packaging D. decreasing non-value-added costs.

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PROBLEMS:
52. Under activity-based costing, benchmarks for product cost should contain an allowance for Breakeven Analysis
A. idle time. C. spoilage. 1
. Peal Company had the following information:
B. idle time and scrap materials. D. none of the above. Activity Driver Unit Variable Cost Level of Activity Driver
Units sold P40
64. Elimination of non-value-added activities in a firm should: Setups 1,000 80
A. be discouraged because of potential harmful effects Engineering hours 60 2,000
B. not affect customer value Other data:
C. not have priority because non-value-added activities do not affect a firm's performance Total fixed costs (traditional) P400,000
D. have priority only when a firm is operating at a loss Total fixed costs (ABC) P150,000
Units selling price P80
66. Page Company’s cost allocation and product costing procedures follow activity-based What is the breakeven point in units using ABC?
costing principles. The following activities have been identified and classified as being A. 10,000 unit C. 5,000 units
either value-adding or non-value adding as to each product. B. 5,000 units D. 8,750 units
1. Raw materials storage activity
2. Design engineering activity Traditional Costing
3. Drill press activity Overhead cost per unit
4. Heat treatment activity 2
. Mary Manufacturing Company manufactures two products (X and Y). The overhead costs of
5. Quality control inspection activity P29,000 have been divided into three cost pools that use the following activity drivers:
6. Issuance of purchase order activity Product No. of Orders No. of Labor Transactions No. of Labor Hours
How are the foregoing activities classified? X 30 100 1,000
Value-adding Non-value adding Y 20 300 4,000
A. 1, 2, 5, 6 3, 4 Cost per pool P5,000 P4,000 P20,000
B. 1, 2, 4 3, 5, 6
Using traditional costing, what is the amount of overhead cost to be assigned to Product Y
C. 2, 4, 5 1, 3, 6
using labor hours as the allocation base?
D. 2, 3, 4 1, 5, 6
A. P21,750 C. P16,000
B. P 5,800 D. P23,200
Productivity Measures
51. Manufacturing cycle efficiency is a measure of
Unit cost
A. bottlenecks. C. efficiency. 3
. Arid Company produces products BH and XP. The direct cost of BH is P250 per unit and XP is
B. effectiveness. D. quality.
P350 per unit. Fifty units of BH and 150 units of XP were produced. Overhead amounting to
P130,000 is allocated to products using direct costs as the relevant cost driver.
53. The amount of time between the development and the production of a product is
The cost of XP per unit amounts to
A. the product life cycle. C. production time.
A. P750 C. P1,050
B. lead time. D. value-added time.
B. P1,000 D. P1,250

Activity-based Costing

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Batch-level costs X and 150 units of Y were produced. Overhead amounts to P130,000 and is composed of
Allocated overhead material handling P12,000, labor support P60,000, machine operation P48,000, and general
4
. One of Alien Company’s activity cost pools is machine setups, with estimated overhead of administration P10,000. Material handling cost driver is material cost, labor support cost driver
P300,000. Alien produces slacks (400 setups) and shirts (600 setups). How much of the is labor cost. Machine operation cost resulted from running the machines a total of 480 hours
machine setup cost pool should be assigned to slacks? (three-fourth of which was for product X). General administration effort related equally to
A. P 0 C. P150,000 product X and Y. Material handling chargeable per unit of X (rounded) amounts to
B. P120,000 D. P180,000 A. P30; P 70 C. P60; P140
B. P40; P 80 D. P70; P 30
5
. The overhead rate for Machine Setups is P100 per setup. Products A and B have 80 and 60
setups, respectively. The overhead assigned to each product is 9
. Genco manufactures two versions of a product. Production and cost
A. Product A P8,000, Product B P8,000 C. Product A P8,000, Product B P6,000 information show the following:
B. Product A, P6,000, Product B P6,000 D. Product A, P6,000, Product B P8,000 Model A Model B
Units produced 200 400
6
. Sylvia Company has identified an activity cost pool to which it has allocated estimated Material moves (total) 20 80
overhead of P1,920,000 and determined the expected use of cost drivers per that activity to by Direct labor hours per unit 1 2
160,000 inspections. Widgets require 40,000 inspections, Gadgets 30,000 inspections, and Material handling costs total P200,000. Under ABC, the material handling
Targets, 90,000 inspections. costs allocated to each unit of Model A and Model B would be:
The overhead assigned to each product is A. B. C. D.
A. Widgets P40,000, Gadgets P30,000, Targets P90,000 Model A P100 P200 P333 P130
B. Widgets P480,000, Gadgets P360,000, Targets P1,080,000 Model B P333 P400 P200 P100
C. Widgets P360,000, Gadgets P480,000, Targets P1,080,000
D. Widgets P480,000, Gadgets P360,000, Targets P1,080,000 10
. EMPIRE Company makes two products, E and M. E is being introduced this period,
whereas M has been in production for 2 years. For the period about to begin, 1,000 units of
Overhead cost per unit each product are to be manufactured. The only relevant overhead item is the cost of
7
. EMPIRE Company makes two products, E and M. E is being introduced this period, whereas engineering change orders. E and M are expected to require eight and two change orders,
M has been in production for 2 years. For the period about to begin, 1,000 units of each respectively. E and M are expected to require 2 and 3 machine hours, respectively. The
product are to be manufactured. The only relevant overhead item is the cost of engineering cost of a change order is P600.
change orders. E and M are expected to require eight and two change orders, respectively. E If EMPIRE is using direct tracing, the amount of overhead per unit that will be assigned to E
and M are expected to require 2 and 3 machine hours, respectively. The cost of a change and M, respectively, are
order is P600. A. P2.40 and P3.60, respectively C. P4.80 and P1.20, respectively
If EMPIRE applies engineering change order cost on the basis of machine hours, the B. P3.60 and P2.40, respectively D. P1.20 and P4.80, respectively
overhead cost per unit to be assigned to E and M, respectively, are
A. P2.40 and P3.60, respectively C. P4.80 and P3.60, respectively Total allocated overhead
B. P3.60 and P2.40, respectively D. P3.60 and P4.80, respectively 11
. Germie, Inc., has identified the following overhead costs and activity drivers for next year:
8 Overhead Item Expected Cost Activity Driver Expected Quantity
. Beltran Company produces products X and Y. The direct cost of X is P250 per unit (P100
Setup costs P100,000 Number of setups 500
materials and P150 labor) and Y is P350 (P230 material and P120 labor) per unit. Fifty units of
Ordering costs 40,000 Number of orders 3,200

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Maintenance 200,000 Machine hours 4,000 Determine the activity cost associated with Patient Flor:
Power 20,000 Kilowatt hours 80,000 A. P4,500 C. P4,495
The following are two of the jobs completed during the year: B. P4,550 D. P4,515
Job 500 Job 501
Direct materials P1,500 P2,000 Total cost
13
Direct labor P1,400 P2,400 . Food Factory, Inc., has identified the following cost drivers for its expected overhead costs
Units completed 100 160 for the year:
Direct labor hours 100 160 Budgeted Cost Cost Driver
Number of setups 2 8 Cost Pools Cost Driver Level
Number of orders 8 10 Setup P 80,000 Number of setups 100
Machine hours 40 50 Ordering 40,000 Number of orders 500
Kilowatt hours 60 100 Maintenance 100,000 Machine hours 2,500
The company’s normal activity is 4,000 direct labor hours. Power 20,000 Kilowatt hours 5,000
If the four activity drivers are used to allocate overhead costs, total overhead allocated to Total direct labor hours budgeted = 1,000 hours.
Job 500 would be The following data applies to one of the products completed during the year:
A. P2,766.50. C. P2,515.00. Cost Product X Activity Driver Driver Consumption
B. P2,415.00. D. P2,815.00 Direct materials P2,000 Number of setups 2
Direct labor P2,400 Number of orders 5
Unit cost Units completed 200 Machine hours 25
12
. Wesleyan University Hospital plans to use activity-based costing to assign hospital indirect Direct labor hours 80 Kilowatt hours 50
costs to the care of patients. The hospital has identified the following activities and activity If the activity-based cost drivers are used to allocate overhead cost, the total cost of Product
rates for the hospital’s indirect costs: X will be:
Activity Activity Rate A. P7,400 C. P4,400
Room and meals P150 per day B. P7,800 D. P7,600
Radiology P 95 per image 14
Pharmacy P 20 per physician order . Ray Manufacturing has four categories of overhead. The four categories and expected
Chemistry lab P 85 per test overhead costs for each category for next year are listed as follows:
Operating room P550 per operating room hour Maintenance P510,000
The records of two representative patients were analyzed, using the activity rates. The Material handling 250,000
activity information associated with the two patients is as follows: Setups 60,000
Inspection 210,000
Patient Flor Patient Laura
Currently, overhead is applied using a predetermined overhead rate based upon budgeted
Number of days 7.0 3 direct labor hours. 100,000 direct labor hours are budgeted for next year.
Number of images 4.0 2 The company has been asked to submit a bid for a proposed job. The plant manager feels
Number of physician orders 5.0 1 that obtaining this job would result in a new business in future years. Usually bids are based
Number of tests 6.0 2 upon full manufacturing costs plus 10 percent.
Number operating room hours 4.5 1 Estimates for the proposed job are as follows:

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Direct materials P30,000 B. P415.93 D. P815.00

Direct labor (8,000 hours) P24,000
Number of material moves 100 Questions 17 & 18 are based on the following information.
Number of inspections 120 Hughes Company produces three products with the following production and cost information:
Number of setups 24 Model A Model B Model C
Number of machine hours 4,000 Units produced 2,000 6,000 12,000
The plant manager has heard of a new way of applying overhead that uses cost pools and Direct labor hours (total) 4,000 2,000 4,000
activity drivers. Expected activity for the four activity drivers that would be used are: Number of setups 100 150 250
Machine hours 60,000 Number of shipments 200 225 275
Material moves 20,000 Engineering change orders 15 10 5
Setups 3,000 Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs
Quality inspections 12,000 P180,000.
What is the total cost of the proposed job if Ray Manufacturing uses direct labor hours as its
only activity driver? . What would be the per unit overhead cost for Model A if direct labor hours were the allocation
17

A. P144,000 C. P112,400 base?

B. P136,400 D. P106,400 A. P20.50 C. P82.00
B. P41.00 D. P76.00
Traditional Costing & Activity-based Costing
Questions 15 & 16 are based on the following information. . What would be the per unit overhead cost for Model A if activity-based costing were used?
18

Gilmore Company produces two products in a single factory. The following production and cost A. P20.50 C. P82.00
information has been determined: B. P74.00 D. P76.00
Model 1 Model 2
Units produced 1,000 200 Question Nos. 19 and 20 are based on the following:
Material moves (total) 100 40 Toylandia Company manufactures two products, X-MAN and Machman. Toylandia's overhead
Testing time (total) 250 125 costs consist of setting up machines, P400,000; machining, P900,000; and inspecting,
Direct labor hours per unit 1 5 P300,000.
The controller has determined total overhead to be P480,000. P140,000 relates to material moves; Information on the two products is:
P150,000 relates to testing; the remainder is related to labor time. X-MAN Machman
Direct labor hours 15,000 25,000
15
. If Gilmore uses direct labor hours to allocate overhead to each model, what would overhead Machine setups 600 400
per unit be for Model 2? Machine hours 24,000 26,000
A. P 158.33 C. P 950.00 Inspections 800 700
B. P 400.00 D. P1,200.00
19
. Overhead applied to X-MAN using traditional costing is
16
. If Gilmore uses activity-based costing to allocate overhead to each model, what would A. P600,000. C. P832,000.
overhead per unit be for Model 2? B. P768,000. D. P960,000.
A. P158.33 C. P925.00

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20
. Overhead applied to Machman using activity-based costing is
A. P 640,000. C. P 832,000. Two products are produced by Special Products: A and B. Each product has an area in the plant
B. P 768,000. D. P1,000,000. that is dedicated to its production. The plant has two manufacturing processes, process A and
process B. Other processes include engineering, product handling, and procurement. The product
Questions 21 & 22 are based on the following information. relational table for Special is as follows:
The Oilfield plant has two categories of overhead: maintenance and inspection. Costs expected for Activity Usage
these categories for the coming year are as follows: Activity Driver # and Name Product A: Product B:
Maintenance P100,000 1 Units 200,000 25,000
Inspection 150,000 2 Purchase orders 250 125
The plant currently applies overhead using direct labor hours and expected capacity of 50,000 3 Machine hours 80,000 10,000
direct labor hours. The following data have been assembled for use in developing a bid for a 4 Engineering hours 1,250 1,500
proposed job:
Direct materials P1,000 . How much overhead cost will be assigned to product B using process B?
23

Direct labor P4,000 A. P1,200,000 C. P120,000

Machine hours 500 B. P960,000 D. P150,000
Number of inspections 4
Direct labor hours 800 . What is the unit cost of Product A?
24

The total number of expected machine hours for all jobs during the year is 25,000, and the total A. P4.71 C. P4.80
expected number of inspections is 1,500. B. P252.00 D. P5.30
21
. Using activity-based costing system and the appropriate activity drivers, the total cost of the . Dagger Corporation has the following activities: creating bills of materials (BOM), studying
25

potential job would be manufacturing capabilities, improving manufacturing processes, training employees, and
A, P2,400 C. P7,400 designing tooling. The general ledger accounts reveal the following expenditures for
B. P3,600 D. P7,750 manufacturing engineering:
22
Salaries P150,000
. Using direct labor hours to assign overhead, the total cost of the potential job would be Equipment 80,000
A. P 5,000 C. P 8,000 Supplies 20,000
B. P11,000 D. P 9,000 Total P250,000
The equipment is used for two activities: improving processes and designing tooling. Thirty-
Question Nos. 23 through 25 are based on the following: five percent of the equipment’s time is used for improving processes and sixty-five percent is
Special Products recently installed an activity-based relational data base. Using the information used for designing tools. The salaries are for two engineers. One is paid P100,000, while the
contained in the activity relational table, the following pool rates were computed: other earns P50,000. The P100,000 engineer spends 40% of his time training employees in
new processes and 60% of his time on improving processes. The remaining engineer spends
P200 per purchase order equal time on all activities. Supplies are consumed in the following proportions:
P12 per machine hour, process A Creating BOMs 25%
P15 per machine hours, process B Studying capabilities 10%
P40 per engineering hour Improving processes 20%

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 Cost Accounting Systems
(B. Activity-Based Cost System)

Training employees 25%

Designing tooling 20%
What is the cost assigned to the designing tooling activity?
A. P162,500 C. P50,000
B. P 66,000 D. P250,000

Use the following data to respond to questions 26 through 29

Consider the following facts for NM Company which produces product N and M
Activity Cost Driver N’s share M’s share Unused Cost
Setups # of set ups 10 40 5 P 5,500
Ordering # of orders 5 10 5 3,200
Receiving # of receipts 22 12 6 2,400
Product Dev. # of parts 180 120 100 2,800
Gen Mgt #, labor hrs 2,900 4,100 1,000 7,200
Security Area covered 3,200 5,400 400 9,000
Materials # of units produced 400 800 120,000
Labor # of DLH 1,700 3,100 1,200 56,000

26
. Set up cost chargeable per unit of M accounting for unused capacity amounts to
A. 2.50 C. 5.00
B. 2.75 D. 5.50
27
. Ordering cost chargeable per unit of N ignoring unused capacity amounts to
A. 2.00 C. 3.00
B. 2.67 D. 4.00
28
. The cost of unused capacity excluding labor costs amounts to
A. 11,260 C. 11,856
B. 11,460 D. 14,856

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1
. Answer: D
BES (ABC) = 350,000/40 8,750
ABC fixed costs P 150,000
Set ups 80 x P1,000 80,000
Engineering 2,000 x 60 120,000
Total Fixed Costs P 350,000
2
. Answer: D
Total overhead (5,000 + 4,000 + 20,000) 29,000
Allocated OH to Product Y based on labor hours: 4 ÷ 20 x 29,000 P23,200
3
. Answer: D
BH: (50 x P250) P 12,500
XP: (150 x P350) 52,500
Total direct costs P 65,000

Allocated OH to XP based on direct costs: (52,500 ÷ 65,000 x P130,000) P105,000

Unit cost – Product XP:
Direct cost P 350
overhead (P105,000 ÷ 150) 700
Total P1,050
4
. Answer: B
Setup cost per setup (P300,000 ÷ 1,000) P300
Setup costs assigned to slacks (400 x P300) P120,000
5
. Answer: C
Overhead allocated to:
Product A: (80 x P100) P8,000
Product B: (60 x P100) 6,000
6
. Answer: D
Overhead rate per inspection: (P1,920,000 ÷ 160,000) P12
Overhead assigned to:
Widgets: (40,000 x P12) P 480,000
Gadgets (30,000 x P12) 360,000
Targets (90,000 x P12) 1,080,000
7
. Answer: A
Cost of change orders 10 x 600 P6,000
Cost of change order per hour P6,000/5,000 hours P1.20/MH
Cost of change order per unit:
E: 2 hours x P1.20 P2.40
M: 3 hours x P1.20 P3.60
8
. Answer: A
Materials cost:
Product X: (50 x P100) P 5,000
Product Y: (150 x P230) 34,500
Total P39,500
Material handling cost based on direct materials cost: (P12,000 ÷ P39,500) P0.3038
Material handling cost per unit chargeable to:
Product X: (50,000 x P0.3038 ÷ 50) P 30.38
 Product Y: (34,500 x P0.3038 ÷ 150) P 69.87
9
. Answer: B
Handling cost per move (P200,000 ÷ 100 moves) P2,000
Model A: 20 x P2,000 ÷ 200 P 200
Model B: 80 x P2,000 ÷ 400 P 400
10
. Answer: C
Cost of change orders based on ABC
E: 8 x P600 ÷ 1,000 P4.80
M: 2 x P600 ÷ 1,000 P1.20
11
. Answer: C
Activity Rates:
Setup (P100,000 ÷ 500) P200.00
Ordering (P40,000 ÷ 3,200) 12.50
Maintenance (P200,000 ÷ 4,000) 50.00
Power (P20,000 ÷ 80,000) 0.25
Overhead costs assigned to Job 500:
Setup (2 x P200) P 400
Ordering (8 x P12.50) 100
Maintenance (40 x P50) 2,000
Power (60 x P025) 15
Total P2,515
12
. Answer: D
Room and meals (7 days x P150) P1,050
Radiology (4 images x P95) 380
Pharmacy (5 orders x P20) 100
Chemistry lab (6 tests x P85) 510
Operating room (4.5 hours x P550) 2,475
Total P4,515
13
. Answer: D
SetupP 80,000 ÷ 100 x 2P1,600OrderingP 40,000 ÷ 500 x 5400MaintenanceP100,000 ÷ 2,500 x 251,000PowerP
20,000 ÷ 5,000 x 50 200Total overhead assignedP3,200Direct materials2,000Direct labor 2,400Total costs
assignedP7,600
14
. Answer: B
Direct materials P 30,000
Direct labor 24,000
Overhead 82,400
Total cost of the job P136,400
OH rate per DLH:
(P510,000 + P250,000 + P60,000 + P210,000) ÷ 100,000 P10.30 per DLH
Overhead allocated to proposed job: 8,000 x 10.30 82,400
15
. Answer: D
Total DLH used (1,000 x 1) + (20 x 5) 2,000
Overhead allocated to Model 2 (0.5 x P480,000) P240,000
Overhead per unit of Model 2: (P240,000 ÷ 200) P1,200
16
. Answer: C
Overhead allocated to Model 2:
 Handling (P140,000 ÷ 140 x 40 moves) P 40,000
Testing (P150,000 ÷ 375 x 125) 50,000
Labor-related (P190,000 ÷ 2) 95,000
Total P185,000
Overhead per unit, Model 2 (P185,000 ÷ 200) P925
17
. Answer: B
Overhead rate per DLH (P410,000 ÷ 10,000) P41
Overhead applied to Model A: (4,000 x P41) P164,000
Overhead applied to Model A per unit: (P164,000 ÷ 2,000) P82
18
. Answer: B
Activity rates;
Setups: (P90,000 ÷ 500 setups) P 180
Shipping: (P140,000 ÷ 700 shipments) 200
Engineering (P180,000 ÷ 30 change orders) 6,000

Overhead assigned to Model A

Setups (100 x P180) P 18,000
Shipping (200 x P200) 40,000
Engineering (15 x P6,000) 90,000
Total P148,000
Overhead per unit of Model A (P148,000 ÷ 2,000) P 74
19
. Answer: A
Total overhead costs: (P400,000 + P900,000 + P300,000) P1,600,000
Overhead applied to X-MAN using direct labor hours
(15,000/40,0000) x P1,600,000 P600,000
20
. Answer: B
Activity Rates:
Setups (400,000/1,000 setups) P400 per set up
Machining (900,000/50,000 MH) P 18 per MH
Inspection (300,000/1,500 Inspection) P200 per inspection
Overhead assigned to Machman using ABC:
(400xP400) + (26,000xP18) + (700xP200) P768,000
21
. Answer: C
Direct materials P1,000
Direct labor 4,000
Maintenance 500 x 4 2,000
Inspection 4 x 100 400
Total P7,400
Activity Rate:
Inspection (P150,000 ÷ 1,500) P100/inspection
Maintenance (P100,000 ÷ 25,000) P4/MH
22
. Answer: D
OH rate per DLH: (P250,000 ÷ 50,000 DLH) = P5.00
Cost of the proposed job:
Direct materials P1,000
Direct labor 4,000
Overhead (800 hours x P5 4,000
 Total P9,000
23
. Answer: D
OH assigned to Product B: 6,000 MH x P15 per MH = P150,000
24
. Answer: D
Purchasing cost (250 x P200) P 50,000
Processing costs (80,000 x P12) 960,000
Engineering cost (1,250 x P40) 50,000
Total costs assigned to Product A P1,060,000
Unit cost: (P1,060,000 ÷ 200,000) P 5.30
25
. Answer: B
Cost of use of equipment (0.65 x P80,000) P 52,000
Supplies (0.2 x P20,000) 4,000
Salary of second engineer (0.2 x P50,000) 10,000
Total cost assigned to designing tool activity P 66,000
26
. Answer: C
Setup cost chargeable to Product M: (40/55 x P5,50 P4,000
Setup cost per unit, Product M: (P4,000 ÷ 800) P 5.00
27
. Answer: B
Ordering costs chargeable to Product M: 5/15 x P3,200) P1,066.67
Ordering cost per unit, Product M: (P1,066.67 ÷ 400) P 2.67
28
. Answer: D
Activity rate:
Setup cost: (5,500 ÷ 55) P100 per setup
Ordering: (P3,200 ÷ 20) P160 per order
Receiving cost: (P2,400 ÷ 40) P60 per receipt
Product development: (P2,800 ÷ 400) P 7 per part
General management: (P7,200 ÷ 8,000) P 0.90 per hour
Security: (P9,000 ÷ 9,000) P1.00 per sq. m.
Labor cost: (P56,000 ÷ 6,000) P9.33 per DLH

Cost of unused capacity:

(5 x P100) + (5 x P160) + (6 x P60) + (100 x P7) + (1,000 x P0.90)
+ (400 x P1) + (1,200 x P9.33) P14,856