Midterm Quiz No.

I. Problem solving. Round off final answers to two decimal places.

1. A manufacturer has two versions of a product. Production and cost information show the
following:
Model A Model B
Units produced 100 200
Material moves 10 40
Direct labor hours per unit 1 2

Under ABC, the materials handling costs of Php 100,000 allocated to a unit of Model A is?

2. A manufacturing company produces three products. Production and cost information show the
following:
Model F Model A Model Q
Units produced 1,000 3,000 6,000
Direct labor hours 2,000 1,000 2,000
Number of inspections 20 30 50

a. Using ABC, the inspection costs of Php 50,000 allocated to each unit of Model F would be?
b. Using ABC, the inspection costs of Php 50,000 allocated to Model Q would be?

3. ABC Company uses activity-based costing to determine unit product costs for external reports.
The company has two products: A and B. The annual production and sales of Product A is 10,000
units and of Product B is 4,000 units. There are three overhead activity centers, with estimated
overhead costs and expected activity as follows:
Activity Center Estimated Overhead Costs Product A Activity Product B Activity
Activity 1 Php 25,000 150 100
Activity 2 Php 65,000 800 200
Activity 3 Php 90,000 1,000 2,000

a. The overhead cost per unit of Product of A under activity-based costing is?
b. The overhead cost allocated to Product B under activity-based costing is?

4. DEF Company produces three products with the following production and cost information:
Model A Model B Model C
Units produced 2,000 6,000 13,000
Direct labor hours 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5

Overhead costs include setups amounting to Php 45,000; shipping costs amounting to Php
70,000; and engineering costs amounting to Php 90,000.
 a. What would be the per unit overhead cost for Model C if activity-based costing was used?
b. What would be the per unit overhead cost for Model A if activity-based costing was used?
c. How much would be the overhead cost allocated to Model B if activity-based costing was
used?

5. A 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 given as follows:
Wall mirrors Specialty windows
Units produced 25 25
Material moves per product line 5 15
Direct labor hours per unit 200 200
Budgeted materials handling costs Php 50,000

a. Under a costing system that allocates overhead on the basis of direct labor hours, the
materials handling costs allocated to one unit of wall mirror would be?
b. Under ABC, the materials handling costs allocated to one unit of wall mirror would be?

II. Multiple choice. Each choice has an equal chance of being correct, choose the corresponding letter
you think is the best answer.

1. An objective of activity-based management is to

a. Eliminate the majority of centralized activities in an organization.
b. Reduce or eliminate non-value adding activities incurred to make a product or provide a
service.
c. Institute responsibility accounting systems in decentralized organizations.
d. All of the above

2. Which of the following is typically regarded as a cost drives in traditional costing practices?
a. Number of purchase order processed
b. Number of customers served
c. Number of transactions processed
d. Number of direct labor hours worked

3. Activity-based costing (ABC)

a. Requires the identification of cost drivers.
b. Is used only in just-in-time (JIT) operations.
c. Applied only to discretionary fixed costs.
d. Does not help to identify activities as value adding or non-value adding.

4. A company using activity-based costing

a. Tries to identify cost drivers.
b. Allocates all costs to individual products.
c. Looks for the activity with which total costs are most closely associated.
d. Is probably using the JIT philosophy.
5. In ABC, preliminary cost allocations assign costs to
a. Departments
b. Processes
c. Products
d. Activities

6. In ABC, final cost allocations assign to

a. Departments
b. Processes
c. Products
d. Activities

7. A company using the activity-based overhead rates

a. Will usually have higher budget variances than one using a single rate
b. Will usually have higher volume variances than one using a single rate
c. Cannot compute fixed and variable components of overhead cost
d. Should have better information for planning and control than one using a single rate

8. The principal reason for using more than one rate to apply overhead is
a. To keep individual rates low
b. That overhead costs are driven by more than one activity
c. That such rates recognize the seasonal nature of some costs
d. To simplify recordkeeping

9. The use of activity-based costing annually results in

a. Greater unit costs for low-volume products than is reported by traditional product costing
b. Lower unit costs for low-volume products than is reported by traditional product costing
c. Decreased setup costs being charged to volume products
d. Equalizing setup costs for all product lines

10. Which of the following statements is incorrect concerning activity-based costing?

a. ABC focuses on units of production.
b. ABC may be used with either job order or process cost accounting system.
c. ABC assumes all costs related to the activity should respond proportionally to changes in the
activity level of the cost driver.
d. The primary benefit of ABC is more accurate and meaningful product costing.

11. To assign overhead costs to each product, the activity-based overhead rates are multiplied by
a. The predetermined overhead rate.
b. The average number of cost drivers expected to be used.
c. The units produced.
d. The number of cost drivers expected to be used per product.
12. I – Product costing consists of only direct materials and direct labor.
II – When production departments differ significantly in their manufacturing process, it is
recommended that the single plant wide factory overhead rate be used for allocating factory
overhead.

a. Both statements are correct.

b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.

13. I – The selection of the factory overhead allocation method is important because the method
selected determines the accuracy of the product cost.
II – Managers depend on accurate factory overhead allocation to make decisions regarding
product mix and product price.

a. Both statements are correct.

b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.

14. I – A plant wide factory overhead rate assumes that all overhead is directly related to one activity
representing the entire plant.
II – When production departments differ significantly in their manufacturing process, it is
recommended that the single plant wide factory overhead rate be used for allocating factory
overhead.

a. Both statements are correct.

b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.

15. I – Activity based costing is much easier to apply than single plant wide factory overhead
allocation.
II – Activity rates are computed by dividing the cost budgeted for each activity pool by the
estimated activity base for that pool.

a. Both statements are correct.

b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.
16. Which of the following would be considered a non-value adding activity?
a. Machining
b. Painting
c. Packaging
d. Advertising

17. Which of the following does not support managerial decisions involving accurate product
costing?
a. Product constraints
b. Emphasis of a product line
c. Product mix
d. Product price

18. Which of the following would be considered a value adding activity?

a. Repair of machines
b. Storage of inventory
c. Engineering design
d. Bookkeeping

19. Which of the following is not a factory that would indicate ABC as the possible costing system?
a. Overhead costs constitute an insignificant portion of total costs.
b. Product lines differ greatly in volume and manufacturing complexity.
c. Product lines are numerous, diverse, and require differing degrees of support services.
d. The manufacturing process of the number of products has changed significantly.

20. I – Multiple production department factory overhead rates are most useful when production
departments are very similar in their manufacturing processes.
II – In an effort to simplify the multiple production department factory overhead rate method,
the same rate can be used for all departments.

a. Both statements are correct.

b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.