CHAPTER 8 ACTIVITY.BASED COST SYSTEM yHEORIES: 1 He Of the following statements is true regarding, activity-based costing A. itis based on the Concept that a single cost driver can drive all overhead costs, B. Itis based on the Concept that activities drive overhead costs, C. Wis based on the Concept thal unit-level costs drive all overhead costs D. This based on the cancept that either the number of direct labor or machine hours incurred drives all overhead costs, Which of the following is true regarding acivity.based costing (ABC)? A. The benefits of using ABC always outweigh its limitations B. The lower the proportion of overhead costs as compared to direct materials and direct Iabor costs, the more likely a company will benefit by using ABC. Companies witha high-propostion of non-unitlevel costs should rarely use ABC, D. High measurement cost: 's associated with ABC may deter some companies from its use. Which of the following statements associated with traditional overhead allocation is true? A. A aditional overhead allocation method is the most accurate in automated environments with diverse products. B. A traditional overhead allocation method can also be referred to as activity- based costing. CA traditional overhead allocation method provides the ntost accurate product cost information. D. A traditional overhead allocation method usually uses one or two volume- based cost drivers. Which of the following statements comparing traditional and activity-based costing (ABC) is incorrect? A. Traditional systems are generally less accurate than ABC systems. B. ABC and traditional systems often produce different product cost information. C. ABC systems focus on activity costing while traditional systems focus on volume costing, 18510. 4 5 expensive to implement than adi Hon ABC systems are general i systems. : activity-based cost; og a likely advantage In based costn Which of the flowing 8 " Teaintain accurate cost driver i foriaat (Abo) A A dere nd ee oopecia net decrease Cc. Aniner to trace indirect Co: ; Tm; ility sts to specific activin et * Pecific activin, HON. increase in the ability DAs increase in \ctivitie ing, tracki ; ne cost of accumulating, tracking, and ot . products ‘and services. ty Activity-based costing considers non” such as A. Direct labor usage: B. Machine operations. ; Cc Consumption of indirect materials and energy usage. D. Machine setups and product design changes. yolume-telated activities that 6 Tete sty Which of the following types of companies would be most likely to benef activity-based costing? . —— fron, ‘A. Companies with alow potential for’ cost distortions B. Companies that have a large proportion of unit-level costs C. Companies that have a relatively high proportion of overhead com, direct materials and direct labor ated ty D. None of these Which of the following would be a likely disadvantage of activity-based ¢ (asc? cating ‘A. A decrease in a company's ability to accurately prepare budgets ¢ upcoming period OF the B. A decrease in a company's ability to find opportunities for contin improvement. ous C.. An increase in the accuracy of product cost information. D. Aninerease in the cost of obtaining accurate product cost information, Which of the following is not a benefit of activity-based costing (ABC)? A. Increased product cost information B. Increased accuracy in the budgeting process C. Increased implementation costs D. Increased understanding of activities that drive overhead costs Which system focuses on the management of activities with the objective of of improving the value received by the customer and the profit recei providing this value? Pro eoeved by A. Activity-based management 186.12. 13. 14. 15. B. Traditional cost Management system ©. Contemporary Cost control D. Standard cost System Which of the follows i ‘ a C) is true? MF, statements regarding activity-based costing (ABC) Resources cons, A ume acti F ities and products consume costs. B. Activities conss ps c me resources and products consume’activities. Costs consume Activities D. Resources consume and products cause costs. Activities and activities cause costs Which of the following is fatse Yegarding activity-based costing (ABC)? A. Companies that have a high potential for cost distortions are more likely to benefit with ABC, B. Opportunities for Continuous improvement are rarely revealed by using ABC C. The cost of implementing ABC may outweigh the benefits. D. Increased accuracy with bud, lgcting resources is often realized. Traditional overhead al location methods as opposed to activity-based allocation methods work best wh en there are many different volume-based cost drivers. most costs are unit-level costs. overhead can be estimated. most costs are facility-level costs ons> Which of the followin, costing (ABC) is true? A. B. c ivity-based ig Statements comparing traditional and activity-bas ABC systems eliminate cross subsidies. Traditional systems eliminate cross subsidies duct cost ABC and traditional systems often produce similar produ information. D. Each of these is true, idies? Which of the following statements is true regarding OE ap ifierest A. They occur when factory workers are trained to worl achines. wir Bit B. They occur when high-volume products are assigned more than of overhead costs. . santa end a. mo occur when high-volume products have more direct mal © di rerhead costs. ‘ned for a a "particular overhead cost item. 18780, PROBLEMS: 1 4 Successful activity-based costing (ABC) implementation do, having Peas wwe A. top manage ne B_ ABC linked (0 its compeul Cc adequate resources. D_ af the giver evorers nt support: ive strategy: fi, One of Alien Co st pools is machine 5 overhead of P300,000 lien produces slacks (400 setups) Setup, i over pie machine cP cost poo! should be assigneg reer C Pisy00 B. 120,000 D. P180,000 mpany's activity ©: h 6 sti Mat "4 (609 7 Oslathsy Sips ' The overhead rate for Machine Setups 1s P100 per setup. P, a0 and 60 setups, respectively Phe evertiond assigned toca Se Aa ‘a, Product A 28,000, Product BP8,000 ach Produce nt B hay, 8. Product A, 76,000, Product B 6,000 tis Ne Product BP6,000 C._ Product A P8,000, F Product A, P6000, Product B P8000 Sylvia Company has identified an activity cost pool to whi Climated overhead of P1,920,000 and determined the ch if has ayy drivers per that activity t0 by 160,000 inspections. ‘wagPected Sealey snspections, Gadgets 30.000 inspections: and Targets, 90,000 incor Tea 4 " Pections, The overhead assigned to each product is Gadgets P30,000, Targets P90,000 A. Widgets P40,000, fe Watets PI 080,000 Gadgets P360,000, Targets iH {,080,000, 1,000, P48 ©. Widgets 730,00, Guts F480, 000, "Trgets Pre D. Widgets P480,000, Gadgets P360,000, Targets P1,080,000 Ard Company produces products BH and XP. i . The direct ant an XP 7350 per unit. Fifty units of BH Bt tad es 2250 pe produced, Overhead amounting to P130,000 is allocated to preducienn using direct costs as the relevant cost driver. The cost of XP per unit amounts t A. P750 ° B. P1,000 Cc. P1,050 D. P1,250 198Beltran Company produces products X and Y. The direct cost of X 3s P250 per unit (F100 materials and P150 labor) and Y is P350 (P230 material and P'120 labor) per unit. Fifty units of X and 150 units of Y were produced. Overhead amounts to 130,000 and is composed of material handling P12,000, labor support 60,000, machine operation 48,000, and general administration 10,000, Material handling cost driver is material cost, labor support cost driver is Jabor cost Machine operation cost resulted from running the machines a (otal ‘of 480 hours (Uhree-fourth of which was for product X). General administration effort related equally to product X and Y. Material handling chargeable per unit of X (rounded) amounts to A, P30; P70 C. P60; P140 B. P40; P 80 D. P70; P 30 Ray Manufacturing has four categories of overhead, The four categories and expected overhead costs for each category for next year are listed as follows: Maintenance 510,000 Material handling 250,000 Setups 60,000 Inspection 210,000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000 direct labor hours are budgeted for next year. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in a new business in future years. Usually bids are based upon full manufacturing costs plus 10 percent. Estimates for the proposed job are as follows: Direct materials 30,000 Direct labor (8,000 hours) 24,000 Number of material moves 100 Number of inspections 120 Number of setups 4 Number of machine hours 4,000 The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are: Machine hours 60,000 Material moves 20,000 Setups 3,000 Quality inspections 32,000 199What is the total cost of the proposed job u y activity driver? labor hours as its onl A, 144,000 B. P136,400 Germie, Inc,, has ide for next year: Overhead Item Expected Cost Setup costs P 100,000 Ordering costs 40,000 Maintenance 200,000 Power 20,000 Cc. P112,400 D. P106,400 Activity Driver Number of setups Number of orders Machine hours Kilowatt hours { Ray Manufacturing uses jy, rect tified the following overhead costs and activity drivers The following are two of the jobs completed during the year: Direct materials Direct labor Units completed Direct labor hours Number of setups Number of orders Machine hours Kilowatt hours The company’s normal activity is 4,000 direct labor hours. Job 500 P1,500 P1400 100 100 2 8 40 60 Expected 500 3,200 4,009 80,000 job 501 2,000 P2,400 160 160 8 10 50 100 If the four activity drivers are used to allocate overhead costs, total overhead allocated to Job 500 would be A. 2,766.50 B. P2,415.00 C. P2,515.00 D. P2,815.00 enco manufactures two versions of a product. Production and cost information show the following: Units produced Material moves (total) Direct labor hours per unit Model A 200 20 1 Model B 400 80 2 Material handling costs total P200,000, Under ABC, jal handling costs allocated to each unit of Model A and Model B veouldbe material handling 200Model A Model B : F100 333 i P200 400 S 2333 200 >. PI30 P1090 Hughes Company Produces thr . . cost information: ree products with the following production and Direct labor hours (total) 4.000 2,000 4,000 Number of setups 100 150 250 Number of shipments 200 225 2s Engineering change orders 15 10 5 Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000. What would be the per unit overhead cost for Model A if direct labor hours were the allocation base? A. P20.50 C. P82.00 B. P41.00 D. P76.00 What would be the per unit overhead cost for Model A if actvity-based costing were used? A. P2050 Cc. P82.00 B. P74.00 D. P76.00 Gilmore Company produces two products in a single factory. The following production and cost information has been determined: Model 1 Model 2 Units produced 1,000 200 Material moves (total) 100 40 Testing time (total) 250 125 Direct labor hours per unit 1 5 ‘The controller has determined total overhead to be P480,000. P140,000 relates to material moves; P150,000 relates to testing; the remainder is related to labor time. If-Gilmore uses direct labor hours to allocate overhead to each model, what would overhead per unit be for Model 2? A. P 158.33 Cc. P 950.00 B. P 400.00 D. P1,200.00 201