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Give two examples for each of the four types of cost classifications. Give two examples for each of the four types of cost classifications.

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Which of the following would be the least likely cost driver for an activity such as the repair and maintenance of factory equipment?


A) Machine hours
B) Direct labor hours
C) Number of units produced
D) Number of new product designs

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Which of the following would be the least likely cost driver for an activity such as product testing?


A) Number of shipments received
B) Number of tests
C) Hours of testing time
D) Number of change orders

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Which of the following would most likely be a product-level cost?


A) Salaries related to purchasing and receiving
B) Quality control costs
C) Energy costs for factory machinery
D) Research and development costs for a new product line

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Which of the following statements is true regarding a cost driver?


A) Once a particular cost driver has been used for an activity, it may not be used again.
B) Employees should never be made aware of the cost drivers for their department.
C) There may be more than one potential cost driver for a particular activity.
D) Choosing the wrong cost driver should not impact the determination of a product's cost.

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Which of the following statements is false regarding cost drivers?


A) A particular cost driver may be used for more than one activity.
B) If employees know the cost driver(s) for their department, it may motivate them to be more efficient.
C) The selection of a cost driver should be based on the correlation it has with direct materials used in the production process.
D) The best cost driver for a particular activity may be different from one company to the next.

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Jones Construction currently uses traditional costing where overhead is applied based on direct labor hours. Using traditional costing, the applied overhead rate is $24 per direct labor hour. They are considering a switch to activity-based costing (ABC) . The company controller has come up with preliminary overhead rates for each of the following activities: Jones Construction currently uses traditional costing where overhead is applied based on direct labor hours. Using traditional costing, the applied overhead rate is $24 per direct labor hour. They are considering a switch to activity-based costing (ABC) . The company controller has come up with preliminary overhead rates for each of the following activities: One of the company's current jobs has the following information available: Which of the following statements is true when comparing the total overhead allocated to the job using traditional versus ABC costing? A) ABC costing will yield $362.50 less in overhead cost being allocated to the job. B) ABC costing will yield $725.50 less in overhead cost being allocated to the job. C) ABC costing will yield $345.50 more in overhead cost being allocated to the job. D) ABC costing will yield $725.50 more in overhead cost being allocated to the job. One of the company's current jobs has the following information available: Jones Construction currently uses traditional costing where overhead is applied based on direct labor hours. Using traditional costing, the applied overhead rate is $24 per direct labor hour. They are considering a switch to activity-based costing (ABC) . The company controller has come up with preliminary overhead rates for each of the following activities: One of the company's current jobs has the following information available: Which of the following statements is true when comparing the total overhead allocated to the job using traditional versus ABC costing? A) ABC costing will yield $362.50 less in overhead cost being allocated to the job. B) ABC costing will yield $725.50 less in overhead cost being allocated to the job. C) ABC costing will yield $345.50 more in overhead cost being allocated to the job. D) ABC costing will yield $725.50 more in overhead cost being allocated to the job. Which of the following statements is true when comparing the total overhead allocated to the job using traditional versus ABC costing?


A) ABC costing will yield $362.50 less in overhead cost being allocated to the job.
B) ABC costing will yield $725.50 less in overhead cost being allocated to the job.
C) ABC costing will yield $345.50 more in overhead cost being allocated to the job.
D) ABC costing will yield $725.50 more in overhead cost being allocated to the job.

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Which of the following is a key feature of activity-based costing?


A) Overhead costs are assigned on the basis of volume.
B) Overhead costs are assigned on the basis of sales.
C) Overhead costs are assigned on the basis of direct labor hours.
D) Overhead costs are assigned on the basis of activities.

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Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $600,000 in overhead costs when a total of 10,000 direct labor hours were incurred. After implementing activity-based costing (ABC), the company's accountant identified the following related information: Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $600,000 in overhead costs when a total of 10,000 direct labor hours were incurred. After implementing activity-based costing (ABC), the company's accountant identified the following related information: The number of activities for standard and custom-made cabinets is as follows: During the past year, Thurman accepted a customer order for a set of custom-made cabinets that would require the following: Required: The number of activities for standard and custom-made cabinets is as follows: Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $600,000 in overhead costs when a total of 10,000 direct labor hours were incurred. After implementing activity-based costing (ABC), the company's accountant identified the following related information: The number of activities for standard and custom-made cabinets is as follows: During the past year, Thurman accepted a customer order for a set of custom-made cabinets that would require the following: Required: During the past year, Thurman accepted a customer order for a set of custom-made cabinets that would require the following: Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $600,000 in overhead costs when a total of 10,000 direct labor hours were incurred. After implementing activity-based costing (ABC), the company's accountant identified the following related information: The number of activities for standard and custom-made cabinets is as follows: During the past year, Thurman accepted a customer order for a set of custom-made cabinets that would require the following: Required: Required: Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $600,000 in overhead costs when a total of 10,000 direct labor hours were incurred. After implementing activity-based costing (ABC), the company's accountant identified the following related information: The number of activities for standard and custom-made cabinets is as follows: During the past year, Thurman accepted a customer order for a set of custom-made cabinets that would require the following: Required:

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Can activity-based costing (ABC) be used by service companies? If so, is the implementation of an ABC system in a service company different than that of a manufacturing company?

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Yes, ABC can be used by service companie...

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Define "cross subsidies" and tell what kind of product costing system is likely to have them. What happens to cross subsidies in activity-based costing (ABC)?

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Cross subsidies occur in traditional pro...

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Aunt Lucy's Candies Aunt Lucy's Candies sells standard and premium chocolate candies through its catalog business. Many of the candies are sold in bulk to other companies. Last year, the company incurred $400,000 in overhead costs. After implementing activity-based costing (ABC) , the company's controller identified the following information: Aunt Lucy's Candies Aunt Lucy's Candies sells standard and premium chocolate candies through its catalog business. Many of the candies are sold in bulk to other companies. Last year, the company incurred $400,000 in overhead costs. After implementing activity-based costing (ABC) , the company's controller identified the following information: The number of activities for standard and premium candies is as follows: Refer to the Aunt Lucy's Candies information above. What is the overhead rate for the purchasing activity? A) $12.00 per purchase order B) $18.28 per purchase order C) $40.63 per purchase order D) $36.56 per purchase order The number of activities for standard and premium candies is as follows: Aunt Lucy's Candies Aunt Lucy's Candies sells standard and premium chocolate candies through its catalog business. Many of the candies are sold in bulk to other companies. Last year, the company incurred $400,000 in overhead costs. After implementing activity-based costing (ABC) , the company's controller identified the following information: The number of activities for standard and premium candies is as follows: Refer to the Aunt Lucy's Candies information above. What is the overhead rate for the purchasing activity? A) $12.00 per purchase order B) $18.28 per purchase order C) $40.63 per purchase order D) $36.56 per purchase order Refer to the Aunt Lucy's Candies information above. What is the overhead rate for the purchasing activity?


A) $12.00 per purchase order
B) $18.28 per purchase order
C) $40.63 per purchase order
D) $36.56 per purchase order

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Which of the following types of costs are usually not allocated to products?


A) Unit-level costs
B) Batch-level costs
C) Facility-level costs
D) Product-level costs

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C

Johnson Manufacturing Johnson Manufacturing anticipates incurring $850,000 in overhead costs this year. After implementing activity-based costing (ABC) , the company's controller identified the following related information: Johnson Manufacturing Johnson Manufacturing anticipates incurring $850,000 in overhead costs this year. After implementing activity-based costing (ABC) , the company's controller identified the following related information: The number of activities expected is as follows: Refer to the Johnson Manufacturing information above. What will be the overhead rate for the production activity? A) $25.00 per machine hour B) $60.00 per machine hour C) $50.00 per machine hour D) $42.25 per machine hour The number of activities expected is as follows: Johnson Manufacturing Johnson Manufacturing anticipates incurring $850,000 in overhead costs this year. After implementing activity-based costing (ABC) , the company's controller identified the following related information: The number of activities expected is as follows: Refer to the Johnson Manufacturing information above. What will be the overhead rate for the production activity? A) $25.00 per machine hour B) $60.00 per machine hour C) $50.00 per machine hour D) $42.25 per machine hour Refer to the Johnson Manufacturing information above. What will be the overhead rate for the production activity?


A) $25.00 per machine hour
B) $60.00 per machine hour
C) $50.00 per machine hour
D) $42.25 per machine hour

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Herndon Brothers Inc. produces a variety of "all natural" household cleaning supplies that it manufactures and distributes to various grocery stores along the west coast. Which of the following types of costs wouldmost likely be a facility-level cost?


A) A package product design cost for a new product line
B) A machine setup cost
C) Depreciation on the factory building
D) Utility costs for factory machinery

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What is meant by the term "activity" in activity-based costing (ABC)? How are costs allocated in ABC?

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An activity is a procedure or process th...

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Which of the following types of companies would be most likely to benefit from activity-based costing?


A) Companies with a low 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 compared to direct materials and direct labor
D) None of these

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C

What are the benefits and limitations of activity-based costing (ABC) systems?

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The following overhead cost information is available for Henderson Inc. for 2008: The following overhead cost information is available for Henderson Inc. for 2008: During the year, 4,000 purchase orders were issued; 2,400 shipments were received; 4,500 machine setups were performed; and 2,500 inspections were conducted. If Job #101 required 2 purchase orders, 6 shipments, 3 machine setups, and 5 inspections to complete, how much overhead should be assigned to Job #101? A) $280.00 B) $60.00 C) $150.00 D) $40.00 During the year, 4,000 purchase orders were issued; 2,400 shipments were received; 4,500 machine setups were performed; and 2,500 inspections were conducted. If Job #101 required 2 purchase orders, 6 shipments, 3 machine setups, and 5 inspections to complete, how much overhead should be assigned to Job #101?


A) $280.00
B) $60.00
C) $150.00
D) $40.00

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A

Which of the following statements comparing traditional and activity-based costing (ABC) is true?


A) ABC systems eliminate cross subsidies.
B) Traditional systems eliminate cross subsidies.
C) ABC and traditional systems often produce similar product cost information.
D) All of the above are true.

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