ACC 560 Week 4 Quiz 4

TRUE-FALSE STATEMENTS
1.     Traditional costing systems use multiple predetermined overhead rates.
2.     Traditionally, overhead is allocated based on direct labor cost or direct labor hours.
3.     Current trends in manufacturing include less direct labor and more overhead.
4.     Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using cost drivers.
5.     A cost driver does not generally have a direct cause-effect relationship with the resources consumed.
6.     The first step in activity-based costing is to assign overhead costs to products, using cost drivers.
7.     To achieve accurate costing, a high degree of correlation must exist between the cost driver and the actual consumption of the activity cost pool.
8.     Low-volume products often require more special handling than high-volume products.
9.     When overhead is properly assigned in ABC, it will usually decrease the unit cost of high-volume products.
10.     ABC leads to enhanced control over overhead costs.
11.     ABC usually results in less appropriate management decisions.
12.     ABC is generally more costly to implement than traditional costing.
13.     ABC eliminates all arbitrary cost allocations.
14.     ABC is particularly useful when product lines differ greatly in volume and manufacturing complexity.
15.     ABC is particularly useful when overhead costs are an insignificant portion of total costs.
16.     Activity-based management focuses on reducing costs and improving processes.
17.     Any activity that increases the cost of producing a product is a value-added activity.
18.     Engineering design is a value-added activity.
19.     Non-value-added activities increase the cost of a product but not its perceived value.
20.     Machining is a non-value-added activity.
21.     Not all activities labeled non-value-added are totally wasteful, nor can they be totally eliminated.
22.     The overall objective of installing ABC in service firms is no different than it is in a manufacturing company.
23.     What sometimes makes implementation of activity-based costing difficult in service industries is that a smaller proportion of overhead costs are company-wide costs.
24.     The general approach to identifying activities, activity cost pools, and cost drivers is used by a service company in the same manner as a manufacturing company.
25.     Plant management is a batch-level activity.
26.     Painting is a product-level activity.
27. Just-in-time strives to eliminate inventories by using a pull approach.
28.     Quality control is less important in just-in-time than in traditional manufacturing philosophies.
29.     Inventory storage costs are reduced in just-in-time processing.
30.     Rework costs typically increase in just-in-time processing.
MULTIPLE CHOICE QUESTIONS
  31.     Which of the following is not typical of traditional 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.
  32.     In traditional costing systems, overhead is generally applied based on
a.   direct labor.
b.   machine hours.
c.   direct material dollars.
d.   units of production.
  33.     An activity that has a direct cause-effect relationship with the resources consumed is a(n)
a.   cost driver.
b.   overhead rate.
c.   cost pool.
d.   product activity.
  34.     Which best describes the flow of overhead costs in an activity-based costing system?
a.   Overhead costs Ú direct labor cost or hours Ú products
b.   Overhead costs Ú products
c.   Overhead costs Ú activity cost pools Ú cost drivers Ú products
d.   Overhead costs Ú machine hours Ú products
35.     The costs that are easiest to trace directly to products are
a.   direct materials and direct labor.
b.   direct labor and overhead.
c.   direct materials and overhead.
d.   none of the above; all three costs are equally easy to trace to the product.
36.     Often the most difficult part of computing accurate unit costs is determining the proper amount of _________ to assign to each product, service, or job.
a.   direct materials
b.   direct labor
c.   overhead
d.   direct materials and direct labor
37.     Predetermined overhead rates in traditional costing are often based on
a.   direct labor cost for job order costing and machine hours for process costing.
b.   machine hours for job order costing and direct labor cost for process costing.
c.   multiple bases for job order costing and direct labor cost for process costing.
d.   multiple bases for both job order costing and process costing.
  38.     Direct labor is sometimes the appropriate basis for assigning overhead cost to products. It is appropriate to use direct labor when which of the following is true?
(1)   Direct labor constitutes a significant part of total product cost.
(2)   A high correlation exists between direct labor and changes in the amount of overhead costs.
a.   (1) only
b.   (2) only
c.   Either (1) or (2)
d.   Both (1) and (2)
  39.     Advances in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by
a.   increasing direct labor costs and increasing overhead costs.
b.   increasing direct labor costs and decreasing overhead costs.
c.   decreasing direct labor costs and decreasing overhead costs.
d.   decreasing direct labor costs and increasing overhead costs.
40.     Activity-based costing
a.   allocates overhead to activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers.
b.   accumulates overhead in one cost pool, then assigns the overhead to  products and services by means of a cost driver.
c.   assigns activity cost pools to products and services, then allocates overhead back to the activity cost pools.
d.   allocates overhead directly to products and services based on activity levels.
  41.     Ordering materials, setting up machines, assembling products, and inspecting products are examples of
a.   cost drivers.
b.   overhead cost pools.
c.   direct labor costs.
d.   nonmanufacturing activities.
  42.     An “Ordering and Receiving Materials” cost pool would most likely have as a cost driver:
a.   machine hours.
b.   number of setups.
c.   number of purchase orders.
d.   number of inspection tests.
  43.     Daffodil Company produces two products, Flower and Planter. Flower is a high-volume item totaling 20,000 units annually. Planter is a low-volume item totaling only 6,000 units per year. Flower requires one hour of direct labor for completion, while each unit of Planter requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $800,000. Daffodil uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of Planter would be assigned overhead of
a.   $25.00.
b.   $30.77.
c.   $50.00.
d.   need more information to compute.
  44.     Sitwell Corporation manufactures titanium and aluminum tennis racquets. Sitwell’s total overhead costs consist of assembly costs and inspection costs. The following information is available:
Cost                     Titanium                      Aluminum            Total Cost
Assembly          500 mach. hours            500 mach. hours           $45,000
Inspections                   350                                 150                      $75,000
2,100 labor hours           1,900 labor hours
Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing.
Total overhead costs assigned to titanium racquets, using a single overhead rate, are
a.   $60,000.
b.   $63,000.
c.   $75,000.
d.   $84,000.
45.     Sitwell Corporation manufactures titanium and aluminum tennis racquets. Sitwell’s total overhead costs consist of assembly costs and inspection costs. The following information is available
Cost                     Titanium                      Aluminum            Total Cost
Assembly          500 mach. hours            500 mach. hours           $45,000
Inspections                   350                                 150                      $75,000
2,100 labor hours           1,900 labor hours
Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing
Using activity-based costing, how much assembly cost is assigned to titanium racquets?
a.   $15,750.
b.   $22,500.
c.   $23,625.
d.   $31,500.
  46.     Sitwell Corporation manufactures titanium and aluminum tennis racquets. Sitwell’s total overhead costs consist of assembly costs and inspection costs. The following information is available:
                 Cost                     Titanium                      Aluminum            Total Cost
            Assembly          500 mach. hours            500 mach. hours           $45,000
           Inspections                   350                                 150                      $75,000
                                     2,100 labor hours           1,900 labor hours
Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing.
Using activity-based costing, how much inspections cost is assigned to titanium racquets?
a.   $22,500.
b.   $35,625.
c.   $37,500.
d.   $52,500.
  47.     Sanborn Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year.
Activity Cost Pool              Cost Driver         Est. Overhead          Cost Driver Activity
Ordering and Receiving       Orders                   $   120,000               500 orders
Machine Setup                     Setups                        297,000               450 setups
Machining                            Machine hours        1,500,000               125,000 MH
Assembly                             Parts                        1,200,000               1,000,000 parts
Inspection                             Inspections                 300,000               500 inspections
If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is
a.   $9.60.
b.   $12.00.
c.   $15.00.
d.   $34.17.
48.     Sanborn Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year.
Activity Cost Pool              Cost Driver         Est. Overhead          Cost Driver Activity
Ordering and Receiving       Orders                   $   120,000               500 orders
Machine Setup                     Setups                        297,000               450 setups
Machining                            Machine hours        1,500,000               125,000 MH
Assembly                             Parts                        1,200,000               1,000,000 parts
Inspection                             Inspections                 300,000               500 inspections
If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is
a.   $1.20 per direct labor hour.
b.   $240 per order.
c.   $0.12 per part.
d.   $6,834 per order.
  49.     The last step in activity-based costing is to
a.   assign overhead costs to products, using overhead rates determined for each cost pool.
b.   compute the activity-based overhead rate per cost driver.
c.   identify and classify the activities involved in the manufacture of specific products, and allocate overhead to cost pools.
d.   identify the cost driver that has a strong correlation to the activity cost pool.
  50.     The first step in activity-based costing is to
a.   assign overhead costs to products, using overhead rates determined for each
cost pool.
b.   compute the activity-based overhead rate per cost driver.
c.   identify and classify the activities involved in the manufacture of specific products, and allocate overhead to cost pools.
d.   identify the cost driver that has a strong correlation to the activity cost pool.
51.     A well-designed activity-based costing system starts with
a.   identifying the activity-cost pools.
b.   computing the activity-based overhead rate.
c.   assigning overhead costs to products.
d.   analyzing the activities performed to manufacture a product.
52.     Which of the following is not an example of an activity cost pool?
a.   Setting up machines
b.   Machining
c.   Inspecting
d.   Machine hours
  53.     An example of an activity cost pool is
a.   machine hours.
b.   setting up machines.
c.   number of setups.
d.   number of inspections.
  54.     Estimated costs for activity cost pools and other item(s) are as follows:
Machining                               $800,000
Assembling                               200,000
Advertising                                450,000
Inspecting and testing               175,000
            Total estimated overhead is
a.   $1,000,000.
b.   $1,175,000.
c.   $1,450,000.
d.   $1,625,000.
  55.     An example of a cost which would not be assigned to an overhead cost pool is
a.   indirect salaries.
b.   freight-out.
c.   depreciation.
d.   supplies.
  56.     One of Hartman Company’s activity cost pools is inspecting, with estimated overhead of $140,000. Hartman produces throw rugs (700 inspections) and area rugs (1,300 inspections).  How much of the inspecting cost pool should be assigned to throw rugs?
a.   $49,000.
b.   $70,000.
c.   $75,384.
d.   $140,000.
  57.     Which would be an appropriate cost driver for the machining activity cost pool?
a.   Machine setups
b.   Purchase orders
c.   Machine hours
d.   Inspections
  58.     Which would be an appropriate cost driver for the purchasing activity cost pool?
a.   Machine setups
b.   Purchase orders
c.   Machine hours
d.   Inspections
  59.     An activity-based overhead rate is computed as follows:
a.   actual overhead divided by actual use of cost drivers.
b.   estimated overhead divided by actual use of cost drivers.
c.   actual overhead divided by estimated use of cost drivers.
d.   estimated overhead divided by estimated use of cost drivers.
More Questions are Included
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