Managerial Accounting Question Paper
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Which is NOT a characteristic of a functional-based costing system?
a. It uses traditional product costing definitions.
b. It uses unit-based activity drivers to assign overhead to products.
c. It is cheaper than an activity-based costing system.
d. It offers greater product costing accuracy than an activity-based costing system.
____ 2. Unit-based product costing uses which of the following procedures?
a. Overhead costs are traced to departments, then costs are traced to products.
b. Overhead costs are traced to activities, then costs are traced to products.
c. Overhead costs are traced directly to products.
d. All overhead …show more content…
costs are expensed as incurred.
____ 3. A predetermined overhead rate is calculated using which of the following formulas?
a. Actual annual overhead / Budgeted annual driver level
b. Budgeted annual overhead / Budgeted annual driver level
c. Budgeted annual overhead / Actual annual driver level
d. none of the above
____ 4. All of the following are nonunit-based activity drivers EXCEPT
a. number of setups.
b. number of direct labor hours.
c. number of inspections.
d. number of material moves.
Figure 4-1
Adams Company predicted factory overhead for 2009 and 2010 would be $120,000 for each year. The predicted activity for 2009 and 2010 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
2009 2010
Sales in units 25,000 25,000
Selling price per unit $20 $20
Direct materials and direct labor per unit $10 $10
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2009 and 2010 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
____ 5. Refer to Figure 4-1. When the annual estimated factory overhead rate is used, the gross profits for 2009 and 2010, respectively, are
a. $150,000 and $150,000.
b. $250,000 and $250,000.
c. $150,000 and $110,000.
d. $150,000 and $100,000.
____ 6. The following information is provided for the year:
Actual direct labor hours worked 36,000
Budgeted overhead $300,000
Budgeted direct labor hours 30,000
Actual overhead costs incurred $360,000
If normal costing is used, the amount of overhead applied for the year is
a. $299,880.
b. $300,000.
c. $380,000.
d. $360,000.
____ 7. The following information is provided:
Estimated manufacturing overhead $690,000
Estimated machine hours 46,000
Actual machine hours worked 50,000 Actual costs incurred: Indirect materials $170,000 Indirect labor 230,000 Utilities 120,000 Insurance 100,000 Rent 80,000
The amount of overapplied or underapplied overhead is
a. $65,200 underapplied.
b. $60,000 overapplied.
c. $50,000 overapplied.
d. $10,000 underapplied.
____ 8. The following information pertains to Black Corporation for 2010:
Estimated total overhead costs for 2010 $37,500
Estimated direct labor costs for 2010 25,000
Actual direct labor costs 22,500
Actual overhead costs 36,000
Activity base Direct labor costs
What is the predetermined overhead rate for Black Corporation for 2010?
a. 150%
b. 66.7%
c. 160%
d. 62.5%
____ 9. The following information is provided for the year:
Actual overhead $450,000
Actual machine hours worked 25,000
Budgeted machine hours 27,500
Applied overhead $487,500
If normal costing is used, budgeted overhead used to calculate the predetermined rate would be
a. $443,250.
b. $450,000.
c. $487,500.
d. $536,250.
____ 10. Long Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year: Molding Assembly
Manufacturing overhead cost $600,000 $400,000
Machine hours 10,000 4,000
Direct labor hours 12,000 16,000
The following information was available for Job No. 7-29, which was started and completed during July: Job No. 7-29 Molding Assembly
Direct materials $3,500 $ 7,500
Direct labor $9,000 $12,500
Direct labor hours 900 1,250
Machine hours 500 400
The predetermined overhead rate for the molding department is
a. $50.
b. $60.
c. $83.
d. $100.
____ 11. Account balances are as follows:
Manufacturing overhead $240,000 underapplied
Work in process 100,000
Finished goods 300,000
Cost of goods sold 800,000
If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of
a. $1,440,000.
b. $640,000.
c. $1,040,000.
d. $960,000.
____ 12. Which of the following is NOT a limitation of a plantwide or departmental overhead rate?
a. predetermined rates use budgeted overhead is usually the firm’s best estimate of the amount of overhead
b. there is an assumption that a product’s consumption of overhead is strictly linked to units produced
c. product diversity may consume overhead activities under differing consumption ratios
d. overhead costs tend to be under-allocated to highly complex products
____ 13. More accurate product costing information is produced by assigning costs using
a. a volume-based, plantwide rate.
b. volume-based, departmental rates.
c. activity-based pool rates.
d. all of the above.
____ 14. Yang Manufacturing Company manufactures two products (A and B). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers:
Number of Labor
Product Number of Orders Transactions Labor Hours
A 15 50 500
B 10 150 2,000 Cost per pool $10,000 $8,000 $40,000
Using functional-based costing, what is the amount of overhead cost to be assigned to Product B using labor hours as the allocation base?
a. $58,000
b. $43,500
c. $11,600
d. $46,400
____ 15. Which of the following quantities is an example of an activity driver in activity-based costing?
a. number of setups
b. number of orders placed
c. number of machine hours
d. all of the above
____ 16.
Zipp Company manufactures two products (X and Y). The overhead costs ($84,000) have been divided into three cost pools that use the following activity drivers:
Product Number of Setups Machine Hours Packing Orders
X 10 500 75
Y 10 2,000 175 Cost per pool $9,000 $60,000 $15,000
What is the allocation rate per setup using activity-based costing?
a. $900.
b. $450.
c. $9,000.
d. $2,100.
____ 17. The Xiang plant has two categories of overhead: maintenance and inspection.
Costs expected for these categories for the coming year are as follows:
Maintenance $50,000
Inspection 75,000
The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposed job:
Direct materials $500
Direct labor $2,000
Machine hours 500
Number of inspections 4
Direct labor hours 800
Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.
Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be
a. $1,200.
b. $1,800.
c. $3,700.
d. …show more content…
$3,875.
____ 18. Riley, Inc., has identified the following overhead costs and activity drivers for next year: Expected Expected
Overhead Item Cost Activity Driver Quantity
Setup costs $100,000 Number of setups 500
Ordering costs 40,000 Number of orders 3,200
Maintenance 200,000 Machine hours 4,000
Power 20,000 Kilowatt hours 80,000
The following are two of the jobs completed during the year: Job AA Job BB
Direct materials $375 $1,000
Direct labor $350 $1,200
Units completed 100 160
Direct labor hours 50 80
Number of setups 1 4
Number of orders 4 5
Machine hours 20 25
Kilowatt hours 30 50
The company's normal activity is 4,000 direct labor hours.
If the activity drivers are used to allocate overhead costs, the unit cost (rounded to two decimal places) for Job BB would be
a. $21.40.
b. $26.56.
c. $26.95.
d. $27.03.
____ 19. If activity-based costing is used, modifications made by engineering to the product design of several products would be classified as a
a. unit-level activity.
b. batch-level activity.
c. product-level activity.
d. facility-level activity.
Owens Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers:
Engineering $1,000,000
Setups 900,000
Machining 2,000,000
Inspection 800,000
Providing space 250,000
Providing utilities 180,000
Activity drivers for each activity have been identified and their practical capacities listed:
Machine hours 25,000
Setups 200
Engineering hours 5,000
Inspection hours 2,500
The costs of facility-level activities are assigned using machine hours.
____ 20. What is(are) the unit-level activity(ies)?
a. engineering
b. setups
c. inspecting
d. machining
____ 21. What is(are) the facility-level activity(ies)?
a. providing utilities
b. providing space
c. inspecting
d. both a and b
____ 22. In time-driven ABC systems, managers:
a. assign resources to departments, then activities, then products
b. assign resource costs first to activities, then to products
c. directly estimate the resource demands imposed by each product
d. none of the above
Figure 4-3
Winter Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows:
Maintenance $255,000
Materials handling 125,000
Setups 30,000
Inspection 105,000
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 new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent.
Estimates for the proposed job are as follows:
Direct materials $15,000
Direct labor (8,000 hours) $12,000
Number of material moves 100
Number of inspections 120
Number of setups 24
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 12,000
____ 23. Refer to Figure 4-3. What is the amount of overhead allocated to the proposed job if Winter Manufacturing uses direct labor hours as its only activity driver?
a. $41,200
b. $30,400
c. $30,000
d.
$20,800
____ 24. Refer to Figure 4-3. What is the total cost of the proposed job if Winter Manufacturing uses direct labor hours as its only activity driver?
a. $72,000
b. $68,200
c. $56,200
d. $53,200
____ 25. Activity-based costing assigns cost to cost objects by first
a. tracing costs to products and then tracing costs to cost objects.
b. tracing costs to departments and then tracing costs to products.
c. tracing costs to activities and then tracing costs to cost objects.
d. tracing costs to customers and then tracing costs to products.
____ 26. _______________ are causal factors that explain the consumption of overhead.
a. Fixed costs
b. Joint costs
c. Proportional costs
d. Activity drivers
____ 27. Yang Manufacturing Company manufactures two products (A and B). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers:
Number of Labor
Product Number of Orders Transactions Labor Hours
A 15 50 500
B 10 150 2,000 Cost per pool $10,000 $8,000 $40,000
If the number of labor hours is used to assign labor costs from the cost pool, determine the amount of overhead cost to be assigned to Product A.
a. $58,000
b. $8,000
c. $9,600
d. $32,000
Figure 4-9
Jones Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: Model X Model Y
Units produced 24,000 30,000
Machine hours 7,500 8,500
Direct labor hours 8,000 12,000
Material handling (number of moves) 4,000 6,000
Setups 5,000 7,000
Purchase orders 30 40
Inspections 10,000 14,000
Product line variations 8 12
The following overhead costs are reported for the following activities of the production process:
Material handling $ 40,000
Labor-related overhead 120,000
Setups 60,000
Product design 100,000
Batch inspections 20,000
Central purchasing 80,000
Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below:
Activity Cost Pool Driver Pool
Rate Model X activity Model X cost Model Y activity Model Y cost Total
Material handling $40,000 10,000 4 4000 $16,000 6000 $24,000 $40,000
Labor related overhead $120,000 20,000 6 8000 $48,000 12,000 $72,000 $120,000
Setups $60,000 12,000 5 5000 $25,000 6000 $35,000 $60,000
Product design $100,000 20 5000 8 $40,000 12 $60,000 $100,000 batch inspections $120,000 24,000 5 10,000 $50,000 14,000 $70,000 $120,000 central purchasing $70,000 70 1000 30 $30,000 40 $40,000 $70,000 total $209,000 $301,000 $510,000
____ 28. Refer to Figure 4-9. Jones Manufacturing wants to implement an equally accurate reduced ABC system.
Under this new approach using consumption ratios for labor related and machine hours, the overhead assigned to labor related activities would be? (round to 5 decimal places)
a. $102,546.50
b. $120,000
c. $255,000
d. $435,820.50
Acctg 305 Fall 2010 Practice Test Chapters 4
Answer Section
MULTIPLE CHOICE
1. ANS: D PTS: 1 OBJ: 4-1
2. ANS: A PTS: 1 OBJ: 4-1
3. ANS: B PTS: 1 OBJ: 4-1
4. ANS: B PTS: 1 OBJ: 4-1
5. ANS: C
SUPPORTING CALCULATIONS:
2009: 25,000 [$20 - $10 - ($120,000/30,000)]= $150,000 2010: 5,000 [$20 - $10 - ($120,000/30,000)]= $ 30,000 20,000 [$20 - $10 - ($120,000/20,000)]= 80,000 = $110,000
PTS: 1 OBJ: 4-1
6. ANS: D
SUPPORTING CALCULATIONS:
Budgeted overhead/Budgeted direct labor hours =
$300,000/30,000 = $10/DLH
$10 36,000 = $360,000
PTS: 1 OBJ: 4-1
7. ANS: C
SUPPORTING CALCULATIONS:
Applied overhead [($690,000/46,000) x 50,000] $750,000 Actual overhead: Indirect materials $170,000 Indirect labor 230,000 Utilities 120,000 Insurance 100,000 Rent 80,000 700,000
Overapplied overhead $ 50,000
PTS: 1 OBJ: 4-1
8. ANS: A
SUPPORTING CALCULATIONS:
$37,500/$25,000 = 150% of direct labor costs
PTS: 1 OBJ: 4-1
9. ANS: D
SUPPORTING CALCULATIONS:
Applied overhead = Predetermined rate Actual activity
$487,500 = Predetermined rate 25,000
Predetermined rate = $19.50 per hour
Predetermined rate = Budgeted overhead/Budgeted activity
$19.50 = Budgeted overhead/27,500
Budgeted overhead = $19.50 27,500 = $536,250
PTS: 1 OBJ: 4-1
10. ANS: B
SUPPORTING CALCULATIONS:
Predetermined overhead rate = $600,000/10,000 = $60
PTS: 1 OBJ: 4-1
11. ANS: D
SUPPORTING CALCULATIONS:
Adjustment to cost of goods sold
$800,000/($100,000 + $300,000 + $800,000) $240,000 =
$800,000/$1,200,000 $240,000 = $160,000 Cost of goods sold $800,000
Add: Adjustment for underapplied overhead 160,000
Adjusted cost of goods sold $960,000
PTS: 1 OBJ: 4-1
12. ANS: A PTS: 1 OBJ: 4-2
13. ANS: C PTS: 1 OBJ: 4-2
14. ANS: D
SUPPORTING CALCULATIONS:
($10,000 + $8,000 + $40,000)/2,500 = $23.20
$23.20 2,000 = $46,400
PTS: 1 OBJ: 4-2
15. ANS: D PTS: 1 OBJ: 4-3
16. ANS: B
SUPPORTING CALCULATIONS:
$9,000/20 = $450
PTS: 1 OBJ: 4-3
17. ANS: C
SUPPORTING CALCULATIONS:
Direct materials $ 500
Direct labor 2,000
Overhead:
($50,000/25,000) 500 1,000 ($75,000/1,500) 4 200
Total $3,700
PTS: 1 OBJ: 4-3
18. ANS: D
SUPPORTING CALCULATIONS:
Direct materials $1,000.00
Direct labor 1,200.00
Setup [($100,000/500) 4] 800.00
Ordering [(40,000/3,200) 5] 62.50
Maintenance [($200,000/4,000) 25] 1,250.00
Power [($20,000/80,000) 50] 12.50
Total $4,325.00
$4,325/160 = $27.03
PTS: 1 OBJ: 4-3
19. ANS: C PTS: 1 OBJ: 4-3
20. ANS: D PTS: 1 OBJ: 4-3
21. ANS: D PTS: 1 OBJ: 4-3
22. ANS: C PTS: 1 OBJ: 4-4
23. ANS: A
SUPPORTING CALCULATIONS:
Overhead rate = ($255,000 + $125,000 + $30,000 + $105,000)/100,000 = $5.15/DLH
Overhead allocated to proposed job = $5.15 8,000 = $41,200
PTS: 1 OBJ: 4-2
24. ANS: B
SUPPORTING CALCULATIONS:
Direct materials $15,000
Direct labor 12,000
Overhead ($5.15 8,000) 41,200
Total $68,200
PTS: 1 OBJ: 4-2
25. ANS: C PTS: 1 OBJ: 4-3
26. ANS: D PTS: 1 OBJ: 4-3
27. ANS: B
SUPPORTING CALCULATIONS:
$40,000/2,500 = $16
$16 500 = $8,000
PTS: 1 OBJ: 4-3
28. ANS: D
SUPPORTING CALCULATIONS:
Model X Model Y
209,000 301,000
510,000 510,000
0.41 0.59
Model X Model Y global consumption ratios .41 .59 a = labor hours 8,000/20,000 12,000/20,000 .4 .6 b= machine hours 7,500/16,000 8,500/16,000 .46875 .53125
Set of equations
Model X .41 = .4a + .46875b
Model Y .59 = .6a + .53125b
a= .85455; b= .14545
labor related = .85455 510,000 = 435,820.50
PTS: 1 OBJ: 4-4
Identify the choice that best completes the statement or answers the question.
____ 1. Which is NOT a characteristic of a functional-based costing system?
a. It uses traditional product costing definitions.
b. It uses unit-based activity drivers to assign overhead to products.
c. It is cheaper than an activity-based costing system.
d. It offers greater product costing accuracy than an activity-based costing system.
____ 2. Unit-based product costing uses which of the following procedures?
a. Overhead costs are traced to departments, then costs are traced to products.
b. Overhead costs are traced to activities, then costs are traced to products.
c. Overhead costs are traced directly to products.
d. All overhead …show more content…
costs are expensed as incurred.
____ 3. A predetermined overhead rate is calculated using which of the following formulas?
a. Actual annual overhead / Budgeted annual driver level
b. Budgeted annual overhead / Budgeted annual driver level
c. Budgeted annual overhead / Actual annual driver level
d. none of the above
____ 4. All of the following are nonunit-based activity drivers EXCEPT
a. number of setups.
b. number of direct labor hours.
c. number of inspections.
d. number of material moves.
Figure 4-1
Adams Company predicted factory overhead for 2009 and 2010 would be $120,000 for each year. The predicted activity for 2009 and 2010 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
2009 2010
Sales in units 25,000 25,000
Selling price per unit $20 $20
Direct materials and direct labor per unit $10 $10
The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2009 and 2010 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
____ 5. Refer to Figure 4-1. When the annual estimated factory overhead rate is used, the gross profits for 2009 and 2010, respectively, are
a. $150,000 and $150,000.
b. $250,000 and $250,000.
c. $150,000 and $110,000.
d. $150,000 and $100,000.
____ 6. The following information is provided for the year:
Actual direct labor hours worked 36,000
Budgeted overhead $300,000
Budgeted direct labor hours 30,000
Actual overhead costs incurred $360,000
If normal costing is used, the amount of overhead applied for the year is
a. $299,880.
b. $300,000.
c. $380,000.
d. $360,000.
____ 7. The following information is provided:
Estimated manufacturing overhead $690,000
Estimated machine hours 46,000
Actual machine hours worked 50,000 Actual costs incurred: Indirect materials $170,000 Indirect labor 230,000 Utilities 120,000 Insurance 100,000 Rent 80,000
The amount of overapplied or underapplied overhead is
a. $65,200 underapplied.
b. $60,000 overapplied.
c. $50,000 overapplied.
d. $10,000 underapplied.
____ 8. The following information pertains to Black Corporation for 2010:
Estimated total overhead costs for 2010 $37,500
Estimated direct labor costs for 2010 25,000
Actual direct labor costs 22,500
Actual overhead costs 36,000
Activity base Direct labor costs
What is the predetermined overhead rate for Black Corporation for 2010?
a. 150%
b. 66.7%
c. 160%
d. 62.5%
____ 9. The following information is provided for the year:
Actual overhead $450,000
Actual machine hours worked 25,000
Budgeted machine hours 27,500
Applied overhead $487,500
If normal costing is used, budgeted overhead used to calculate the predetermined rate would be
a. $443,250.
b. $450,000.
c. $487,500.
d. $536,250.
____ 10. Long Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year: Molding Assembly
Manufacturing overhead cost $600,000 $400,000
Machine hours 10,000 4,000
Direct labor hours 12,000 16,000
The following information was available for Job No. 7-29, which was started and completed during July: Job No. 7-29 Molding Assembly
Direct materials $3,500 $ 7,500
Direct labor $9,000 $12,500
Direct labor hours 900 1,250
Machine hours 500 400
The predetermined overhead rate for the molding department is
a. $50.
b. $60.
c. $83.
d. $100.
____ 11. Account balances are as follows:
Manufacturing overhead $240,000 underapplied
Work in process 100,000
Finished goods 300,000
Cost of goods sold 800,000
If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of
a. $1,440,000.
b. $640,000.
c. $1,040,000.
d. $960,000.
____ 12. Which of the following is NOT a limitation of a plantwide or departmental overhead rate?
a. predetermined rates use budgeted overhead is usually the firm’s best estimate of the amount of overhead
b. there is an assumption that a product’s consumption of overhead is strictly linked to units produced
c. product diversity may consume overhead activities under differing consumption ratios
d. overhead costs tend to be under-allocated to highly complex products
____ 13. More accurate product costing information is produced by assigning costs using
a. a volume-based, plantwide rate.
b. volume-based, departmental rates.
c. activity-based pool rates.
d. all of the above.
____ 14. Yang Manufacturing Company manufactures two products (A and B). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers:
Number of Labor
Product Number of Orders Transactions Labor Hours
A 15 50 500
B 10 150 2,000 Cost per pool $10,000 $8,000 $40,000
Using functional-based costing, what is the amount of overhead cost to be assigned to Product B using labor hours as the allocation base?
a. $58,000
b. $43,500
c. $11,600
d. $46,400
____ 15. Which of the following quantities is an example of an activity driver in activity-based costing?
a. number of setups
b. number of orders placed
c. number of machine hours
d. all of the above
____ 16.
Zipp Company manufactures two products (X and Y). The overhead costs ($84,000) have been divided into three cost pools that use the following activity drivers:
Product Number of Setups Machine Hours Packing Orders
X 10 500 75
Y 10 2,000 175 Cost per pool $9,000 $60,000 $15,000
What is the allocation rate per setup using activity-based costing?
a. $900.
b. $450.
c. $9,000.
d. $2,100.
____ 17. The Xiang plant has two categories of overhead: maintenance and inspection.
Costs expected for these categories for the coming year are as follows:
Maintenance $50,000
Inspection 75,000
The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposed job:
Direct materials $500
Direct labor $2,000
Machine hours 500
Number of inspections 4
Direct labor hours 800
Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.
Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be
a. $1,200.
b. $1,800.
c. $3,700.
d. …show more content…
$3,875.
____ 18. Riley, Inc., has identified the following overhead costs and activity drivers for next year: Expected Expected
Overhead Item Cost Activity Driver Quantity
Setup costs $100,000 Number of setups 500
Ordering costs 40,000 Number of orders 3,200
Maintenance 200,000 Machine hours 4,000
Power 20,000 Kilowatt hours 80,000
The following are two of the jobs completed during the year: Job AA Job BB
Direct materials $375 $1,000
Direct labor $350 $1,200
Units completed 100 160
Direct labor hours 50 80
Number of setups 1 4
Number of orders 4 5
Machine hours 20 25
Kilowatt hours 30 50
The company's normal activity is 4,000 direct labor hours.
If the activity drivers are used to allocate overhead costs, the unit cost (rounded to two decimal places) for Job BB would be
a. $21.40.
b. $26.56.
c. $26.95.
d. $27.03.
____ 19. If activity-based costing is used, modifications made by engineering to the product design of several products would be classified as a
a. unit-level activity.
b. batch-level activity.
c. product-level activity.
d. facility-level activity.
Owens Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. In addition, there is a sustaining process with two activities: providing utilities (plantwide) and providing space. Costs have been assigned to each activity using direct tracing and resource drivers:
Engineering $1,000,000
Setups 900,000
Machining 2,000,000
Inspection 800,000
Providing space 250,000
Providing utilities 180,000
Activity drivers for each activity have been identified and their practical capacities listed:
Machine hours 25,000
Setups 200
Engineering hours 5,000
Inspection hours 2,500
The costs of facility-level activities are assigned using machine hours.
____ 20. What is(are) the unit-level activity(ies)?
a. engineering
b. setups
c. inspecting
d. machining
____ 21. What is(are) the facility-level activity(ies)?
a. providing utilities
b. providing space
c. inspecting
d. both a and b
____ 22. In time-driven ABC systems, managers:
a. assign resources to departments, then activities, then products
b. assign resource costs first to activities, then to products
c. directly estimate the resource demands imposed by each product
d. none of the above
Figure 4-3
Winter Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed as follows:
Maintenance $255,000
Materials handling 125,000
Setups 30,000
Inspection 105,000
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 new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent.
Estimates for the proposed job are as follows:
Direct materials $15,000
Direct labor (8,000 hours) $12,000
Number of material moves 100
Number of inspections 120
Number of setups 24
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 12,000
____ 23. Refer to Figure 4-3. What is the amount of overhead allocated to the proposed job if Winter Manufacturing uses direct labor hours as its only activity driver?
a. $41,200
b. $30,400
c. $30,000
d.
$20,800
____ 24. Refer to Figure 4-3. What is the total cost of the proposed job if Winter Manufacturing uses direct labor hours as its only activity driver?
a. $72,000
b. $68,200
c. $56,200
d. $53,200
____ 25. Activity-based costing assigns cost to cost objects by first
a. tracing costs to products and then tracing costs to cost objects.
b. tracing costs to departments and then tracing costs to products.
c. tracing costs to activities and then tracing costs to cost objects.
d. tracing costs to customers and then tracing costs to products.
____ 26. _______________ are causal factors that explain the consumption of overhead.
a. Fixed costs
b. Joint costs
c. Proportional costs
d. Activity drivers
____ 27. Yang Manufacturing Company manufactures two products (A and B). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers:
Number of Labor
Product Number of Orders Transactions Labor Hours
A 15 50 500
B 10 150 2,000 Cost per pool $10,000 $8,000 $40,000
If the number of labor hours is used to assign labor costs from the cost pool, determine the amount of overhead cost to be assigned to Product A.
a. $58,000
b. $8,000
c. $9,600
d. $32,000
Figure 4-9
Jones Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows: Model X Model Y
Units produced 24,000 30,000
Machine hours 7,500 8,500
Direct labor hours 8,000 12,000
Material handling (number of moves) 4,000 6,000
Setups 5,000 7,000
Purchase orders 30 40
Inspections 10,000 14,000
Product line variations 8 12
The following overhead costs are reported for the following activities of the production process:
Material handling $ 40,000
Labor-related overhead 120,000
Setups 60,000
Product design 100,000
Batch inspections 20,000
Central purchasing 80,000
Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below:
Activity Cost Pool Driver Pool
Rate Model X activity Model X cost Model Y activity Model Y cost Total
Material handling $40,000 10,000 4 4000 $16,000 6000 $24,000 $40,000
Labor related overhead $120,000 20,000 6 8000 $48,000 12,000 $72,000 $120,000
Setups $60,000 12,000 5 5000 $25,000 6000 $35,000 $60,000
Product design $100,000 20 5000 8 $40,000 12 $60,000 $100,000 batch inspections $120,000 24,000 5 10,000 $50,000 14,000 $70,000 $120,000 central purchasing $70,000 70 1000 30 $30,000 40 $40,000 $70,000 total $209,000 $301,000 $510,000
____ 28. Refer to Figure 4-9. Jones Manufacturing wants to implement an equally accurate reduced ABC system.
Under this new approach using consumption ratios for labor related and machine hours, the overhead assigned to labor related activities would be? (round to 5 decimal places)
a. $102,546.50
b. $120,000
c. $255,000
d. $435,820.50
Acctg 305 Fall 2010 Practice Test Chapters 4
Answer Section
MULTIPLE CHOICE
1. ANS: D PTS: 1 OBJ: 4-1
2. ANS: A PTS: 1 OBJ: 4-1
3. ANS: B PTS: 1 OBJ: 4-1
4. ANS: B PTS: 1 OBJ: 4-1
5. ANS: C
SUPPORTING CALCULATIONS:
2009: 25,000 [$20 - $10 - ($120,000/30,000)]= $150,000 2010: 5,000 [$20 - $10 - ($120,000/30,000)]= $ 30,000 20,000 [$20 - $10 - ($120,000/20,000)]= 80,000 = $110,000
PTS: 1 OBJ: 4-1
6. ANS: D
SUPPORTING CALCULATIONS:
Budgeted overhead/Budgeted direct labor hours =
$300,000/30,000 = $10/DLH
$10 36,000 = $360,000
PTS: 1 OBJ: 4-1
7. ANS: C
SUPPORTING CALCULATIONS:
Applied overhead [($690,000/46,000) x 50,000] $750,000 Actual overhead: Indirect materials $170,000 Indirect labor 230,000 Utilities 120,000 Insurance 100,000 Rent 80,000 700,000
Overapplied overhead $ 50,000
PTS: 1 OBJ: 4-1
8. ANS: A
SUPPORTING CALCULATIONS:
$37,500/$25,000 = 150% of direct labor costs
PTS: 1 OBJ: 4-1
9. ANS: D
SUPPORTING CALCULATIONS:
Applied overhead = Predetermined rate Actual activity
$487,500 = Predetermined rate 25,000
Predetermined rate = $19.50 per hour
Predetermined rate = Budgeted overhead/Budgeted activity
$19.50 = Budgeted overhead/27,500
Budgeted overhead = $19.50 27,500 = $536,250
PTS: 1 OBJ: 4-1
10. ANS: B
SUPPORTING CALCULATIONS:
Predetermined overhead rate = $600,000/10,000 = $60
PTS: 1 OBJ: 4-1
11. ANS: D
SUPPORTING CALCULATIONS:
Adjustment to cost of goods sold
$800,000/($100,000 + $300,000 + $800,000) $240,000 =
$800,000/$1,200,000 $240,000 = $160,000 Cost of goods sold $800,000
Add: Adjustment for underapplied overhead 160,000
Adjusted cost of goods sold $960,000
PTS: 1 OBJ: 4-1
12. ANS: A PTS: 1 OBJ: 4-2
13. ANS: C PTS: 1 OBJ: 4-2
14. ANS: D
SUPPORTING CALCULATIONS:
($10,000 + $8,000 + $40,000)/2,500 = $23.20
$23.20 2,000 = $46,400
PTS: 1 OBJ: 4-2
15. ANS: D PTS: 1 OBJ: 4-3
16. ANS: B
SUPPORTING CALCULATIONS:
$9,000/20 = $450
PTS: 1 OBJ: 4-3
17. ANS: C
SUPPORTING CALCULATIONS:
Direct materials $ 500
Direct labor 2,000
Overhead:
($50,000/25,000) 500 1,000 ($75,000/1,500) 4 200
Total $3,700
PTS: 1 OBJ: 4-3
18. ANS: D
SUPPORTING CALCULATIONS:
Direct materials $1,000.00
Direct labor 1,200.00
Setup [($100,000/500) 4] 800.00
Ordering [(40,000/3,200) 5] 62.50
Maintenance [($200,000/4,000) 25] 1,250.00
Power [($20,000/80,000) 50] 12.50
Total $4,325.00
$4,325/160 = $27.03
PTS: 1 OBJ: 4-3
19. ANS: C PTS: 1 OBJ: 4-3
20. ANS: D PTS: 1 OBJ: 4-3
21. ANS: D PTS: 1 OBJ: 4-3
22. ANS: C PTS: 1 OBJ: 4-4
23. ANS: A
SUPPORTING CALCULATIONS:
Overhead rate = ($255,000 + $125,000 + $30,000 + $105,000)/100,000 = $5.15/DLH
Overhead allocated to proposed job = $5.15 8,000 = $41,200
PTS: 1 OBJ: 4-2
24. ANS: B
SUPPORTING CALCULATIONS:
Direct materials $15,000
Direct labor 12,000
Overhead ($5.15 8,000) 41,200
Total $68,200
PTS: 1 OBJ: 4-2
25. ANS: C PTS: 1 OBJ: 4-3
26. ANS: D PTS: 1 OBJ: 4-3
27. ANS: B
SUPPORTING CALCULATIONS:
$40,000/2,500 = $16
$16 500 = $8,000
PTS: 1 OBJ: 4-3
28. ANS: D
SUPPORTING CALCULATIONS:
Model X Model Y
209,000 301,000
510,000 510,000
0.41 0.59
Model X Model Y global consumption ratios .41 .59 a = labor hours 8,000/20,000 12,000/20,000 .4 .6 b= machine hours 7,500/16,000 8,500/16,000 .46875 .53125
Set of equations
Model X .41 = .4a + .46875b
Model Y .59 = .6a + .53125b
a= .85455; b= .14545
labor related = .85455 510,000 = 435,820.50
PTS: 1 OBJ: 4-4