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Kozlov Corporation has provided the following data from its activity-based costing system:  Activity Cost Pool  Total Cost  Total Activity  Assembly $942,48066,000 machine hours  Processing orders $85,0501,800 orders  Inspection $126,8541,820 inspection hours \begin{array} { l l l } \text { Activity Cost Pool } & \text { Total Cost } & \text { Total Activity } \\\text { Assembly } & \$ 942,480 & 66,000 \text { machine hours } \\\text { Processing orders } & \$ 85,050 & 1,800 \text { orders } \\\text { Inspection } & \$ 126,854 & 1,820 \text { inspection hours }\end{array} The company makes 430 units of product A21W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit. - According to the activity-based costing system, the average cost of product A21W is closest to:


A) $89.72 per unit
B) $65.18 per unit
C) $64.99 per unit
D) $92.49 per unit
E) $94.11 per unit

F) B) and D)
G) A) and D)

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The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using activity-based costing for assigning overhead costs, the activity rate for machine setups is: A) $60 per setup B) $100 per setup C) $120 per setup D) $240 per setup E) $80 per setup The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using activity-based costing for assigning overhead costs, the activity rate for machine setups is: A) $60 per setup B) $100 per setup C) $120 per setup D) $240 per setup E) $80 per setup - Using activity-based costing for assigning overhead costs, the activity rate for machine setups is:


A) $60 per setup
B) $100 per setup
C) $120 per setup
D) $240 per setup
E) $80 per setup

F) C) and D)
G) None of the above

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A

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing.  Direct Labor Hours  Machine Hours  Operating Dept. 1 9809,200 Operating Dept. 2 2,1006,000 Totals 3,08015,200 Factory overhead costs  Rent and utilities $21,700 Indirect labor 17,300 Depreciation - Equipment 14,000\begin{array} { l c c } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\ & & \\\text { Factory overhead costs } & & \\\text { Rent and utilities } & & \$ 21,700 \\\text { Indirect labor } & & 17,300\\\text { Depreciation - Equipment } & &14,000 \\\end{array} Total factory overhead $ 53,000


A) $11,795.
B) $14,092.
C) $25,887.
D) $27,112.
E) $26,500.

F) All of the above
G) A) and B)

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Why would a firm use activity-based costing (ABC) rather than traditional methods of cost allocation for overhead?

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ABC systems can more accurately trace costs to individual jobs. It is especially effective when the same department or departments produce many different types of products. With ABC complex products are assigned a larger portion of the overhead when based on activities.

The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is: A) $12.00 per unit B) $13.40 per unit C) $70.00 per unit D) $14.00 per unit E) $75.60 per unit The Homer Corporation produces two products, and reports the following production and cost information for the most recent accounting period. - Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is: A) $12.00 per unit B) $13.40 per unit C) $70.00 per unit D) $14.00 per unit E) $75.60 per unit - Using direct labor hours as the basis for assigning overhead costs, the total product cost per unit for Product A is:


A) $12.00 per unit
B) $13.40 per unit
C) $70.00 per unit
D) $14.00 per unit
E) $75.60 per unit

F) A) and E)
G) C) and E)

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Naples Corporation has provided the following data from its activity-based costing accounting system:  Indirect factory wages $520,000 Factory equipment depreciation $260,000\begin{array}{lrl}\text { Indirect factory wages } & \$ 520,000 \\\text { Factory equipment depreciation } & \$ 260,000\end{array} Activity Cost PoolsActivity Rate Processing customer orders $92.86 per customer order  Assembling products $1.78 per assembly hour  Setting up batches $52.09 per batch \begin{array}{llr}\text {Activity Cost Pools}&\text {Activity Rate}\\\text { Processing customer orders } & \$ 92.86 \text { per customer order } \\\text { Assembling products } & \$ 1.78 \text { per assembly hour } \\\text { Setting up batches } & \$ 52.09 \text { per batch }\end{array} - The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Product Processing activity cost pool?


A) $780,000
B) $260,000
C) $169,000
D) $351,000
E) $429,000

F) A) and B)
G) A) and D)

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In activity-based costing, there are a number of activity cost pools, which consist of activities that belong to the same process and/or are caused by the same cost driver.

A) True
B) False

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The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of rent and utilities allocated to Dept. 2 using activity-based costing.  Direct Labor Hours  Machine Hours  Operating Dept. 1 9809,200 Operating Dept. 2 2,1006,000 Totals 3,08015,200 Factory overhead costs  Rent and utilities $21,700 Indirect labor 17,300 Depreciation - Equipment 14,000 Total factory overhead $53,000\begin{array} { l c r } & \text { Direct Labor Hours } & \text { Machine Hours } \\\text { Operating Dept. 1 } & 980 & 9,200 \\\text { Operating Dept. 2 } & 2,100 & 6,000 \\\text { Totals } & 3,080 & 15,200 \\& & \\\text { Factory overhead costs } & &\\\text { Rent and utilities } & & \$ 21,700 \\ \text { Indirect labor } & & 17,300\\\text { Depreciation - Equipment } & &14,000\\\text { Total factory overhead }&& \$ 53,000\end{array}


A) $8,566.
B) $14,152.
C) $6,000.
D) $13,134.
E) $14,092.

F) C) and E)
G) B) and D)

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Quantum Corporation has provided the following data from its activity-based costing system:  Activity Cost Pool  Overhead Cost  Total Activity  Assembly $1,114,92057,000 machine hours  Processing orders $47,0161,800 orders  Inspection $107,3281,560 inspection hours \begin{array}{lcrl}\text { Activity Cost Pool }&&\text { Overhead Cost }&\text { Total Activity }\\\text { Assembly } & \$ & 1,114,920 & 57,000 \text { machine hours } \\\text { Processing orders } & \$ & 47,016 & 1,800 \text { orders } \\\text { Inspection } & \$ & 107,328 & 1,560 \text { inspection hours }\end{array} The company makes 430 units of product R32E a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit. -According to the activity-based costing system, the product margin for product R32E is:


A) $29,132.50
B) $4,116.50
C) $5,161.30
D) $6,180.50
E) $4,981.00

F) A) and E)
G) C) and D)

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A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:


A) Plantwide overhead costing.
B) A cost center accounting system.
C) Controllable costing.
D) Performance costing.
E) Activity-based costing.

F) A) and D)
G) B) and E)

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Mirkle Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:  Activity Cost Pools  Activity Rate  Assembling products $6.56 per assembly hour  Processing customer orders $65.38 per customer order  Setting up batches $82.84 per batch \begin{array}{llr}\text { Activity Cost Pools }&\text { Activity Rate }\\\text { Assembling products } & \$ 6.56 \text { per assembly hour } \\\text { Processing customer orders } & \$ 65.38 \text { per customer order } \\\text { Setting up batches } & \$ 82.84 \text { per batch }\end{array} Data for one of the company's products follow:  Product P59G  Number of assembly hours 240 Number of customer orders 48 Number of batches 64\begin{array} { l l l } & & \text { Product P59G } \\ \text { Number of assembly hours } & 240 & \\ \text { Number of customer orders } & 48 & \\ \text { Number of batches } & 64 \end{array} - The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. How much total cost would be assigned to the 4,000 units of Product P59G using the activity-based costing system?


A) $31,814.40
B) $51,000.00
C) $10,014.40
D) $39,214.40
E) $61,014.40

F) A) and E)
G) A) and D)

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E

After all activity costs are accumulated in an activity cost pool account, overhead rates are computed and costs are allocated to cost objects based on:


A) Indirect factors.
B) Opportunity cost principles.
C) Cost drivers.
D) Joint cost principles.
E) Direct factors.

F) B) and E)
G) B) and D)

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Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.  Flat  Round  Total  Direct materials $12,000$24,000$36,000 Direct labor 6,00018,00024,000 Overhead ( 250% of direct labor cost) 15,00045,00060,000 Total cost $33,000$87,000$120,000 Units produced 10,00015,000 Average cost per unit $3.30$5.80\begin{array}{|l|c|c|c|}\hline& \text { Flat } & \text { Round } & \text { Total }\\ \hline \text { Direct materials } & \$ 12,000 & \$ 24,000 & \$ 36,000 \\\hline \text { Direct labor } & 6,000 & 18,000 & 24,000 \\\hline \text { Overhead ( } 250 \% \text { of direct labor cost) } & 15,000 & 45,000 & 60,000 \\\hline \text { Total cost } & \$ 33,000 & \$ 87,000 & \$ 120,000 \\\hline \text { Units produced } & 10,000 & 15,000 & \\\hline \text { Average cost per unit } & \$ 3.30 & \$ 5.80 & \\\hline\end{array} Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.  Overhead Cost Category (Activity Cost Pool)  Cost  Supervision $12,600 Depreciation of machinery 30,600 Assembly line preparation 16,800 Total overhead $60,000\begin{array}{|l|l|l}\hline\text { Overhead Cost Category (Activity Cost Pool) }&\text { Cost }\\\hline \text { Supervision } & \$ 12,600 \\\hline \text { Depreciation of machinery } & 30,600 \\\hline \text { Assembly line preparation } & 16,800 \\\hline \text { Total overhead } & \$ 60,000\\\hline\end{array} She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data. \begin{array}{|l|c|c|c|} \hline& \text { Flat } & \text { Round } & \text { Total }\\ \hline \text { Direct materials } & \$ 12,000 & \$ 24,000 & \$ 36,000 \\ \hline \text { Direct labor } & 6,000 & 18,000 & 24,000 \\ \hline \text { Overhead ( } 250 \% \text { of direct labor cost) } & 15,000 & 45,000 & 60,000 \\ \hline \text { Total cost } & \$ 33,000 & \$ 87,000 & \$ 120,000 \\ \hline \text { Units produced } & 10,000 & 15,000 & \\ \hline \text { Average cost per unit } & \$ 3.30 & \$ 5.80 & \\ \hline \end{array} Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information. \begin{array}{|l|l|l} \hline\text { Overhead Cost Category (Activity Cost Pool) }&\text { Cost }\\ \hline \text { Supervision } & \$ 12,600 \\ \hline \text { Depreciation of machinery } & 30,600 \\ \hline \text { Assembly line preparation } & 16,800 \\ \hline \text { Total overhead } & \$ 60,000\\ \hline \end{array} She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller? Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller?

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The average cost of flat increases and t...

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Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing.

A) True
B) False

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Bangor Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year: Total Activity Activity Cost PoolTotal Cost Product F Product G Total Machine setups $10,80080\$ 10,800 \quad 80 setups 100 setups 180 setups Purchases orders $77,520510 \$77,520 \quad 510 orders 1,010 orders 1,520 orders General Factory $75,9202,240\$ 75,920 \quad 2,240 hours 3,600 hours 5,840 hours Required: Using the activity-based costing approach, determine the overhead cost per unit for each product.

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The activity rates for each activity cos...

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Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.

A) True
B) False

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Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.

A) True
B) False

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In activity-based costing, low-volume complex products are usually undercosted and high volume simpler products are overcosted, because the method fails to reflect the different uses of indirect resources.

A) True
B) False

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Under traditional cost allocation methods, low-volume complex products are often ________ and high-volume simpler products are likely to be ________.

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undercoste...

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Superior Fasteners, Co. is considering switching from traditional allocation of overhead based on direct labor hours to an activity-based costing system. The manager has accumulated the following information on engineering changes for two of the company's major products:  Autom otive  Fasteners  Computer  Fasteners  Total units produced 5,0002,500 Cost per engineering change $400$400 Number of engineering changes 525 Direct labor hours per unit 44\begin{array} { l | l | l } & \begin{array} { l } \text { Autom otive } \\\text { Fasteners }\end{array} & \begin{array} { l } \text { Computer } \\\text { Fasteners }\end{array} \\\hline \text { Total units produced } & 5,000 & 2,500 \\\hline \text { Cost per engineering change } & \$ 400 & \$ 400 \\\hline \text { Number of engineering changes } & 5 & 25 \\\hline \text { Direct labor hours per unit } & 4 & 4\end{array} Compute the cost per unit using: (1) The traditional allocation of the costs of engineering changes based on direct labor hours. (2) The activity-based cost allocation of the costs of engineering changes.

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($400 * 5) + ($400 * 25) = $12,000 total...

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