Question 1
Sweet Charity Company produces two different products (candy canes and lollipops) using two different activities: forming, which uses machine hours as an activity driver, and inspection, which uses number of batches as an activity driver. The cost of forming is $500,000, while the cost of Inspection is $30,000. Candy canes use 25% of total machine hours and 75% of total batches. What is the total activity cost assigned to candy canes?
- $7,500
- $147,500
- $375,000
- Selected: $382,500This answer is incorrect.
Reconsider your response. Review Module 4, Page II. Also, review Chapter 5 of your text.
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Question 2
Sweet Charity Company manufactures two products (candy canes and lollipops). 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 |
| Candy canes | 10 | 500 | 75 |
| Lollipops | 10 | 2,000 | 175 |
| Cost per pool | $9,000 | $60,000 | $15,000 |
Using activity-based costing, what is the amount of overhead cost to be assigned to candy canes using the drivers above as the allocation base?
- Selected: $21,000This answer is correct.
- $60,000
- $48,000
- $16,800
Correct! The calculation is:
Setups: 10/20 = 50%; 50% X $9,000 = $4,500
Machine hours: 500/2500 = 20%; 20% X $60,000 = $12,000
Packing orders: 75/250 = 30%; 30% X $15,000 = $4,500
$4,500 + $12,000 + $4,500 = $21,000
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Question 3
Twisty Taffy Company randomly selects 10 units from each production run to be inspected for quality, regardless of the size of the production run. The inspection of these units would most likely be classified as a ________.
- facility or companywide activity
- product-level activity
- Selected: batch-level activityThis answer is correct.
- unit-level activity
Correct! Costs that pertain to a number of units are classified as batch costs under an activity-based costing system.
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Question 4
Twisty Taffy Company manufactures saltwater taffy and accounts for its production using an ABC costing system. It has a 5,000-square-foot factory space that it rents for $2,500 a month for all its manufacturing activities. Twisty Taffy has identified its activities as follows: preparation and setup, kneading, packaging, and quality control. Two thousand five hundred square feet of the factory are used for kneading, while 1,000 square feet (each) are used for preparation and setup and quality control. Packaging uses 500 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the preparation and setup cost pool?
- $250
- Selected: $500This answer is correct.
- $1,000
- $2,000
Correct! Note the calculation: (1,000/5,000) × $2,500 = $500
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Question 5
True or False: For activity-based costing to be successfully implemented, it is ideal to establish homogeneous cost pools.
- True
- Selected:FalseThis answer is correct.
Correct! The establishment of heterogeneous cost pools is essential for a successful and meaningful ABC implementation.
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Question 6
For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?
- machine hours
- Selected: direct labor hoursThis answer is correct.
- number of employees
- units of output
Correct! Common drivers include those which are accounted for due to convenience and accessibility. Since labor would be closely correlated with the incurrence of additional cost, this would be an appropriate driver
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Question 7
Production-cost cross-subsidization results from ________.
- allocating indirect costs to multiple products
- assigning traced costs to each product
- assigning costs to different products using varied costing systems within the same organization
- Selected: assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which productsThis answer is correct.
Correct! 75% × $500,000 + 25% × $30,000 = $382,500.
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Question 8
Sweet Charity Company produces two different products (candy canes and lollipops) using two different activities: forming, which uses machine hours as an activity driver, and inspection, which uses number of batches as an activity driver. The cost of forming is $500,000, while the cost of inspection is $30,000. Candy canes use 25% of total machine hours and 75% of total batches. What is the total activity cost assigned to lollipops?
- $7,500
- $147,500
- $375,000
- Selected: $382,500This answer is correct.
Correct! 75% × $500,000 + 25% × $30,000 = $382,500.
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Question 9
True or False: In activity-based costing, a plant-wide overhead rate is used to apply overhead to products.
- TrueThis answer is incorrect.
- False
Reconsider your response. Review Module 3, Page I.
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Question 10
A(n) _______________ system first summarizes overhead costs in pools then attributes to drivers in order to develop an allocation rate.
- direct costing
- Selected: variable costingThis answer is incorrect.
- traditional costing
- activity-based costing
Reconsider your response. Read Chapter 4 of your text to understand the allocation method that is described.
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Question 1
Products might consume overhead in different proportions due to ________.
- differences in product size
- differences in setup times
- differences in product complexity
- Selected: all of the aboveThis answer is correct.
Correct! There are a number of different reasons why overhead is consumed in different proportions. Most likely, this is due to differences in the value chain resources for each product, which is encompassed by all of the responses.
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Question 2
The use of unit-based activity drivers to assign costs tends to ________.
- overcost low-volume products.
- Selected: overcost high-volume products.This answer is correct.
- undercost all products.
- overcost all products.
Correct! Since proportionately overhead may be indiscriminately assigned in greater amount to greater volume, there is likelihood of disproportion in allocation through unit drivers.
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Question 3
True or False: One consideration that may cause a company to choose activity-based costing over another method is that it is less expensive to implement than a traditional method of overhead allocation.
- True
- Selected:FalseThis answer is correct.
Correct! Activity-based costing is typically much more expensive to implement than traditional methods of overhead allocation, due to the level of detail. Cost benefit is of great consideration prior to implementation.
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Question 4
Twisty Taffy Company manufactures saltwater taffy and accounts for its production using an ABC costing system. It has a 5,000-square-foot factory space that it rents for $2,500 a month for all its manufacturing activities. Twisty Taffy has identified its activities as follows: preparation and setup, kneading, packaging, and quality control. Two thousand five hundred square feet of the factory are used for kneading, while 1,000 square feet (each) are used for preparation and setup and quality control. Packaging uses 500 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the kneading cost pool?
- Selected: $1,250This answer is correct.
- $500
- $1,000
- $2,000
Correct! Note the calculation: (2,500/5,000) × $2,500 = $1,250.
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Question 5
Sweet Charity Company produces two different products (candy canes and lollipops) using two different activities: forming, which uses machine hours as an activity driver, and inspection, which uses number of batches as an activity driver. The cost of forming is $500,000, while the cost of inspection is $30,000. Candy canes use 25% of total machine hours and 75% of total batches. What is the total activity cost assigned to lollipops?
- $7,500
- $147,500
- $375,000
- Selected: $382,500This answer is correct.
Correct! 75% × $500,000 + 25% × $30,000 = $382,500.
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Question 6
True or False: In a traditional volume-based costing system, a low-volume, relatively more complex product is likely to suffer from cost distortion.
- Selected:TrueThis answer is correct.
- False
Correct! Volume-based systems assign less indirect costs to low-volume products regardless of complexity, so a low-volume, high-complexity product will probably not be assigned enough indirect costs.
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Question 7
Twisty Taffy Company randomly selects 10 units from each production run to be inspected for quality, regardless of the size of the production run. The inspection of these units would most likely be classified as a ________.
- facility or companywide activity
- product-level activity
- Selected: batch-level activityThis answer is correct.
- unit-level activity
Correct! Costs that pertain to a number of units are classified as batch costs under an activity-based costing system.
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Question 8
Sweet Charity Company produces two different products (candy canes and lollipops) using two different activities: forming, which uses machine hours as an activity driver, and inspection, which uses number of batches as an activity driver. The cost of forming is $500,000, while the cost of Inspection is $30,000. Candy canes use 25% of total machine hours and 75% of total batches. What is the total activity cost assigned to candy canes?
- $7,500
- $147,500
- $375,000
- Selected: $382,500This answer is incorrect.
Reconsider your response. Review Module 4, Page II. Also, review Chapter 5 of your text.
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Question 9
If activity-based costing is used, insurance on the plant would be classified as a ________.
- unit-level activity.
- batch-level activity.
- product-level activity.
- Selected: facility-level activity.This answer is correct.
Correct! Costs relating to the sustenance of the facility are appropriately indicated as facility-level activities.
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Question 10
Production-cost cross-subsidization results from ________.
- allocating indirect costs to multiple products
- assigning traced costs to each product
- assigning costs to different products using varied costing systems within the same organization
- Selected: assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which productsThis answer is correct.
Correct! 75% × $500,000 + 25% × $30,000 = $382,500.