Ch 4

Question 1

What are the 3 OH allocation methods:

Answer 1

1. Plantwide rate method
2. Departmental rate method
3. Activity-based costing (ABC)

Question 2

Using a single overhead rate to apply overhead to products is called the

Answer 2

plantwide overhead rate method.

Question 3

Landen Company uses a single plantwide overhead rate of $100 per direct labor hour (DLH). Landen has two products as follows: basic chairs which used 20 DLH and deluxe chairs which used 35 DLH. What is the total amount allocated to these products?

Answer 3

$5,500

The total is computed as: (35+$20 DLH) x $100=$5,500.

Question 4

The plantwide overhead rate can be based on:

Answer 4

direct labor hours

machine hours

Question 5

Each of the following are types of …….. allocation methods: plantwide rate method, departmental overhead rate method and activity-based costing method.

Answer 5

Overhead

Question 6

The …….
overhead rate method uses a different overhead rate per production department.

Answer 6

Departmental

Question 7

True or false: The cost object of the plantwide overhead rate method is the unit of product.

Answer 7

True
Reason: This true. The unit of product is the target of cost assignment under the plantwide method.

Question 8

True or false: The departmental overhead rate method uses a three-step process where costs are assigned to cost pools in the first step and overhead rates are computed in the last step.

Answer 8

False
Reason: In the step 1, overhead costs are assigned to department cost pools. In step 2, an allocation base is selected and an allocation rate is computed and in step 3, the overhead costs are assigned to the cost objects.

Question 9

Under the plantwide overhead rate method, total budgeted overhead costs are divided by the chosen allocation base to determine the

Answer 9

one overhead cost rate

Question 10

The departmental overhead rate method allows individual departments to have

Answer 10

their own overhead rate and allocation base.

Question 11

True or false: The plantwide overhead rate method uses multiple rates to allocate overhead costs to products.

Answer 11

False

Question 12

A company uses the departmental overhead rate method. Total overhead costs are $6,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the assembly department.

Answer 12

$40 per direct labor hour

Reason: $2,000,000/50,000 direct labor hours=$40 per direct labor hour.

Question 13

The plantwide overhead rate method can be based on each of the following except

machine hours
direct labor hours
supervisor hours

Answer 13

supervisor hours

Question 14

The overhead rate method which uses a different overhead rate for each department is the

Answer 14

departmental method

Question 15

The weakness of the departmental and the plantwide overhead rate methods is that

Answer 15

overhead cost is often too complex to be explained by direct labor hours or machine hours.

Question 16

The departmental overhead rate method uses a three-step process to allocate costs objects. List these steps in the correct order:

Answer 16

1. Assign OH cost to departmental cost pools
2. Select allocation base and compute OH allocation rate for each dept.
3. Allocate OH costs to cost objects

Question 17

True or false: One of the advantages of the departmental overhead rate method over the plantwide overhead rate method is that in the departmental overhead rate method, individual departments can have their own overhead rate and allocation base.

Answer 17

True

Question 18

The plantwide overhead rate method is most appropriate for companies which have

Answer 18

a single product.

Question 19

A company uses the departmental overhead rate method. Total overhead costs are $5,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the machining department.

Answer 19

$50.00 per machine hour
Reason: $4,000,000/80,000 machine hours=$50 per machine hour.

Question 20

The two assumptions regarding the usefulness of the single plantwide overhead rate method includes:

Answer 20

all products use overhead costs in the same proportion

overhead costs change with the allocation base

Question 21

As it relates to the departmental overhead rate method, when products differ in batch size and complexity, they usually consume _____ amounts of overhead costs.

Answer 21

different

Question 22

Strengths of the departmental overhead rate method and the plantwide overhead method include all of the following:

Answer 22

They are easy to implement.

They are based on readily available information.

They comply with GAAP.

Question 23

In activity-based costing, costs are first traced to ______ , activity rates are computed, and then allocated to ______.

Answer 23

activities; cost objects

Question 24

True or false: The usefulness of the single plantwide overhead rate method depends on assuming that overhead costs change with the allocation base and all products use overhead costs in the same proportions.

Answer 24

True

Question 25

The main advantage of the plantwide overhead rate method is:

Answer 25

it is easy to implement

Question 26

The two main assumptions of the departmental overhead rate method include:

Answer 26

different products are similar in volume, complexity and batch size

departmental overhead costs are proportional to the departmental allocation base

Question 27

The basic principle of activity-based costing is that a(n) …….
is what causes overhead cost to be incurred.

Answer 27

activity or activities

Question 28

Activity-based cost systems allocate costs by focusing on …..
.

Answer 28

activity or activities

Question 29

In the ……(third,fourth) stage of activity-based costing, overhead allocation rate is determined for each activity.

Answer 29

Third

Question 30

Identify the three steps in activity-based costing Rank these in the correct order.

Answer 30

1. Identify activities and assign budgeted costs to activity pools
2. Computer OH activity rate for each activity cost pool
3. Allocate OH costs to cost objects

Question 31

Activity cost pools are:

Answer 31

group of costs related to the same activity

Question 32

……. (Identifying, Assigning,Tracing) activities is the first step in applying activity-based costing.

Answer 32

Identifying

Question 33

The basis of the activity-based costing method is a(n)

Answer 33

activity

Question 34

A cost driver is

Answer 34

a factor that causes activity to go up or down.

Question 35

In the ……
(first/second) stage of activity-based costing the activities and overhead costs are identified.

Answer 35

first

Question 36

When using activity-based costing, it is very important that the activities in each cost pool are

Answer 36

similar

Question 37

The third step in activity-based costing is to

Answer 37

allocate costs to cost objects.

Question 38

Match the activity to the most appropriate cost driver.
production
setup
factory services
design
And
direct labor hours
Number of setups
Number of design changes
square feet

Answer 38

production: direct labor hours
setup: Number of setups
factory services: square feet
design: Number of design changes

Question 39

An activity cost ……
is a group of costs that are related to the same activity.

Answer 39

pool or pools

Question 40

A company has the following activities and costs: machine setup of $5,000 per setup and factory services of $100 per square foot. If product 1 uses 2 setups and has 10,000 square feet, overhead allocated to product 1 is $

Answer 40

1,010,000
Reason: (5,000×2)+(100×10,000)

Question 41

The first step in applying activity-based costing is

Answer 41

identifying the activities.

Question 42

The Factory Services Department incurs costs of $130,000 while maintaining machinery that is operated 1,000,000 machine hours. If Job 276 requires 1,500 machine hours, the amount of costs allocated to the job will be $

Answer 42

195
Reason: find cost per machine hrs first (total cost/total machine hrs) = 130,000 ÷ 1,000,000 = 0.13

Next, find cost for job 276 (cost per machine hrs × machine hrs for job 276) = 0.13 × 1,500 = $195

Question 43

A cost ….. is a factor that causes the cost of an activity to go up or down.

Answer 43

driver

Question 44

Jackson Company uses activity-based costing to allocate their overhead costs. Setup costs of $850,000 are based on number of batches. Design modification costs of $155,000 are based on number of design changes. Jackson Company has identified 40,000 batches and has 5,000 design changes in their factory. What is the activity rate for setup.

Answer 44

$21.25
Reason: 850,000/40,000 = 21.25

Question 45

In activity-based costing, activities in each cost pool should be (similar / dissimilar) …..
.

Answer 45

similar

Question 46

Phillip Company uses activity-based costing. Phillip Company produces two types of lamps, floor lamps and table lamps. The floor lamp requires 15 setup activities at $60 per setup and 5 design changes at $50 per design. If Phillip Company produces 1,200 floor lamps, what is the total overhead cost per floor lamp? Round your answer to two decimal places.

Answer 46

$0.96
Reason: (15x$60)+(5x$50)=$1,150/1,200=.9583 rounded to 0.96.

Question 47

If a company uses activity-based costing, the most appropriate cost driver for the production department would be the:

Answer 47

number of direct labor hours

Question 48

Activities causing overhead include all of the following:

Answer 48

batch-level

unit-level

facility-level

& product lvl

Question 49

Johnson Company has the following overhead costs: machine setup $25,000; factory services $10,000; design of $15,000; and selling expenses of $5,000. What is the total overhead costs using activity-based costing?

Answer 49

$50,000.
Reason: $25,000 + $10,000 + $15,000 = $50,000. (Don’t add selling expense)

Question 50

Activities which are focused at the unit level are called

Answer 50

unit level activities

Question 51

The Production Department incurs costs of $250,000 while working 12,500 direct labor hours. If Job 421 requires 25 direct labor hours to assemble, the amount of overhead allocated to the job will be $

Answer 51

500
Reason: (250,000÷12,500)×25

Question 52

Spring Company uses activity-based costing to allocate their overhead costs. Setup costs of $100,000 are based on number of setups. Factory services of $65,000 are based on square footage. Spring Company has identified 500 setups and has 10,000 square feet in their factory. What is the activity rate for the setup activity cost pool.

Answer 52

$200.00
Reason: $100,000/500 setups =$200.

Question 53

A …… (unit, batch, product, facility) level activity are those that are performed on each group of units.

Answer 53

Batch

Question 54

Mobile Company uses activity-based costing. One of their products, a phone, requires 20 setup activities at $50 per setup and 15 design changes at $1,000 per design. If Mobile Company produces 2,000 phones, what is the total overhead cost per unit?

Answer 54

$8.00
Reason: (20x$50)+(15x$1,000)=$16,000. $16,000/2,000=$8.00.

Question 55

…… (Product, facility, batch) level activities are focused on the whole facility and are not caused by units.

Answer 55

Facility

Question 56

An activity which is related to the facility capacity as a whole is a

Answer 56

facility level activity.

Question 57

….. (Unit, Batch, Product) activities are performed on each product unit.

Answer 57

Unit

Question 58

Advantages of the activity-based costing include:

Answer 58

better production and pricing decisions

accurate assignment of costs to products

more effective overhead cost control

Question 59

A batch level activity will vary with the

Answer 59

number of batches.

Question 60

An activity which focuses on product lines and are not affected by number of units is a

Answer 60

product level activity.

Question 61

Costs to implement an activity-based system are considered a …..
(advantage, disadvantage) of this system.

Answer 61

disadvantage

Question 62

In order for a service provider to use activity-based costing, they should classify costs by …..
level.

Answer 62

activity

Question 63

One of the characteristics of activity-based costing is that it allows …..
(more, less) effective control over costs.

Answer 63

more

Question 64

A report which focuses on individual customers and shows total profit margin generated by specific customers is known as a ……
profitability report.

Answer 64

customer

Question 65

Disadvantages of using activity-based costing includes all of the following:

Answer 65

cost to implement.

product cost can be distorted.

Question 66

ABC can be used by service providers who usually classify costs by

Answer 66

activity level

Question 67

A report which focuses on providing gross profit margin per customer, is referred to as a

Answer 67

customer profitability report.

Question 68

A disadvantage of using activity-based costing is that

Answer 68

collecting and analyzing cost data is expensive.

Question 69

HW CONCEPT VIDS

Answer 69

Continue

Question 70

Select from the three alternative methods of overhead allocation in the drop down list so that it matches with the provided feature.

Items
Item number 1: Overhead allocation based on one rate.
Item number 2: Overhead allocation based on two or more rates.
Item number 3: Overhead allocation using many rates.

Answer 70

1. Plantwide rate
2. Departmental rate
3. ABC

Question 71

When using the plantwide overhead rate method, the cost object is

Answer 71

unit of product

Question 72

Huffington Company uses a plantwide overhead rate to apply overhead. The predetermined overhead rate is based on machine hours. At the beginning of the year, the company made the following estimates: direct labor hours of 16,000, direct labor cost of $200,000, machine hours of 5,000, and total overhead costs of $25,000. On a per machine hour basis, the company’s plantwide overhead rate is:

Answer 72

$5.00
Reason: 25,000÷5,000

Question 73

Place the following Departmental Overhead Rate Method steps in the correct order.
Items
Item number 1: Assign budgeted overhead cost to departmental cost pools.
Item number 2: Allocate overhead costs to cost objects.
Item number 3: Select an allocation base and compute an overhead allocation rate for each department.

Answer 73

1. Step 1
2. Step 3
3. Step 2

Question 74

Machining Assembly
Direct labor hrs: 16,000 12,000
Direct labor cost: $20,000 $15,000
Machine hours: 5,000 1,000
Overhead: $25,000 $30,000
Assuming that overhead in the machining department is allocated on the basis of machine hours, the departmental overhead rate per unit of the allocation base in the Machining Department is:

Answer 74

$5
Reason: 25,000÷5,000

Question 75

Shepherd Company manufactures two types of shoes – sneakers and boots. Each sneaker requires 2 direct labor hours and boots require 1.5 direct labor hours. The overhead rate per direct labor hour is $2. Direct materials for sneakers and boots is $15 and $20, respectively. Direct labor for sneakers and boots is $5 and 7, respectively. The total unit cost for each product is:

Answer 75

Reason:
Sneakers: (2×2)+15+5
Boots: (2×1.5)+20+7

Question 76

If overhead cost does not bear a relation to the allocation base, allocating overhead cost using a single plantwide overhead rate can:

Answer 76

lead to poor managerial decisions
distort product cost

Question 77

In step _________blank in activity-based costing, overhead costs are allocated to cost objects.

Answer 77

three

Question 78

An activity cost driver is a factor that causes:

Answer 78

the cost of an activity to go up or down.

Question 79

Step 2 of ABC costing is to:

Answer 79

compute activity overhead rate for each activity

Question 80

In step 3 of ABC, overhead cost is allocated to activities based on the following formula:

Answer 80

actual activity usage times activity rate

Question 81

The plantwide rate method, compared to activity-based costing can _________blank.

Answer 81

Undercost low-volume complex products

Question 82

Select the correct type of activity from the drop down list.

Items
Item number 1: Performed only on each batch of units
Item number 2: Performed to sustain facility capacity as a whole
Item number 3: Performed on each unit
Item number 4: Performed on each product line

Answer 82

1. Batch lvl
2. Facility lvl
3. Units lvl
4. Product lvl

Question 83

Select the type of activity from the drop down list.

Items
Item number 1: Recycling hazardous waste
Item number 2: Cleaning factory
Item number 3: Assembling components
Item number 4: Controlling inventory

Answer 83

1. Batch lvl
2. Facility lvl
3. Unit lvl
4. Product lvl

Question 84

An advantage of ABC costing is:

Answer 84

can be used to identify activities that can benefit from process improvement

Question 85

Budgeted customer support cost for Liton Company is $100,000 for the year and budgeted technician miles is 1,000 per year. Liton Company’s customer support activity rate is $ _________blank per mile.

Answer 85

Activity rate $100 per mile
Reason: 100,000÷1,000

Question 86

Service companies classify costs by activity level including unit, batch, service, and facility. An example of a service level activity for a hotel is:

Answer 86

scheduling personnel

Question 87

The first step for a service provider using ABC is:

Answer 87

identify activities and their budgeted overhead cost

Question 88

CH4 HW (most are pics on phone)

Answer 88

Continue

Question 89

Neal Company allocates overhead cost using a single plantwide overhead rate of $20 per direct labor hour. Each product unit uses three direct labor hours.

Compute the overhead cost per unit.

Answer 89

Plantwide Overhead Rate: $20.00
Allocation base: per direct labor hours
Hours used: 3
Overhead cost per unit: $60 per unit (20 × 3)