Ch 4

Question 1

The cost of inspection at various stages of production is an example of a(n)

Answer 1

appraisal cost.

Question 2

Two main benefits of ABC are (1) more accurate product cost information and (2) more detailed information on the costs of activities and the drivers of those costs.

Answer 2

true

Question 3

Non-value added activities are

Answer 3

all of these:

• activities that could be reduced or removed from the process with no ill effect on the end product or service.
• activities that neither enhance the customer’s image of the product or service nor provide a competitive advantage.
• also called waste activities.

Question 4

The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool.

Answer 4

true

Question 5

External failure costs occur when the company detects and corrects poor-quality goods or services after delivery to customers.

Answer 5

true

Question 6

In ABC, how is the activity allocation rate computed?

Answer 6

The total estimated activity cost pool is divided by the total estimated activity allocation base.

Question 7

Value-added activities are activities that could be reduced or removed from the process with no ill effect on the end product or service.

Answer 7

false

Question 8

In developing an ABC system, what is the last step?

Answer 8

Allocate the costs to the cost object using the activity cost allocation rates.

Question 9

One condition that favors using a departmental overhead rate, rather than plantwide overhead rates, is that different departments incur different amounts and types of manufacturing overhead.

Answer 9

true

Question 10

question 10

// Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June:

Answer 10

19.20

Question 11

question 11

// James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $35 per machine hour, while the Sanding Department uses a departmental overhead rate of $20 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments:

Answer 11

$450

Question 12

question 12

// Garrett Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee table consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows:

Answer 12

$165.50