Chapter 4

Question 1

A plantwide overhead rate based on direct labor hours is _____ appropriate

Answer 1

sometimes

Question 2

When a company has extensive product diversity and complex overhead, it is best to assign overhead using _____

Answer 2

activity-based costing

Question 3

In ABC, any event that causes consumption of overhead resources is a(n) _____

Answer 3

activity

Question 4

An activity cost pool accumulates costs for _____ activity measure(s)

Answer 4

exactly one

Question 5

How much of an activity is carried out is expressed by a(n) _____, which is used as the allocation base for applying overhead costs to products and services

Answer 5

activity measure

Question 6

True or False. Departmental overhead rates correctly assign overhead costs in situations where a company has a range of products and complex overhead costs.

Answer 6

false

Question 7

Setting up machines, billing customers, and performing tests at a lab are all examples of a(n) _____

Answer 7

activity

Question 8

A cost bucket in which costs related to a particular activity measure are accumulated is called a(n) _____

Answer 8

activity cost pool

Question 9

In activity-based costing, an activity measure is _____

Answer 9

an allocation base

Question 10

An activity that must be done for each item produced is a(n) _____ level activity

Answer 10

unit

Question 11

Costs at the batch level depend on the number of _____

Answer 11

batches processed

Question 12

Activities related to specific products and that typically must be carried out regardless of how many batches or units are manufactured are called _____-_____ activities

Answer 12

product level

Question 13

An activity measure in activity-based costing is used as a(n) _____ base for applying overhead costs to products and services

Answer 13

allocation

Question 14

An activity that must be done for each item produced is a(n) _____-_____ activity

Answer 14

unit level

Question 15

Processing purchase orders is considered to be a(n) _____-level activity

Answer 15

batch

Question 16

True or False. When using activity rates, overhead is assigned the same way as when using plantwide or departmental rates.

Answer 16

true

Question 17

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $_____ per machine hour

Answer 17

$30

Question 18

Designing and advertising a good are both _____-level activities

Answer 18

product

Question 19

Total cost of each activity divided by the total activity is the computation of _____

Answer 19

activity rates

Question 20

A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is _____

Answer 20

$360,000

Question 21

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine set ups. The activity rate is $_____

Answer 21

$500

Question 22

Activity-based costing _____

Answer 22

computes product costs in the same way as traditional costing

Question 23

True or False. Traditional cost systems tend to undercost standard products and overcost specialty products.

Answer 23

false

Question 24

Activity-based management is focused on _____

Answer 24

• eliminating waste
• reducing defects

Question 25

Benefits of activity-based costing include _____

Answer 25

- helping managers understand the nature of overhead costs - helping target areas for process improvement - more accurate product costs

Question 26

True or False. Activity-cost rates may either be computed per product or per activity.

Answer 26

false

Question 27

For each unit of a product, the direct material cost is $10, the direct labor cost is $15, and the manufacturing overhead is $16. The total unit product cost using activity-based costing is _____

Answer 27

$41

Question 28

Usually, traditional costing _____ high-volume products and _____ low-volume products

Answer 28

overcosts; undercosts

Question 29

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is known as _____-_____ management.

Answer 29

activity-based

Question 30

Activity-based costing improves the accuracy of product costs by _____

Answer 30

- increasing the number of cost pools used to accumulate overhead cost - using cost pools that are more homogeneous than departmental cost pools - using a variety of activity measures to assign overhead costs to products

Question 31

A company incurred the following: Total manufacturing costs of $500,000, total production department costs of $300,000, and total production order costs of $275,000. It used a total of 50,000 direct labor hours, 100,000 machine hours, and 2,750 production orders were placed. Use activity-based costing to calculate the activity rate for production orders.

Answer 31

$100

Question 32

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, calculate the appropriate activity rate(s).

Answer 32

$8 per customer call and $15 per development hour

Question 33

The cost of implementing and maintaining an activity-based costing system _____ the benefits received

Answer 33

may outweigh

Question 34

True or False. Activity-based costing relies on a number of critical assumptions which could distort information for making decisions.

Answer 34

true

Question 35

Implementing activity-based costing _____

Answer 35

- requires taking employees away from other tasks - should be done by a cross-functional team - requires substantial resources

Question 36

When evaluating ABC product costs, managers should be particularly alert to costs that contain allocations of _____-level costs

Answer 36

facility