A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools:

				Budgeted Activity
Activity Cost Pool	Budgeted Cost			Product A		Product B
Activity 1	$	87,000		3,000		2,800
Activity 2	$	62,000		4,500		5,500
Activity 3	$	93,000		2,500		5,250

Annual production and sales level of Product A is 34,300 units, and the annual production and sales level of Product B is 69,550 units. What is the approximate overhead cost per unit of Product B under activity-based costing?

Multiple Choice

• $3.00
• $2.00
• $10.28
• $15.00
• $2.33

Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 140,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

Multiple Choice

• $0.02 per machine hour.
• $50.50 per machine hour.
• $45.75 per machine hour.
• $3.93 per machine hour.
• $0.25 per machine hour.

Which of the following costing systems is more accurate for overhead cost allocation and most likely to allow managers the ability to make better pricing decisions?

Multiple Choice

• Departmental overhead allocation rates.
• Plantwide overhead rate.
• Activity-based costing.
• Traditional costing system.
• Direct costing.

Put the following ABC implementation steps in order ________. A Use the activity overhead rates to assign overhead costs to cost objects. B Compute the allocation rates. C Trace overhead costs to cost pools. D Identify the activities and the overhead costs they cause.

Multiple Choice

• DACB
• DBCA
• BADC
• CDAB
• DCBA

K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 80,000 direct labor hours are planned for this next year, how much overhead would be assigned to a product requiring 4 direct labor hours?

Multiple Choice

• $46.25
• $36.25
• $185.00
• $145.00
• None of the choices

A company estimates that overhead costs for the next year will be $8,320,000 for indirect labor and $155,500 for factory utilities. The company uses machine hours as its overhead allocation base. If 400,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

Multiple Choice

• $0.05 per machine hour.
• $21.19 per machine hour.
• $20.80 per machine hour.
• $0.39 per machine hour.
• $2.57 per machine hour.

Bond Company uses a plantwide overhead rate with direct labor hours as the allocation base. Use the following information to solve for the amount of direct labor hours estimated per unit of product G2.

Direct material cost per unit of G2	$	7
Total estimated manufacturing overhead	$	787,500
Total cost per unit of G2	$	22
Total estimated direct labor hours		450,000	DLH
Direct labor cost per unit of G2	$	4.25

Multiple Choice

• 1.75 DLH per unit of G2.
• 6.14 DLH per unit of G2.
• 9.3 DLH per unit of G2.
• 0.66 DLH per unit of G2.
• 11.25 DLH per unit of G2.

Which of the following are advantages of using the plantwide overhead rate method?

Multiple Choice

• The use of cost pools is considerably more accurate than other overhead allocations.
• The necessary information is readily available.
• It is more accurate than traditional overhead allocations.
• Each department has its own overhead rate and its own allocation base.
• It takes into account that when products differ in batch size and complexity, they usually consume different amounts of overhead resources.

Which of the following is true?

Multiple Choice

• Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor.
• The departmental overhead rate is not usually based on measures closely related to production volume.
• The departmental overhead rate is most accurate in assigning overhead costs that are not driven by production volume.
• Allocated overhead costs will be the same no matter which allocation method is used.
• When cost analysts are able to logically trace cost objects to costs, costing accuracy is improved.

Consider the following activities that take place in a veterinary clinic. (a.) Cleaning cages. (b.) Heating and air conditioning the clinic. (c.) Sending blood work to a lab. (d.) Dispensing medicine. Which of the following statements is true?

Multiple Choice

• Service entities cannot use ABC for overhead allocation.
• Cleaning cages is a facility level activity.
• Dispensing medicine is a facility level activity.
• Heating and air conditioning the clinic is a facility level activity.
• Sending blood work to a lab is a facility level activity.

Western Company allocates $10 overhead to products based on the number of machine hours used. The company uses a plantwide overhead rate with machine hours as the allocation base. Given the amounts below, how many machine hours does the company expect in department 2?

Estimated:	Department 1			Department 2
Manufacturing overhead costs	$	250,000		$	150,000
Direct labor hours		8,000	DLH		12,000	DLH
Machine hours		15,000	MH		?	MH

Multiple Choice

• 33,000 MH
• 137,500 MH
• 82,500 MH
• 88,000 MH
• 25,000 MH

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools:

				Budgeted Activity
Activity Cost Pool	Budgeted Cost			Product A1		Product B2
Activity 1	$	48,000		1,200		4,800
Activity 2	$	63,000		2,240		4,760
Activity 3	$	80,000		7,200		800

Annual production and sales level of Product A1 is 8,480 units, and the annual production and sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of Product A1 under activity-based costing?

Multiple Choice

• $8.00
• $9.00
• $10.00
• $12.00
• $4.00

Aurora Corporation produces outdoor security lighting products. All products go through three processes before completion. Use the expected overhead costs and related data shown below to compute departmental overhead rates based on machine hours in Department A1A; based on direct labor hours in Department B2B; and machine hours in Department C3C.

	Department A1A			Department B2B			Department C3C
Direct labor hours		90,000	DLH		80,000	DLH		72,000	DLH
Machine hours		54,000	MH		32,000	MH		54,000	MH
Manufacturing overhead costs	$	540,000		$	160,000		$	216,000

Multiple Choice

• Dept. A: $10 per MH; Dept B: $2 per DLH; Dept C: $4 per MH.
• Dept. A: $6 per MH; Dept B: $5 per DLH; Dept C: $3 per MH.
• Dept. A: $10 per MH; Dept B: $5 per DLH; Dept C: $4 per MH.
• Dept. A: $6 per MH; Dept B: $5 per DLH; Dept C: $4 per MH.
• Dept. A: $10 per MH; Dept B: $2 per DLH; Dept C: $3 per MH.

A company allocates $7.50 overhead to products based on the number of direct labor hours worked. The company uses a plantwide overhead rate with direct labor hours as the allocation base. Given the amounts below, how many direct labor hours does the company expect in department 2?

Estimated:	Department 1			Department 2
Manufacturing overhead costs	$	74,358		$	49,572
Direct labor hours		6,610	DLH		?	DLH
Machine hours		700	MH		800	MH

Multiple Choice

• 9,914 DLH
• 6,612 DLH
• 3,109 DLH
• 7,454 DLH
• 16,254 DLH

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools:

				Budgeted Activity
Activity Cost Pool	Budgeted Cost			Product A1		Product B2
Activity 1	$	48,000		1,200		4,800
Activity 2	$	63,000		2,240		4,760
Activity 3	$	80,000		7,200		800

Annual production and sales level of Product A1 is 8,480 units, and the annual production and sales level of Product B2 is 22,310 units. What is the approximate overhead cost per unit of Product B2 under activity-based costing?

Multiple Choice

• $8.00
• $9.00
• $10.00
• $12.00
• $4.00

All of the following are examples of facility sustaining costs except:

Multiple Choice

• Costs of cleaning the workplace.
• Costs of custodial work.
• Costs of personnel support.
• Costs of sampling product quality.
• Costs of employee recreational facilities.

From an ABC perspective, what causes costs to be incurred?

Multiple Choice

• Financial transactions.
• The volume of units produced.
• Debits and credits.
• Management decisions.
• Activities.

The cost object(s) of the departmental overhead rate method is:

Multiple Choice

• The time period.
• The production departments of the company.
• The production departments in the first stage and the unit of product in the second stage.
• The unit of product in the first stage and the production departments in the second stage.
• The production activities of the company.

Which of the following statements is true with regard to the departmental overhead rate method?

Multiple Choice

• It is logical to use this method when overhead resources are consumed by various products in substantially the same way throughout multiple departments.
• It is logical to use this method when overhead resources are consumed by various products in substantially different ways throughout multiple departments.
• Each department has the same rate for the same activity pool.
• It requires one overhead cost pool and one rate.
• It is the same as activity-based costing.

The use of departmental overhead rates will generally result in:

Multiple Choice

• The use of a single cost allocation base.
• The use of a single overhead cost pool for the factory.
• The use of a separate cost allocation base for each department in the factory.
• The use of a separate cost allocation base for each activity in the factory.
• The use of a separate cost allocation base for each month.

A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:

				Budgeted Activity
Activity Cost Pool	Budgeted Cost			Product A		Product B		Product C
Activity 1	$	70,000		6,000		9,000		20,000
Activity 2	$	45,000		7,000		15,000		8,000
Activity 3	$	82,000		2,500		1,000		1,625

Which of the following statements is true regarding this company's activity rates?

Multiple Choice

• The activity rate under the activity-based costing system for Activity 2 is $2.00.
• The activity rate under the activity-based costing system for Activity 2 is $16.00.
• The activity rate under the activity-based costing system for Activity 2 is $1.50.
• The activity rate under the activity-based costing system for Activity 2 is $19.50.
• The activity rate under the activity-based costing system for Activity 2 is $2.81.

What is the reason for pooling costs?

Multiple Choice

• To shift costs from low-volume to high-volume products.
• It is a budgeting technique designed to accurately track fixed costs.
• Determining a pool rate for all costs incurred by the same activity reduces the number of cost assignments required.
• This procedure helps to determine which costs are directly related to production volume.
• It simplifies departmental overhead costing procedures.

A company identified the following partial list of activities, costs, and activity drivers expected for the next year:

Activity	Expected Costs			Cost Driver
Extrusion costs	$	83,600		Number batches made
Handling costs	$	8,800		Number of orders filled
Packaging costs	$	40,500		Number of units made

	Product A			Product B
Production volume		750,000	units		600,000	units
Batches made		200	batches		750	batches
Orders filled		75			200

Calculate activity rates for each of the three activities using activity-based costing (ABC).

Multiple Choice

• Extrusion: $304 per batch; handling: $32 per unit; packaging: $0.03 per unit.
• Extrusion: $88 per batch; handling: $32 per order; packaging: $0.03 per unit.
• Extrusion: $88 per order; handling: $32 per unit; packaging: $0.03 per batch.
• Extrusion: $418 per batch; handling: $117.33 per order; packaging: $0.054 per unit.
• Extrusion: $118.13 per batch; handling: $44 per order; packaging: $0.0675 per unit.

Which of the following statements is true of activity-based costing?

Multiple Choice

• ABC ignores the allocation of storage costs.
• An activity cost pool collects costs related to the same activity.
• ABC is more likely to result in big differences from a traditional costing system if the business makes only one product rather than multiple products.
• Activities are the cost objects of the second stage of ABC.
• ABC uses a single overhead rate.

Overhead costs:

Multiple Choice

• Are directly related to production.
• Can be traced to units of product in the same way that direct materials can.
• Cannot be traced to units of product in the same way that direct labor can.
• Are period costs.
• Include only fixed costs.