Question 20

Stewart's Components uses an activity based costing system for its product costing.For the last quarter, the following data relates to costs, output volume and cost drivers:

Overhead Costs

Dollars

Machinery

172,000

Set-ups

66,000

Materials Handling

45,000

Total

$283,000

Product information

A

B

C

Production and sales

4,000 units

3,000 units

2,000 units

Number of production runs

12

5

8

Number of stores orders

12

6

4

If set-up costs are driven by the number of production runs, what is the set-up cost per unit traced to product A?

Question 20 options:

a)

$16.50

b)

$7.92

c)

$7.33

d)

$7.00

Question 21

Use the following costs per unit to identify the prime cost, total production cost and total cost for a product:

$ per unit

Direct materials

12

Indirect materials

6

Direct labor

24

Indirect labor

8

Variable production overhead

10

Variable selling & admin expense

5

Fixed production overhead

12

Fixed selling & admin expense

8

Question 21 options:

a)

Prime cost

Total production cost

Total cost of product

36

85

85

b)

72

72

85

c)

36

72

85

d)

36

22

72

Question 22

Marx Products makes parts for car engines. Three departments (A, B and C) are involved in the manufacturing process. The budgets for departmental overhead costs are $25,000, $45,000 and $30,000 respectively, which are allocated to products based on direct labor hours. Estimates of direct labor hours for each department are 5,000 7,000 and 10,000 hours respectively. The business-wide overhead absorption rate is:

Question 22 options:

a)

$5.00

b)

$4.81

c)

$4.55

d)

$3.00

Question 23

Bingo Holdings has overheads of $1,200,000 per year. It uses activity-based costing and has estimated the following cost pool and driver information for the year:

Cost pool

Cost driver

Purchasing

300,000

5,000 purchase orders

Material issues

400,000

10,000 stock issues

Scheduling

300,000

10,000 production orders

Delivery

200,000

5,000 deliveries

A customer has ordered a custom-made product that will require 5 purchase orders, 6 material issues, 2 production orders and 4 deliveries. The overhead to be allocated to the product is:

Question 23 options:

a)

$840

b)

$760

c)

$680

d)

$40

Question 24

The method of determining overhead allocation using absorption costing and that under activity-based costing differs because:

Question 24 options:

a)

Activity-based costing allocates costs to cost pools and traces costs to products based on cost drivers whereas absorption costing allocates costs to cost centers and then to products based on a measure of activity such as direct labour hours

b)

Absorption costing is based on a business-wide allocation of overheads whereas activity-based costing is based on a departmental (or cost center) allocation of overheads

c)

Activity-based costing can never accurately allocate overheads to products because the method of allocation is arbitrary whereas absorption costing is always more reliable because it uses predictable causes of overhead costs to trace those costs to products

d)

Absorption costing allocates costs to cost pools and traces costs to products based on cost drivers whereas activity-based costing allocates costs to cost centers and then to products based on a measure of activity such as direct labor hours