Which of the following is a likely advantage in activity-based costing (ABC)?

1. An increase in the cost of accumulating, tracking, and assigning costs to products and services.
2. An increase in the ability to trace indirect costs to specific activities.
3. A decrease in the need to maintain accurate cost driver information.
4. A decrease in the need to maintain accurate overhead cost information.

Which of the following is true regarding activity-based costing (ABC)?

1. Companies with a high proportion of non-unit-level costs should rarely use ABC.
2. High measurement costs associated with ABC may deter some companies from its use.
3. The benefits of using ABC always outweigh its limitations.
4. The lower the proportion of overhead costs as compared to direct materials and direct labor costs, the more likely a company will benefit by using ABC.

Cornell Products has the following information available for 2012:

Direct materials $1.00 per unit

Direct labor $2.00 per unit

Variable manufacturing overhead $1.50 per unit

Variable selling and administrative costs $0.50 per unit

Fixed manufacturing overhead $30,000

Fixed selling and administrative costs $25,000

During 2012, Cornell produced 6,000 units out of which 5,400 units were sold for $20 each.

Refer to the information provided for Cornell Products. What is the net operating income under absorption costing?

1. $26,000
2. $35,000
3. $23,000
4. $29,000

Hillsborough Street Manufacturing Inc.

Hillsborough Street Manufacturing Inc. incurred the following costs in 2011:

Direct materials used $51,000

Direct labor costs 45,000

Factory rent and utilities 18,000

Factory equipment depreciation 7,500

Marketing expenses 8,000

Administrative expenses 10,000

45,000 units were produced during the year out of which 38,000 units were sold for $10 each. There was no beginning or ending raw materials or work in process inventory.

Refer to the Hillsborough Street Manufacturing Inc. information above. What is the net operating income for the year? (Ignore taxes)

a. $222,500

b. $240,500

c. $244,200

d. $259,400

Hillsborough Street Manufacturing Inc.

Hillsborough Street Manufacturing Inc. incurred the following costs in 2011:

Direct materials used $51,000

Direct labor costs 45,000

Factory rent and utilities 18,000

Factory equipment depreciation 7,500

Marketing expenses 8,000

Administrative expenses 10,000

45,000 units were produced during the year out of which 38,000 units were sold for $10 each. There was no beginning or ending raw materials or work in process inventory.

Refer to the Hillsborough Street Manufacturing Inc. information above. What is cost of goods sold for the year?

1. $121,500
2. $117,800
3. $139,500
4. $102,600