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Exam 8: Activity-Based Costing

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Question 1

Multiple Choice

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An activity cost pool:

A) is a combination of a number of activities
B) must be made up of activities at the same level
C) can only be used at the product level
D) is a combination of a number of activities AND must be made up of activities at the same level

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D

Question 2

Multiple Choice

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HiTech Products manufactures three types of CD players: Cheap,Econo and Deluxe.HiTech uses an activity-based product costing system.The company has identified five activities.Each activity,its cost and related activity driver are identified below: The following information pertains to each product line of CD players: Under an activity-based product costing system,what is the cost per unit of Cheap?

A) $141.00
B) $272.00
C) $164.00
D) $228.24

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Question 3

Multiple Choice

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Cofission Electronics make small electronic parts.The management accountant at Cofission,Jasmine Vake,decides to implement an activity-based costing (ABC) system.She lists the following points to support her decision: i.The recent cost report shows that the ratio of prime costs to manufacturing overhead cost is approximately 1:3 ii.Cofission is a small company. iii.Cofission has three product lines: basic parts (parts that are common to many products and many suppliers) ,customized parts (electronic parts that are highly customized to very specialized electric motors) ,prototypes (where Cofission Electronics need to design as well as manufacture these specialized electronic parts) .iv.Cofission Electronics has recently implemented a flexible manufacturing system;this practically eliminates any setup costs;with this system,product customization takes very little additional time.You are not convinced that all of these points support Jasmine's decision.Which of the above points contradict Jasmine's decision?

In an activity-based costing system,a bill of activities will include:

The activity drivers used with ABC can include labour hours,machine parts,numbers of setups and kilograms of materials.

Quality Carvings manufactures furniture.They have decided to develop an activity-based costing system.Shown below is each activity,its cost and the activity driver used to assign these costs to products.Under an activity-based costing system,what is the activity cost per unit of activity driver for processing orders?

Consider the following statements.i.Product diversity creates problems in product costing because diverse products tend to utilise productive activities in very different ways Ii) Overhead costs that are not incurred at the unit level create product-costing problems because they do not vary with measures such as direct labour hours or machine hours. Iii) Product diversity exists when a single product,such as pens,are made in different colours.Which of the above statement/s is/are true?

Calculate the activity cost per unit of activity driver if the activity cost is $3500,the activity driver is the number of batches and the total quantity of the activity driver is 1750 batches.

Summer Ice Pty Ltd is a manufacturer of a range of ice cream products.The following is a list of activities,costs and quantities of activity drivers for a number of activities that occur in the factory.Under an activity-based costing system,what is the activity cost per unit of activity driver for measuring ingredients?

The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year-lounge and patio.The company is considering introducing an activity-based costing system.Given below are each activity,its cost and its related activity driver.The level of activity for the year is: Under an activity-based costing system,what is the total cost of lounge chairs for the year?

The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year-lounge and patio.The company is considering introducing an activity-based costing system.Given below are each activity,its cost and its related activity driver.The level of activity for the year is: Under an activity-based costing system,what is the activity cost per unit of activity driver for assembly?

Direct labour hours or direct labour dollars are suitable overhead allocation bases when:

Appropriate cost-driver identification depends on:

Companies are likely to benefit from activity-based costing systems if:

The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year-lounge and patio.The company is considering introducing an activity-based costing system.Given below are each activity,its cost and its related activity driver.The level of activity for the year is: Under an activity-based costing system,what is the total cost of patio chairs for the year?

Despite the obvious advantages of ABC,many firms are still reluctant to implement it.What are the reasons for this reluctance? i.Uncertainty about the benefits of ABC ii.The opinion that the current system serves all the firm's needs iii.Lack of resources to implement ABC

Puff Animal Hospital looks after the health of household pets such as dogs,cats,birds and rabbits.The hospital wants to use an activity based costing system to allocate costs to each animal case it handles.These cases tend to vary in their complexity: some pets are here for a regular check ups and immunisation;other pets have emergencies which require surgery.Some pets are very exotic and require the attention of the supervisor vet;others are common animals with common problems such that only the junior vets are needed.Puff Animal Hospital is quite large;on average there are five vets,a general assistant,and two receptionists on duty at one time.Which of the following is NOT a reason that supports the use of activity-based costing at Puff Animal Hospital?

At a recent professional meeting,two accountants discussed product-costing problems in their respective companies.Both accountants are familiar with ABC systems but neither of their firms utilise this method.Accountant A reported that part of the problem in product costing in his firm is that there are major differences between product lines as to volume of units,utilisation of various activities,quality assurance requirements established by customers and size of the products.Accountant B noted that in her firm,which produces consumer products,all products undergo the same basic production processes and in the same sequence,but in an increasing variety of colours and packaging modes.Both accountants are worried about the potential distortion of product costs under their conventional product costing systems.Which accountant should be more concerned about the potential distortion? Explain.

Which of the following statements is false?

Consider the following statements.Which of the statements is true?