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Exam 4: Accrual Accounting Concepts

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Question 61

True/False

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Activity-based management focuses on reducing costs and improving processes.

A) True
B) False

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Question 62

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Sanborn Industries has the following overhead costs and cost drivers.Direct labor hours are estimated at 100,000 for the year. $\begin{array}{llrl}\text { Activity Cost Pool}&\text { Cost Driver }&\text {Est. Overhead }&\text {Cost Driver Activity }\\\text { Ordering and Receiving } & \text { Orders } & \$ 120,000 & 500 \text { orders } \\\text { Machine Setup } & \text { Setups } & 297,000 & 450 \text { setups } \\\text { Machining } & \text { Machine hours } & 1,500,000 & 125,000 \mathrm{MH} \\\text { Assembly } & \text { Parts } & 1,200,000 & 1,000,000 \text { parts } \\\text { Inspection } & \text { Inspections } & 300,000 & 500 \text { inspections }\end{array}$ - If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is

A) $9.60.
B) $12.00.
C) $15.00.
D) $34.17.

E) B) and C)
F) A) and D)

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Question 63

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Austin Accounting Services estimates for next year revenues of $2,000,000, direct labor of $400,000, and overhead of $700,000.Under traditional costing, overhead is applied to audit jobs using the rate of

The general approach to identifying activities, activity cost pools, and cost drivers is used by a service company in the same manner as a manufacturing company.

Which would be a cost driver for a facility-level activity?

Which of the following is a batch-level activity?

In traditional costing systems, overhead is generally applied based on

Volcker, Inc.manufactures recliners for the hotel industry.It has two products, the Heater and the Massager, and total overhead is $1,580,000.The company plans to manufacture 400 Heaters and 100 Massagers this year.In manufacturing the recliners, the company must perform 600 material moves for the Heater and 400 for the Massager; it processes 900 purchase orders for the Heater and 700 for the Massager; and the company's employees work 1,400 direct labor hours on the Heater product and 3,400 on the Massager.Volcker's total material handling costs are $1,000,000 and its total processing costs are $580,000.Using ABC, how much overhead would be assigned to the Heater product?

One of Hartman Company's activity cost pools is inspecting, with estimated overhead of $140,000.Hartman produces throw rugs (700 inspections) and area rugs (1,300 inspections) .How much of the inspecting cost pool should be assigned to throw rugs?

Sitwell Corporation manufactures titanium and aluminum tennis racquets.Sitwell's total overhead costs consist of assembly costs and inspection costs.The following information is available: $\begin{array}{cccc}\text { Cost }&\text { Titanium }&\text { Aluminum }&\text { Iotal Cost }\\\hline\text { Assembly } & 500 \text { mach. hours } & 500 \text { mach. hours } & \$ 45,000 \\\text { Inspections } & 350 & 150 & \$ 75,000\\&\text { 2,100 labor hours }&\text { 1,900 labor hours }\end{array}$ Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing. - Using activity-based costing, how much assembly cost is assigned to titanium racquets?

Port Accounting performs two types of services, Audit and Tax.Port's overhead costs consist of computer support, $240,000; and legal support, $120,000.Information on the two services is: $\begin{array}{lrr}&\text { Audit } &\text{Tax}\\\text { Direct labor cost } & \$ 50,000 & \$ 100,000 \\\text { CPU minutes } & 40,000 & 10,000 \\\text { Leqal hours used } & 200 & 800\end{array}$ -Overhead applied to audit services using traditional costing is

Port Accounting performs two types of services, Audit and Tax.Port's overhead costs consist of computer support, $240,000; and legal support, $120,000.Information on the two services is: $\begin{array}{lrr}&\text { Audit } &\text{Tax}\\\text { Direct labor cost } & \$ 50,000 & \$ 100,000 \\\text { CPU minutes } & 40,000 & 10,000 \\\text { Leqal hours used } & 200 & 800\end{array}$ -Overhead applied to audit services using activity-based costing is

Which best describes the flow of overhead costs in an activity-based costing system?

The first step in activity-based costing is to

Ben Gordon, Inc.manufactures 2 products, wheels and seats.The company has estimated its overhead in the assembling department to be $330,000.The company produces 300,000 wheels and 600,000 seats each year.Each wheel uses 2 parts, and each seat uses 3 parts.How much of the assembly overhead should be allocated to wheels?

Addison Company manufactures two products, Regular and Supreme.Addison's overhead costs consist of machining, $2,500,000; and assembling, $1,250,000.Information on the two products is: $\begin{array} { l c c } & \text { Regular } & \text { Supreme } \\\text { Direct labor hours } & 10,000 & 15,000 \\\text { Machine hours } & 10,000 & 30,000 \\\text { Number of parts } & 90,000 & 160,000\end{array}$ - Overhead applied to Regular using traditional costing using direct labor hours is

Sitwell Corporation manufactures titanium and aluminum tennis racquets.Sitwell's total overhead costs consist of assembly costs and inspection costs.The following information is available: $\begin{array}{cccc}\text { Cost }&\text { Titanium }&\text { Aluminum }&\text { Iotal Cost }\\\hline\text { Assembly } & 500 \text { mach. hours } & 500 \text { mach. hours } & \$ 45,000 \\\text { Inspections } & 350 & 150 & \$ 75,000\\&\text { 2,100 labor hours }&\text { 1,900 labor hours }\end{array}$ Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing. - Using activity-based costing, how much inspections cost is assigned to titanium racquets?

Activity-based costing is used by

To use activity-based costing, it is necessary to know the

Activity-based costing has been found to be useful in each of the following service industries except