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What is the basic principle underlying activity-based costing?

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The basic principle underlying...

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Base Runner, Inc. manufactures baseball bats that go through two operations, cutting and sanding, before they are complete. Expected costs and activities for the two departments are shown in the following table: Base Runner, Inc. manufactures baseball bats that go through two operations, cutting and sanding, before they are complete. Expected costs and activities for the two departments are shown in the following table: a. Compute a departmental overhead rate for the cutting department based on machine hours. b. Compute a departmental overhead rate for the sanding department based on machine hours. a. Compute a departmental overhead rate for the cutting department based on machine hours. b. Compute a departmental overhead rate for the sanding department based on machine hours.

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a. $50,000/25,000 MH...

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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?


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

F) All of the above
G) D) and E)

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Allocated overhead costs vary depending upon the allocation methods used.

A) True
B) False

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Use the data for Wall Nuts, Inc. to compute departmental overhead rates based on machine hours in Department A and machine hours in Department B.


A) $4.50 per MH in Dept. A; $4.50 per MH in Dept. B.
B) $7.50 per MH in Dept. A; $7.50 per MH in Dept. B.
C) $4.50 per MH in Dept. A; $7.50 per MH in Dept. B.
D) $2.70 per MH in Dept. A; $6.00 per MH in Dept. B.
E) $0.60 per MH in Dept. A; $0.80 per MH in Dept. B.

F) B) and C)
G) All of the above

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Distorted product cost information can result in poor decisions.

A) True
B) False

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A method of assigning overhead costs to a product using a single overhead rate is:


A) Plantwide overhead rate method.
B) Cost pool overhead rate method.
C) Departmental overhead rate method.
D) Activity-based costing.
E) Overhead cost allocation method.

F) B) and D)
G) C) and D)

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A company has two products: A and B. It uses a plantwide overhead allocation method based on activity 2 and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's plantwide overhead rate and (b) the amount of overhead allocated to Product A. A company has two products: A and B. It uses a plantwide overhead allocation method based on activity 2 and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's plantwide overhead rate and (b) the amount of overhead allocated to Product A.

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(a) $450,000/3,000 units of ac...

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A company has two products: X and Y. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. A company has two products: X and Y. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Annual production and sales level of Product X is 161,100 units, and the annual production and sales level of Product Y is 275,200 units. a. Compute the approximate overhead cost per unit of Product X under activity-based costing. b. Compute the approximate overhead cost per unit of Product Y under activity-based costing. Annual production and sales level of Product X is 161,100 units, and the annual production and sales level of Product Y is 275,200 units. a. Compute the approximate overhead cost per unit of Product X under activity-based costing. b. Compute the approximate overhead cost per unit of Product Y under activity-based costing.

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ABC is significantly less costly to implement and maintain than more traditional overhead costing systems.

A) True
B) False

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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. 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. A) 1.75 DLH per unit of G2. B) 6.14 DLH per unit of G2. C) 9.3 DLH per unit of G2. D) .66 DLH per unit of G2. E) 11.25 DLH per unit of G2.


A) 1.75 DLH per unit of G2.
B) 6.14 DLH per unit of G2.
C) 9.3 DLH per unit of G2.
D) .66 DLH per unit of G2.
E) 11.25 DLH per unit of G2.

F) All of the above
G) B) and D)

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Which of the following is not true?


A) The departmental overhead method assigns overhead on the basis of volume-related measures.
B) The departmental overhead rate method is more refined than the plantwide overhead rate method.
C) Overhead costing accuracy is improved by the use of multiple departmental rates rather than a single overhead rate.
D) The departmental overhead rate method does not assign overhead on the basis of volume-related measures.
E) The departmental overhead rate method is more costly to implement than the plantwide overhead rate method.

F) A) and B)
G) A) and C)

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When using the plantwide overhead rate method, total budgeted overhead costs are combined into one overhead cost pool.

A) True
B) False

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The use of a plantwide overhead rate is not acceptable for external reporting under GAAP.

A) True
B) False

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Western Company allocates $10.00 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? Western Company allocates $10.00 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? A) 33,000 MH B) 137,500 MH C) 82,500 MH D) 88,000 MH E) 25,000 MH


A) 33,000 MH
B) 137,500 MH
C) 82,500 MH
D) 88,000 MH
E) 25,000 MH

F) None of the above
G) A) and B)

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The plantwide overhead rate is determined using volume-related measures.

A) True
B) False

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Rising Sun, Inc. produces granola that requires two processes, mixing and baking, to complete. The best-selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown in the following table: Rising Sun, Inc. produces granola that requires two processes, mixing and baking, to complete. The best-selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown in the following table: Rising Sun's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department. Determine the total product cost of this product line and each unit of cherry almond delight. Rising Sun's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department. Rising Sun, Inc. produces granola that requires two processes, mixing and baking, to complete. The best-selling type of granola is cherry almond delight. Information related to the 100,000 units of cherry almond delight produced annually is shown in the following table: Rising Sun's total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in the mixing department and direct labor hours in the baking department. Determine the total product cost of this product line and each unit of cherry almond delight. Determine the total product cost of this product line and each unit of cherry almond delight.

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Mixing Dept. overhead: $80,000/4,000 MH ...

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________ focuses on activities and the cost of carrying out activities.

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Activity-b...

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The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.

A) True
B) False

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Compared to the plantwide overhead rate method, the departmental overhead rate method usually results in more accurate overhead allocations.

A) True
B) False

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