Question :
Objective 5.7
Answer the following questions using the information below:
Velshi : 1217200
Objective 5.7
Answer the following questions using the information below:
Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2010, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2010 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
Cost poolManufacturing overhead costsActivity level
Design changes$ 120,000300 design changes
Setups640,0005,000 setups
Inspections80,0008,000 inspections
Total manufacturing overhead costs$840,000
During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
ActivityMoney ManagersHospital Systems
Pages60,00076,000
Design changes100
Setups2010
Inspections3038
1) When costs are assigned using the single cost driver, number of pages printed, then:
A) Velshi Printers will want to retain this highly profitable customer
B) Money Managers will likely seek to do business with competitors
C) Money Managers is unfairly over billed for its use of printing resources
D) Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed
Answer the following questions using the information below:
Whitman Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2010 Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
Cost pool Manufacturing overhead costs Activity level
Design changes $ 120,000 200 design changes
Setups 640,000 4,000 setups
Inspections 80,000 16,000 inspections
Total manufacturing overhead costs $840,000
During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
Activity Money Managers Hospital Systems
Pages 60,000 76,000
Design changes 10 2
Setups 20 10
Inspections 30 38
2) When costs are assigned using the single cost driver, number of pages printed, then Hospital Systems:
A) is fairly billed because resources are allocated uniformly to all jobs
B) is grossly under billed for the job, while other jobs will be unfairly over billed
C) will likely seek to do business with competitors
D) will contribute too little to profits, and Wallace Printing will not want to accept additional work from the company
3) Activity-based-costing information:
A) should be used when services place similar demands on resources
B) usually results in peanut-butter costing
C) will yield inaccurate cost numbers when products are similar
D) may assist in improving product design and efficiency
4) Activity-based management (ABM) includes decisions about all EXCEPT:
A) pricing and product mix
B) smoothing costs
C) reducing costs
D) improving processes
5) ABC systems:
A) reveal activities that can be eliminated
B) help control nonfinancial items such as number of setup hours
C) help identify new designs to reduce costs
D) All of these answers are correct.
6) Companies use ABC system information to:
A) analyze costs
B) prepare budgets
C) evaluate performance
D) All of these answers are correct.
7) It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that:
A) product costs will reflect their relative consumption of resources
B) nonvalue-added costs can be eliminated
C) there is less likelihood of cross subsidizing of product costs
D) All of these answers are correct.
8) A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis:
A) can be used to eliminate nonvalue-added activities
B) is easy to analyze and interpret
C) takes the choices and judgment challenges away from the managers
D) emphasizes how managers can achieve higher sales
9) A primary reason for assigning selling and distribution costs to products for analytical purposes is:
A) to justify a varied product mix
B) that controllers are required to assign all costs when valuing inventories
C) that different processes, products, and customers require different quantities of selling and distribution activities
D) that all indirect costs must be assigned
10) For service organizations that bill customers at a predetermined average rate, activity-based cost systems can help to:
A) clarify appropriate cost assignments for various service activities
B) identify the profitability of various service activities
C) Both A and B are correct.
D) None of these answers are correct.
