Question : Objective 5.6 Answer the following questions using the information below: Gregory : 1217197

 

Objective 5.6

 

Answer the following questions using the information below:

 

Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:

 

Cost PoolOverhead CostsCost driverActivity level

Supervision of direct labor$320,000Direct labor-hours800,000

Machine maintenance$120,000Machine-hours960,000

Facility rent$200,000Square feet of area100,000

Total overhead costs$640,000

 

The accounting records show the Mossman Job consumed the following resources:

 

Cost driverActual level

Direct labor-hours200

Machine-hours1,600

Square feet of area50

 

1) Which method of allocation probably best estimates actual overhead costs used? Why?

A) Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs.

B) Single direct labor-hours cost driver because it is easiest to analyze and interpret.

C) Three activity-cost drivers because they best reflect the relative consumption of resources.

D) Three activity-cost drivers because product costs can be significantly cross-subsidized.

 

2) It only makes sense to implement an ABC system when:

A) ABC provides information to make better decisions

B) its benefits exceed implementation costs

C) ABC traces more costs as direct costs

D) there is a strong cause-and-effect relationship between costs in the cost pools and their cost-allocation bases

3) Which of the following is a sign that an ABC system may be useful?

A) There are small amounts of indirect costs.

B) Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.

C) Products a company is less suited to produce and sell show small profits.

D) Operations staff agrees with accountants about the costs of manufacturing and marketing products and services.

 

4) Smaller cost distortions occur when the traditional systems’ single indirect-cost rate and the activity-cost-driver rates:

A) use the same total costs for computations

B) are similar in proportion to each other

C) are more different than alike

D) use the same cost driver units

 

5) Activity-based costing systems provide better product costs when they:

A) employ more activity-cost drivers

B) employ fewer activity-cost drivers

C) identify and cost more indirect cost differences among products

D) always yield more accurate product costs than traditional systems

6) Factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products because:

A) more variations and complexities require more activities

B) they require more engineers

C) they require more direct laborers

D) they buy more robotics

 

7) Which of the following is NOT a sign that a “smoothing out” costing system exists?

A) Operations managers don’t use the data originated by the cost system.

B) Products that a company is well suited to make and sell show large profits.

C) New product variations have been added, but the cost system has not been upgraded.

D) The company loses bids they believe were priced competitively.

 

Answer the following questions using the information below:

 

Cannady produces six products. Under their traditional cost system using one cost driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of SR6 was determined to be $178.00 per unit.

 

8) The total amount of indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC.

A) more than

B) less than

C) identical to

D) None of these answers are correct.

9) Given this change in the cost:

A) SR6 will now command a higher sales price

B) SR6 has benefited from the new system

C) SR6 is definitely more accurately costed

D) the costing results for SR6 under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system

 

Answer the following questions using the information below:

 

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set.

 

10) The total amount of indirect cost assigned to produce chess pieces using the traditional method is ________ the total amount assigned using ABC.

A) more than

B) less than

C) identical to

D) None of these answers are correct.