Question :
Objective 5.6
1) Gregory Enterprises has identified three cost pools to : 1212086
Objective 5.6
1) 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
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) a single product is produced in bulk
B) its benefits exceed its implementation costs
C) it traces more costs as direct costs
D) production process is labor-intensive
3) Which of the following is a sign that an ABC system may be useful for an organization?
A) Significant amounts of indirect costs are allocated using multiple cost pools.
B) Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity.
C) Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs.
D) Operations staff disagrees 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) Which of the following statements is true of ABC systems?
A) ABC system will always result in higher product costs.
B) ABC system employs multiple activity-cost drivers.
C) ABC system is least suited for service companies.
D) ABC system is simpler compared to traditional systems.
6) Recognizing ABC information is not always perfect because ________.
A) it mostly uses far too many indirect cost pools than what is actually required
B) it balances the need for better information against the costs of creating a complex system
C) it lacks the simplicity that traditional systems used to have to allocate overhead costs
D) it never measures how the resources of an organization are used
7) Which of the following is a sign that a “smoothing out” costing system exists?
A) Very few indirect costs are identified as output unit-level costs.
B) Products that a company is well suited to make and sell show large profits.
C) Operations staff has no substantial disagreements with the reported costs of manufacturing and marketing products and services.
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 reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of ________.
A) labor costs
B) prime costs
C) indirect costs
D) material costs
