Question :
31. Compared to a traditional two-stage cost allocation system, activity-based costing : 1208218
31. Compared to a traditional two-stage cost allocation system, activity-based costing systems:
A. Use more cost centers.
B. Use more cost drivers.
C. Are more expensive to maintain.
D. All of the other answers are correct.
32. Which of the following activity costs would likely be included in a batch-level activity cost pool?
A. Per unit inspection costs
B. Machine set-up costs
C. Quality control costs
D. All of the other answers are correct.
33. A product-level activity center would likely include all of the following costs except:
A. Engineering development costs.
B. Legal fees to obtain and protect patents.
C. Materials handling costs.
D. Materials inventory holding costs.
34. Select the incorrect statement regarding the use of cost drivers in activity-based costing systems.
A. ABC uses both volume-based and activity-based cost drivers.
B. Volume-based drivers are most appropriate for costs that are not affected by the number of units produced.
C. ABC’s use of multiple cost drivers will produce more precise unit costs when a company produces many different products that require different types and levels of overhead costs.
D. An arbitrary cost driver must be selected when allocating facility-level activity costs.
35. Martinez Company makes two types of chairs. One of the chairs is a rocking chair. The other is a straight-back chair. Both chairs are made by hand. Martinez Company uses a company-wide overhead rate that is based on direct labor hours to assign overhead costs to the two products. If Martinez automates the production of straight-back chairs and continues to use direct labor hours as a company-wide allocation basis:
A. Rocking chairs will be undercosted.
B. Straight back chairs will be overcosted.
C. Rocking chairs will be overcosted.
D. There should be no impact on unit cost.
36. Which of the following activity costs should usually be ignored when making a decision regarding whether to eliminate a product?
A. Product-level costs
B. Facility-level costs
C. Unit-level costs
D. Batch-level costs
37. Brannock Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, the company made 8,000 steel bars and 2,000 titanium bars. Setup costs amounted to $48,000 for the 24 batches (i.e., 12 of each type) of bars produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the titanium bars will be:
A. $9,600.
B. $24,000.
C. $38,400.
D. $48,000.
38. Aaron Company makes two products. Product X requires 4,000 hours of labor, and Product Y requires 6,000 hours of labor. Aaron undertook an automation program that reduced the consumption of labor required by Product Y to only 2,000 hours of labor. Product X was not affected by the automation process. Overhead cost prior to the automation totaled $10,000. After automation, overhead cost amounted to $24,000. Assuming Aaron uses direct labor hours as a company-wide allocation base before and after the automation, the amount of overhead cost allocated to:
A. Product X would be $4,000 prior to automation and $16,000 after automation.
B. Product X would be $6,000 prior to automation and $8,000 after automation.
C. Product Y would be $8,000 prior to automation and $8,000 after automation.
D. Product Y would be $2,000 prior to automation and $12,000 after automation.
39. Cooper Company recently implemented an activity-based-costing system. As a result of the ABC allocations, the cost of one of the company’s products was determined to be above its current selling price. Due to competition, the company is unable to raise the price of this product. Which of the following options is most reasonable, assuming Cooper employs a target costing strategy?
A. Target advertising to high income customers.
B. Raise prices under the assumption that the company’s competitors will follow suit.
C. Use less expensive materials to make the product.
D. Return to the old allocation method which produces a lower amount of estimated cost.
40. Rossi Company produces a variety of garden tools in a highly automated manufacturing facility. The costs and cost drivers associated with four activity cost pools are given below:
Production of 10,000 units of a hand-held tiller required 500 labor hours, 25 setups, and consumed 40% of the product sustaining activities. Assuming the company decided to change to labor hours as a companywide allocation base, how much total overhead will be allocated to this tool?
A. $10,000
B. $16,650
C. $14,250
D. $8,400
