Chapter 7 Flashcards
(18 cards)
In a job cost system:
A. An ABC system is required.
B. A plantwide allocation system is required.
C. Either an ABC or plantwide system can be used.
D. Costs can be allocated equally over jobs.
C. Either an ABC or plantwide system can be used.
Activity-based costing helps to:
A. develop a plantwide overhead rate.
B. develop departmental overhead rates.
C. allocate direct costs.
D. reduce cost distortion.
D. reduce cost distortion.
Which of the following is incorrect about ABC systems?
A. With multiple overhead rates, there are multiple cost pools
B. Management separate overhead into a cost pool for each department
C. With multiple overhead rates, there is one cost pool and multiple allocation base
C. With multiple overhead rates, there is one cost pool and multiple allocation base
Under ABC, overhead costs are predominantly assigned on the basis of direct
labour hours.
A. True
B. False
False
Which of the following is NOT one of the steps in developing an ABC system?
A. Identify the activities and estimate the total MOH associated with each
activity.
B. Identify the allocation base for each activity’s direct costs.
C. Calculate an activity cost allocation rate for each activity.
D. Allocate some MOH from each activity to the individual jobs that use the
activities.
B. Identify the allocation base for each activity’s direct costs.
The activity cost allocation rate is computed by dividing:
A. total actual indirect costs of activity by total actual quantity of cost
allocation base.
B. total estimated indirect costs of activity by total actual quantity of cost
allocation base.
C. total estimated activity cost pool by total estimated activity allocation base.
D. total actual indirect costs of activity by estimated total estimated activity
allocation base.
C. total estimated activity cost pool by total estimated activity allocation base.
The overhead rate for materials handling is $10 per part based on an estimated total cost
of $900. Products X & Y have 320 and 280 parts respectively. What is the overhead
allocated to X & Y?
A. Product X $3,200, Product Y $4,400
B. Product X $3,200, Product Y $2,800
C. Product X $4,800, Product Y $4,400
D. Product X $4,800, Product Y $2,800
B. Product X $3,200, Product Y $2,800
If products use resources in the same proportion, then an ABC system will provide a greater
advantage over plantwide allocation
A. True
B. False
B. False
An example of high cost distortion is:
A. A company produces many different products that use different types and amounts
of resources.
B. A company produces low volume of all products
C. A company has low indirect costs
D. A company produces similar products
A. A company produces many different products that use different types and amounts
of resources.
When one product is overcosted and another is undercosted, this refers to:
A. Cost allocation
B. Cost tracing
C. Cost distortion
D. Cost assignmen
C. Cost distortion
T or F
The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool.
True
T or F
Using a departmental overhead rate reduces the cost distortion from allocating direct costs
False
Cost distortion results in the _______.
Question content area bottom
Part 1
A.undercosting of all products
B.overcosting of some products and undercosting of other products
D.overcosting of all products
B.overcosting of some products and undercosting of other products
T or F
Traditional costing that uses a plantwide overhead allocation rate is considered to be most accurate when each product uses specific resources.
False
Cheezy Snack produces rice crackers, wheat crackers, and corn crackers on three different production lines in the same manufacturing facility. Currently Cheezy uses a single plantwide overhead rate to allocate its $ 3 comma 119 comma 000 of annual manufacturing overhead. Of this amount, $ 800 comma 000 is associated with the rice cracker line, $ 1 comma 419 comma 000 with the wheat cracker line, and $ 900 comma 000 with the corn cracker line. Cheezy’s plant is currently running a total of 20 comma 000 machine hours: 6 comma 400 in the rice cracker line, 8 comma 600 with the wheat cracker line, and 5 comma 000 with the corn cracker line. Cheezy’s considers machine hours to be the cost driver of MOH costs. Which product(s) are being over costed due to the use of a single plant-wide overhead allocation rate?
Question content area bottom
Part 1
A.None of them
B.Just the Wheat Cracker
C.Just the Rice Cracker
C.Just the Rice Cracker
T or F
Direct labour hours would be the most appropriate cost allocation base for a Machining Department that uses machine robotics extensively.
False
The plantwide allocation is the
‘traditional’ method of allocating overhead to products. In such
system, all overhead costs (utilities, depreciation, repairs and maintenance, indirect labour, …etc)
are combined into a single cost pool (added together) and then allocated to products based on a single allocation base. Allocation bases include direct labour hours, machine hours, direct labour
cost, ….etc. Companies often use this method when all their operations are driven by a single cost
driver (e.g., auto repair shop using DLHs to allocate overhead to jobs completed).
The departmental allocation method implements
the overhead allocation in the exact way except
that there is a cost pool and a cost driver for each department in the company. Companies apply
this method when the overhead costs in their manufacturing departments are driven by different
allocation bases: some departments are operated by labour; others are operated by
machines/robots, so it makes more sense to use a separate cost driver for each department.
