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    MAS-Chapter 7

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    Mae Cruz
    1. Batch-level activities occur each time a company produces an order or group of the same product, such as setting up equipment. 2. More accurate product costs from activity-based costing may result in increasing prices of underpriced products, which is an advantage, not a limitation. 3. Designing a new product is an example of a product-level activity because it occurs once for each type of product.

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    MAS-Chapter 7

    Uploaded by

    Mae Cruz
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    1. Batch-level activities occur each time a company produces an order or group of the same product, such as setting up equipment. 2. More accurate product costs from activity-based costing may result in increasing prices of underpriced products, which is an advantage, not a limitation. 3. Designing a new product is an example of a product-level activity because it occurs once for each type of product.

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    1. Batch-level activities occur each time a company produces an order or group of the same product, such as setting up equipment. 2. More accurate product costs from activity-based costing may result in increasing prices of underpriced products, which is an advantage, not a limitation. 3. Designing a new product is an example of a product-level activity because it occurs once for each type of product.

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    102 views3 pages

    MAS-Chapter 7

    Uploaded by

    Mae Cruz
    1. Batch-level activities occur each time a company produces an order or group of the same product, such as setting up equipment. 2. More accurate product costs from activity-based costing may result in increasing prices of underpriced products, which is an advantage, not a limitation. 3. Designing a new product is an example of a product-level activity because it occurs once for each type of product.

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    of 3

    Chapter 7

    1. Which of the following activities would be classified as a batch-level activity?


    A. Setting up equipment.
    B. Designing a new product.
    C. Training employees.
    D. Milling a part required for the final product.
    Discussion: A batch level activity occurs for each time the company produces an order or a
    group of a particular kind of product, such as equipment set up.

    2. Which of the following is not a limitation of activity-based costing?


    A. Maintaining an activity-based costing system is more costly than maintaining a traditional
    direct labor-based costing system.
    B. Changing from a traditional direct labor-based costing system to an activity-based costing
    system changes product margins and other key performance indicators used by managers.
    Such changes are often resisted by managers.
    C. In practice, most managers insist on fully allocating all costs to products, customers, and
    other costing objects in an activity-based costing system. This results in overstated costs
    D. More accurate product costs may result in increasing the selling prices of some products.
    Discussion: (D) is an advantage and not a limitation of activity-based costing. If the company
    has been underpricing a product and thus losing money on each sale of the product, activity-
    based costing may identify that product so that it can become profitable for the company.

    3. Designing a new product is an example of (an):


    A. Unit-level activity
    B. Batch-level activity
    C. Product-level activity
    D. Organization-sustaining activity.
    Discussion: Designing a new product is a product-level activity because it occurs once for
    each type of product.

    4. Property taxes are an example of a cost that would be considered to be:


    A. Unit-level.
    B. Batch-level.
    C. Product-level.
    D. Organization-sustaining.
    Discussion: Property taxes are typically assessed at the level of the organization and occurs on
    an ongoing basis as a period cost. This describes an organization-sustaining cost.

    5. McKenrick Corporation uses an activity-based costing system with three activity cost pools. The
    company has provided the following data concerning its costs and its activity based costing
    system:
       

       

    How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity
    cost pool? 
    A. $229,000
    B. $155,000
    C. $310,000
    D. $248,000
    Discussion: The way to use this information from an activity costing system is that the Setting
    Up Cost Pool would be 25% * 280,000 + 45% * 220,000 + 50% * 120,000 =
    70,000+99,000+60,000=229,000
    6. Spendlove Corporation has provided the following data from its activity-based costing system:

    Assembly $19.56 per machine hour


    Processing orders $26.12 per order
    Inspection $68.80 per inspection hour

     The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-hours,
    40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per
    unit and its direct labor cost is $12.34 per unit. According to the activity-based costing system,
    the total costs for this product line is
    A. $26,725
    B. $75,951
    C. $23,736
    D. $50,460
    Discussion: In activity based costing, the activities are measured for each product and costing
    uses those measures:
    Cost Amount used for the Total
    product line
    Assembly 19.56 per machine 1120 machine hours 21907.20
    hour
    Processing orders 26.12 per order 40 orders 1044.8
    Inspection 68.80 per inspection 30 inspection hours 783.6
    hour
    Direct Materials 49.81 per unit 430 units 21418.3
    Direct Labor 12.34 per unit 430 units 5306.2
    Total costs $50,460.1

    7. Gaucher Corporation has provided the following data from its activity-based costing accounting
    system:

       

    The activity rate for the "designing products" activity cost pool is closest to:
    A. $78 per product design hour
    B. $582,016 per product design hour
    C. $128 per product design hour
    D. $89 per product design hour
    Discussion: Finding the rate to use in activity based costing begins with information on measuring the
    amount of cost created by the amount of activity. Here $582,016 in cost occurs over 4,547 product
    design hours. So the cost per product design hour is $582016/4547 = $128

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