# Chapter 17 Example Problems

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question
A method of assigning overhead costs to a product using a single overhead rate is: A. Plantwide overhead rate method. B. Cost pool overhead rate method. C. Departmental overhead rate method. D. Activity-based costing. E. Overhead cost allocation method.
A
question
Which types of overhead allocation methods result in the use of more than one overhead rate during the same time period? A. Plantwide overhead rate method and departmental overhead rate method. B. Cost pool overhead rate method and plantwide overhead rate method. C. Departmental overhead rate method and activity-based costing. D. Activity-based costing and plantwide overhead rate method. E. Departmental overhead rate method and cost pool overhead rate method.
C.
question
Overhead costs: A. Are directly related to production. B. Can be traced to units of product in the same way that direct materials can. C. Cannot be traced to units of product in the same way that direct labor can. D. Are period costs. E. Include only fixed costs.
C
question
K Company estimates that overhead costs for the next year will be \$7,960,000 for indirect labor and \$1,350,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 190,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate? A. \$41.89 per direct labor hour. B. \$0.14 per direct labor hour. C. \$0.28 per direct labor hour. D. \$49.00 per direct labor hour. E. \$7.11 per direct labor hour.
D. (\$7,960,000 + \$1,350,000)/190,000 direct labor hours = \$49.00 per direct labor hour
question
Ridley Company estimates that overhead costs for the next year will be \$3,877,500 for indirect labor and \$550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 110,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? A. \$5.00 per machine hour. B. \$35.25 per machine hour. C. \$40.25 per machine hour. D. \$.03 per machine hour. E. \$0.20 per machine hour.
C. (\$3,877,500 + \$550,000)/110,000 machine hours = \$40.25 per machine hour
question
A company estimates that overhead costs for the next year will be \$13,602,000 for indirect labor and \$2,344,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 850,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round to two decimal places) A. \$0.06 per machine hour. B. \$18.76 per machine hour. C. \$.36 per machine hour. D. \$16.00 per machine hour. E. \$2.76 per machine hour.
B. (\$13,602,000 + \$2,344,000)/850,000 machine hours = \$18.76per machine hour
question
The following data relates to All-Out Company's estimated amounts for next year. Estimated: Department 1 Department 2 Man. overhead cost \$200,000 \$900,000 Direct hours 610,000 DLH 830,000 DLH Machine hours 1,500 MH 4,000 MH What is the company's plantwide overhead rate if machine hours are the allocation base? (Round to two decimal places.) A. \$1.08 per MH B. \$1.08 per MH C. \$133.33 per MH D. \$163.64 per MH E. \$200.00 per MH
E. (\$200,000 + \$900,000)/(1,500 + 4,000) MH = \$200.00 per MH
question
A company uses activity-based costing to determine the costs of its three products: A, B and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table: Budgeted Activity Act Cost poll BudgetCost A B C Activity 1 \$204,000 10,000 13,000 28,000 Activity 2 \$161,000 11,000 23,000 12,000 Activity 3 \$135,000 3,300 1,800 2,400 How much overhead will be assigned to Product B using activity-based costing? A.\$164,900 B.\$197,200 C.\$137,900 D.\$500,000 E.\$204,000
A. (13,000)(\$4.00) + (23,000)(\$3.50) + (1,800)(\$18.00) = \$164,900
question
From an ABC perspective, what causes costs to be incurred? A. Financial transactions. B. The volume of units produced. C. Debits and credits. D. Management decisions. E. Activities.
E
question
Which of the following statements is true with regard to activity-based costing rates? A. The premise of ABC is that activities are what cause costs to be incurred. B. ABC is another way to refer to a multiple departmental rate situation. C. There one basic stage to ABC. D. ABC is simpler and less expensive to implement than other traditional methods of allocating overhead costs. E. All cost drivers used to determine the rates will be unit-level drivers.
A.
question
What are three advantages of activity-based costing over traditional volume-based allocation methods? A. Ease of use, more accurate product costing, and more effective cost control. B. Fewer allocation bases, ease of use, and a direct correlation to production volume. C. More accurate product costing, more effective cost control, and better focus on the relevant factors for decision making. D. More accurate product costing, fewer cost objects, and a direct correlation to production volume. E. More accurate product costing, ease of use, less costly to implement.
C
question
Which of the following is the proper sequence of events in an activity-based costing system? A. Identification of cost drivers, identification of cost pools, calculation of pool rates, assignment of cost to products. B. Identification of cost pools, identification of cost drivers, calculation of pool rates, assignment of cost to products. C. Assignment of cost to products, identification of cost pools, identification of cost drivers, calculation of pool rates. D. Calculation of pool rates, identification of cost drivers, identification of cost pools, assignment of cost to products.