Chapter 17 Example Problems

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.

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.

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.

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.

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.

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.

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

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

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.

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.

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.

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.

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.

Which of the following companies would be best served by a plantwide overhead rate? A. A company that manufactures many different products and whose operations are an equal mix of labor and mechanized work. B. A company that manufactures few products and whose operations are labor intensive. C. A company that manufactures many different products and whose operations are highly mechanized. D. A company whose products use overhead resources in very different ways. E. A company whose products differ in batch size and complexity and consume different amounts of overhead resources.

What are the main advantages of traditional volume-based allocation methods compared to activity-based costing? A. Traditional volume-based methods are easier to use and less costly to implement and maintain. B. Traditional volume-based methods are more accurate and allowed by GAAP. C. Traditional volume-based methods are less accurate and easier to use. D. Traditional volume-based methods are harder to use and more costly to implement and maintain. E. There are no advantages to using traditional volume-based methods.