College Acct 2- Chapter 4

Which of the following is a potential issue with using departmental overhead rates?

• They may rely too heavily on volume-based allocation, which can be problematic when products vary in production complexity or lot size.

• They often use machine time as a basis for allocation, which may not correlate well with overhead costs.

• They can lead to underestimation of overhead costs due to the use of direct labor hours.

• They simplify the identification of cost pools, which can lead to inaccuracies in the first stage of allocation.

What is the primary benefit of activity-based costing?

• The cost of implementation.

• Arbitrary allocations of overhead costs.

• More cost pools.

• More accurate product costing.

As the complexity of a product's manufacturing operation increases, the number of activities and cost drivers used in an activity-based cost system will likely:

• decrease.

• stay about the same.

• increase.

• vary randomly.

Activity-based costing is most appropriate to use when labor coasts are a(n) __________ proportion of total product costs and the manufacturing process is ____________.

• decreasing, complex

• large, uncomplicated

• increasing, complex

• small, uncomplicated

Roca, Incorporated, manufactures and sells two products: Product M6 and Product X7. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity.

The total overhead applied to Product M6 under activity-based costing is closest to:

Note: Round your intermediate calculations to 2 decimal places.

• $256,188

• $443,424

• $369,879

• $350,708

Which of the following is a limitation of activity-based costing?

• Activity-based costing can be used only if approved by the Institute of Management Accountants.

• Activity-based costing can be expensive to use.

• Activity-based costing can only be used by firms involved in manufacturing.

• Activity-based costing systems can only be used by firms with state-of-the-art technology.

• $115.33

• $38.44

• $84.56

• $36.24

Using direct labor-hours as the sole basis for overhead allocation:

• will systematically overcost products with low production volumes and undercost products with high production volumes.

• will systematically overcost products with high production volumes and undercost products with low production volumes.

• is required for internal management reporting.

• is a fundamental principle of activity-based costing.

Brizendine, Incorporated, manufactures and sells two products: Product R0 and Product B6. The production of Product R0 is 900 units and of Product B6 is 700 units. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity.

The overhead applied to each unit of Product B6 under activity-based costing is closest to:

Note: Round your intermediate calculations to 2 decimal places.

• $636.29 per unit

• $675.91 per unit

• $585.35 per unit

• $761.20 per unit

Inspecting a product for defects is an example of a:

• Unit-level activity.

• Product-level activity.

• Batch-level activity.

• Facility-level activity.