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| 1 | |
Ingrid Svenson was engaged as a consultant by the ABC Manufacturing Company to investigate the feasibility of implementing an activity-based costing system. At the beginning of her assignment, she familiarised herself with the conventional costing system currently used by ABC Manufacturing Company. She was intrigued to find a feature of the conventional costing systems which was not usual. The feature Ingrid found was that: |
| | A) | non-manufacturing costs are not assigned to products |
| | B) | the manufacturing overhead rate is calculated using a non-volume-based cost driver |
| | C) | direct material and direct labour costs are traced to products |
| | D) | the manufacturing overhead costs are allocated to products using a predetermined plant-wide or departmental overhead rate |
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| 2 | |
Which of the following will not result in inaccurate product costs when conventional approaches to product costing are used? |
| | A) | The proportion of manufacturing overhead costs increases. |
| | B) | The proportion of manufacturing overhead costs not related directly to production volume increases. |
| | C) | Non-manufacturing costs that are product-related become substantial. |
| | D) | Product diversity decreases. |
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| 3 | |
Ingrid Svenson was engaged as a consultant by the ABC Manufacturing Company to investigate the feasibility of implementing an activity-based costing system. At the beginning of her assignment, she familiarised herself with the conventional costing system currently used by ABC Manufacturing Company. Then she interviewed management to find out what problems they were experiencing with the current conventional costing system. Which of the following are indicators of an outdated costing system that Ingrid is likely to find during her interviews with management? |
| | A) | Product managers want to drop products that the costing system claims are profitable. |
| | B) | Products that are difficult to make have high profit margins. |
| | C) | Competitors’ prices appear unrealistically low. |
| | D) | All of the given answers. |
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| 4 | |
The increase in manufacturing overhead costs as a percentage of total costs, the increase in the percentage of manufacturing overhead costs that are not directly related to increases in production volume, and the non-manufacturing costs that are product-related and have become substantial are due to: |
| | A) | an increase in the number of direct labour hours worked |
| | B) | an increase in the total amount of direct labour dollars incurred |
| | C) | the implementation of an activity-based costing system |
| | D) | an increase in product diversity |
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| 5 | |
Activity-based management: |
| | A) | can be used to monitor and control what is happening in a business |
| | B) | provides information about the root causes of activities |
| | C) | is the same as activity-based costing |
| | D) | both choices 1 and 2 |
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| 6 | |
The Niddrie Manufacturing Company has four categories of manufacturing overhead. The four categories, their cost drivers and expected overhead costs for the next year are as follows: Type of manufacturing overhead cost | Cost driver | Expected annual cost | Maintenance | Machine hours | $255 000 | Materials handling | Number of material moves | 125 000 | Setups | Number of setups | 30 000 | Inspection | Number of inspections | 105 000 |
Currently, the manufacturing overhead is applied using a predetermined manufacturing overhead rate based on budgeted direct labour hours. Budgeted for the next year are 50 000 direct labour hours. Niddrie Manufacturing Company has been asked to submit a bid for a proposed job. The manufacturing manager believes that gaining this job would result in additional new business in the future. Usually bids are based on full manufacturing cost plus 10% mark-up. Estimated for the proposed job are the following: Direct materials | $60 000 | Direct labour (16 000 hours) | 48 000 | Number of material moves | 100 | Number of inspections | 120 | Number of setups | 24 | Number of machine hours | 4000 |
The manufacturing manager has recently attended a conference where he heard about a contemporary method of costing—activity-based costing. He learned of a new way of applying manufacturing overhead that uses cost pools and cost drivers. Expected annual activity levels for the four activity-based cost drivers that would be used are as follows: Machine hours | 30 000 | Material moves | 10 000 | Setups | 1 500 | Inspections | 6 000 |
If Niddrie Manufacturing Company used direct labour hours as the cost driver, the amount of manufacturing overhead allocated to the proposed job would be: |
| | A) | $81 600 |
| | B) | $40 000 |
| | C) | $164 800 |
| | D) | $121 600 |
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| 7 | |
The Niddrie Manufacturing Company has four categories of manufacturing overhead. The four categories, their cost drivers and expected overhead costs for the next year are as follows: Type of manufacturing overhead cost | Cost driver | Expected annual cost | Maintenance | Machine hours | $255 000 | Materials handling | Number of material moves | 125 000 | Setups | Number of setups | 30 000 | Inspection | Number of inspections | 105 000 |
Currently, the manufacturing overhead is applied using a predetermined manufacturing overhead rate based on budgeted direct labour hours. Budgeted for the next year are 50 000 direct labour hours. Niddrie Manufacturing Company has been asked to submit a bid for a proposed job. The manufacturing manager believes that gaining this job would result in additional new business in the future. Usually bids are based on full manufacturing cost plus 10% mark-up. Estimated for the proposed job are the following: Direct materials | $60 000 | Direct labour (16 000 hours) | 48 000 | Number of material moves | 100 | Number of inspections | 120 | Number of setups | 24 | Number of machine hours | 4000 |
The manufacturing manager has recently attended a conference where he heard about a contemporary method of costing—activity-based costing. He learned of a new way of applying manufacturing overhead that uses cost pools and cost drivers. Expected annual activity levels for the four activity-based cost drivers that would be used are as follows: Machine hours | 30 000 | Material moves | 10 000 | Setups | 1 500 | Inspections | 6 000 |
If Niddrie Manufacturing Company used activity-based cost drivers to assign manufacturing overhead, the total amount of manufacturing overhead allocated to the proposed job would be: |
| | A) | $37 830 |
| | B) | $50 000 |
| | C) | $34 000 |
| | D) | $70 000 |
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| 8 | |
The Niddrie Manufacturing Company has four categories of manufacturing overhead. The four categories, their cost drivers and expected overhead costs for the next year are as follows: Type of manufacturing overhead cost | Cost driver | Expected annual cost | Maintenance | Machine hours | $255 000 | Materials handling | Number of material moves | 125 000 | Setups | Number of setups | 30 000 | Inspection | Number of inspections | 105 000 |
Currently, the manufacturing overhead is applied using a predetermined manufacturing overhead rate based on budgeted direct labour hours. Budgeted for the next year are 50 000 direct labour hours. Niddrie Manufacturing Company has been asked to submit a bid for a proposed job. The manufacturing manager believes that gaining this job would result in additional new business in the future. Usually bids are based on full manufacturing cost plus 10% mark-up. Estimated for the proposed job are the following: Direct materials | $60 000 | Direct labour (16 000 hours) | 48 000 | Number of material moves | 100 | Number of inspections | 120 | Number of setups | 24 | Number of machine hours | 4000 |
The manufacturing manager has recently attended a conference where he heard about a contemporary method of costing—activity-based costing. He learned of a new way of applying manufacturing overhead that uses cost pools and cost drivers. Expected annual activity levels for the four activity-based cost drivers that would be used are as follows: Machine hours | 30 000 | Material moves | 10 000 | Setups | 1 500 | Inspections | 6 000 |
If Niddrie Manufacturing Company used direct labour hours as the cost driver to allocate manufacturing overhead to the proposed job, the total cost of the proposed job would be: |
| | A) | $189 600 |
| | B) | $272 800 |
| | C) | $229 600 |
| | D) | $239 200 |
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| 9 | |
The Niddrie Manufacturing Company has four categories of manufacturing overhead. The four categories, their cost drivers and expected overhead costs for the next year are as follows: Type of manufacturing overhead cost | Cost driver | Expected annual cost | Maintenance | Machine hours | $255 000 | Materials handling | Number of material moves | 125 000 | Setups | Number of setups | 30 000 | Inspection | Number of inspections | 105 000 |
Currently, the manufacturing overhead is applied using a predetermined manufacturing overhead rate based on budgeted direct labour hours. Budgeted for the next year are 50 000 direct labour hours. Niddrie Manufacturing Company has been asked to submit a bid for a proposed job. The manufacturing manager believes that gaining this job would result in additional new business in the future. Usually bids are based on full manufacturing cost plus 10% mark-up. Estimated for the proposed job are the following: Direct materials | $60 000 | Direct labour (16 000 hours) | 48 000 | Number of material moves | 100 | Number of inspections | 120 | Number of setups | 24 | Number of machine hours | 4000 |
The manufacturing manager has recently attended a conference where he heard about a contemporary method of costing—activity-based costing. He learned of a new way of applying manufacturing overhead that uses cost pools and cost drivers. Expected annual activity levels for the four activity-based cost drivers that would be used are as follows: Machine hours | 30 000 | Material moves | 10 000 | Setups | 1 500 | Inspections | 6 000 |
If Niddrie Manufacturing Company used activity-based cost drivers to assign manufacturing overhead, the total amount of manufacturing overhead allocated to the proposed job would be: |
| | A) | $145 830 |
| | B) | $158 000 |
| | C) | $142 000 |
| | D) | $178 000 |
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| 10 | |
The Niddrie Manufacturing Company has four categories of manufacturing overhead. The four categories, their cost drivers and expected overhead costs for the next year are as follows: Type of manufacturing overhead cost | Cost driver | Expected annual cost | Maintenance | Machine hours | $255 000 | Materials handling | Number of material moves | 125 000 | Setups | Number of setups | 30 000 | Inspection | Number of inspections | 105 000 |
Currently, the manufacturing overhead is applied using a predetermined manufacturing overhead rate based on budgeted direct labour hours. Budgeted for the next year are 50 000 direct labour hours. Niddrie Manufacturing Company has been asked to submit a bid for a proposed job. The manufacturing manager believes that gaining this job would result in additional new business in the future. Usually bids are based on full manufacturing cost plus 10% mark-up. Estimated for the proposed job are the following: Direct materials | $60 000 | Direct labour (16 000 hours) | 48 000 | Number of material moves | 100 | Number of inspections | 120 | Number of setups | 24 | Number of machine hours | 4000 |
The manufacturing manager has recently attended a conference where he heard about a contemporary method of costing—activity-based costing. He learned of a new way of applying manufacturing overhead that uses cost pools and cost drivers. Expected annual activity levels for the four activity-based cost drivers that would be used are as follows: Machine hours | 30 000 | Material moves | 10 000 | Setups | 1 500 | Inspections | 6 000 |
If the manufacturing manager of Niddrie Manufacturing Company really wanted to win the tender, was allowed to use whichever method of allocating manufacturing overhead he wanted to and the competition for the proposed job was fierce, the price that he would bid for this proposed job is: |
| | A) | $173 802 |
| | B) | $263 120 |
| | C) | $160 413 |
| | D) | $206 800 |
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