Chapter 5

Chapter 5
1. When combining activities in an activity-based costing system, activities should be

grouped together at the same level. For example, batch-level activities should not be
combined with unit-level activities.
Ans: True Difficulty: Easy
2. Unit-level activities arise as a result of the total volume of production and are performed
each time a unit is produced.
3. Unit-level production activities are performed each time a unit is made.

4. Organization-sustaining activities are carried out regardless of how many units are made,
how many batches are run, or how many different products are made.
5. Activity-based costing uses a number of activity cost pools, each of which is allocated to
products on the basis of direct labour hours.
Ans: False Difficulty: Easy
6. The first-stage allocation in activity-based costing is the process by which overhead costs
are assigned to products before they are assigned to customers.
Ans: False Difficulty: Medium
7. Activity rates in activity-based costing are computed by dividing costs from the first-
stage allocations by the activity measure for each activity cost pool.
Ans: True Difficulty: Medium
8. In the second-stage allocation in activity-based costing, activity rates are used to apply
costs to products, customers, and other cost objects.
9. In traditional costing systems, all manufacturing costs are assigned to products—even

manufacturing costs that are not caused by the products.
10. When there are batch-level or product-level costs, in comparison to a traditional cost
system, an activity-based costing system ordinarily will shift costs from high-volume to
low-volume products.
Ans: True Difficulty: Hard
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11. An activity-based costing system is generally easier to set up and run than a traditional
cost system.
12. Activity-based costing is a costing method that is designed to provide managers with cost
information for strategic and other decisions that potentially affect only variable costs.
13. In activity-based costing, as in traditional costing systems, non-manufacturing costs are

not assigned to products.
14. In activity-based costing, a plant-wide overhead rate is used to apply overhead to

products.
15. Changing a cost accounting system is likely to meet with little resistance in an
organization since it is a technical matter of little interest to individuals outside of the
accounting department.
16. Managing and sustaining product diversity requires many more overhead resources, such
as production schedulers and product design engineers, than managing and sustaining a
single product. The costs of these resources can be accurately allocated to products on the
basis of direct labour hours.
17. Transaction drivers usually take more effort to record than duration drivers.
18. In general, duration drivers are more accurate measures of the consumption of resources
than transaction drivers.
19. (Appendix 5A) An action analysis report reconciles activity-based costing product costs
with traditional product costs based on direct labour.
20. Costs incurred at which of the following activity levels should NOT be allocated to
products for decision-making purposes?
A) Unit-level activities. C) Product-level activities.
B) Batch-level activities. D) Organization-sustaining activities.
Ans: D Difficulty: Medium
Chapter 5, Activity-Based Costing: A Tool to Aid Decision Making
21. Testing a prototype of a new product is an example of an activity at which of the

following levels?
A) Unit-level activity. C) Product-level activity.
B) Batch-level activity. D) Organization-sustaining activity.
Ans: C Difficulty: Easy
22. Setting up equipment is an example of an activity at which of the following levels?

Ans: B Difficulty: Medium
23. Which of the following activity levels is an example of the clerical activity associated
with processing purchase orders to produce an order for a standard product?
Ans: B Difficulty: Hard
24. Worker recreational facilities are examples of costs that would ordinarily be considered
to be incurred at which of the following activity levels?
25. Arranging for a shipment of a number of different products to a customer is an example

of an activity at which of the following levels?
A) Unit-level activity. C) Customer-level activity.
26. Human resource management is an example of an activity at which of the following

levels?
A) Unit-level activity. C) Batch-level activity.
B) Product-level activity. D) Organization-sustaining activity.
27. Which of the following would be classified as a product-level activity?

A) Machine setup for a batch of a standard product.
B) Cafeteria facilities available to and used by all employees.
C) Human resource management.
D) Advertising a product.
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28. Why may departmental overhead rates NOT correctly assign overhead costs?
A) Because of the use of direct labour hours in allocating overhead costs to products
rather than machine time or quantity of materials.
B) Because of the high correlation between direct labour hours and the incurrence of
overhead costs.
C) Because of the over-reliance on volume as a basis for allocating overhead costs
where products differ regarding the number of units produced, lot size, or
complexity of production.
D) Because of the difficulties associated with identifying cost pools for the first stage
of the allocation process.
Ans: C Difficulty: Hard
29. Which of the following statements about overhead allocation based on volume alone is
correct?
A) It is a key aspect of the activity-based costing model.
B) It will systematically overcost high-volume products and undercost low-volume
products.
C) It will systematically overcost low-volume products and undercost high-volume
products.
D) It must be used for external financial reporting.
30. What is a duration driver?

A) A simple count of the number of times an activity occurs.
B) An activity measure that is used for the life of the company.
C) A measure of the amount of time required to perform an activity.
D) An activity measure that is used for the life of an activity-based costing system.
31. What is a transaction driver?

A) An event that causes a transaction to begin.
B) A measure of the amount of time required to perform an activity.
C) An event that causes a transaction to end.
D) A simple count of the number of times an activity occurs.
Ans: D Difficulty: Easy
32. 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 labour-based costing system.
B) Changing from a traditional direct labour-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.
33. (Appendix 5B) Why would an activity-based costing system that is designed for internal
decision making NOT conform to generally accepted accounting principles?
A) Some manufacturing costs (i.e., the costs of idle capacity and organization-
sustaining costs) will not be assigned to products.
B) Some non-manufacturing costs are assigned to products.
C) First-stage allocations may be based on subjective interview data.
D) All of the above.
34. (Appendix 5A) Which of the following statements concerning ease of adjustment codes is
NOT correct?
A) “Green” costs adjust automatically to changes in activity.
B) “Yellow” costs could be adjusted to changes in activity, but such adjustments
require management action; the adjustment is not automatic.
C) “Red” costs cannot be adjusted to changes in activity.
D) The costs of idle capacity and organization-sustaining costs are not assigned codes.
35. (Appendix 5A) Which of the following best describes a cost object, such as a product or
customer, that has a negative green margin?
A) Its yellow margin will be positive.
B) Its yellow margin may be either positive or negative.
C) Its yellow margin will be negative.
D) Its yellow margin will be zero.
Ans: C Difficulty: Medium
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customer, that has a negative red margin?
B) Its yellow margin may be positive, negative, or zero.
customer, that has a positive green margin?
B) Its yellow margin may be either positive, negative, or zero.
customer, that has a positive red margin?
A) Its green margin will be positive.
B) Its green margin may be positive, negative, or zero.
C) Its green margin will be negative.
D) Its green margin will be zero.
Ans: A Difficulty: Medium
39. Paul Company has two products: A and B. The company uses activity-based costing. The
estimated total cost and expected activity for each of the company's three activity cost
pools are as follows:
Activity Estimated Expected Activity

Cost Pool Cost Product A Product B Total
Activity 1 $22,000 400 100 500
Activity 2 $16,240 380 200 580
Activity 3 $14,600 500 250 750
The activity rate under the activity-based costing system for Activity 3 is closest to which
of the following?
A) $19.47. B) $28.87. C) $58.40. D) $70.45.
40. Selena Company has two products: A and B. The company uses activity-based costing.
The estimated total cost and expected activity for each of the company's three activity
cost pools are as follows:
The activity rate under the activity-based costing system for Activity 3 is closest
to which of the following?
A) $18.53. B) $21.67. C) $46.33. D) $65.00.
41. Matt Company uses activity-based costing. The company has two products: A and B. The
annual production and sales of Product A is 8,000 units and of Product B is 6,000 units.
There are three activity cost pools, with estimated total cost and expected activity as
follows:
The cost per unit of Product A under activity-based costing is closest to which of the
following?
A) $ 2.40. B) $ 3.90. C) $ 6.60. D) $10.59.
42. Bridget Company uses activity-based costing. The company has two products: A and B.
The annual production and sales of Product A is 2,000 units and of Product B is 3,000
units. There are three activity cost pools, with estimated total cost and expected activity
as follows:
The cost per unit of Product A under activity-based costing is closest to which of the
following?
A) $ 6.00. B) $ 8.63. C) $ 9.60. D) $13.80.
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Use the following to answer questions 43-45:
Dideda Company 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:
Costs:
Manufacturing Overhead $360,000
Selling and Administrative Expenses $240,000
Total $600,000
Distribution of Resource
Consumption:
Activity Cost Pools
Order Customer
Size Support Other Total
Manufacturing Overhead 25% 65% 10% 100%
Selling and Administrative 60% 20% 20% 100%
Expenses
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining
costs. You have been asked to complete the first-stage allocation of costs to the activity cost
pools.
43. How much cost, in total, would be allocated in the first-stage allocation to the Order Size
activity cost pool?
A) $150,000. B) $234,000. C) $255,000. D) $360,000.
Ans: B Difficulty: Easy
44. How much cost, in total, would be allocated in the first-stage allocation to the Customer
Support activity cost pool?
A) $120,000. B) $255,000. C) $282,000. D) $390,000.
45. How much cost, in total, should NOT be allocated to orders and products in the second
stage of the allocation process if the activity-based costing system is used for internal
decision making?
A) $ 0. B) $ 60,000. C) $ 84,000. D) $120,000.
Diehl Company uses an activity-based costing system with three activity cost pools. The
system:
Costs:
Total $580,000
Distribution of Resource Consumption:

Activity Cost Pools
Order Customer
Selling and Administrative Expenses 60% 20% 20% 100%
pools.
activity cost pool?
A) $ 29,000. B) $ 84,000. C) $188,000. D) $348,000.
A) $116,000. B) $304,500. C) $428,000. D) $493,000.
48. How much cost, in total, should not be allocated to orders and products in the second
decision making?
A) $ 0. B) $ 58,000. C) $ 68,000. D) $116,000.
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Dierich Company uses an activity-based costing system with three activity cost pools. The
system:
Costs:
Total $820,000

Activity Cost Pools
Order Customer
pools.
activity cost pool?
A) $123,000. B) $222,000. C) $307,500. D) $492,000.
A) $164,000. B) $389,500. C) $494,000. D) $615,000.
51. How much cost, in total, should not be allocated to orders and products in the second
decision making?
A) $ 0. B) $ 82,000. C) $104,000. D) $164,000.
Davis Company uses an activity-based costing system in which there are three activity cost
pools. The company has provided the following data concerning its costs and its activity-based
costing system:
Costs:
Total $600,000
Distribution of Resource
Consumption:
Activity Cost Pools
Order Customer
costs. You have been asked to complete the first-stage allocation of the costs to the activity cost
pools.
activity cost pool?
A) $210,000. B) $240,000. C) $255,000. D) $300,000.
A) $180,000. B) $255,000. C) $280,000. D) $330,000.
54. How much cost, in total should not be allocated to orders and products in the second
decision making?
A) $ 0. B) $ 60,000. C) $ 80,000. D) $120,000.
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Escau Company is a wholesale distributor that uses activity-based costing for all of its overhead
costs. The company has provided the following data concerning its annual overhead costs and its
activity-based costing system:
Overhead Costs:
Wages and Salaries $380,000
Other Expenses $100,000
Total $480,000

Activity Cost Pools
Filling Customer
Orders Support Other Total
Wages and Salaries 30% 60% 10% 100%
Other Expenses 35% 45% 20% 100%
costs. The activity measures for the activity cost pools for the year are as follows:
Activity Cost Pool Activity

Filling Orders 3,000 orders
Customer Support 20 customers
55. What would be the total overhead cost per order according to the activity-based costing
system, rounded to the nearest whole cent? In other words, what would be the overall
activity rate for the Filling Orders activity cost pool?
A) $48.00. B) $49.67. C) $52.00. D) $56.00.
56. What would be the total overhead cost per customer according to the activity-based
costing system, rounded to the nearest whole dollar? In other words, what would be the
overall activity rate for the Customer Support activity cost pool?
A) $10,800. B) $12,600. C) $13,650. D) $14,400.
57. To the nearest whole dollar, how much wages and salaries cost would be allocated to a
customer who placed eight orders in a year?
A) $ 7,392. B) $ 9,548. C) $11,704. D) $14,784.
Escalona Company is a wholesale distributor that uses activity-based costing for all of its
overhead costs. The company has provided the following data concerning its annual overhead
costs and its activity-based costing system:
Overhead Costs:
Total $780,000

Activity Cost Pools
Filling Customer
costs. The amount of activity for the year is as follows:

A) $273.00. B) $292.50. C) $302.00. D) $312.00
A) $11,700. B) $12,350. C) $12,667. D) $13,000.
customer who placed four orders in a year?
A) $ 7,124. B) $ 8,859. C) $10,595. D) $14,248.
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Escoto Company is a wholesale distributor that uses activity-based costing for all of its overhead
costs. The company has provided the following data concerning its annual overhead costs and its
activity-based costing system:
Overhead Costs:
Total $740,000

Activity Cost Pools
Filling Customer

A) $18.50. B) $23.50. C) $27.75. D) $37.00.
A) $11,100. B) $12,950. C) $13,800. D) $14,800.
customer who placed eight orders in a year?
A) $ 7,474. B) $ 9,191. C) $10,908. D) $14,948.
Acton Company has two products: A and B. The annual production and sales of Product A is
800 units and of Product B is 500 units. The company has traditionally used direct labour hours
as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct
labour hours per unit, and Product B requires 0.2 direct labour hours per unit. The total estimated
overhead for next period is $92,023.
The company is considering switching to an activity-based costing system for the purpose of
computing unit product costs for external reports. The new activity-based costing system would
have three overhead activity cfost pools—Activity 1, Activity 2, and General Factory—with
estimated overhead costs and expected activity as follows:
Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product A Product B Total
Activity 1 $14,487 500 600 1,100
Activity 2 $64,800 2,500 500 3,000
General $12,736 240 100 340
Factory
Total $92,023
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour
hours.)
64. The predetermined overhead rate under the traditional costing system is closest to which
of the following?
A) $ 13.17. B) $ 21.60. C) $ 37.46. D) $270.66.
65. The overhead cost per unit of Product B under the traditional costing system is closest to
which of the following?
A) $ 2.63. B) $ 4.32. C) $ 7.49. D) $54.13.
66. The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-
based costing system is closest to which of the following?
A) $13.17. B) $24.15. C) $28.97. D) $83.66.
67. The overhead cost per unit of Product A under the activity-based costing system is closest
to which of the following?
A) $11.24. B) $70.79. C) $81.20. D) $86.97.
Ans: D Difficulty: Hard
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Addy Company has two products: A and B. The annual production and sales of Product A is
1,700 units and of Product B is 1,100 units. The company has traditionally used direct labour
hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3
direct labour hours per unit, and Product B requires 0.6 direct labour hours per unit. The total
estimated overhead for next period is $98,785.
have three factory overhead activity cost pools—Activity 1, Activity 2, and General Factory—
with estimated overhead costs and expected activity as follows:
Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product A Product B Total
Activity 1 $30,528 1,000 600 1,600
Activity 2 $17,385 1,700 200 1,900
General Factory $50,872 510 660 1,170
Total $98,785
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour
hours.)
68. (Appendix 5B) The predetermined overhead rate under the traditional costing system is
closest to which of the following?
A) $ 9.15. B) $19.08. C) $43.48. D) $84.43.
69. (Appendix 5B) The overhead cost per unit of Product B under the traditional costing
system is closest to which of the following?
A) $ 5.49. B) $11.45. C) $26.09. D) $50.66.
70. (Appendix 5B) The predetermined overhead rate (i.e., activity rate) for Activity 2 under
the activity-based costing system is closest to which of the following?
A) $ 9.15. B) $10.23. C) $51.99. D) $86.93.
71. (Appendix 5B) The overhead cost per unit of Product B under the activity-based costing
system is closest to which of the following?
A) $26.09. B) $35.28. C) $38.16. D) $50.66.
Abel Company uses activity-based costing. The company has two products: A and B. The annual
production and sales of Product A is 200 units and of Product B is 400 units. There are three
activity cost pools, with estimated costs and expected activity as follows:

Activity 1 $16,660 600 100 700
Activity 2 $18,450 1,100 700 1,800
Activity 3 $ 9,731 60 160 220
72. The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-
based costing system is closest to which of the following?
A) $10.25. B) $16.77. C) $24.91. D) $26.36.
73. The cost per unit of Product B is closest to which of the following?
A) $17.69. B) $41.58. C) $74.73. D) $81.53.
Ans: B Difficulty: Hard
Accola Company uses activity-based costing. The company has two products: A and B. The
annual production and sales of Product A is 1,100 units and of Product B is 700 units. There are
three activity cost pools, with estimated costs and expected activity as follows:

Activity 1 $18,270 600 500 1,100
Activity 2 $35,891 1,600 300 1,900
Activity 3 $48,796 440 420 860
74. The activity rate for Activity 3 is closest to which of the following?
A) $ 26.67. B) $ 56.74. C) $116.18. D) $119.72.
75. The cost per unit of Product A is closest to which of the following?
A) $22.70. B) $47.89. C) $57.20. D) $59.23.
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Arthur Company has two products: S and D. The company uses activity-based costing and has
prepared the following analysis, showing the estimated total cost and expected activity for each
of its three activity cost pools:

Cost Pool Cost Product S Product D Total
Activity 1 $20,000 100 400 500
Activity 2 $14,600 500 250 750
Activity 3 $90,000 300 2,700 3,000
The annual production and sales of Product S is 4,547 units. The annual production and sales of
Product D is 7,913.
76. The activity rate under the activity-based costing system for Activity 3 is closest to which
of the following?
A) $29.32. B) $30.00. C) $33.33. D) $41.53.
77. The cost per unit of Product S under activity-based costing is closest to which of the
following?
A) $ 1.83. B) $ 1.98. C) $ 5.00. D) $10.00.
Monson Company has two products: G and P. The company uses activity-based costing and has
prepared the following analysis, showing the estimated total cost and expected activity for each
of its three activity cost pools:

Cost Pool Cost Product G Product P Total
Activity 1 $30,000 200 400 600
Activity 2 $24,000 600 900 1,500
Activity 3 $80,000 400 3,600 4,000
The annual production and sales of Product G is 10,640 units. The annual production and sales of
Product P is 26,600.
78. The activity rate under the activity-based costing system for Activity 2 is closest to which
of the following?
A) $16.00. B) $21.97. C) $26.67. D) $89.33.
79. The cost per unit of Product P under activity-based costing is closest to which of the
following?
A) $ 4.00. B) $ 6.88. C) $10.00. D) $30.16.
Ans: A Difficulty: Hard
Forse Florist specializes in large floral bouquets for hotels and other commercial spaces. The
company has provided the following data concerning its annual overhead costs and its activity-
based costing system:
Overhead Costs:
Total $120,000

Activity Cost Pools
Making
Bouquets Delivery Other Total

Making Bouquets 60,000 bouquets
Delivery 5,000 deliveries
80. What would be the total overhead cost per bouquet according to the activity-based
costing system, rounded to the nearest whole cent? In other words, what would be the
overall activity rate for the Making Bouquets activity cost pool?
A) $0.90. B) $1.05. C) $1.10. D) $1.20.
81. What would be the total overhead cost per delivery according to the activity-based
overall activity rate for the Deliveries activity cost pool?
A) $6.00 B) $6.60 C) $6.80 D) $7.20
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Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. The
Overhead Costs:
Total $120,000

Activity Cost Pools
Making
Bouquets Delivery Other

A) $1.35. B) $1.73. C) $1.79. D) $2.10.
A) $24.00. B) $26.50. C) $27.00. D) $30.00.
Foss Florist specializes in large floral bouquets for hotels and other commercial spaces. The
Overhead Costs:
Total $110,000

Activity Cost Pools
Making
Bouquets Delivery Other Total

A) $2.48. B) $2.75. C) $2.83. D) $3.03.
A) $3.93. B) $4.71. C) $4.93. D) $5.50.
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Grogam Catering uses activity-based costing for its overhead costs. The company has provided
the following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools

Preparing Arranging
Meals Functions
Wages $1.15 $110.00
Supplies $0.35 $380.00
Other Expenses $0.25 $ 70.00
The number of meals served is the measure of activity for the Preparing Meals activity cost pool.
The number of functions catered is used as the activity measure for the Arranging Functions
activity cost pool.
Management would like to know whether the company made any money on a recent function at
which 100 meals were served. The company catered the function for a fixed price of $21.00 per
meal. The cost of the raw ingredients for the meals was $8.25 per meal. This cost is in addition to
the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment
codes to the costs as follows: wages are classified as a Yellow cost, supplies and raw ingredients
as a Green cost, and other expenses as a Red cost.
86. According to the activity-based costing system, what was the total cost (including the
costs of raw ingredients) of the function mentioned above, rounded to the nearest whole
dollar?
A) $ 910. B) $1,060. C) $1,560. D) $1,760.
87. (Appendix 5A) In an action analysis report prepared for the function mentioned above,
what would be the "red margin" in the report, rounded to the nearest whole dollar?
A) $390. B) $440. C) $540. D) $690.
what would be the "yellow margin" in the report, rounded to the nearest whole dollar?
A) $635. B) $710. C) $760. D) $815.
Groce Catering uses activity-based costing for its overhead costs. The company has provided the
following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools

Preparing Arranging
Meals Functions
Wages $0.70 $145.00
Supplies $0.45 $230.00
Other Expenses $0.40 $100.00
activity cost pool.
dollar?
A) $1,370. B) $1,520. C) $2,020. D) $2,220.
A) ($70). B) ($20). C) $ 80. D) $230.
A) $240. B) $315. C) $365. D) $420.
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Grodt Catering uses activity-based costing for its overhead costs. The company has provided the
following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools

Preparing Arranging
Meals Functions
Wages $0.85 $110.00
Supplies $0.50 $310.00
Other Expenses $0.30 $120.00
activity cost pool.
dollar?
A) $ 505. B) $ 655. C) $1,155. D) $1,355.
A) ($165). B) ($115). C) ($15). D) $135.
A) $123. B) $198. C) $248. D) $303.
95. Which of the following types of costs present the greatest difficulty in efforts to trace
them to products and services?
A) Unit-level costs C) Product / service-level costs
B) Batch-level costs D) Organization-sustaining costs
96. Which of the following is a distinctive feature of an ABC system in comparison to a

departmental overhead application system?
A) It is a two-stage allocation system.
B) It uses transactional drivers.
C) It must include at least one non unit-level driver.
D) It uses duration drivers.
97. Which of the following is the fundamental and primary driver of costs in the ABC
model?
A) Cost objects. C) Consumption of resources.
B) Activities. D) Process improvements.
98. Which of the following is NOT a technique directly or indirectly useful in process
improvements?
A) The lean thinking model. C) Activity-based costing.
B) Process costing. D) Activity-based management.
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Addison Company has two products: A and B. Annual production and sales are 800 units of
Product A and 700 units of Product B. The company has traditionally used direct labour-hours
as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct
labour hours per unit and Product B requires 0.6 direct labour hours per unit. The total estimated
overhead for next period is $71,286.
have three factory overhead activity cost pools–Activity 1, Activity 2, and General Factory–with
estimated overhead costs and expected activity as follows:
Expected Activity
Estimated
Activity Cost Pool Overhead Costs Product A Product B Total
Activity 1 $20,272 300 500 800
Activity 2 29,380 800 500 1,300
General Factory 21,634 160 420 580
Total $71,286
(Note: The General Factory activity cost pool's are allocated on the basis of direct labour hours.)
99. (Appendix 5B) The predetermined overhead rate under the traditional costing system is
closest to:
A) $25.34 B) $22.60 C) $37.30 D) $122.91
100. (Appendix 5B) The overhead cost per unit of Product B under the traditional costing
system is closest to:
A) $22.38 B) $13.56 C) $73.74 D) $15.20
101. (Appendix 5B) The predetermined overhead rate (i.e., activity rate) for Activity 2 under
the activity-based costing system is closest to:
A) $22.60 B) $54.84 C) $58.76 D) $36.73
102. (Appendix 5B) The overhead cost per unit of Product B under the activity-based costing
A) $73.74 B) $56.62 C) $22.38 D) $47.52
Koszyk Manufacturing Corporation has a traditional costing system in which it applies

manufacturing overhead to its products using a predetermined overhead rate based on direct
labour-hours (DLHs). The company has two products, P85G and C43S, about which it has
provided the following data:
P85G C43S
Direct materials per unit $36.50 $63.10
Direct labour per unit $20.80 $31.20
Direct labour-hours per unit 0.80 1.20
Annual production 35,000 10,000
The company’s estimated total manufacturing overhead for the year is $2,264,000 and the
company’s estimated total direct labour-hours for the year is 40,000.
The company is considering using a variation of activity-based costing to determine its unit
product costs for external reports. Data for this proposed activity-based costing system appear
below:
Estimated
Activities and Activity Measures Overhead Cost
Supporting direct labour (DLHs) $1,160,000
Setting up machines (setups) 288,000
Parts administration (part types) 816,000
Total $2,264,000
Expected Activity
P85G C43S Total
DLHs 28,000 12,000 40,000
Setups 1,480 920 2,400
Part types 1,880 840 2,720
103. (Appendix 5B) The manufacturing overhead that would be applied to a unit of product
P85G under the company's traditional costing system is closest to:
A) $89.67 B) $45.28 C) $44.39 D) $23.20
C43S under the activity-based costing system is closest to:
A) $71.04 B) $138.96 C) $67.92 D) $11.04
Page 27
Binegar Manufacturing Corporation has a traditional costing system in which it applies

labour-hours (DLHs). The company has two products, R58G and R09O, about which it has
R58G R09O
below:
Expected Activity
R58G R09O Total
DLHs 3,000 21,000 24,000
Batches 528 1,152 1,680
Product variations 1,056 1,176 2,232
R58G under the company's traditional costing system is closest to:
A) $6.74 B) $16.10 C) $22.84 D) $2.90
R09O under the activity-based costing system is closest to:
A) $113.46 B) $255.00 C) $141.54 D) $17.28
Kebort Manufacturing Corporation has a traditional costing system in which it applies

labour-hours (DLHs). The company has two products, U86Y and M91F, about which it has
U86Y M91F
below:
Estimated
Direct labour (DLHs) $1,175,000
Total $2,541,760
Expected Activity
U86Y M91F Total
DLHs 28,000 19,000 47,000
Setups 2,256 658 2,914
Part types 1,034 2,162 3,196
107. (Appendix 5B) The unit product cost of product U86Y under the company's traditional
costing system is closest to:
A) $71.15 B) $55.50 C) $75.86 D) $38.00
108. (Appendix 5B) The unit product cost of product M91F under the activity-based costing
A) $95.20 B) $121.57 C) $216.77 D) $197.95
Page 29
Pacchiana Manufacturing Corporation has a traditional costing system in which it applies

labour-hours (DLHs). The company has two products, R21V and D00B, about which it has
R21V D00B
below:
Estimated
Assembling products (DLHs) $ 108,000
Preparing batches (batches) 362,880
Product support (product variations) 792,000
Total $1,262,880
Expected Activity
R21V D00B Total
DLHs 13,500 22,500 36,000
Batches 1,440 1,152 2,592
Product variations 1,404 576 1,980
109. (Appendix 5B) The unit product cost of product R21V under the company’s traditional
costing system is closest to:
A) $34.02 B) $24.40 C) $41.36 D) $23.50
110. (Appendix 5B) The unit product cost of product D00B under the activity-based costing
A) $111.81 B) $133.82 C) $81.20 D) $30.61
111. Ingersol Draperies makes custom draperies for homes and businesses. The company uses
an activity-based costing system for its overhead costs. The company has provided the
following data concerning its annual overhead costs and its activity cost pools:
Overhead Costs:
Production Overhead $120,000
Office Expense $120,000
Total $240,000
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining costs. The amount of activity for the year is as follows:
Page 31
Activity Cost Pool Annual Activity
Making Drapes 2,000 metres
Job Support 160 jobs
Other Not applicable
Page 33
Required:
a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling
in the table below:
Making Job
Page 35
Drapes Support Other Total
Production Overhead
Office Expense
Page 37
Total
b) Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and
Job Support activity cost pools by filling in the table below:
Page 39
Making Job
Drapes Support
Page 41
Production Overhead
Office Expense
Total
Page 43
c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves
making 71 metres of drapes and has direct materials and direct labour cost of $2,510. The
sales revenue from this job is $4,400. For purposes of this action analysis report, direct
materials and direct labour should be classified as a Green cost, production overhead as a
Red cost, and office expense as a Yellow cost.
Ans: a) First-stage allocation
Activity 2,000 160

metres jobs
b) Activity rates (costs divided by activity)
Production Overhead $21.00 $337.50

Office Expense $3.00 $487.50
Total $24.00 $825.00
Difficulty: Hard
Page 45
112. Hasty Hardwood Floors installs oak and other hardwood floors in homes and businesses.
The company uses an activity-based costing system for its overhead costs. The company
has provided the following data concerning its annual overhead costs and its activity-
Overhead Costs:
Office Expense $140,000
Total $330,000

Installing Floors 200 squares
Page 47
A "square" is a measure of area that is roughly equivalent to 1,000 square metres.
Required:
in the table below:
Page 49
Installing Job
Floors Support Other Total
Production Overhead
Office Expense
Total.
b) Compute the activity rates (i.e., cost per unit of activity) for the Installing Floors and
Installing Job
Floors Support
Production Overhead
Office Expense
Total.
c) Compute the overhead cost, according to the activity-based costing system, of a job
that involves installing 3.4 squares.
Difficulty: Medium
113. Goel Company, a wholesale distributor, uses activity-based costing for its overhead costs.
The company has provided the following data concerning its annual overhead costs and
its activity-based costing system:
Page 51
Overhead Costs:

Non-wage Expenses $120,000
Total $580,000
Activity Cost Pools

Filling Product
Non-wage Expenses 10% 70% 20% 100%
The "Other" activity cost pool consists of the costs of idle capacity and organization-
sustaining costs. The amount of activity for the year is as follows:

Product Support 30 products
Required:
Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and
Product Support activity cost pools by filling in the table below:
Filling Product
Orders Support
Wages and Salaries
Non-wage Expenses
Total
Ans: First-stage allocation
Page 53
Difficulty: Medium
114. Fife & Jones PLC, a consulting firm, uses an activity-based costing in which there are
three activity cost pools. The company has provided the following data concerning its
costs and its activity-based costing system:
Costs:
Travel Expenses $100,000
Total $780,000
Required:
a) How much cost, in total, would be allocated to the Working On Engagements activity
cost pool?
b) How much cost, in total, would be allocated to the Business Development activity cost
pool?
c) How much cost, in total, would be allocated to the Other activity cost pool?
Ans: All three parts can be answered using a first-stage allocation of costs.
a) $379,000
b) $173,000
c) $228,000
Difficulty: Easy
115. Huish Awnings makes custom awnings for homes and businesses. The company uses an
activity-based costing system for its overhead costs. The company has provided the
following data concerning its annual overhead costs and its activity cost pools:
Overhead Costs:
Page 55
Making Awnings 5,000 metres
Required:
in the table below:
Making Job
Awnings Support Other Total
Production Overhead
Office Expense
Total
b) Compute the activity rates (i.e., cost per unit of activity) for the Making Awnings and
Making Job
Awnings Support
Production Overhead
Office Expense
Total
making 80 yards of awnings and has direct materials and direct labour cost of $3,000.
The sales revenue from this job is $4,000. For purposes of this action analysis report,
direct materials and direct labour should be classified as a Green cost, production
overhead as a Red cost, and office expense as a Yellow cost.
Difficulty: Hard
116. Phoenix Company makes custom covers for air conditioning units for homes and
businesses. The company uses an activity-based costing system for its overhead costs.
The company has provided the following data concerning its annual overhead costs and
its activity cost pools:
Overhead Costs:
Office Expense $ 50,000
Total $150,000
Page 57
Making Covers 2,500 yards
Required:
in the table below:
Making Job
Covers Support Other Total
Production Overhead
Office Expense
Total
b) Compute the activity rates (i.e., cost per unit of activity) for the Making Covers and
Making Job
Covers Support
Production Overhead
Office Expense
Total
making 50 yards of covers and has direct materials and direct labour cost of $1,500. The
materials and direct labour should be classified as a Green cost, production overhead as a
Difficulty: Hard
Page 59
117. Jackson Painting paints the interiors and exteriors of homes and commercial buildings.
The company uses an activity-based costing system for its overhead costs. The company
has provided the following data concerning its activity-based costing system.
The "Other" activity cost pool consists of the costs of idle capacity and organization-
sustaining costs.
The company has already finished the first stage of the allocation process in which costs
were allocated to the activity cost centres. The results are listed below:
Required:
a) Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job
Support activity cost pools by filling in the table below. Round off all calculations to the
nearest whole cent.
Job
Painting Support
Production Overhead
Office Expense
Total
b) (Appendix 5A) Prepare an action analysis report in good form of a job that involves
painting 63 square metres and has direct materials and direct labour cost of $2,070. The
materials and direct labour should be classified as a Green cost, painting overhead as a
Ans: a) Activity rates (costs divided by activity)
Difficulty: Medium
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118. Cabanos Company manufactures two products, Product C and Product D. The company
estimated it would incur $160,790 in manufacturing overhead costs during the current
period. Overhead currently is applied to the products on the basis of direct labour hours.
Data concerning the current period's operations appear below:
Product C Product D
Estimated Volume 3,400 units 4,800 units
Direct Labour Hours per Unit 1.40 hour 1.90 hours
Direct Materials Cost per Unit $ 7.40 $12.70
Direct Labour Cost per Unit $14.00 $19.00
Required:
a) Compute the predetermined overhead rate under the current method, and determine the
unit product cost of each product for the current year.
b) The company is considering using an activity-based costing system to compute unit
product costs for external financial reports instead of its traditional system based on
direct labour hours. The activity-based costing system would use three activity cost pools.
Data relating to these activities for the current period are given below:
Determine the unit product cost of each product for the current period using the
activity-based costing approach.
Ans: a) The expected total direct labour hours during the period are computed as
follows:
Product C: 3,400 units x 1.4 hr. 4,760 hours

Product D: 4,800 units x 1.9 hrs. 9,120 hours
Total direct labour hours 13,880 hours
Using these hours as a base, the predetermined overhead using direct labour hours
would be:
Predetermined overhead rate = $160,790 / 13,880 DLHs = $11.58/DLH
Using this overhead rate, the unit product costs are:
Product C Product D
Direct Materials $ 7.40 $12.70
Direct Labour $14.00 $19.00
Manufacturing Overhead $16.22 $22.01
Total Unit Product Cost $37.62 $53.71
b) The overhead rates for each activity centre are as follows:
Estimated
Overhead Expected Overhead
Costs Activity Rate
Machine Setups $12,190 230 $53.00
Purchase Orders $79,200 1,650 $48.00
General Factory $69,400 13,880 $ 5.00
The overhead cost charged to each product is:
Overhead cost per unit:

Product C: $63,080 / 3,400 units = $18.55 per unit.
Product D: $97,710 / 4,800 units = $20.36 per unit.
Using activity-based costing, the unit product cost of each product would be:
Page 63
Product C Product D
Direct Labour $14.00 $19.00
Manufacturing Overhead $18.55 $20.36
Difficulty: Hard
119. Lionel Corporation manufactures two products, Product B and Product H. Product H is of
fairly recent origin, having been developed as an attempt to enter a market closely related
to that of Product B. Product H is the more complex of the two products, requiring two
hours of direct labour time per unit to manufacture, compared to one hour of direct labour
time for Product B. Product H is produced on an automated production line.
Overhead is currently assigned to the products on the basis of direct labour hours. The
company estimated it would incur $450,000 in manufacturing overhead costs and
produce 7,500 units of Product H and 30,000 units of Product B during the current year.
Unit costs for materials and direct labour are:
Product B Product H
Direct $12 $25
Materials
Direct Labour $10 $20
Required:
a) Compute the predetermined overhead rate under the current method of allocation, and
determine the unit product cost of each product for the current year.
b) The company's overhead costs can be attributed to four major activities. These
activities and the amount of overhead cost attributable to each for the current year are
given below:
Using the data above and an activity-based costing approach, determine the unit
product cost of each product for the current year.
Ans: a) The company expects to work 45,000 direct labour hours during the current year,
computed as follows:
Product B: 30,000 units x 1 hr. 30,000 hours

Product H: 7,500 units x 2 hrs. 15,000 hours
would be:
Using this overhead rate, the unit product cost of each product would be:
Product Product
BH
Direct Materials $12 $25
Manufacturing Overhead:
Product B-one hour $10
Product H-two hours ___ $20
Total $32 $65
b) The overhead rates are computed as follows:
The overhead cost attributable to each product is:
Page 65
Product B: $189,236 / 30,000 units = $6.3079/unit.
Product H: $260,764 / 7,500 units = $34.7685/unit.
Difficulty: Hard
120. Flyer Corporation manufactures two products, Product A and Product B. Product B is of
to that of Product A. Product B is the more complex of the two products, requiring three
hours of direct labour time per unit to manufacture, compared to one and one-half hours
of direct labour time for Product A. Product B is produced on an automated production
line.
produce 5,500 units of Product B and 22,000 units of Product A during the current year.
Unit costs for materials and direct labour are:
Page 67
Product A Product B
Page 69
Required:
given below:
Using the data above and an activity-based costing approach, determine the unit product
cost of each product for the current year.
Product A: 22,000 units x 1.5 hr. 33,000 hours

Product B: 5,500 units x 3.0 hrs. 16,500 hours
would be:

Product A: $159,400 / 22,000 units = $7.2455/unit.
Product B: $236,600 / 5,500 units = $43.0182/unit.
Page 71
Product A Product B
Direct Labour $ 7.0000 $15.0000
Manufacturing Overhead $ 7.2455 $43.0182
Difficulty: Hard
121. EMD Corporation manufactures two products, Product S and Product W. Product W is of
to that of Product S. Product W is the more complex of the two products, requiring one
hour of direct labour time per unit to manufacture, compared to a half-hour of direct
labour time for Product S. Product W is produced on an automated production line.
produce 10,000 units of Product W and 60,000 units of Product S during the current year.
Unit cost for materials and direct labour are:
Page 73
Product S Product W
Direct Labour $ 8 $12
Page 75
Required:
given below:
Using the data above and an activity-based costing approach, determine the unit product
cost of each product for the current year.
Product S: 60,000 units x 0.5 hr. 30,000 hours

Product W: 10,000 units x 1.0 hrs. 10,000 hours
Page 77
would be:

Product S: $205,825 / 60,000 units = $3.4304/unit.
Product W: $294,175 / 10,000 units = $29.4175/unit.
Page 79
Difficulty: Hard
122. Daba Company manufactures two products, Product F and Product G. During the current
year, the company expects to produce and sell 1,400 units of Product F and 1,800 units of
Product G. The company uses activity-based costing to compute unit product costs for
external reports. Data relating to the company's three activity cost pools are given below
for the current year:
Required:
Using the activity-based costing approach, determine the overhead cost per unit for each
product.
Ans: The overhead rates for each activity centre are as follows:
The overhead cost charged to each product is:

Product F: $59,930 / 1,400 units = $42.81 per unit.
Product G: $104,310 / 1,800 units = $57.95 per unit.
Difficulty: Medium
123. Eaker Company uses activity-based costing to compute product costs for external reports.
The company has three activity cost pools and applies overhead using predetermined
overhead rates for each activity cost pool. Estimated costs and activities for the current
year are presented below for the three activity centres:
Estimated
Activity Overhead Expected
Centre Costs Activity
Batch Setups $20,400 1,200
Material Handling $52,800 2,400
General Factory $78,000 2,600
Actual costs and activities for the current year were as follows:
Actual
Activity Overhead Actual
Centre Costs Activity
Batch Setups $20,740 1,230
Material Handling $52,360 2,470
General Factory $77,590 2,680
Required:
a) How much total overhead was applied to products during the year?
b) By how much was overhead overapplied or underapplied? (Be sure to clearly label
your answer as to whether the overhead was overapplied or underapplied for each activity
centre as well as for the total.)
Ans: a) The overhead rates for each activity centre are as follows:
The amount of overhead applied to production is determined as follows:
b) The amount of underapplied (overapplied) for each centre and all activity
Page 81
centres is as follows:
Difficulty: Medium
124. Kya, Inc. manufactures two models of high-pressure steam valves, the XR7 model and
the ZD5 model. Budgeted manufacturing overhead cost and operating data regarding
production and sales of 2,000 units of the XR7 model and 8,000 units of the ZD5 model
for 2005 follow:
Page 83
Budgeted Budgeted Level
Overhead for Cost Driver
Activity Cost Pool Costs Cost Driver XR7 ZD5 Total
Machine setups $800,000 Number of setups 150 100 250
Vendor negotiation 200,000 Number of parts 800 200 1,000
Assembly 400,000 Direct labour hours 4,000 36,000 40,000
$1,400,000
Page 85
Required:
a) Identify and briefly explain each of the three cost drivers as either unit-level or batch-
level or product-level or organization-sustaining level.
b) Calculate the budgeted manufacturing overhead cost for each unit of the two models,
using only one unit-level cost driver.
c) Calculate the budgeted manufacturing overhead cost for each unit of the two models,
using the activity-based-costing (ABC) method.
d) Assume Kya, Inc. will use only the unit-level driver. Compared to the ABC method,
by how much (in terms of total allocated / applied manufacturing overhead cost), if any,
will the total output of each model be either under-costed or over-costed?
e) Is the result obtained in part (d) above consistent with your expectations? Explain.
Ans: a) Number of setup is a batch-level activity in the sense that machine has to be
setup for each batch independent of the number units in a batch. Number of parts
is a product-level activity because the vendor negotiation costs increase with the
number of different vendors to be sourced. Direct labour is a traditional unit-level
activity that is performed on each unit of output.
b) Predetermined rate = $1,400,000 / 40,000 DLHs

= $35 / DLH
XR7 Model ZD5 Model
Applied overhead @ $35 per DLH:
(4,000 x $35); (36,000 x $35) $140,000 $1,260,000
Number of units 2,000 8,000
Cost per unit $70,000 $157.50
c)
Rates:
setups ($800,000 / 250) = $3,200 per machine setup
Vendor negotiations ($200,000 / 1,000) = $200 per part
Assembly ($400,000 / 40,000) = $10 per DLH
XR7 Model ZD5 Model

Machine setup @ $3,200 $320,000
Vendor negotiations @ $20 $480,000 40,000
Assembly @ $10 160,000 360,000
Total 40,000 720,000
Units 2,000 8,000
Cost per unit $430 $90
d)
XR7 Model ZD5 Model
ABC Allocations $680,000 $ 720,000
Unit-level allocations $140,000 $1,260,000
Amount of under-costing $540,000
Amount of over-costing $ 540,000
e) The result in part (d) above is consistent with expectations. In comparison with
ABC, use of only unit-level cost drivers such as direct labour hours generally tends
to over-cost the high volume product (in this case, ZD5 Model) while it under-costs
the low-volume product (in this case XR7 Model). This is the result obtained in
part (d) above.
Difficulty: Hard
Page 87
125. Activity-based-costing (ABC) charges products for the cost of capacity used, NOT for
idle capacity.
Required:
a) The use of which activity level, budgeted (same as expected) or maximum capacity, is
consistent with ABC? Explain.
b) How might the use of ABC based on maximum capacity activity level enhance a firm's
ability to compete on price? Explain.
Ans: a) Use of maximum capacity activity level is consistent with the ABC method. It
will ensure a reasonably stable (if not constant) activity rate regardless of the
expected level of activity. Since, by definition, expected level of activity cannot
exceed the maximum capacity, the resulting activity rate is also likely to be lower.
A lower activity rate when applied to a less-than-capacity expected or actual
activity level will ensure that cost of idle capacity is not charged to products.
b) Since the cost of idle capacity will not be charged to products, products are
unlikely to be overcosted. The fact that ABC generally achieves more accurate
product costs (because it uses multiple unit-level and non unit-level cost drivers)
also avoids undercosting or overcosting. Accurate product cost information is a
good starting point for competitive pricing. This is especially important in diverse
multiple product firms where product emphasis decisions are routinely made.
Difficulty: Hard
126. (Appendix 5B) Werger Manufacturing Corporation has a traditional costing system in
which it applies manufacturing overhead to its products using a predetermined overhead
rate based on direct labour-hours (DLHs). The company has two products, W82R and
L48S, about which it has provided the following data:
Page 89
W82R L48S
Page 91
The company is considering using a variation of activity-based costing to determine its

unit product costs for external reports. Data for this proposed activity-based costing
system appear below:
Estimated Overhead
Activities and Activity Measures Cost
Supporting direct labour (DLHs) $ 352,000
Page 93
Total $1,521,960
Page 95
Activities W82R L48S Total
Supporting direct labour 9,000 13,000 22,000
Setting up machines 814 374 1,188
Parts administration 924 1,012 1,936
Required:
a. Determine the unit product cost of each of the company's two products under the
traditional costing system.
b. Determine the unit product cost of each of the company's two products under activity-
based costing system.
Ans: a. Traditional Unit Product Costs
Predetermined overhead rate = $1,521,960 ÷ 22,000 DLHs = $69.18 per DLH
W82R L48S
Direct materials $11.50 $ 62.90
Direct labour 2.00 13.00
Manufacturing overhead (0.2 DLHs × $69.18 per DLH;
1.3 DLHs × $69.18 per DLH) 13.84 89.93
Unit product cost $27.34 $165.83
b. ABC Unit Product Costs

Estimated
Overhead Total Expected
Cost Activity Activity Rate
Supporting direct labour $352,000 22,000 DLHs $16 per DLH
Setting up machines $210,960 1,188 setups $170 per setup
Parts administration $968,000 1,936 part types $500 per part type
Overhead cost for W82R

ABC
Activity Rate Activity Cost
Supporting direct labour $16 per DLH 13,000 DLHs $208,000
Setting up machines $170 per setup 374 setups 63,580
Parts administration $500 per part type 1,012 part types 506,000
Total $777,580
W82R L48S
Manufacturing overhead ($744,400 ÷ 45,000 units;
$777,600 ÷ 10,000 units) 16.54 77.76
Difficulty: Medium
127. (Appendix 8B) Torri Manufacturing Corporation has a traditional costing system in
rate based on direct labour-hours (DLHs). The company has two products, B40W and
C63J, about which it has provided the following data:
Page 97
B40W C63J
Page 99
The company's estimated total manufacturing overhead for the year is $2,656,000 and the
company's estimated total direct labour-hours for the year is 64,000.

Activities and Activity Measures Estimated Overhead Cost

Assembling products (DLHs) $1,216,000
Milling (MHs) 960,000
Page 101
Total $2,656,000
Page 103
Activities B40W C63J Total
Assembling products 28,000 36,000 64,000
Preparing batches 2,304 2,496 4,800
Milling 1,088 2,112 3,200
Page 105
Required:
a. Determine the unit product cost of each of the company's two products under the
traditional costing system.
b. Determine the unit product cost of each of the company's two products under activity-
based costing system.
Ans: a. Traditional Unit Product Costs
B40W C63J
Manufacturing overhead (0.8 DLHs × $41.50 per DLH;
2.4 DLHs × $41.50 per DLH) 33.20 99.60
b. ABC Unit Product Costs

Estimated Total Expected Activity Rate
Overhead Activity
Cost
Assembling products $1,216,000 64,000 DLHs $19 per DLH
Preparing batches $480,000 4,800 batches $100 per setup
Milling $960,000 3,200 MHs $300 per MH
Overhead cost for B40W

Activity Rate Activity ABC Cost
Assembling products $19 per DLH 28,000 DLHs $ 532,000
Preparing batches $100 per setup 2,304 batches 230,400
Milling $300 per MH 1,088 MHs 326,400
Total $1,088,800
Overhead cost for C63J

Preparing batches $100 per setup 2,496 batches 249,600
Milling $300 per MH 2,112 MHs 633,600
Total $1,567,200
B40W C63J
Manufacturing overhead ($1,088,800 ÷ 35,000 units;
$1,567,200 ÷ 15,000 units) 31.11 104.48
Difficulty: Medium
Page 107
128. (Appendix 8B) Welk Manufacturing Corporation has a traditional costing system in
rate based on direct labour-hours (DLHs). The company has two products, H16Z and
P25P, about which it has provided the following data:
H16Z P25P
Page 109

Page 111
Supporting direct labour (DLHs) $ 552,000
Total $1,464,480
Page 113
H16Z P25P Total

Supporting direct labour 12,000 12,000 24,000
Setting up machines 864 240 1,104
Page 115
Parts administration 600 960 1,560
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two
products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two
products under activity-based costing system.
Ans: a. Traditional Manufacturing Overhead Costs
H16Z P25P
Direct labour-hours 0.40 1.20
Predetermined overhead rate per DLH $61.02 $61.02
Manufacturing overhead cost per unit $24.41 $73.22
b. ABC Manufacturing Overhead Costs

Overhead Activity
Cost
Supporting direct labour $552,000 24,000 DLHs $23 per DLH
Setting up machines $132,480 1,104 setups $120 per setup
Parts administration $780,000 1,560 part types $500 per part type
Overhead cost for H16Z

Parts administration $500 per part type 600 part types 300,000
Total $679,680
Annual production 30,000
Manufacturing overhead $22.66
cost per unit
Overhead cost for P25P

Parts administration $500 per part type 960 part types 480,000
Total $784,800
cost per unit
Difficulty: Medium
129. (Appendix 8B) Bullie Manufacturing Corporation has a traditional costing system in
rate based on direct labour-hours (DLHs). The company has two products, D31X and
U75X, about which it has provided the following data:
Page 117
D31X U75X
Page 119


Assembling products (DLHs) $ 140,000
Axial milling (MHs) 766,500
Page 121
Total $1,147,650
Page 123
D31X U75X Total
Assembling products 3,500 31,500 35,000
Preparing batches 560 1,295 1,855
Axial milling 1,540 1,015 2,555
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two
products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two
products under activity-based costing system.
Ans: a. Traditional Manufacturing Overhead Costs
D31X U75X
Direct labour-hours 0.10 2.10
Predetermined overhead rate per DLH $32.79 $32.79
Manufacturing overhead cost per unit $3.28 $68.86
b. ABC Manufacturing Overhead Costs

Overhead Activity
Cost
Assembling products $140,000 35,000 DLHs $4 per DLH
Preparing batches $241,150 1,855 batches $130 per batch
Axial milling $766,500 2,555 MHs $300 per MH
Overhead cost for D31X

Preparing batches $130 per batch 560 batches 72,800
Axial milling $300 per MH 1,540 MHs 462,000
Total $548,800
cost per unit
Overhead cost for U75X

Assembling products $4 per DLH 31,500 DLHs $126,000
Preparing batches $130 per batch 1,295 batches 168,350
Axial milling $300 per MH 1,015 MHs 304,500
Total $598,850
cost per unit
Difficulty: Medium
Page 125
130. Mike Kyekyeku is a sole proprietorship that provides consulting and tax preparation
services to its clients. Mike charges a fee of $100 per hour for each service and can
devote a maximum of 4,000 hours annually to his clients. He reported the following
revenues and expenses for 2008:
Revenue $ 400,000
Page 127
Expenses (All overhead costs):
Secretarial support $ 84,000
Page 129
Supplies 72,000
Computer costs, etc. 48,000 204,000
Page 131
Net income (loss) $196,000
Being an accountant, Mike kept good records of the following data for 2008:
(i) Revenue:
Page 133
Tax Preparation $130,000
Consulting 270,000
Total $400,000
Page 135
(ii) ACTIVITY LEVEL
Overhead Cost Cost Driver Tax Consulting Total

Secretarial support Number of clients 72 48 120
Supplies Transactions with clients 200 300 500
Computer costs, etc. Computer hours 1,000 600 1,600
Required:
a. Should Mike emphasize one service more than the other if Mike were to allocate all the
overhead costs using direct-labours as the only overhead cost driver (1,300 for Tax and
2,700 for Consulting)? Support your decision with the relevant calculations and/or
analysis.
b. Identify each of the three cost drivers as either unit-level, batch-level, product-level,
customer-level, or organization-sustaining.
c. How might Mike's product/service emphasis decision in Part a above be altered if he
were to allocate all the overhead costs using activity-based costing and the three cost
drivers, that is, number of clients, number of transactions with clients, and computer
hours? Show all your supporting calculations and/or analysis, including any necessary
explanation.
Ans: a.
Decision: No
Analysis and/or calculations:
Preliminary analysis:
The overhead allocation rate = $51 per DLH, i.e. $204,000 / (1,300 + 2,700)
Tax Consulting
Revenue $130,000 $270,000
Expenses:
Allocations at $51 per DLH
($51 x 1,300; $51 x 2,700)* 66,300 137,700
Profit $63,700 $132,300
Number of DLHs 1,300 2,700
Profit per DLH:
($63,700 / 1,300; $132,300 / 2,700) $ 49** $ 49**
The two services generate the same profit for each hour of Mike's scarce time.
Note: Since the $100 billing rate per DLH is the same, the decision can be based
only on allocated cost per DLH ($51) which is the same for both services
* Alternatively, allocate in proportion to Tax and Consulting at 32.5% and 67.5%,

respectively.
** Same as the $100 billing rate less the $51 allocation rate.
b.
Number of clients: Customer-level
Number of transactions with clients: Unit-level
Computer hours: Unit-level
c.
Page 137
Preliminary analysis (ABC)
Tax Consulting
Revenue $130,000 $270,000
Expenses:
Allocations
Secretarial support (60%, 40%)* 50,400 33,600
Supplies (40%, 60%)** 28,800 43,200
Computer costs, etc. (62.5%, 37.5%)*** 30,000 18,000
$109,200 $ 94,800
Profit $ 20,800 $175,200
Profit per DLH ($20,800 / 1,300; $175,200/2,700) $ 16.00 $ 64.89
Decision:
Consulting should receive greater emphasis since every hour of Mike's scarce time
generates a profit of $64.89 compared to $16.00 for Tax. (Note: The decision can
be based only on the total allocated cost per DLH (that is, $109,200 / 1,300 =
$84.00 for Tax; $94,800 / 2,700 = $35.11 for Consulting) since the billing rate per
DLH of $100 is the same for both services. Alternatively, base decision on total
allocated cost for each service together with an explanation that consulting has less
allocated cost and also fewer number of direct labour hours.
* same as using activity rate of $700 per client (i.e., $84,000 / 120)
** same as using activity rate of $144 per transactions (i.e., $72,000 / 500)
*** same as using activity rate of $30 per computer hour (i.e., $48,000 / 1,600)
Difficulty: Hard
131. Mayeux 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:
Costs:
Wages and salaries $312,000
Depreciation 163,000
Utilities 239,000
$714,000
Total
Distribution of resource consumption:

Activity Cost Pools
Assembly Setting Up Other Total
Wages and salaries 46% 38% 16% 100%
Depreciation 9% 50% 41% 100%
Utilities 11% 48% 41% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Setting Up
activity cost pool?
A) $332,780 B) $314,780 C) $352,780 D) $306,780
Ans: B
132. Gutknecht 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
Costs:
Utilities 242,000
$724,000
Total

Activity Cost Pools
Assembly Setting Up Other Total
Utilities 13% 59% 28% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Other
activity cost pool?
A) $237,190 B) $222,190 C) $257,190 D) $204,190
Ans: B
Page 139
133. Lakatos Corporation uses an activity-based costing system with three activity cost pools.
The company has provided the following data concerning its costs:
Costs:
Occupancy 216,000
$876,000
Total
The distribution of resource consumption across the three activity cost pools is given
below:
Activity Cost Pools

Order
Fabricating Processing Other Total
Occupancy 25% 33% 42% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Fabricating
activity cost pool?
A) $131,000 B) $136,000 C) $116,000 D) $120,000
Ans: D
134. Perl Corporation uses an activity-based costing system with three activity cost pools. The
company has provided the following data concerning its costs:
Costs:
Occupancy 95,000
Total $662,000
below:
Activity Cost Pools

Fabricating Order Other Total
Processing
Occupancy 23% 50% 27% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Order
Processing activity cost pool?
A) $324,710 B) $345,710 C) $360,710 D) $309,710
Ans: A
Page 141
135. Hosley Corporation uses an activity-based costing system with three activity cost pools.
The company has provided the following data concerning its costs:
Costs:
Depreciation 97,000
Occupancy 124,000
Total $579,000
below:
Activity Cost Pools

Fabricating Order Other Total
Processing
Occupancy 4% 53% 43% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Other
activity cost pool?
A) $161,710 B) $172,710 C) $184,710 D) $155,710
Ans: A
136. Millner Corporation has provided the following data from its activity-based costing
accounting system:
Activity Cost Pools Total Cost Total Activity

$1,390,00
Designing products 0 7,750 product design hours
Setting up batches $33,300 790 batch set-ups
assembly hours
Assembling products $128,200 6,980
The activity rate for the “designing products” activity cost pool is closest to:
A) $233 per product design hour C) $179 per product design hour
B) $281 per product design hour D) $148 per product design hour
Ans: C
137. Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been
provided below:
Activity Cost Pools Total Cost Total Activity

Researching legal issues $19,850 640 research hours
$1,182,00
Meeting with clients 0 7,030 meeting hours
documents
Preparing documents $86,900 5,690
The activity rate for the “meeting with clients” activity cost pool is closest to:
A) $175 per meeting hour C) $168 per meeting hour
B) $186 per meeting hour D) $154 per meeting hour
Ans: C
138. Gould Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products:
Activity Cost Pools Activity Rate

Setting up batches $59.11 per batch
Processing customer orders $72.13 per customer order
per assembly hour
Assembling products $3.52
Data concerning two products appear below:
Product K91B Product F65O

Number of batches 81 52
Number of customer orders 33 43
Number of assembly hours 488 885
How much overhead cost would be assigned to Product K91B using the activity-based
costing system?
A) $8,885.96 B) $9,585.96 C) $10,285.96 D) $8,285.96
Ans: A
Page 143
The following data have been provided by Letze Corporation from its activity-based costing
accounting system:
Factory supervision $490,000

Indirect factory labor $220,000
Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools
Batch Set-Up Expediting Other Total
Factory supervision 53% 35% 12% 100%
Indirect factory labor 56% 20% 24% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining
costs that are not assigned to products.
139. How much factory supervision and indirect factory labor cost would be assigned to the
Batch Set-Up activity cost pool?
A) $308,500 B) $296,000 C) $287,100 D) $321,600
Ans: B
140. How much factory supervision and indirect factory labor cost would NOT be assigned to
products using the activity-based costing system?
A) $140,200 B) $124,600 C) $0 D) $112,800
Ans: B
Use the following to answer question 141:
The controller of Hendershot Company estimates the amount of materials handling overhead cost
that should be allocated to the company's two products using the data that are given below:
Wall Mirrors Specialty Windows

Total expected units produced 7,000 4,000
Total expected material moves 600 190
Expected direct labor-hours per unit 6 10
The total materials handling cost for the year is expected to be $8,142.60.
141. If the materials handling cost is allocated on the basis of direct labor-hours, The total
materials handling cost allocated to the wall mirrors is closest to which of the following?
(Round off your answer to 2 decimal places.)
A) $3,665 B) $3,207 C) $2,069.12 D) $1,723
Ans: C
Andris Corporation uses activity-based costing to determine product costs for external financial
reports. The company has provided the following data concerning its activity-based costing
system:
Activity Cost Pools (and Activity

Measures) Estimated Overhead Cost
Machine related (machine-hours) $84,700
Batch setup (setups) $617,000
General factory (direct labor-hours) $275,400
Expected Activity
Product Product
Activity Cost Pools Total X Y
Machine related 7,000 6,000 1,000
Batch setup 10,000 6,000 4,000
General factory 17,000 10,000 7,000
142. The activity rate for the batch setup activity cost pool is closest to:
A) $63.70 B) $75.92 C) $89.08 D) $49.74
Ans: A
143. Assuming that actual activity turns out to be the same as expected activity, the total
amount of overhead cost allocated to Product X would be closest to:
A) $1,372,200 B) $1,367,700 C) $1,358,000 D) $1,345,400
Ans: C
Page 145
(Appendix 8A) Espinoza Company is a wholesale distributor that uses activity-based costing for
all of its overhead costs. The company has provided the following data concerning its annual
overhead costs and its activity based costing system:
Overhead costs:
Other expenses 169,000
Total $331,000

Filling Customer
Activity Cost Pools Orders Support Other Total
Other expenses 11% 60% 29% 100%
The 揙ther?activity cost pool consists of the costs of idle capacity and organization-sustaining
costs.
The amount of activity for the year is as follows:

Filling orders 3,100 orders
Customer support 12 customers
144. What would be the total overhead cost per order according to the activity based costing
system? In other words, what would be the overall activity rate for the filling orders
activity cost pool?
(Round to 2 decimal places..)
A) $18.08 B) $35.62 C) $30.36 D) $8.41
Ans: A
145. What would be the total overhead cost per customer according to the activity based
costing system? In other words, what would be the overall activity rate for the customer
support activity cost pool?
(Round to the nearest whole dollar.)
A) $12,283 B) $11,016 C) $11,988 D) $10,130
Ans: B
customer who made 8 orders in a year?
(Round your Activity Rate to 2 decimal places.)
A) $7,828 B) $6,957 C) $5,972 D) $4,915
Ans: C
(Appendix 8A) Groats Catering uses activity-based costing for its overhead costs. The company
has provided the following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools Preparing Meals Arranging Functions

Wages $1.14 $190
Supplies $0.33 $317
Other expenses $0.19 $136
activity cost pool.
which 150 meals were served. The company catered the function for a fixed price of $22 per
meal. The cost of the raw ingredients for the meals was $12.00 per meal. This cost is in addition
to the costs of wages, supplies, and other expenses detailed above.
codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients
as a Green cost; and other expenses as a Red cost.
147. Suppose an action analysis report is prepared for the function mentioned above. What
would be the “red margin” in the action analysis report?
(Round to the nearest whole dollar.)
A) $ 387 B) $ 402 C) $ 416 D) $( 375 )
Ans: A
Page 147
(Appendix 8B) Koszyk Manufacturing Corporation has a traditional costing system in which it
applies manufacturing overhead to its products using a predetermined overhead rate based on
direct labor-hours (DLHs). The company has two products, P85G and C43S, about which it has
P85G C43S
Direct labor per unit $27.8 $22.2
Direct labor-hours per unit 0.80 1.2
company's estimated total direct labor-hours for the year is 33,000.
below:
Estimated
Supporting direct labor (DLHs) $660,000
Total $1,857,000
Expected Activity
P85G C43S Total
DLHs 23,100 9,900 33,000
Setups 1,178 722 1,900
Part types 1,725 775 2,500
148. The manufacturing overhead that would be applied to a unit of product P85G under the
company's traditional costing system is closest to:
(Round your intermediate calculation to 2 decimal places.)
A) $58.84 B) $40.56 C) $49.80 D) $33.02
Ans: B
149. The manufacturing overhead that would be applied to a unit of product C43S under the
activity-based costing system is closest to:
A) $126.33 B) $144.86 C) $135.87 D) $118.75
Ans: A
(Appendix 8B) Binegar Manufacturing Corporation has a traditional costing system in which it
direct labor-hours (DLHs). The company has two products, R58G and R09O, about which it has
R58G R09O
below:
Estimated Overhead
Activities and Activity Measures Cost
Assembling products (DLHs) $ 1,360,000
Product support (product variations) 375,000
Total $2,183,000
Expected Activity
R58G R09O Total
DLHs 4,420 29,580 34,000
Batches 868 1,932 2,800
Product variations 705 795 1,500
150. The manufacturing overhead that would be applied to a unit of product R58G under the
company's traditional costing system is closest to:
(Round your Intermediate calculation to 2 decimal places.)
A) $7.38 B) $19.92 C) $16.26 D) $3.83
Ans: A
151. The manufacturing overhead that would be applied to a unit of product R09O under the
activity-based costing system is closest to:
A) $116.47 B) $139.05 C) $128.94 D) $103.32
Ans: A
Page 149
(Appendix 8B) Kebort Manufacturing Corporation has a traditional costing system in which it
direct labor-hours (DLHs). The company has two products, U86Y and M91F, about which it has
U86Y M91F
below:
Estimated
Direct labor support (DLHs) $1,107,400
Part administration (part types) 914,900
Total $2,407,500
Expected Activity
U86Y M91F Total
DLHs 27,000 18,000 45,000
Setups 2,216 728 2,944
Part types 1,114 2142 3,256
152. The unit product cost of product U86Y under the company's traditional costing system is
closest to:
A) $89.13 B) $80.34 C) $70.57 D) $58.13
Ans: C

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Chapter 5

1. When combining activities in an activity-based costing system, activities should be

3. Unit-level production activities are performed each time a unit is made.

9. In traditional costing systems, all manufacturing costs are assigned to products—even

13. In activity-based costing, as in traditional costing systems, non-manufacturing costs are

14. In activity-based costing, a plant-wide overhead rate is used to apply overhead to

21. Testing a prototype of a new product is an example of an activity at which of the

22. Setting up equipment is an example of an activity at which of the following levels?

25. Arranging for a shipment of a number of different products to a customer is an example

26. Human resource management is an example of an activity at which of the following

27. Which of the following would be classified as a product-level activity?

30. What is a duration driver?

31. What is a transaction driver?

32. Which of the following is NOT a limitation of activity-based costing?

Activity Estimated Expected Activity

Use the following to answer questions 46-48:

Distribution of Resource Consumption:

Distribution of Resource Consumption:

Use the following to answer questions 52-54:

Distribution of Resource Consumption:

Activity Cost Pool Activity

Use the following to answer questions 58-60:

Distribution of Resource Consumption:

Activity Cost Pool Activity

Distribution of Resource Consumption:

Activity Cost Pool Activity

Use the following to answer questions 64-67:

Use the following to answer questions 72-73:

Activity Estimated Expected Activity

Use the following to answer questions 74-75:

Activity Estimated Expected Activity

Activity Estimated Expected Activity

Use the following to answer questions 78-79:

Activity Estimated Expected Activity

Use the following to answer questions 80-81:

Distribution of Resource Consumption:

Activity Cost Pool Activity

Distribution of Resource Consumption:

Activity Cost Pool Activity

Use the following to answer questions 84-85:

Distribution of Resource Consumption:

Activity Cost Pool Activity

Activity Cost Pools

Use the following to answer questions 89-91:

Activity Cost Pools

Activity Cost Pools

96. Which of the following is a distinctive feature of an ABC system in comparison to a

Use the following to answer questions 103-104:

Koszyk Manufacturing Corporation has a traditional costing system in which it applies

Binegar Manufacturing Corporation has a traditional costing system in which it applies

Use the following to answer questions 107-108:

Kebort Manufacturing Corporation has a traditional costing system in which it applies

Pacchiana Manufacturing Corporation has a traditional costing system in which it applies

Distribution of Resource Consumption:

Other Not applicable

Activity 2,000 160

b) Activity rates (costs divided by activity)

Production Overhead $21.00 $337.50

Distribution of Resource Consumption:

Activity Cost Pool Annual Activity

A "square" is a measure of area that is roughly equivalent to 1,000 square metres.

Wages and Salaries $460,000