Managerial Accounting Creating Value in A Dynamic Business Environment CANADIAN EDITION Canadian 2nd Edition Hilton Test Bank 1

Managerial Accounting Creating Value in a
Dynamic Business Environment CANADIAN

EDITION Canadian 2nd Edition Hilton Test
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05
Student: ___________________________________________________________________________
1. Many traditional product costing systems:

A. trace manufacturing overhead to individual activities and require the development of numerous activity-
costing rates.
B. write off manufacturing overhead as an expense of the current period.
C. combine widely varying elements of overhead into a single cost pool.
D. use a host of different cost drivers (e.g., number of production setups, inspection hours, orders processed) to
improve the accuracy of product costing.
E. produce results far superior to those achieved with activity-based costing.
2. The following tasks are associated with an activity-based costing system:
1—Calculation of pool rates

2—Identification of cost drivers
3—Assignment of cost to products
4—Identification of cost pools
Which of the following choices correctly expresses the proper order of the preceding tasks?
A. 1, 2, 3, 4.
B. 2, 4, 1, 3.
C. 3, 4, 2, 1.
D. 4, 2, 1, 3.
E. 4, 2, 3, 1.
3. Which of the following is the proper sequence of events in an activity-based costing system?
A. Identification of cost drivers, identification of cost pools, calculation of pool rates, assignment of cost to
products.
B. Identification of cost pools, identification of cost drivers, calculation of pool rates, assignment of cost to
products.
C. Assignment of cost to products, identification of cost pools, identification of cost drivers, calculation of pool
rates.
D. Calculation of pool rates, identification of cost drivers, identification of cost pools, assignment of cost to
products.
E. Identification of cost drivers, assignment of costs to products, calculation of pool rates, identification of cost
pools.
4. Which of the following tasks is not normally associated with an activity-based costing system?
A. Calculation of pool rates.
B. Identification of cost pools.
C. Preparation of allocation matrices.
D. Identification of cost drivers.
E. Assignment of cost to products.
5. Which of the following is not a broad cost classification category typically used in activity-based costing?
A. Unit-level.
B. Batch-level.
C. Product-sustaining level.
D. Facility-level.
E. Management-level.
6. In an activity-based costing system, plant depreciation would typically be classified as a:
A. unit-level activity.
B. batch-level activity.
C. product-sustaining activity.
D. facility-level activity.
E. period-level activity.
7. Profile Incorporated, an appliance manufacturer, is developing a new line of ovens that uses controlled-laser
technology. The research and testing costs associated with the new ovens is said to arise from a:
C. product-sustaining-level activity.
E. competitive-level activity.
8. Which of the following is least likely to be classified as a facility-level activity in an activity-based costing
system?
A. Plant maintenance.
B. Property taxes.
C. Machine processing cost.
D. Plant depreciation.
E. Plant management salaries.
9. The salaries of a manufacturing plant's management are said to arise from:

A. unit-level activities.
B. batch-level activities.
C. product-sustaining activities.
D. facility-level activities.
E. direct-cost activities.
10. Which of the following choice of rows correctly depicts a cost that arises from a batch-level activity and one
that arises from a facility-level activity?
A. 1
B. 2
C. 3
D. 4
E. 5
11. Which of the following choices correctly depicts the proper classification of direct materials used and
management salaries?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
12. The division of activities into unit-level, batch-level, product-sustaining level, and facility-level categories is
commonly known as a cost:
A. object.
B. application method.
C. hierarchy.
D. estimation method.
E. classification scheme that is useful in traditional, volume-based systems.
13. Brown's customer service department follows up on customer complaints by telephone inquiry. During a
recent period, the department initiated 9,000 calls and incurred costs of $303,000. If 3,780 of these calls were
for the company's wholesale operation (the remainder were for the retail division), costs allocated to the retail
division should amount to:
A. $0.
B. $127,260.
C. $175,740.
D. $219,414.
E. $303,000.
14. Wanda Florists uses an activity-based costing system to compute the cost of making floral bouquets and
delivering the bouquets to its commercial customers. Company personnel who earn $90,000 typically perform
both tasks; other firm-wide overhead is expected to total $50,000. These costs are allocated as follows:
Wanda anticipates making 30,000 bouquets and 6,000 deliveries in the upcoming year.
The cost of wages and salaries and other overhead that would be charged to each bouquet made is:
A. $2.20.
B. $3.89.
C. $4.67.
D. $5.56.
E. $18.33.
15. Wanda Florists uses an activity-based costing system to compute the cost of making floral bouquets and
delivering the bouquets to its commercial customers. Company personnel who earn $90,000 typically perform
both tasks; other firm-wide overhead is expected to total $50,000. These costs are allocated as follows:
The cost of wages and salaries and other overhead that would be charged to each delivery is:
A. $3.89.
B. $7.50.
C. $9.58.
D. $14.00.
E. $23.33.
16. X-Ray Machines Ltd. manufactures three product lines: Standard, Deluxe, and Superior. The company,
which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its
budgeted cost, and related cost driver is identified below.
The following information pertains to the three product lines for next year:
What is X-Ray's pool rate for the material-handling activity?

A. $1.26 per part.
B. $4.00 per part.
C. $9.38 per labour hour.
D. $18.75 per part.
E. $12,000.
What is X-Ray's pool rate for the automated machinery activity?

A. $1.88 per machine hour.
B. $6.25 per machine hour.
D. $28.13 per unit.
E. $450.
What is X-Ray's pool rate for the finishing activity?

A. $3.13 per labour hour.
C. $3.13 per unit.
D. $3.13 per part.
E. $50,000.
What is X-Ray's pool rate for the packaging activity?

A. $100.00 per order shipped.
B. $100.00 per labour hour.
C. $100.00 per unit.
D. $100.00 per machine hour.
E. $200.00 per order shipped.
Under an activity-based costing system, what is the per-unit cost of Standard?

A. $73.88.
B. $96.88.
C. $157.88.
D. $160.88.
E. 165.88.
Under an activity-based costing system, what is the per-unit cost of Deluxe?

A. $96.88.
B. $111.94.
C. $155.94.
D. $165.94.
E. $168.00
Under an activity-based costing system, what is the per-unit cost of Superior?

A. $50.15.
B. $52.15.
C. $60.15.
D. $100.15.
E. $220.15.
Assume that X-Ray is using a volume-based costing system, and the preceding manufacturing costs are applied
to all products based on direct labour hours. How much of the preceding cost, rounded to the nearest dollar,
would be assigned to Superior?
A. $34,375.
B. $240,625.
C. $481,250.
D. $962,500.
E. $2,200,000.
would be assigned to Deluxe?
A. $240,625.
B. $481,250.
C. $962,500.
D. $1,375,000.
E. $2,200,000.
25. St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products
Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing
and the creation of individual cost pools that will use direct labour hours (DLH), production setups (SU), and
number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow.
The overhead cost allocated to Beta by using traditional costing procedures would be:
A. $240,000.
B. $360,000.
C. $440,000.
D. $560,000.
E. $800,000.
The overhead cost allocated to Zeta by using traditional costing procedures would be:
A. $240,000.
B. $360,000.
C. $440,000.
D. $560,000.
E. $800,000.
The overhead cost allocated to Beta by using activity-based costing procedures would be:
A. $240,000.
B. $356,000.
C. $444,000.
D. $560,000.
E. $800,000.
The overhead cost allocated to Zeta by using activity-based costing procedures would be:
A. $240,000.
B. $356,000.
C. $444,000.
D. $560,000.
E. $800,000.
29. Oliver and Sprung, an accounting firm, provides tax compliance and tax planning services. A recent analysis
found that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's
total administrative cost (currently $300,000) has been allocated to services on this basis.
The firm, contemplating a change to activity-based costing, has identified three components of administrative
cost, as follows:
A recent analysis of staff support found a strong correlation with the number of clients served. In contrast, in-
house IT and miscellaneous office expenditures varied directly with the number of computer hours logged and
number of client transactions, respectively. Tax compliance clients served totaled 25% of the total client base,
consumed 35% of the firm's computer hours, and accounted for 30% of the total client transactions.
If Oliver and Sprung switched from its current accounting method to an activity-based costing system, the
amount of administrative cost chargeable to tax compliance services would:
A. decrease by $24,500.
B. increase by $24,500.
C. decrease by $114,500.
D. increase by $114,500.
E. decrease by $89,000.
30. Kelly and Logan, an accounting firm, provides consulting and tax planning services. A recent analysis found
that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total
administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients.
cost, as follows:
A recent analysis of staff support found a strong correlation with the number of clients served (consulting, 20
clients; tax planning, 60 clients). In contrast, in-house computing and miscellaneous office cost varied directly
with the number of computer hours logged and number of client transactions, respectively. Consulting
consumed 30% of the firm's computer hours and had 20% of the total client transactions.
Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax
planning services is:
A. 20%.
B. 60%.
C. 65%.
D. 75%.
E. 80%.
31. Kelly and Logan, an accounting firm, provides consulting and tax planning services. A recent analysis found
that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total
administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients.
cost, as follows:
If Kelly and Logan switched from its current accounting method to an activity-based costing system, the
amount of administrative cost chargeable to consulting services would:
32. Activity-based costing systems:

A. use a single, volume-based cost driver.
B. assign overhead to products based on the products' relative usage of direct labour.
C. often reveal products that were undercosted or overcosted by traditional product costing systems.
D. typically use fewer cost drivers than more traditional costing systems.
E. have a tendency to distort product costs.
33. Dreyfus Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent
study of product no. 519 revealed a traditionally-derived total cost of $1,019, a selling price of $1,850 based on
that figure, and a newly computed activity-based total cost of $1,215. Which of the following statements is
true?
A. All other things being equal, the company should consider a drop in its sales price.
B. The company may have been extremely competitive in the marketplace from a price perspective.
C. Product no. 519 could be labeled as being overcosted by the firm's traditional costing procedures.
D. If product no. 519 is undercosted by traditional accounting procedures, then all of the company's other
products must be undercosted as well.
E. Generally speaking, the activity-based cost figure is "less accurate" than the traditionally-derived cost figure.
34. Vanguard combines all manufacturing overhead into a single cost pool and allocates this overhead to
products by using machine hours. Activity-based costing would likely show that with Vanguard's current
procedures:
A. all of the company's products are undercosted.
B. the company's high-volume products are undercosted.
C. all of the company's products are overcosted.
D. the company's high-volume products are overcosted.
E. the company's low-volume products are overcosted.
35. Jackson Company manufactures products X and Y, applying overhead on the basis of labour hours. X, a
low-volume product, requires a variety of complex manufacturing procedures. Y, on the other hand, is both a
high-volume product and relatively simplistic in nature. What would an activity-based costing system likely
disclose about products X and Y as a result of Jackson's current accounting procedures?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
36. Consumption ratios are useful in determining:

A. the existence of product line diversity.
B. overhead that is incurred at the unit level.
C. if overhead-producing activities are being utilized effectively.
D. if overhead costs are being applied to products.
E. if overhead-producing activities are being utilized efficiently.
37. In comparison with a system that uses a single volume-based cost driver, an activity-based costing system is
preferred when a company has:
A. a small proportion of non-unit-level activities.
B. product line diversity or a large proportion of non-unit-level activities.
C. minimal product line diversity and a small proportion of non-unit-level activities.
D. existing variances from budgeted amounts.
E. uses a single overhead pool.
38. Which of the following activity cost pools and activity measures likely has the lowest degree of correlation?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
39. Grossman Enterprises is converting to an activity-based costing system and needs to depict the various
activities in its manufacturing process along with the activities' relationships. Which of the following is a
possible tool that the company can use to accomplish this task?
A. Storyboards.
B. Activity relationship charts (ARCs).
C. Decision trees.
D. Simulation games.
E. Process organizers.
40. During a recent accounting period, Marty's shipping department processed 26 orders. Each order typically
takes four hours to complete; however, the average time increased to five hours because of various departmental
inefficiencies. If shipping labour is paid $14 per hour, the company's non-value-added cost would be:
A. $14.
B. $56.
C. $364.
D. $1,456.
E. $1,820.
41. Factory Oak produces various wooden bookcases, tables, storage units, and chairs. Which of the following
would be included in a listing of the company's non-value-added activities?
A. Assembly of tables.
B. Staining of storage units.
C. Gluing of chairs.
D. Transfer of chairs from the assembly line to the gluing department.
E. Assembly of tables, staining of storage units, and gluing of chairs.
42. Customer profitability analysis is tied closely to:
A. just-in-time systems.
B. activity-based costing.
C. job costing.
D. process costing.
E. operation costing.
43. When determining customer profitability, activity-based costing is not a useful tool to analyze:
A. orders processed.
B. sales visits.
C. special packaging and handling.
D. billing and collections.
E. cost drivers.
44. Generally speaking, companies prefer doing business with customers who:
A. order small quantities rather than large quantities.
B. often change their orders.
C. require special packaging or handling.
D. request normal delivery times.
E. need specialized engineering design changes.
45. Which of the following can have a positive impact on a sale's profitability?
A. Number of required sales contacts (phone calls, visits, etc.).
B. Special shipping instructions.
C. Accounts receivable collection time.
D. Purchase-order changes.
E. Minimal contact with sales personnel.
46. Horton Corporation's customers differ greatly with respect to number of required sales contacts (e.g., phone
calls and sales visits), account payment patterns, and design/engineering change orders. Which of the following
choices likely denotes an ideal customer from Horton's perspective?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
47. The pull method of coordinating steps in the production process would attempt to reduce or eliminate:
A. raw-material inventory.
B. raw-material inventory and work-in-process inventory.
C. raw-material inventory, work-in-process inventory, and finished-goods inventory.
D. work-in-process inventory between production steps.
E. finished-goods inventory.
48. Marion Corporation, which produces unique office furniture, recently installed a just-in-time production
system. The various steps in the company's manufacturing process are coordinated by using a philosophy
known as:
A. supply pull.
B. the pull method.
C. supply push.
D. demand push.
E. activity based management.
49. Which of the following is not a key feature of a JIT system?

A. Purchases of materials in relatively large amounts (i.e., lot sizes).
B. A smooth, uniform production rate.
C. Total quality control.
D. Multi-skilled workers and flexible production facilities.
E. A pull method of coordinating steps in the production process.
50. A firm that uses a JIT purchasing philosophy probably:
A. has many suppliers.
B. has extensive inspection of purchased items at the receiving point.
C. has relatively few suppliers.
D. has deliveries of purchased items made in small lot sizes immediately before the goods are needed in
production.
E. has relatively few suppliers and has deliveries of purchased items made in small lot sizes immediately before
the goods are needed in production.
51. Which of the following statements about a just-in-time (JIT) purchasing system is false?
A. Since there is minimal backup, companies must acquire quality raw materials.
B. Raw materials are stockpiled to avoid production disruptions.
C. In comparison with experiences under traditional systems, manufacturers normally deal with a reduced
number of suppliers.
D. Supplier reliability tends to be more important under the JIT system than under a traditional purchasing
system.
E. The average purchase size is smaller with the JIT system than under the traditional purchasing system.
52. When a company adopts a just-in-time inventory system, it would expect:

A. higher inventories and less frequent purchases.
B. higher inventories and more frequent purchases.
C. lower inventories and less frequent purchases.
D. lower inventories and more frequent purchases.
E. lower inventories and more units purchased on a given order.
53. Mainville Corporation recently abandoned its traditional production and inventory system in favor of a just-
in-time system. The company typically dealt with 50 suppliers and placed 450 orders throughout the year. All
other things being equal, which of the following choices denotes a likely scenario under the just-in-time
system?
A. 1.
B. 2
C. 3.
D. 4.
E. 5.
54. Steubenville Corporation recently abandoned its traditional production and inventory system in favor of a
just-in-time system. The company typically ordered 700 units of raw material at a time and purchased units that
scored a 7 on a 10-point quality scale, with 10 being very close to perfection. All other things being equal,
which of the following choices denotes a likely scenario under the just-in-time system?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
55. St. Helena Cellars produces wine in southwestern Ontario. Consider the following selected costs that arose
during the current year:
1. Safety costs at winery

2. Truckload shipping costs
3. Building maintenance costs
4. Bottle and cork cost
5. Development cost of new, after-dinner wine
6. Tasting and testing costs
Required:
A. Briefly distinguish between unit-level and product-sustaining activities.

B. Classify the six costs listed as arising from a unit-level, batch-level, product-sustaining, or facility-level
activity.
56. Consider the following costs that relate to a bank and a manufacturer of software:
Bank
1. Review cost of commercial loan applications
2. Operating cost of human resources department
3. Immediate processing cost of a specific customer's cash deposit
4. Bank membership cost of joining local Chamber of Commerce
Software manufacturer
5. Label and packaging charges from a commercial printer for a new software release
6. Air conditioning/heating costs of the firm's production plant
7. Transport cost of moving the CD-output from production run no. 1 to the company's warehouse
8. Design, development, and coding cost of new spreadsheet software
Required:
A. Classify the eight costs listed as arising from either a unit-level, batch-level, product-sustaining, or facility-
level activity.
B. Would number of loan applications or number of customers be a more appropriate cost-driver base for the
review of loan applications? Briefly explain.
57. Purdy Manufacturing produces flat-screen computer monitors. Consider the following selected costs that
arose during the current year:
1. Direct materials used: $4,440,000

2. Plant rent, utilities, and taxes: $1,300,000
3. New technology design engineering: $2,030,000
4. Materials receiving: $418,000
5. Manufacturing-run/set-up charges: $215,000
6. Equipment depreciation: $92,000
7. General management salaries: $1,560,000
Required:
A. Briefly distinguish between batch-level and facility-level activities.

B. Determine the cost of the firm's unit-level, batch-level, product-sustaining, and facility-level activities.
58. The controller for Precise Manufacturing has established the following overhead cost pools and cost drivers:
Required:
A. Compute the total overhead that should be assigned to Order No. 905 by using activity-based costing.
B. Suppose that Precise were to use a single, predetermined overhead rate based on machine hours. Compute
the rate per hour and the total overhead assigned to Order No. 905.
C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system.
59. Weston Enterprises uses a traditional-costing system to estimate quality-control costs for its PDA product
line. Costs are estimated at 32% of direct-labour cost, and direct labour totalled $860,000 for the quarter just
ended. Management is contemplating a change to activity-based costing, and has established three cost pools:
incoming material inspection, in-process inspection, and final product certification. Number of parts, number of
units, and number of orders have been selected as the respective cost drivers.
The following data show the pool rates that have been calculated by the company along with the quantity of
driver units for the PDAs:
Required:
A. Calculate the quarterly quality-control cost that is allocated to the PDA product line under Weston's
traditional-costing system.
B. Calculate the quarterly quality-control cost that is allocated to the PDAs if activity-based costing is used.
C. Does the traditional approach undercost or overcost the product line? By how much?
60. Star Manufacturing, contemplating the adoption of an activity-based costing system, has established three
activity-cost pools: machine setup, quality assurance, and engineering. These cost pools, the appropriate cost
driver, and the percentage of each cost driver consumed by the company's products (H15, H16, and H17)
follow:
Estimated costs for these three activities, which account for 80% of the firm's total overhead, are $400,000,
$500,000, and $120,000, respectively. Star currently applies manufacturing overhead to products on the basis of
machine hours.
Required:
A. Will activity-based costing systems require more or fewer cost pools than traditional costing systems? No
explanation is necessary.
B. Calculate the cost of machine setup, quality assurance, and engineering to be charged to products H15, H16,
and H17 respectively.
C. Consider the company's current overhead application procedure.
1. Is Star emphasizing unit-level activities, batch-level activities, product-sustaining activities, or facility-level

activities? Explain.
2. How accurate will the current costing procedure be given the nature of most of the company's activities?
Briefly discuss.
3. How accurate will the current costing procedure be given the consumption ratios of the firm? Briefly discuss.
61. Kenyon Company produces two products (F56 and F57), applying manufacturing overhead on the basis of
direct labour hours. Anticipated unit production costs (material, labour, and overhead) and manufacturing
volumes are:
F56: 2,000 units, $234

F57: 3,500 units, $271
Kenyon's overhead arises because of various activities, one of which is purchase-order processing. Budgeted
cost for this activity is expected to be $70,000. The firm believes that the number of purchase orders processed
is a key cost driver and expects the following activity for its products: F56, 10 purchase orders; F57, 40
purchase orders. Kenyon's selling prices are based heavily on cost.
Required:
A. Activity-based costing (ABC) is said to result in improved costing accuracy when compared with traditional
costing procedures. Briefly explain how this improved accuracy is attained.
B. Compute:
1. the pool rate for purchase-order processing.

2. the purchase-order processing cost to be charged to one unit of F56.
3. Assume that Kenyon switched to activity-based costing and calculated total unit production costs as follows:
F56, $285; F57, $220.
1. Which of the two products, F56 or F57, was overcosted prior to the change to ABC? No explanation is
necessary.
2. Which of the two products, F56 or F57, may have been less competitive in the marketplace prior to the
change to ABC? Briefly explain.
62. Goldstar Corporation manufactures two types of portable air conditioners: Model A, a 4,000 BTU unit and
Model B, a 6,000 BTU unit. A review of the company's accounting records revealed the following per-unit
costs and production volumes:
Manufacturing overhead is currently computed by spreading overhead of $2,060,000 over 40,000 direct labour
hours. Management is considering a shift to activity-based costing in an effort to improve the firm's accounting
procedures, and the following data are available.
Goldstar determines selling prices by adding 60% to a product's total cost.
Required:
A. Compute the per-unit cost and selling price of Model B by using Goldstar's current costing procedures.
B. Compute the per-unit overhead cost of Model B if the company switches to activity-based costing.
C. Compute Model B's total per-unit cost and selling price under activity-based costing.
D. Goldstar has recently encountered significant international competition for Model B, with considerable
business being lost to very aggressive suppliers. Will activity-based costing allow the company to be more
competitive with Model B from a price perspective? Briefly explain.
E. Will the cost and selling price of Model A likely increase or decrease if Goldstar changes to activity-based
costing? Why? Hint: No calculations are necessary.
63. Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead on the basis of direct
labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $1,600,000
and 25,000 hours, respectively. Information about the company's products follows.
Regular—
Estimated production volume: 3,000 units

Direct materials cost: $28 per unit
Direct labour per unit: 3 hours at $15 per hour
Deluxe—

Scott's overhead of $1,600,000 can be identified with three major activities: order processing ($250,000),
machine processing ($1,200,000), and product inspection ($150,000). These activities are driven by number of
orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities
follow.
Required:
A. Compute the pool rates that would be used for order processing, machine processing, and product inspection
in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit manufacturing costs of Regular and Deluxe if the
expected manufacturing volume is attained.
C. How much overhead would be applied to a unit of Regular and Deluxe if the company used traditional
costing and applied overhead solely on the basis of direct labour hours? Which of the two products would be
undercosted by this procedure? Overcosted?
64. Pitney Corporation manufactures two types of transponders—no. 156 and no. 157—and applies
manufacturing overhead to all units at the rate of $76.50 per machine hour. Production information follows.
The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be
identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the
number of setups, machine hours worked, and outgoing shipments, the activities' three respective cost drivers,
follow.
The firm's total overhead of $3,060,000 is subdivided as follows: manufacturing setups, $260,000; machine
processing, $2,400,000; and product shipping, $400,000.
Required:
A. Compute the pool rates that would be used for manufacturing setups, machine processing, and product
shipping in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit overhead costs of product nos. 156 and 157 if the
C. Assuming use of activity-based costing, compute the total cost per unit of product no. 156.
D. If the company's selling price is based heavily on cost, would a switch to activity-based costing from the
current traditional system result in a price increase or decrease for product no. 156? Show computations.
65. Heartland Bank & Trust operates in a very competitive marketplace, using a traditional labour-hour-based
system to determine the cost of processing its mortgage loans. Recently, the firm explored a switch to activity-
based costing to determine the wisdom of its previous ways. The following information is available:
Two loan applications, among many others, were originated and closed during the year. No. 7439 consumed 3.5
hours in loan underwriting and 1.5 hours in loan closure, for a total of 5.0 hours. No. 7809 also required 5.0
hours of time, subdivided as follows: 2.0 hours in loan underwriting and 3.0 hours in loan closure.
Conversations with management found that, on average, each application took nine labour hours of processing
time, excluding underwriting and closure.
Required:
A. Use an activity-based-costing system and determine the cost of processing, underwriting, and closing the two
loan applications.
B. Determine the cost of processing the two loans if Heartland uses the traditional labour-hour-based system.
C. Is Heartland making a mistake by continuing to use a traditional system that is based on an average labour
cost per hour? Why?
66. Define the term "cost driver" and discuss the factors that are important in the selection of appropriate cost
drivers.
67. Consider the nine activities that follow.
1. Microsoft: Developing computer coding for a new spreadsheet package

2. General Mills: Painting the office of a maintenance supervisor at a plant that produces cereal
3. Mayo Clinic: Examining a new patient
4. American Airlines: The 90 minutes that a Boeing 757 sits idle on the ground between flights
5. Office Depot: Moving cases of paper from one location to another in the same warehouse
6. Rolex: Attaching a watch band to the watch's face
7. United States Postal Service: Reprocessing mail that had been sorted incorrectly on a malfunctioning sorting
machine.
8. Fidelity Investments: Correcting errors made by company personnel in customer accounts
9. Marriott: Upgrading the quality of bedding used at hotels in very competitive marketplaces
10. Dell Computer: Re-working defective units found during quality control inspection
Required:
Categorize each of the activities as either value-added or non-value-added for the companies noted.
68. Indiglow Chapstars which sells books to college bookstores and individuals uses activity-based costing and
activity-based management. The following information is available for the company's three cost pools.
Bookstore sales totaled $9,000,000, and sales to individuals amounted to $3,400,000. Costs for the three
activities were: Incoming receipts, $500,000; warehousing, $620,000; and outgoing shipments, $620,000. A
review of the company's activities found various inefficiencies with respect to the warehousing of textbooks
(acquired for eventual sale to bookstores) and outgoing shipments to individuals. These inefficiencies resulted
in an extra 600 moves and 800 shipments, respectively.
Required:
A. What is a non-value-added activity?

B. How much did non-value-added activities cost Indiglow Chapstars this past year?
C. Which of the two markets—sales to bookstores or sales to individuals—resulted in lower overall costs for
incoming receipts, warehousing, and outgoing shipments? Evaluate these costs in both absolute dollars and as a
percentage of sales. In addition, present a possible explanation for your results. Note: Exclude costs that arose
from inefficient operations.
69. Ippilito's Fresh Meats and Produce is a wholesale distributor that operates in central California. An analysis
of two of the company's customers, Atriums Retirement Home and Sigma Sigma Fraternity, revealed the data
that follow for a recent 12-month period.
Ippilito's uses activity-based costing to determine the cost of servicing its customers. The company had total
delivery costs during the year of $576,000 and 8,000 deliveries, along with cost of $765,000 for the
administrative processing of 90,000 invoices.
Required:
A. Compute the pool rates for deliveries and invoice processing.

B. Compute the operating income that Ippilito's earned from these two customers.
C. Compute the total of customer-related costs (deliveries and invoice processing) for each customer as a
percentage of gross margin, and analyze the results for management. Explain any significant differences that
you find.
70. Clark Corporation manufactures cooling system components. The company has gathered the following
information about two of its customers: Engle Equipment and Midwest Refrigeration.
Required:
A. Perform a customer profitability analysis for Clark. Compute the gross margin and operating income on
transactions related to Engle Equipment and Midwest Refrigeration.
B. Compute gross margin as a percentage of sales revenue. Then compute (1) general selling and administrative
costs as a percentage of gross margin and (2) total customer-related costs (i.e., costs that arise from sales visits,
order taking, and special handling and shipping) as a percentage of gross margin.
C. On the basis of your calculations, which of the two customers is "more costly" to deal with? Briefly explain.
71. Non-value-added costs occur in non-manufacturing organizations as well as in manufacturing firms.
Required:
A. Explain what is meant by a non-value-added cost.

B. Identify two potential non-value-added costs for each of the following service providers: airlines, banks, and
hotels.
72. You have recently been hired by a manufacturing company. Two days ago, you met with the top
management of the company to discuss future strategies for the firm. During the meeting, the president of the
company expressed concern about the profitability of the company and the company's ability to compete
effectively in the future. You responded to the president's concerns by mentioning some articles you had read in
professional accounting journals regarding JIT. The president responded to your comments by saying that
although the JIT concept sounded interesting, no one in the company was knowledgeable about JIT. The
president then requested that you prepare a brief summary of JIT for the next strategic planning meeting.
Required:
A. List five major requirements for implementing a successful JIT system.

B. List at least five benefits cited of a JIT system.
05 Key
1. (p. 151) Many traditional product costing systems:

A. trace manufacturing overhead to individual activities and require the development of numerous activity-
costing rates.
B. write off manufacturing overhead as an expense of the current period.
C. combine widely varying elements of overhead into a single cost pool.
D. use a host of different cost drivers (e.g., number of production setups, inspection hours, orders processed) to
improve the accuracy of product costing.
E. produce results far superior to those achieved with activity-based costing.
Blooms: Remember
Difficulty: Easy
Hilton - Chapter 05 #1
Learning Objective: 05-01 Compute product costs under a traditional volume-based product-costing system.
2. (p. 153 and 154) The following tasks are associated with an activity-based costing system:
1—Calculation of pool rates

2—Identification of cost drivers
3—Assignment of cost to products
4—Identification of cost pools
Which of the following choices correctly expresses the proper order of the preceding tasks?
A. 1, 2, 3, 4.
B. 2, 4, 1, 3.
C. 3, 4, 2, 1.
D. 4, 2, 1, 3.
E. 4, 2, 3, 1.
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Explain how activity-based costing (ABC) operates; including the use of a two-stage procedure for cost assignment; the identification of
activity cost pools; and the selection of cost drivers.
Learning Objective: 05-04 Compute product costs under an ABC system.
3. (p. 153 and 154) Which of the following is the proper sequence of events in an activity-based costing system?
A. Identification of cost drivers, identification of cost pools, calculation of pool rates, assignment of cost to
products.
B. Identification of cost pools, identification of cost drivers, calculation of pool rates, assignment of cost to
products.
C. Assignment of cost to products, identification of cost pools, identification of cost drivers, calculation of pool
rates.
D. Calculation of pool rates, identification of cost drivers, identification of cost pools, assignment of cost to
products.
E. Identification of cost drivers, assignment of costs to products, calculation of pool rates, identification of cost
pools.
Blooms: Remember
Difficulty: Easy
4. (p. 153 and 154) Which of the following tasks is not normally associated with an activity-based costing system?
A. Calculation of pool rates.
B. Identification of cost pools.
C. Preparation of allocation matrices.
D. Identification of cost drivers.
E. Assignment of cost to products.
Blooms: Remember
Difficulty: Easy
5. (p. 153) Which of the following is not a broad cost classification category typically used in activity-based
costing?
A. Unit-level.
B. Batch-level.
C. Product-sustaining level.
D. Facility-level.
E. Management-level.
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-03 Explain the concept of cost levels; including unit-level; batch-level; product-sustaining-level; and facility-level costs.
6. (p. 153) In an activity-based costing system, plant depreciation would typically be classified as a:
C. product-sustaining activity.
E. period-level activity.
Blooms: Remember
Difficulty: Easy
7. (p. 153) Profile Incorporated, an appliance manufacturer, is developing a new line of ovens that uses controlled-
laser technology. The research and testing costs associated with the new ovens is said to arise from a:
C. product-sustaining-level activity.
E. competitive-level activity.
Blooms: Remember
Difficulty: Easy
8. (p. 153) Which of the following is least likely to be classified as a facility-level activity in an activity-based
costing system?
A. Plant maintenance.
B. Property taxes.
C. Machine processing cost.
D. Plant depreciation.
E. Plant management salaries.
Blooms: Remember
Difficulty: Easy
9. (p. 154) The salaries of a manufacturing plant's management are said to arise from:
A. unit-level activities.
B. batch-level activities.
C. product-sustaining activities.
D. facility-level activities.
E. direct-cost activities.
Blooms: Remember
Difficulty: Easy
10. (p. 153 and 154) Which of the following choice of rows correctly depicts a cost that arises from a batch-level
activity and one that arises from a facility-level activity?
A. 1
B. 2
C. 3
D. 4
E. 5
Blooms: Remember
Difficulty: Medium
11. (p. 153 and 154) Which of the following choices correctly depicts the proper classification of direct materials
used and management salaries?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
Blooms: Remember
Difficulty: Medium
12. (p. 154) The division of activities into unit-level, batch-level, product-sustaining level, and facility-level
categories is commonly known as a cost:
A. object.
B. application method.
C. hierarchy.
D. estimation method.
E. classification scheme that is useful in traditional, volume-based systems.
Blooms: Remember
Difficulty: Easy
13. (p. 154) Brown's customer service department follows up on customer complaints by telephone inquiry. During
a recent period, the department initiated 9,000 calls and incurred costs of $303,000. If 3,780 of these calls were
for the company's wholesale operation (the remainder were for the retail division), costs allocated to the retail
division should amount to:
A. $0.
B. $127,260.
C. $175,740.
D. $219,414.
E. $303,000.
Blooms: Apply
Difficulty: Medium
14. (p. 154) Wanda Florists uses an activity-based costing system to compute the cost of making floral bouquets
and delivering the bouquets to its commercial customers. Company personnel who earn $90,000 typically
perform both tasks; other firm-wide overhead is expected to total $50,000. These costs are allocated as follows:
The cost of wages and salaries and other overhead that would be charged to each bouquet made is:
A. $2.20.
B. $3.89.
C. $4.67.
D. $5.56.
E. $18.33.
Blooms: Apply
Difficulty: Medium
15. (p. 154) Wanda Florists uses an activity-based costing system to compute the cost of making floral bouquets
and delivering the bouquets to its commercial customers. Company personnel who earn $90,000 typically
perform both tasks; other firm-wide overhead is expected to total $50,000. These costs are allocated as follows:
The cost of wages and salaries and other overhead that would be charged to each delivery is:
A. $3.89.
B. $7.50.
C. $9.58.
D. $14.00.
E. $23.33.
Blooms: Apply
Difficulty: Medium
16. (p. 154) X-Ray Machines Ltd. manufactures three product lines: Standard, Deluxe, and Superior. The
company, which uses activity-based costing, has identified five activities (and related cost drivers). Each
activity, its budgeted cost, and related cost driver is identified below.
What is X-Ray's pool rate for the material-handling activity?

A. $1.26 per part.
B. $4.00 per part.
D. $18.75 per part.
E. $12,000.
Blooms: Apply
Difficulty: Medium
What is X-Ray's pool rate for the automated machinery activity?

A. $1.88 per machine hour.
D. $28.13 per unit.
E. $450.
Blooms: Apply
Difficulty: Medium
What is X-Ray's pool rate for the finishing activity?

A. $3.13 per labour hour.
C. $3.13 per unit.
D. $3.13 per part.
E. $50,000.
Blooms: Apply
Difficulty: Medium
What is X-Ray's pool rate for the packaging activity?

A. $100.00 per order shipped.
B. $100.00 per labour hour.
C. $100.00 per unit.
D. $100.00 per machine hour.
E. $200.00 per order shipped.
Blooms: Apply
Difficulty: Medium
Under an activity-based costing system, what is the per-unit cost of Standard?

A. $73.88.
B. $96.88.
C. $157.88.
D. $160.88.
E. 165.88.
Blooms: Apply
Difficulty: Hard
Under an activity-based costing system, what is the per-unit cost of Deluxe?

A. $96.88.
B. $111.94.
C. $155.94.
D. $165.94.
E. $168.00
Blooms: Apply
Difficulty: Hard
Under an activity-based costing system, what is the per-unit cost of Superior?

A. $50.15.
B. $52.15.
C. $60.15.
D. $100.15.
E. $220.15.
Blooms: Apply
Difficulty: Hard
would be assigned to Superior?
A. $34,375.
B. $240,625.
C. $481,250.
D. $962,500.
E. $2,200,000.
Blooms: Apply
Difficulty: Hard
would be assigned to Deluxe?
A. $240,625.
B. $481,250.
C. $962,500.
D. $1,375,000.
E. $2,200,000.
Blooms: Apply
Difficulty: Hard
25. (p. 151) St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to
products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based
costing and the creation of individual cost pools that will use direct labour hours (DLH), production setups
(SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver
volumes follow.
The overhead cost allocated to Beta by using traditional costing procedures would be:
A. $240,000.
B. $360,000.
C. $440,000.
D. $560,000.
E. $800,000.
Blooms: Apply
Difficulty: Hard
volumes follow.
The overhead cost allocated to Zeta by using traditional costing procedures would be:
A. $240,000.
B. $360,000.
C. $440,000.
D. $560,000.
E. $800,000.
Blooms: Apply
Difficulty: Hard
volumes follow.
The overhead cost allocated to Beta by using activity-based costing procedures would be:
A. $240,000.
B. $356,000.
C. $444,000.
D. $560,000.
E. $800,000.
Blooms: Apply
Difficulty: Hard
volumes follow.
The overhead cost allocated to Zeta by using activity-based costing procedures would be:
A. $240,000.
B. $356,000.
C. $444,000.
D. $560,000.
E. $800,000.
Blooms: Apply
Difficulty: Hard
29. (p. 151, 154, and 172) Oliver and Sprung, an accounting firm, provides tax compliance and tax planning services. A
recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning and for many
years, the firm's total administrative cost (currently $300,000) has been allocated to services on this basis.
cost, as follows:
A recent analysis of staff support found a strong correlation with the number of clients served. In contrast, in-
house IT and miscellaneous office expenditures varied directly with the number of computer hours logged and
number of client transactions, respectively. Tax compliance clients served totaled 25% of the total client base,
consumed 35% of the firm's computer hours, and accounted for 30% of the total client transactions.
If Oliver and Sprung switched from its current accounting method to an activity-based costing system, the
amount of administrative cost chargeable to tax compliance services would:
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-10 Understand and discuss how ABC is used in service organizations.
30. (p. 151, 154, and 172) Kelly and Logan, an accounting firm, provides consulting and tax planning services. A
years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of
billable hours to clients.
cost, as follows:
Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax
planning services is:
A. 20%.
B. 60%.
C. 65%.
D. 75%.
E. 80%.
Blooms: Apply
Difficulty: Hard
31. (p. 151, 154, and 172) Kelly and Logan, an accounting firm, provides consulting and tax planning services. A
years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of
billable hours to clients.
cost, as follows:
If Kelly and Logan switched from its current accounting method to an activity-based costing system, the
amount of administrative cost chargeable to consulting services would:
Blooms: Apply
Difficulty: Hard
32. (p. 159) Activity-based costing systems:

A. use a single, volume-based cost driver.
B. assign overhead to products based on the products' relative usage of direct labour.
C. often reveal products that were undercosted or overcosted by traditional product costing systems.
D. typically use fewer cost drivers than more traditional costing systems.
E. have a tendency to distort product costs.
Blooms: Apply
Difficulty: Easy
Learning Objective: 05-05 Explain why traditional volume-based costing systems tend to distort product costs.
33. (p. 159) Dreyfus Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A
recent study of product no. 519 revealed a traditionally-derived total cost of $1,019, a selling price of $1,850
based on that figure, and a newly computed activity-based total cost of $1,215. Which of the following
statements is true?
A. All other things being equal, the company should consider a drop in its sales price.
B. The company may have been extremely competitive in the marketplace from a price perspective.
C. Product no. 519 could be labeled as being overcosted by the firm's traditional costing procedures.
D. If product no. 519 is undercosted by traditional accounting procedures, then all of the company's other
products must be undercosted as well.
E. Generally speaking, the activity-based cost figure is "less accurate" than the traditionally-derived cost figure.
Blooms: Create
Blooms: Understand
Difficulty: Medium
34. (p. 159) Vanguard combines all manufacturing overhead into a single cost pool and allocates this overhead to
products by using machine hours. Activity-based costing would likely show that with Vanguard's current
procedures:
A. all of the company's products are undercosted.
B. the company's high-volume products are undercosted.
C. all of the company's products are overcosted.
D. the company's high-volume products are overcosted.
E. the company's low-volume products are overcosted.
Blooms: Create
Blooms: Understand
Difficulty: Medium
35. (p. 159) Jackson Company manufactures products X and Y, applying overhead on the basis of labour hours. X,
a low-volume product, requires a variety of complex manufacturing procedures. Y, on the other hand, is both a
high-volume product and relatively simplistic in nature. What would an activity-based costing system likely
disclose about products X and Y as a result of Jackson's current accounting procedures?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
Blooms: Understand
Difficulty: Medium
36. (p. 161) Consumption ratios are useful in determining:

A. the existence of product line diversity.
B. overhead that is incurred at the unit level.
C. if overhead-producing activities are being utilized effectively.
D. if overhead costs are being applied to products.
E. if overhead-producing activities are being utilized efficiently.
Blooms: Remember
Difficulty: Medium
37. (p. 161) In comparison with a system that uses a single volume-based cost driver, an activity-based costing
system is preferred when a company has:
A. a small proportion of non-unit-level activities.
B. product line diversity or a large proportion of non-unit-level activities.
C. minimal product line diversity and a small proportion of non-unit-level activities.
D. existing variances from budgeted amounts.
E. uses a single overhead pool.
Blooms: Remember
Difficulty: Medium
38. (p. 162) Which of the following activity cost pools and activity measures likely has the lowest degree of
correlation?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-06 Explain three criteria for selecting cost drivers.
39. (p. 164) Grossman Enterprises is converting to an activity-based costing system and needs to depict the various
activities in its manufacturing process along with the activities' relationships. Which of the following is a
possible tool that the company can use to accomplish this task?
A. Storyboards.
B. Activity relationship charts (ARCs).
C. Decision trees.
D. Simulation games.
E. Process organizers.
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-07 Discuss several key issues in ABC; including data collection and storyboarding.
40. (p. 166) During a recent accounting period, Marty's shipping department processed 26 orders. Each order
typically takes four hours to complete; however, the average time increased to five hours because of various
departmental inefficiencies. If shipping labour is paid $14 per hour, the company's non-value-added cost would
be:
A. $14.
B. $56.
C. $364.
D. $1,456.
E. $1,820.
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-08 Explain the concept of activity-based management (ABM) and two-dimensional ABC.
41. (p. 166) Factory Oak produces various wooden bookcases, tables, storage units, and chairs. Which of the
following would be included in a listing of the company's non-value-added activities?
A. Assembly of tables.
B. Staining of storage units.
C. Gluing of chairs.
D. Transfer of chairs from the assembly line to the gluing department.
E. Assembly of tables, staining of storage units, and gluing of chairs.
Blooms: Remember
Difficulty: Easy
42. (p. 168) Customer profitability analysis is tied closely to:

A. just-in-time systems.
B. activity-based costing.
C. job costing.
D. process costing.
E. operation costing.
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-09 Explain and execute a customer-profitability analysis.
43. (p. 168) When determining customer profitability, activity-based costing is not a useful tool to analyze:
A. orders processed.
B. sales visits.
C. special packaging and handling.
D. billing and collections.
E. cost drivers.
Blooms: Remember
Difficulty: Easy
44. (p. 168) Generally speaking, companies prefer doing business with customers who:
A. order small quantities rather than large quantities.
B. often change their orders.
C. require special packaging or handling.
D. request normal delivery times.
E. need specialized engineering design changes.
Blooms: Remember
Difficulty: Easy
45. (p. 168) Which of the following can have a positive impact on a sale's profitability?
A. Number of required sales contacts (phone calls, visits, etc.).
B. Special shipping instructions.
C. Accounts receivable collection time.
D. Purchase-order changes.
E. Minimal contact with sales personnel.
Blooms: Remember
Difficulty: Easy
46. (p. 168) Horton Corporation's customers differ greatly with respect to number of required sales contacts (e.g.,
phone calls and sales visits), account payment patterns, and design/engineering change orders. Which of the
following choices likely denotes an ideal customer from Horton's perspective?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
Blooms: Remember
Difficulty: Medium
47. (p. 78) The pull method of coordinating steps in the production process would attempt to reduce or eliminate:
A. raw-material inventory.
B. raw-material inventory and work-in-process inventory.
C. raw-material inventory, work-in-process inventory, and finished-goods inventory.
D. work-in-process inventory between production steps.
E. finished-goods inventory.
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-11 List and explain eight important features of just-in- time inventory and production management systems (Appendix to Chapter 5).
48. (p. 178) Marion Corporation, which produces unique office furniture, recently installed a just-in-time
production system. The various steps in the company's manufacturing process are coordinated by using a
philosophy known as:
A. supply pull.
B. the pull method.
C. supply push.
D. demand push.
E. activity based management.
Blooms: Remember
Difficulty: Easy
49. (p. 178) Which of the following is not a key feature of a JIT system?
A. Purchases of materials in relatively large amounts (i.e., lot sizes).
B. A smooth, uniform production rate.
C. Total quality control.
D. Multi-skilled workers and flexible production facilities.
E. A pull method of coordinating steps in the production process.
Blooms: Remember
Difficulty: Easy
50. (p. 178 and 179) A firm that uses a JIT purchasing philosophy probably:
A. has many suppliers.
B. has extensive inspection of purchased items at the receiving point.
C. has relatively few suppliers.
D. has deliveries of purchased items made in small lot sizes immediately before the goods are needed in
production.
E. has relatively few suppliers and has deliveries of purchased items made in small lot sizes immediately before
the goods are needed in production.
Blooms: Remember
Difficulty: Medium
51. (p. 178 and 179) Which of the following statements about a just-in-time (JIT) purchasing system is false?
A. Since there is minimal backup, companies must acquire quality raw materials.
B. Raw materials are stockpiled to avoid production disruptions.
C. In comparison with experiences under traditional systems, manufacturers normally deal with a reduced
number of suppliers.
D. Supplier reliability tends to be more important under the JIT system than under a traditional purchasing
system.
E. The average purchase size is smaller with the JIT system than under the traditional purchasing system.
Blooms: Remember
Difficulty: Medium
52. (p. 178) When a company adopts a just-in-time inventory system, it would expect:
A. higher inventories and less frequent purchases.
B. higher inventories and more frequent purchases.
C. lower inventories and less frequent purchases.
D. lower inventories and more frequent purchases.
E. lower inventories and more units purchased on a given order.
Blooms: Remember
Difficulty: Easy
53. (p. 178 and 179) Mainville Corporation recently abandoned its traditional production and inventory system in
favor of a just-in-time system. The company typically dealt with 50 suppliers and placed 450 orders throughout
the year. All other things being equal, which of the following choices denotes a likely scenario under the just-in-
time system?
A. 1.
B. 2
C. 3.
D. 4.
E. 5.
Blooms: Understand
Difficulty: Medium
54. (p. 178 and 179) Steubenville Corporation recently abandoned its traditional production and inventory system in
favor of a just-in-time system. The company typically ordered 700 units of raw material at a time and purchased
units that scored a 7 on a 10-point quality scale, with 10 being very close to perfection. All other things being
equal, which of the following choices denotes a likely scenario under the just-in-time system?
A. 1.
B. 2.
C. 3.
D. 4.
E. 5.
Blooms: Understand
Difficulty: Medium
55. (p. 153 and 154) St. Helena Cellars produces wine in southwestern Ontario. Consider the following selected costs
that arose during the current year:
1. Safety costs at winery

2. Truckload shipping costs
3. Building maintenance costs
4. Bottle and cork cost
5. Development cost of new, after-dinner wine
6. Tasting and testing costs
Required:
A. Briefly distinguish between unit-level and product-sustaining activities.

B. Classify the six costs listed as arising from a unit-level, batch-level, product-sustaining, or facility-level
activity.
Blooms: Apply
Blooms: Understand
Difficulty: Easy
56. (p. 153 and 162) Consider the following costs that relate to a bank and a manufacturer of software:
Bank
1. Review cost of commercial loan applications
2. Operating cost of human resources department
3. Immediate processing cost of a specific customer's cash deposit
4. Bank membership cost of joining local Chamber of Commerce
Software manufacturer
5. Label and packaging charges from a commercial printer for a new software release
6. Air conditioning/heating costs of the firm's production plant
7. Transport cost of moving the CD-output from production run no. 1 to the company's warehouse
8. Design, development, and coding cost of new spreadsheet software
Required:
A. Classify the eight costs listed as arising from either a unit-level, batch-level, product-sustaining, or facility-
level activity.
B. Would number of loan applications or number of customers be a more appropriate cost-driver base for the
review of loan applications? Briefly explain.
Blooms: Apply
Blooms: Understand
Difficulty: Medium
57. (p. 153 and 154) Purdy Manufacturing produces flat-screen computer monitors. Consider the following selected
costs that arose during the current year:
1. Direct materials used: $4,440,000

2. Plant rent, utilities, and taxes: $1,300,000
3. New technology design engineering: $2,030,000
4. Materials receiving: $418,000
5. Manufacturing-run/set-up charges: $215,000
6. Equipment depreciation: $92,000
7. General management salaries: $1,560,000
Required:
A. Briefly distinguish between batch-level and facility-level activities.

B. Determine the cost of the firm's unit-level, batch-level, product-sustaining, and facility-level activities.
A. A batch-level activity is performed for each batch of products rather than for each unit. In contrast, a facility-
level activity is required for an entire process to occur. Examples of the latter, which support the organization as
a whole, include plant maintenance and property taxes.
B. Unit-level: $4,440,000(1)
Batch-level: $418,000(4) + $215,000(5) = $633,000
Product-sustaining: $2,030,000(3)
Facility-level: $1,300,000(2) + $92,000(6) + $1,560,000(7) = $2,952,000
Blooms: Apply
Blooms: Understand
Difficulty: Hard
58. (p. 151, 154, and 159) The controller for Precise Manufacturing has established the following overhead cost pools
and cost drivers:
Required:
A. Compute the total overhead that should be assigned to Order No. 905 by using activity-based costing.
B. Suppose that Precise were to use a single, predetermined overhead rate based on machine hours. Compute
the rate per hour and the total overhead assigned to Order No. 905.
C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system.
Blooms: Apply
Blooms: Understand
Difficulty: Hard
59. (p. 151, 154, and 159) Weston Enterprises uses a traditional-costing system to estimate quality-control costs for its
PDA product line. Costs are estimated at 32% of direct-labour cost, and direct labour totalled $860,000 for the
quarter just ended. Management is contemplating a change to activity-based costing, and has established three
cost pools: incoming material inspection, in-process inspection, and final product certification. Number of parts,
number of units, and number of orders have been selected as the respective cost drivers.
The following data show the pool rates that have been calculated by the company along with the quantity of
driver units for the PDAs:
Required:
A. Calculate the quarterly quality-control cost that is allocated to the PDA product line under Weston's
traditional-costing system.
B. Calculate the quarterly quality-control cost that is allocated to the PDAs if activity-based costing is used.
C. Does the traditional approach undercost or overcost the product line? By how much?
A. $860,000 x 32% = $275,200
B. Incoming inspection (20 x $0.50 x 28,000 = $280,000) + in-process inspection (28,000 x $0.12 = $3,360) +
final certification (90 x $115 = $10,350), which totals $293,710.
C. Traditional costing undercosts the PDAs by $18,510 ($293,710 - $275,200).
Blooms: Apply
Blooms: Understand
Difficulty: Hard
60. (p. 151, 153, 154, and 159) Star Manufacturing, contemplating the adoption of an activity-based costing system, has
established three activity-cost pools: machine setup, quality assurance, and engineering. These cost pools, the
appropriate cost driver, and the percentage of each cost driver consumed by the company's products (H15, H16,
and H17) follow:
Estimated costs for these three activities, which account for 80% of the firm's total overhead, are $400,000,
$500,000, and $120,000, respectively. Star currently applies manufacturing overhead to products on the basis of
machine hours.
Required:
A. Will activity-based costing systems require more or fewer cost pools than traditional costing systems? No
explanation is necessary.
B. Calculate the cost of machine setup, quality assurance, and engineering to be charged to products H15, H16,
and H17 respectively.
C. Consider the company's current overhead application procedure.
1. Is Star emphasizing unit-level activities, batch-level activities, product-sustaining activities, or facility-level

activities? Explain.
2. How accurate will the current costing procedure be given the nature of most of the company's activities?
Briefly discuss.
3. How accurate will the current costing procedure be given the consumption ratios of the firm? Briefly discuss.
Blooms: Apply
Blooms: Evaluate
Blooms: Understand
Difficulty: Hard
61. (p. 151, 154, and 159) Kenyon Company produces two products (F56 and F57), applying manufacturing overhead
on the basis of direct labour hours. Anticipated unit production costs (material, labour, and overhead) and
manufacturing volumes are:
F56: 2,000 units, $234

F57: 3,500 units, $271
Kenyon's overhead arises because of various activities, one of which is purchase-order processing. Budgeted
cost for this activity is expected to be $70,000. The firm believes that the number of purchase orders processed
is a key cost driver and expects the following activity for its products: F56, 10 purchase orders; F57, 40
purchase orders. Kenyon's selling prices are based heavily on cost.
Required:
A. Activity-based costing (ABC) is said to result in improved costing accuracy when compared with traditional
costing procedures. Briefly explain how this improved accuracy is attained.
B. Compute:
1. the pool rate for purchase-order processing.

2. the purchase-order processing cost to be charged to one unit of F56.
3. Assume that Kenyon switched to activity-based costing and calculated total unit production costs as follows:
F56, $285; F57, $220.
1. Which of the two products, F56 or F57, was overcosted prior to the change to ABC? No explanation is
necessary.
2. Which of the two products, F56 or F57, may have been less competitive in the marketplace prior to the
change to ABC? Briefly explain.
Blooms: Apply
Blooms: Evaluate
Blooms: Understand
Difficulty: Hard
62. (p. 151, 154, and 159) Goldstar Corporation manufactures two types of portable air conditioners: Model A, a 4,000
BTU unit and Model B, a 6,000 BTU unit. A review of the company's accounting records revealed the
following per-unit costs and production volumes:
Manufacturing overhead is currently computed by spreading overhead of $2,060,000 over 40,000 direct labour
hours. Management is considering a shift to activity-based costing in an effort to improve the firm's accounting
procedures, and the following data are available.
Goldstar determines selling prices by adding 60% to a product's total cost.
Required:
A. Compute the per-unit cost and selling price of Model B by using Goldstar's current costing procedures.
B. Compute the per-unit overhead cost of Model B if the company switches to activity-based costing.
C. Compute Model B's total per-unit cost and selling price under activity-based costing.
D. Goldstar has recently encountered significant international competition for Model B, with considerable
business being lost to very aggressive suppliers. Will activity-based costing allow the company to be more
competitive with Model B from a price perspective? Briefly explain.
E. Will the cost and selling price of Model A likely increase or decrease if Goldstar changes to activity-based
costing? Why? Hint: No calculations are necessary.
Blooms: Apply
Blooms: Evaluate
Blooms: Understand
Difficulty: Hard
63. (p. 151, 154, and 159) Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead on the
basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period
are $1,600,000 and 25,000 hours, respectively. Information about the company's products follows.
Regular—

Deluxe—

Scott's overhead of $1,600,000 can be identified with three major activities: order processing ($250,000),
machine processing ($1,200,000), and product inspection ($150,000). These activities are driven by number of
orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities
follow.
Required:
A. Compute the pool rates that would be used for order processing, machine processing, and product inspection
in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit manufacturing costs of Regular and Deluxe if the
C. How much overhead would be applied to a unit of Regular and Deluxe if the company used traditional
costing and applied overhead solely on the basis of direct labour hours? Which of the two products would be
undercosted by this procedure? Overcosted?
Blooms: Apply
Blooms: Evaluate
Blooms: Understand
Difficulty: Hard
64. (p. 151, 154, and 159) Pitney Corporation manufactures two types of transponders—no. 156 and no. 157—and
applies manufacturing overhead to all units at the rate of $76.50 per machine hour. Production information
follows.
The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be
identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the
number of setups, machine hours worked, and outgoing shipments, the activities' three respective cost drivers,
follow.
The firm's total overhead of $3,060,000 is subdivided as follows: manufacturing setups, $260,000; machine
processing, $2,400,000; and product shipping, $400,000.
Required:
A. Compute the pool rates that would be used for manufacturing setups, machine processing, and product
shipping in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit overhead costs of product nos. 156 and 157 if the
C. Assuming use of activity-based costing, compute the total cost per unit of product no. 156.
D. If the company's selling price is based heavily on cost, would a switch to activity-based costing from the
current traditional system result in a price increase or decrease for product no. 156? Show computations.
Blooms: Apply
Difficulty: Hard
65. (p. 159 and 172) Heartland Bank & Trust operates in a very competitive marketplace, using a traditional labour-
hour-based system to determine the cost of processing its mortgage loans. Recently, the firm explored a switch
to activity-based costing to determine the wisdom of its previous ways. The following information is available:
Two loan applications, among many others, were originated and closed during the year. No. 7439 consumed 3.5
hours in loan underwriting and 1.5 hours in loan closure, for a total of 5.0 hours. No. 7809 also required 5.0
hours of time, subdivided as follows: 2.0 hours in loan underwriting and 3.0 hours in loan closure.
Conversations with management found that, on average, each application took nine labour hours of processing
time, excluding underwriting and closure.
Required:
A. Use an activity-based-costing system and determine the cost of processing, underwriting, and closing the two
loan applications.
B. Determine the cost of processing the two loans if Heartland uses the traditional labour-hour-based system.
C. Is Heartland making a mistake by continuing to use a traditional system that is based on an average labour
cost per hour? Why?
A. Pool rates.
B. Total labour hours: Application processing (4,000 x 9 = 36,000) + underwriting (16,000) + closure (8,000) =
60,000
Application processing: $900,000  4,000 = $225 per application
Loan underwriting: $800,000  16,000 = $50 per underwriting hour
Loan closure: $880,000  8,000 = $110 per legal hour
Application no. 7439: Application ($225) + underwriting (3.5 x $50 = $175) + closure (1.5 x $110 = $165) =
$565
Application no. 7809: Application ($225) + underwriting (2.0 x $50 = $100) + closure (3.0 x $110 = $330) =
$655
Average rate per hour: $2,580,000  60,000 = $43 per hour

Application no. 7439: (9 + 5) x $43 = $602
Application no. 7809: (9 + 5) x $43 = $602
C. Yes. The traditional system results in an average cost per hour of $43; yet, Heartland's hourly charges vary
greatly based on the function being performed. Rates range from $25 per hour ($225  9) for application
processing, to $50 per hour for underwriting, to $110 for legal services. ABC produces an improved
determination of cost because three separate drivers are used rather than just one.
Blooms: Apply
Blooms: Evaluate
Difficulty: Hard
66. (p. 162) Define the term "cost driver" and discuss the factors that are important in the selection of appropriate
cost drivers.
A cost driver is an event or activity that results in the incurrence of costs. For example, many of the costs in an
automated environment are created by the operation of machines, and machine hours may be a suitable cost
driver for overhead application.
The first factor important in the selection of cost drivers is the degree of correlation (i.e., relationship) among
the driver, the activity, and the cost. This relationship is crucial to achieve credibility and accuracy. Another
factor is the cost of measurement. Cost/benefit tradeoffs must be taken into account. The system should contain
drivers that identify key costs but if too many drivers are used, the system will be burdensome and expensive.
Behavioural effects must also be considered in identifying cost drivers. Such effects may influence the
behaviour of decision makers, which could be good or bad depending on the outcome.
Blooms: Remember
Difficulty: Medium
67. (p. 167) Consider the nine activities that follow.
1. Microsoft: Developing computer coding for a new spreadsheet package

2. General Mills: Painting the office of a maintenance supervisor at a plant that produces cereal
3. Mayo Clinic: Examining a new patient
4. American Airlines: The 90 minutes that a Boeing 757 sits idle on the ground between flights
5. Office Depot: Moving cases of paper from one location to another in the same warehouse
6. Rolex: Attaching a watch band to the watch's face
7. United States Postal Service: Reprocessing mail that had been sorted incorrectly on a malfunctioning sorting
machine.
8. Fidelity Investments: Correcting errors made by company personnel in customer accounts
9. Marriott: Upgrading the quality of bedding used at hotels in very competitive marketplaces
10. Dell Computer: Re-working defective units found during quality control inspection
Required:
Categorize each of the activities as either value-added or non-value-added for the companies noted.
Blooms: Apply
Difficulty: Medium
68. (p. 165 and 168) Indiglow Chapstars which sells books to college bookstores and individuals uses activity-based
costing and activity-based management. The following information is available for the company's three cost
pools.
Bookstore sales totaled $9,000,000, and sales to individuals amounted to $3,400,000. Costs for the three
activities were: Incoming receipts, $500,000; warehousing, $620,000; and outgoing shipments, $620,000. A
review of the company's activities found various inefficiencies with respect to the warehousing of textbooks
(acquired for eventual sale to bookstores) and outgoing shipments to individuals. These inefficiencies resulted
in an extra 600 moves and 800 shipments, respectively.
Required:
A. What is a non-value-added activity?

B. How much did non-value-added activities cost Indiglow Chapstars this past year?
C. Which of the two markets—sales to bookstores or sales to individuals—resulted in lower overall costs for
incoming receipts, warehousing, and outgoing shipments? Evaluate these costs in both absolute dollars and as a
percentage of sales. In addition, present a possible explanation for your results. Note: Exclude costs that arose
from inefficient operations.
Blooms: Apply
Blooms: Evaluate
Difficulty: Hard
69. (p. 168) Ippilito's Fresh Meats and Produce is a wholesale distributor that operates in central California. An
analysis of two of the company's customers, Atriums Retirement Home and Sigma Sigma Fraternity, revealed
the data that follow for a recent 12-month period.
Ippilito's uses activity-based costing to determine the cost of servicing its customers. The company had total
delivery costs during the year of $576,000 and 8,000 deliveries, along with cost of $765,000 for the
administrative processing of 90,000 invoices.
Required:
A. Compute the pool rates for deliveries and invoice processing.

B. Compute the operating income that Ippilito's earned from these two customers.
C. Compute the total of customer-related costs (deliveries and invoice processing) for each customer as a
percentage of gross margin, and analyze the results for management. Explain any significant differences that
you find.
Blooms: Apply
Difficulty: Hard
70. (p. 168) Clark Corporation manufactures cooling system components. The company has gathered the following
information about two of its customers: Engle Equipment and Midwest Refrigeration.
Required:
A. Perform a customer profitability analysis for Clark. Compute the gross margin and operating income on
transactions related to Engle Equipment and Midwest Refrigeration.
B. Compute gross margin as a percentage of sales revenue. Then compute (1) general selling and administrative
costs as a percentage of gross margin and (2) total customer-related costs (i.e., costs that arise from sales visits,
order taking, and special handling and shipping) as a percentage of gross margin.
C. On the basis of your calculations, which of the two customers is "more costly" to deal with? Briefly explain.
Blooms: Apply
Blooms: Evaluate
Difficulty: Hard
71. (p. 165 and 172) Non-value-added costs occur in non-manufacturing organizations as well as in manufacturing
firms.
Required:
A. Explain what is meant by a non-value-added cost.

B. Identify two potential non-value-added costs for each of the following service providers: airlines, banks, and
hotels.
A. Non-value-added costs are the costs of activities that can be eliminated with no deterioration of product
quality, performance, or perceived value. These activities should be eliminated to save time and money. General
examples include the costs of inspection, moving, waiting, and storing.
B. Airlines:
▪ Vouchers for future flights that are given to passengers as a result of poor customer service.
▪ The cost of tracing, returning, repairing, or replacing lost or mishandled luggage.
▪ Additional compensation paid to flight crews attributable to cancellations or delays from problems that should
have been prevented by routine maintenance.
Banks:
▪ The cost of correcting bank errors in customer accounts.

▪ The cost of performing manual banking procedures necessitated by computer system downtime.
▪ Losses caused by employee embezzlement and petty thefts.
▪ Defaulted loans made to borrowers who should have been classified as poor risks by existing credit-granting
procedures.
Hotels:
▪ Broken dishes and glassware, loss of or damage to linens and towels.

▪ The cost of replacing lost room keys/entry cards.
▪ The cost of overstaffing the front desk during non-peak hours.
▪ Excess food costs, including preparation.
Blooms: Remember
Difficulty: Medium
72. (p. 178 and 179) You have recently been hired by a manufacturing company. Two days ago, you met with the top
management of the company to discuss future strategies for the firm. During the meeting, the president of the
company expressed concern about the profitability of the company and the company's ability to compete
effectively in the future. You responded to the president's concerns by mentioning some articles you had read in
professional accounting journals regarding JIT. The president responded to your comments by saying that
although the JIT concept sounded interesting, no one in the company was knowledgeable about JIT. The
president then requested that you prepare a brief summary of JIT for the next strategic planning meeting.
Required:
A. List five major requirements for implementing a successful JIT system.

B. List at least five benefits cited of a JIT system.
A. Five major requirements for implementing a successful JIT system are.
(i). A company must learn to rely on a few suppliers who are willing to make frequent deliveries of defect-free
material in small lots.
(ii) A company must improve the manufacturing flow lines in its plants by physically locating together all of the
machines needed in the production of a particular product.
(iii) A company must reduce set-up times by creating flow lines that are dedicated to a single product so that
production occurs in smaller batches resulting in reduced levels of work-in-process and finished goods
inventories
(iv) A company must develop a Total Quality Management system over its parts and materials, their quality
being monitored by both suppliers and employees so as to avoid interruptions in production.
(v) A company must develop a flexible workforce of multi-skilled workers who can operate the various
machines in the manufacturing flow lines as well as perform minor repairs and maintenance work when no
demands are made by the next workstation.
B. A JIT system should produce the following benefits.
1) Worker productivity is increased with teams working in a cellular plant layout organized in product flow
lines.
2) Set-up time is decreased, resulting in smaller batch sizes and smoother flow of goods between workstations.
3) Total production time is decreased, resulting in greater output and quicker response to customer needs.
4) Waste is reduced as a result of implementation of a Total Quality Management program.
5) Inventories of all types are reduced through improved control by suppliers, shorter wait times between
workstations, smaller production runs, and timely production of goods driven by customer orders.
6) Investment funds previously tied up in inventories are released for use elsewhere in the company.
7) Usable space in the plant is increased as areas previously used to store inventory are made available for other,
more productive uses.
Blooms: Remember
Difficulty: Medium
05 Summary
Category # of Que
stions
Blooms: Apply 36
Blooms: Create 2
Blooms: Evaluate 7
Blooms: Remember 30
Blooms: Understand 15
Difficulty: Easy 22
Difficulty: Hard 24
Difficulty: Medium 26
Hilton - Chapter 05 72
Learning Objective: 05-01 Compute product costs under a traditional volume-based product-costing system. 15
Learning Objective: 05-02 Explain how activity-based costing (ABC) operates; including the use of a two- 3
stage procedure for cost assignment; the identification of activity cost pools; and the selection of cost drivers.
Learning Objective: 05-03 Explain the concept of cost levels; including unit-level; batch-level; product-sustaining-level; and facility- 12
level costs.
Learning Objective: 05-04 Compute product costs under an ABC system. 25
Learning Objective: 05-05 Explain why traditional volume-based costing systems tend to distort product costs. 14
Learning Objective: 05-06 Explain three criteria for selecting cost drivers. 3
Learning Objective: 05-07 Discuss several key issues in ABC; including data collection and storyboarding. 1
Learning Objective: 05-08 Explain the concept of activity-based management (ABM) and two-dimensional ABC. 5
Learning Objective: 05-09 Explain and execute a customer-profitability analysis. 8
Learning Objective: 05-10 Understand and discuss how ABC is used in service organizations. 5
Learning Objective: 05-11 List and explain eight important features of just- 9
in- time inventory and production management systems (Appendix to Chapter 5).

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1. Many traditional product costing systems:

1—Calculation of pool rates

9. The salaries of a manufacturing plant's management are said to arise from:

What is X-Ray's pool rate for the material-handling activity?

What is X-Ray's pool rate for the automated machinery activity?

What is X-Ray's pool rate for the finishing activity?

What is X-Ray's pool rate for the packaging activity?

Under an activity-based costing system, what is the per-unit cost of Standard?

Under an activity-based costing system, what is the per-unit cost of Deluxe?

Under an activity-based costing system, what is the per-unit cost of Superior?

32. Activity-based costing systems:

36. Consumption ratios are useful in determining:

49. Which of the following is not a key feature of a JIT system?

52. When a company adopts a just-in-time inventory system, it would expect:

1. Safety costs at winery

A. Briefly distinguish between unit-level and product-sustaining activities.

1. Direct materials used: $4,440,000

A. Briefly distinguish between batch-level and facility-level activities.

1. Is Star emphasizing unit-level activities, batch-level activities, product-sustaining activities, or facility-level

F56: 2,000 units, $234

1. the pool rate for purchase-order processing.

Goldstar determines selling prices by adding 60% to a product's total cost.

Estimated production volume: 3,000 units

Estimated production volume: 4,000 units

1. Microsoft: Developing computer coding for a new spreadsheet package

A. What is a non-value-added activity?

A. Compute the pool rates for deliveries and invoice processing.

A. Explain what is meant by a non-value-added cost.

A. List five major requirements for implementing a successful JIT system.

1. (p. 151) Many traditional product costing systems:

1—Calculation of pool rates

What is X-Ray's pool rate for the material-handling activity?

What is X-Ray's pool rate for the automated machinery activity?

What is X-Ray's pool rate for the finishing activity?

What is X-Ray's pool rate for the packaging activity?

Under an activity-based costing system, what is the per-unit cost of Standard?

Under an activity-based costing system, what is the per-unit cost of Deluxe?

Under an activity-based costing system, what is the per-unit cost of Superior?

32. (p. 159) Activity-based costing systems:

36. (p. 161) Consumption ratios are useful in determining:

42. (p. 168) Customer profitability analysis is tied closely to:

1. Safety costs at winery

A. Briefly distinguish between unit-level and product-sustaining activities.

1. Direct materials used: $4,440,000

A. Briefly distinguish between batch-level and facility-level activities.

A. $860,000 x 32% = $275,200

C. Traditional costing undercosts the PDAs by $18,510 ($293,710 - $275,200).

1. Is Star emphasizing unit-level activities, batch-level activities, product-sustaining activities, or facility-level

F56: 2,000 units, $234

1. the pool rate for purchase-order processing.

Goldstar determines selling prices by adding 60% to a product's total cost.

Estimated production volume: 3,000 units

Estimated production volume: 4,000 units

Average rate per hour: $2,580,000  60,000 = $43 per hour

1. Microsoft: Developing computer coding for a new spreadsheet package

A. What is a non-value-added activity?

A. Compute the pool rates for deliveries and invoice processing.

A. Explain what is meant by a non-value-added cost.

▪ The cost of correcting bank errors in customer accounts.