Cost Accounting Systems

(B. Activity­Based Cost System)

B. ACTIVITY­BASED COST SYSTEM B. total quality management D. cost driver analysis

18. Which of the following falls under the Activity­Based Management umbrella?
THEORIES: Continuous Business process Activity­based
Outdated cost system improvement reengineering costing
3. Symptoms of an outdated cost system include all of the following EXCEP A. NO NO YES
A. product costs change because of changes in financial reporting. B. YES NO NO
B. products that are difficult to produce show little profit. C. YES YES YES
C. competitors' prices appear unrealistically low. D. NO YES NO
D. the company has a highly profitable niche all to itself.
29. All of the following are ways that activities can be managed to achieve improvements in a process,
13. Which of the following is NOT a sign of poor cost data? except
A. Competitors' prices for high­volume products appear much too high. A. activity induction C. activity elimination
B. The company seems to have a highly profitable niche all to itself. B. activity selection D. activity sharing
C. Customers don't balk at price increases for low­volume products.
D. Competitors' prices for low­volume products appear much too high. Traditional Costing vs. ABC system
27. Which of the following is not a distinction between the traditional and ABC costing systems
Activity­based management A. the number of overhead cost pools tends to be higher in ABC systems
1. Which system focuses on the management of activities with the objective of improving the value B. the number allocation bases tend to be higher in ABC system
received by the customer and the profit received by providing this value? C. costs within an ABC cost pool tend to be more homogeneous than the costs within a traditional
A. activity­based management C. contemporary cost control system’s cost pool
B. traditional cost management system D. standard cost system D. all ABC systems are one­stage costing systems, while traditional systems may be one­ or two­stage

28. Activity­based management (ABM) is 32. In contrast to a company that uses a single overhead rate, one that uses activity­based costing
A. a costing system in which multiple overhead cost pools are allocated using bases that include one or A. will have higher product costs than one using a single overhead rate.
more nonvolume related factors B. cannot compute budget variances.
B. a base used to allocate the cost of a resource to the different activities using it C. will incur additional costs for recordkeeping.
C. the use of information obtained from ABC to make improvements in the firm D. must have a preponderance of fixed overhead costs.
D. a base used to allocate the cost of an activity to products and customers
Activity­based costing
17. An objective of activity­based management is to Reason
A. eliminate the majority of centralized activities in an organization. 21. Of the following, which is the best reason for using activity­based costing?
B. reduce or eliminate non­value­added activities incurred to make a product or provide a service. A. to keep better track of overhead costs
C. institute responsibility accounting systems in decentralized organizations. B. to more accurately assign overhead costs to cost pools so that these costs are better controlled
D. all of the above C. to better assign overhead costs to products
D. to assign indirect service overhead costs to direct overhead cost pools
5. Primary concepts under activity­based management include all of the following except:
A. activity analysis C. activity­based costing Benefits

1
 Cost Accounting Systems
(B. Activity­Based Cost System)

2. The primary benefit of using ABC is that it provides A. activity­based costing has been widely adopted in service industries.
A. better management decisions. B. the objective of installing ABC in service firms is different than it is in a manufacturing firm.
B. enhanced control over overhead costs. C. a larger proportion of overhead costs are company­wide costs in service industries.
C. more cost pools. D. the general approach to identifying activities and activity cost pools is the same in a service company
D. more accurate product costing. as in a manufacturing company.

10. Which of the following is not a benefit of activity­based costing? Application

A. More accurate product costing. 22. ABC should be used in which of the following situations?
B. Enhanced control over overhead costs. A. single­product firms with multiple steps
C. Less costly to use. B. multiple­product firms with only a single process
D. Better management decisions. C. multiple­product firms with multiple processing steps
D. in all manufacturing firms
Factors suggesting need to switch to ABC
4. Which of the following factors would suggest a need to switch to activity­based costing? Limitation
A. Product lines similar in volume and manufacturing complexity. 9. Which of the following is a limitation of activity­based costing?
B. Overhead costs constitute a significant portion of total costs. A. More cost pools C. Poorer management decisions
C. The manufacturing process has been stable. B. Less control over overhead costs D. Some arbitrary allocations continue
D. Production managers use data provided by the existing system.
12. Each of the following is a limitation of activity­based costing system except that:
7. A least likely reason to use activity­based overhead rates is that A. it can be expensive to use.
A. some departments are labor­intensive, some are machine­intensive. B. it is more complex than the traditional costing.
B. significant amounts of overhead are driven by different factors. C. more cost pools are used.
C. rates calculated for some departments are much higher than for other departments. D. some arbitrary allocations still continue.
D. all jobs require about the same amounts of cost­driving activities.
Cost behavior of high­volume & low­volume product
8. The presence of any of the following factors would suggest a switch to ABC except when 11. As compared to a high­volume product, a low­volume product
A. product line differ greatly in volume. A. usually requires less special handling.
B. overhead costs constitute a minor portion of total costs. B. is usually responsible for more overhead costs per unit.
C. the manufacturing process has changed significantly. C. requires relatively fewer machine setups.
D. production managers are ignoring data provided by the existing system. D. requires use of direct labor hours as the primary cost driver to ensure proper allocation of
overhead.
Characteristics
6. Which of the following is typical of activity­based costing systems? Cost assignment
A. Use of a single predetermined overhead rate. 15. Which of the following lists the most to least accurate method of cost assignment?
B. Use of direct labor hours or direct labor cost to assign overhead. A. direct tracing, driver tracing, allocation C. driver tracing, direct tracing, allocation
C. Assumption of correlation between direct labor and incurrence of overhead cost. B. allocation, direct tracing, driver tracing D. allocation, driver tracing, direct tracing
D. Use of multiple cost drivers to allocate overhead.
30. An activity­based costing system uses which of the following procedures?
14. All of the following statements are correct except that A. Overhead costs are traced to departments, then costs are traced to products.

2
 Cost Accounting Systems
(B. Activity­Based Cost System)

B. Overhead costs are traced to activities, then costs are traced to products. A. resource driver C. activity driver
C. Overhead costs are traced directly to products. B. final cost object D. driver
D. All overhead costs are expensed as incurred.
38. Activity drivers differ from resource drivers in that activity drivers
Steps A. are used to assign indirect costs while resource drivers are used to assign direct costs
16. A well­designed activity­based costing system starts with B. assign the cost of activities to cost objects while resource drivers assign the cost of resources to
A. identifying the activity­cost pools. activities
B. computing the activity­based overhead rate. C. assign the cost of activities to resources and resource drivers assign the cost of resources to cost
C. assigning manufacturing overhead costs for each activity cost pool to products. objects
D. analyzing the activities performed to manufacture a product. D. are used to assign direct costs while resource drivers are used to assign indirect costs

25. The first step in activity­based costing is to 55. An appropriate cost driver base should
A. assign manufacturing overhead costs for each activity cost pool to products. A. have a cause­and­effect relationship with the activity and the use of resources
B. compute the activity­based overhead rate per cost driver. B. predict or explain activities' use of resources with reasonable accuracy
C. identify and classify the major activities involved in the manufacture of specific products. C. be based on the practical capacity of the resource to support activities
D. identify the cost driver that has a strong correlation to the activity cost pool. D. all of the above

26. The last step in activity­based costing is to Cost pool

A. identify the major activities that pertain to the manufacture of specific products. 31. A cost pool is
B. allocate manufacturing overhead costs to activity cost pools. A. all of the costs of a particular department.
C. identify the cost drivers that accurately measure each activity’s contribution to the finished product. B. all costs in a group such as variable costs or discretionary fixed costs.
D. assign manufacturing overhead costs for each activity cost pool to products. C. all costs related to a product or product line.
D. all costs that have the same driver.
65. Successful activity­based costing (ABC) implementation depends upon the firm having:
A. top management support Cost pool rate
B. ABC linked to its competitive strategy 34. More accurate product costing information is produced by assigning costs using
C. adequate resources A. a volume­based, plant­wide rate.
D. all of the above B. volume­based, departmental rates.
C. activity­based pool rates.
Cost driver, activity driver & resource driver D. all of the above
23. Any activity that causes resources to be consumed is called a
A. just­in­time activity C. facility­level activity Cost allocation
B. cost driver D. nonvalue­added activity 33. Activity­based overhead rates are more useful than a single plant­wide rate if
A. overhead costs are driven by several activities.
24. A base used to allocate the cost of a resource to the different activities using that resource is B. direct labor cost varies significantly from department to department.
A. resource driver C. activity driver C. all products require about the same amounts of all activities.
B. final cost object D. driver D. manufacturing overhead costs are nearly all fixed.

42. A base used to allocate the cost of products, customers, or other final cost objects is a(n) 20. In activity­based costing, preliminary cost allocations assign costs to

3
 Cost Accounting Systems
(B. Activity­Based Cost System)

A. departments. C. products.
B. processes. D. activities. 58. Examples of unit level activities are
A. scheduling, setting up, and receiving C. heating, lighting, and security
19. In activity­based costing, final cost allocations assign costs to B. designing, changing, and advertising D. cutting, painting, and packaging
A. departments. C. products.
B. processes. D. activities. 41. All of the following are unit­based cost drivers except
A. machine hours C. number of setups
35. Which of the following best describes the flow of overhead costs in an activity­based costing system? B. number of units D. direct labor hours
A. Overhead costs => direct labor cost or hours => products
B. Overhead costs => products 62. An example of a nonvolume­related overhead base would be:
C. Overhead costs => activity cost pools => cost drivers => products A. Direct materials cost C. Direct Labor cost
D. Overhead costs => machine hours => products B. Machine hours D. Number of setups

36. Finding a single cost driver that changes in the same proportion as all the variable factory overhead Batch level
costs is: 54. Batch­level resources are acquired
A. simplified by breaking out the fixed portion of overhead cost A. for individual units of product or service
B. the first step in variable overhead cost management B. for making a group of similar products
C. difficult, but manageable C. to produce and sell a specific product
D. impossible D. to provide a general capacity to produce products and services.

37. Total activity cost is the sum of 45. Examples of batch­level activity drivers include
A. resource driver assigned costs and activity driver assigned costs A. units of output and direct labor hours
B. direct and indirect costs B. number of batches and material moves
C. directly traceable resource costs and resource driver assigned costs C. number of products and design changes
D. opportunity costs and realized costs D. square footage occupied

Activity levels 63. Which of the following is not a batch­level activity?

Unit level A. Engineering changes. C. Inspection.
46. Unit­level costs are costs that B. Equipment setups. D. Material handling.
A. inevitably increase whenever a unit is produced
B. are caused by the number of batches produced and sold Product­sustaining level
C. are incurred to support the number of different products produced 43. Examples of activities at the product level of costs include
D. are incurred to sustain capacity at a production site A. cutting, painting, and packaging
B. scheduling, setting up, and moving
44. Examples of unit­level costs are C. designing, changing, and advertising
A. portions of electricity and indirect materials D. heating, lighting and security
B. salaries of schedulers and setup personnel
C. salaries of designers and programmers 40. Which of the following activities is directly traceable to a product?
D. depreciation and insurance of building A. batch­level activities C. facility­level activities

4
 Cost Accounting Systems
(B. Activity­Based Cost System)

B. unit­level activities D. product­sustaining activities D. Cost of building security.

57. Designing and redesigning are activities that are classified as Value adding & Non­value adding activity
A. Facility level C. Unit level 49. The following activity is value­added:
B. Batch level D. Product level A. Storage of raw materials C. Moving parts from machine to machine
B. Turning a piece of metal on a lathe D. All of these
60. Which of the following is the best way to consider a product­level cost?.
A. A product­level cost can be avoided when a product line is discontinued. 48. An activity that adds cost to the product but does not increase it market value is a
B. A product­level cost can be avoided when a there is change in the production schedule so the A. value­added activity C. cost driver
product is not produced this week. B. cost­benefit activity D. nonvalue­added activity
C. A product level cost can be avoided when a business segment is discontinued.
D. A product level cost can be avoided when the corporation is dissolved. 50. When a firm redesigns a product to reduce the number of component parts, the firm is
A. increasing consumer value.
61. Examples of activities at the batch level of costs include B. increasing the value added to the product.
A. scheduling, setting up, and moving C. decreasing product variety.
B. designing, changing, and advertising D. decreasing non­value­added costs.
C. heating, lighting, and security
D. cutting, painting, and packaging 52. Under activity­based costing, benchmarks for product cost should contain an allowance for
A. idle time. C. spoilage.
Facilities sustaining level B. idle time and scrap materials. D. none of the above.
39. Which of the following activities may support all the organization's processes and are the highest
level of activities? 64. Elimination of non­value­added activities in a firm should:
A. batch­level activities C. facility­level activities A. be discouraged because of potential harmful effects
B. product­sustaining activities D. unit­level activities B. not affect customer value
C. not have priority because non­value­added activities do not affect a firm's performance
56. In a pure activity­based cost system which of the following might be treated as period costs? D. have priority only when a firm is operating at a loss
A. facility­level costs C. batch­level costs
B. product­level costs D. unit­level costs 66. Page Company’s cost allocation and product costing procedures follow activity­based costing
principles. The following activities have been identified and classified as being either value­adding
47. Plant­level costs are costs that or non­value adding as to each product.
A. inevitably increase whenever a unit is produced 1. Raw materials storage activity
B. are caused by the number of batches produced and sold 2. Design engineering activity
C. are incurred to support the number of different products produced 3. Drill press activity
D. are incurred to sustain capacity at a production site 4. Heat treatment activity
5. Quality control inspection activity
59. Which of the following is not considered to be a facility­level cost? 6. Issuance of purchase order activity
A. Cost of Property Insurance. How are the foregoing activities classified?
B. Cost of personnel administration. Value­adding Non­value adding
C. Cost of Liability Insurance for only one of the product lines. A. 1, 2, 5, 6 3, 4

5
 Cost Accounting Systems
(B. Activity­Based Cost System)

B. 1, 2, 4 3, 5, 6 labor hours as the allocation base?

C. 2, 4, 5 1, 3, 6 A. P21,750 C. P16,000
D. 2, 3, 4 1, 5, 6 B. P 5,800 D. P23,200

Productivity Measures Unit cost

. Arid Company produces products BH and XP. The direct cost of BH is P250 per unit and XP is P350
iii
51. Manufacturing cycle efficiency is a measure of
A. bottlenecks. C. efficiency. per unit. Fifty units of BH and 150 units of XP were produced. Overhead amounting to P130,000 is
B. effectiveness. D. quality. allocated to products using direct costs as the relevant cost driver.
The cost of XP per unit amounts to
53. The amount of time between the development and the production of a product is A. P750 C. P1,050
A. the product life cycle. C. production time. B. P1,000 D. P1,250
B. lead time. D. value­added time.
Activity­based Costing
Batch­level costs
PROBLEMS: Allocated overhead
. One of Alien Company’s activity cost pools is machine setups, with estimated overhead of P300,000.
iv
Breakeven Analysis
i
. Peal Company had the following information: Alien produces slacks (400 setups) and shirts (600 setups). How much of the machine setup cost
Activity Driver Unit Variable Cost Level of Activity Driver pool should be assigned to slacks?
Units sold P40 A. P 0 C. P150,000
Setups 1,000 80 B. P120,000 D. P180,000
Engineering hours 60 2,000
. The overhead rate for Machine Setups is P100 per setup. Products A and B have 80 and 60 setups,
v
Other data:
Total fixed costs (traditional) P400,000 respectively. The overhead assigned to each product is
Total fixed costs (ABC) P150,000 A. Product A P8,000, Product B P8,000 C. Product A P8,000, Product B P6,000
Units selling price P80 B. Product A, P6,000, Product B P6,000 D. Product A, P6,000, Product B P8,000
What is the breakeven point in units using ABC?
. Sylvia Company has identified an activity cost pool to which it has allocated estimated overhead of
vi
A. 10,000 unit C. 5,000 units
B. 5,000 units D. 8,750 units P1,920,000 and determined the expected use of cost drivers per that activity to by 160,000
inspections. Widgets require 40,000 inspections, Gadgets 30,000 inspections, and Targets, 90,000
Traditional Costing inspections.
Overhead cost per unit The overhead assigned to each product is
ii
. Mary Manufacturing Company manufactures two products (X and Y). The overhead costs of A. Widgets P40,000, Gadgets P30,000, Targets P90,000
P29,000 have been divided into three cost pools that use the following activity drivers: B. Widgets P480,000, Gadgets P360,000, Targets P1,080,000
C. Widgets P360,000, Gadgets P480,000, Targets P1,080,000
Product No. of Orders No. of Labor Transactions No. of Labor Hours
D. Widgets P480,000, Gadgets P360,000, Targets P1,080,000
X 30 100 1,000
Y 20 300 4,000
Overhead cost per unit
Cost per pool P5,000 P4,000 P20,000
. EMPIRE Company makes two products, E and M. E is being introduced this period, whereas M has
vii

Using traditional costing, what is the amount of overhead cost to be assigned to Product Y using

6
 Cost Accounting Systems
(B. Activity­Based Cost System)

been in production for 2 years. For the period about to begin, 1,000 units of each product are to be A. P2.40 and P3.60, respectively C. P4.80 and P1.20, respectively
manufactured. The only relevant overhead item is the cost of engineering change orders. E and M B. P3.60 and P2.40, respectively D. P1.20 and P4.80, respectively
are expected to require eight and two change orders, respectively. E and M are expected to require 2
and 3 machine hours, respectively. The cost of a change order is P600. Total allocated overhead
If EMPIRE applies engineering change order cost on the basis of machine hours, the overhead . Germie, Inc., has identified the following overhead costs and activity drivers for next year:
xi

cost per unit to be assigned to E and M, respectively, are Overhead Item Expected Cost Activity Driver Expected Quantity
A. P2.40 and P3.60, respectively C. P4.80 and P3.60, respectively Setup costs P100,000 Number of setups 500
B. P3.60 and P2.40, respectively D. P3.60 and P4.80, respectively Ordering costs 40,000 Number of orders 3,200
Maintenance 200,000 Machine hours 4,000
. Beltran Company produces products X and Y. The direct cost of X is P250 per unit (P100 materials
viii
Power 20,000 Kilowatt hours 80,000
and P150 labor) and Y is P350 (P230 material and P120 labor) per unit. Fifty units of X and 150 units The following are two of the jobs completed during the year:
of Y were produced. Overhead amounts to P130,000 and is composed of material handling P12,000, Job 500 Job 501
labor support P60,000, machine operation P48,000, and general administration P10,000. Material Direct materials P1,500 P2,000
handling cost driver is material cost, labor support cost driver is labor cost. Machine operation cost Direct labor P1,400 P2,400
resulted from running the machines a total of 480 hours (three­fourth of which was for product X). Units completed 100 160
General administration effort related equally to product X and Y. Material handling chargeable per unit Direct labor hours 100 160
of X (rounded) amounts to Number of setups 2 8
A. P30; P 70 C. P60; P140 Number of orders 8 10
B. P40; P 80 D. P70; P 30 Machine hours 40 50
Kilowatt hours 60 100
. Genco manufactures two versions of a product. Production and cost information show the following:
ix
The company’s normal activity is 4,000 direct labor hours.
Model A Model B If the four activity drivers are used to allocate overhead costs, total overhead allocated to Job 500
Units produced 200 400 would be
Material moves (total) 20 80 A. P2,766.50. C. P2,515.00.
Direct labor hours per unit 1 2 B. P2,415.00. D. P2,815.00
Material handling costs total P200,000. Under ABC, the material handling costs allocated to each unit
of Model A and Model B would be: Unit cost
A. B. C. D. xii
. Wesleyan University Hospital plans to use activity­based costing to assign hospital indirect costs to
Model A P100 P200 P333 P130 the care of patients. The hospital has identified the following activities and activity rates for the
Model B P333 P400 P200 P100 hospital’s indirect costs:
Activity Activity Rate
. EMPIRE Company makes two products, E and M. E is being introduced this period, whereas M
x
Room and meals P150 per day
has been in production for 2 years. For the period about to begin, 1,000 units of each product are Radiology P 95 per image
to be manufactured. The only relevant overhead item is the cost of engineering change orders. E Pharmacy P 20 per physician order
and M are expected to require eight and two change orders, respectively. E and M are expected Chemistry lab P 85 per test
to require 2 and 3 machine hours, respectively. The cost of a change order is P600. Operating room P550 per operating room hour
If EMPIRE is using direct tracing, the amount of overhead per unit that will be assigned to E and M, The records of two representative patients were analyzed, using the activity rates. The activity
respectively, are information associated with the two patients is as follows:

7
 Cost Accounting Systems
(B. Activity­Based Cost System)

Patient Flor Patient Laura labor hours. 100,000 direct labor hours are budgeted for next year.
Number of days 7.0 3 The company has been asked to submit a bid for a proposed job. The plant manager feels that
Number of images 4.0 2 obtaining this job would result in a new business in future years. Usually bids are based upon full
Number of physician orders 5.0 1 manufacturing costs plus 10 percent.
Number of tests 6.0 2 Estimates for the proposed job are as follows:
Number operating room hours 4.5 1 Direct materials P30,000
Determine the activity cost associated with Patient Flor: Direct labor (8,000 hours) P24,000
A. P4,500 C. P4,495 Number of material moves 100
B. P4,550 D. P4,515 Number of inspections 120
Number of setups 24
Total cost Number of machine hours 4,000
xiii
. Food Factory, Inc., has identified the following cost drivers for its expected overhead The plant manager has heard of a new way of applying overhead that uses cost pools and activity
costs for the year: drivers. Expected activity for the four activity drivers that would be used are:
Budgeted Cost Cost Driver Level Machine hours 60,000
Cost Pools Cost Driver Material moves 20,000
Setup P 80,000 Number of setups 100 Setups 3,000
Ordering 40,000 Number of orders 500 Quality inspections 12,000
Maintenance 100,000 Machine hours 2,500 What is the total cost of the proposed job if Ray Manufacturing uses direct labor hours as its only
Power 20,000 Kilowatt hours 5,000 activity driver?
Total direct labor hours budgeted = 1,000 hours. A. P144,000 C. P112,400
The following data applies to one of the products completed during the year: B. P136,400 D. P106,400
Cost Product X Activity Driver Driver Consumption
Direct materials P2,000Number of setups 2 Traditional Costing & Activity­based Costing
Direct labor P2,400Number of orders 5 Questions 15 & 16 are based on the following information.
Units completed 200 Machine hours 25 Gilmore Company produces two products in a single factory. The following production and cost
Direct labor hours 80 Kilowatt hours 50 information has been determined:

If the activity­based cost drivers are used to allocate overhead cost, the total cost of Product X will Model 1 Model 2
be: Units produced 1,000 200
A. P7,400 C. P4,400 Material moves (total) 100 40
B. P7,800 D. P7,600 Testing time (total) 250 125
Direct labor hours per unit 1 5
xiv
. Ray Manufacturing has four categories of overhead. The four categories and expected overhead The controller has determined total overhead to be P480,000. P140,000 relates to material moves;
costs for each category for next year are listed as follows: P150,000 relates to testing; the remainder is related to labor time.
Maintenance P510,000
. If Gilmore uses direct labor hours to allocate overhead to each model, what would overhead per unit
xv
Material handling 250,000
Setups 60,000 be for Model 2?
Inspection 210,000 A. P 158.33 C. P 950.00
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct B. P 400.00 D. P1,200.00

8
 Cost Accounting Systems
(B. Activity­Based Cost System)

. Overhead applied to Machman using activity­based costing is

xx

. If Gilmore uses activity­based costing to allocate overhead to each model, what would overhead per A. P 640,000. C. P 832,000.
xvi

unit be for Model 2? B. P 768,000. D. P1,000,000.

A. P158.33 C. P925.00
B. P415.93 D. P815.00 Questions 21 & 22 are based on the following information.
The Oilfield plant has two categories of overhead: maintenance and inspection. Costs expected for
Questions 17 & 18 are based on the following information. these categories for the coming year are as follows:
Hughes Company produces three products with the following production and cost information: Maintenance P100,000
Model A Model B Model C Inspection 150,000
Units produced 2,000 6,000 12,000 The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct
Direct labor hours (total) 4,000 2,000 4,000 labor hours. The following data have been assembled for use in developing a bid for a proposed job:
Number of setups 100 150 250 Direct materials P1,000
Number of shipments 200 225 275 Direct labor P4,000
Engineering change orders 15 10 5 Machine hours 500
Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000. Number of inspections 4
Direct labor hours 800
.
xvii
What would be the per unit overhead cost for Model A if direct labor hours were the allocation base? The total number of expected machine hours for all jobs during the year is 25,000, and the total
A. P20.50 C. P82.00 expected number of inspections is 1,500.
B. P41.00 D. P76.00
. Using activity­based costing system and the appropriate activity drivers, the total cost of the potential
xxi

xviii
. What would be the per unit overhead cost for Model A if activity­based costing were used? job would be
A. P20.50 C. P82.00 A, P2,400 C. P7,400
B. P74.00 D. P76.00 B. P3,600 D. P7,750

. Using direct labor hours to assign overhead, the total cost of the potential job would be
xxii
Question Nos. 19 and 20 are based on the following:
Toylandia Company manufactures two products, X­MAN and Machman. Toylandia's overhead A. P 5,000 C. P 8,000
costs consist of setting up machines, P400,000; machining, P900,000; and inspecting, P300,000. B. P11,000 D. P 9,000
Information on the two products is:
X­MAN Machman Question Nos. 23 through 25 are based on the following:
Direct labor hours 15,000 25,000 Special Products recently installed an activity­based relational data base. Using the information
Machine setups 600 400 contained in the activity relational table, the following pool rates were computed:
Machine hours 24,000 26,000
Inspections 800 700 P200 per purchase order
P12 per machine hour, process A
.
xix
Overhead applied to X­MAN using traditional costing is P15 per machine hours, process B
A. P600,000. C. P832,000. P40 per engineering hour
B. P768,000. D. P960,000.
Two products are produced by Special Products: A and B. Each product has an area in the plant that
is dedicated to its production. The plant has two manufacturing processes, process A and process B.

9
 Cost Accounting Systems
(B. Activity­Based Cost System)

Other processes include engineering, product handling, and procurement. The product relational B. P 66,000 D. P250,000
table for Special is as follows:
Activity Usage Use the following data to respond to questions 26 through 29
Activity Driver # and Name Product A: Product B: Consider the following facts for NM Company which produces product N and M
1 Units 200,000 25,000 Activity Cost Driver N’s share M’s share Unused Cost
2 Purchase orders 250 125 Setups # of set ups 10 40 5 P 5,500
3 Machine hours 80,000 10,000 Ordering # of orders 5 10 5 3,200
4 Engineering hours 1,250 1,500 Receiving # of receipts 22 12 6 2,400
Product Dev. # of parts 180 120 100 2,800
xxiii
. How much overhead cost will be assigned to product B using process B? Gen Mgt #, labor hrs 2,900 4,100 1,000 7,200
A. P1,200,000 C. P120,000 Security Area covered 3,200 5,400 400 9,000
B. P960,000 D. P150,000 Materials # of units produced 400 800 120,000
Labor # of DLH 1,700 3,100 1,200 56,000
. What is the unit cost of Product A?
xxiv

A. P4.71 C. P4.80 xxvi

. Set up cost chargeable per unit of M accounting for unused capacity amounts to
B. P252.00 D. P5.30 A. 2.50 C. 5.00
B. 2.75 D. 5.50
. Dagger Corporation has the following activities: creating bills of materials (BOM), studying
xxv

manufacturing capabilities, improving manufacturing processes, training employees, and designing xxvii
. Ordering cost chargeable per unit of N ignoring unused capacity amounts to
tooling. The general ledger accounts reveal the following expenditures for manufacturing A. 2.00 C. 3.00
engineering: B. 2.67 D. 4.00
Salaries P150,000
Equipment 80,000 xxviii
. The cost of unused capacity excluding labor costs amounts to
Supplies 20,000 A. 11,260 C. 11,856
Total P250,000 B. 11,460 D. 14,856
The equipment is used for two activities: improving processes and designing tooling. Thirty­five
percent of the equipment’s time is used for improving processes and sixty­five percent is used for
designing tools. The salaries are for two engineers. One is paid P100,000, while the other earns
P50,000. The P100,000 engineer spends 40% of his time training employees in new processes and
60% of his time on improving processes. The remaining engineer spends equal time on all activities.
Supplies are consumed in the following proportions:
Creating BOMs 25%
Studying capabilities 10%
Improving processes 20%
Training employees 25%
Designing tooling 20%
What is the cost assigned to the designing tooling activity?
A. P162,500 C. P50,000

10
i
. Answer: D
BES (ABC) = 350,000/40 8,750
ABC fixed costs P 150,000
Set ups 80 x P1,000 80,000
Engineering 2,000 x 60 120,000
Total Fixed Costs P 350,000

ii
. Answer: D
Total overhead (5,000 + 4,000 + 20,000) 29,000
Allocated OH to Product Y based on labor hours: 4 ÷ 20 x 29,000 P23,200

iii
. Answer: D
BH: (50 x P250) P 12,500
XP: (150 x P350) 52,500
Total direct costs P 65,000

Allocated OH to XP based on direct costs: (52,500 ÷ 65,000 x P130,000) P105,000

Unit cost – Product XP:
Direct cost P 350
overhead (P105,000 ÷ 150) 700
Total P1,050

iv
. Answer: B
Setup cost per setup (P300,000 ÷ 1,000) P300
Setup costs assigned to slacks (400 x P300) P120,000

v
. Answer: C
Overhead allocated to:
Product A: (80 x P100) P8,000
Product B: (60 x P100) 6,000

vi
. Answer: D
Overhead rate per inspection: (P1,920,000 ÷ 160,000) P12
Overhead assigned to:
Widgets: (40,000 x P12) P 480,000
Gadgets (30,000 x P12) 360,000
Targets (90,000 x P12) 1,080,000

vii
. Answer: A
Cost of change orders 10 x 600 P6,000
Cost of change order per hour P6,000/5,000 hours P1.20/MH
Cost of change order per unit:
E: 2 hours x P1.20 P2.40
M: 3 hours x P1.20 P3.60

viii
. Answer: A
Materials cost:
Product X: (50 x P100) P 5,000
Product Y: (150 x P230) 34,500
Total P39,500
Material handling cost based on direct materials cost: (P12,000 ÷ P39,500) P0.3038
Material handling cost per unit chargeable to:
Product X: (50,000 x P0.3038 ÷ 50) P 30.38
Product Y: (34,500 x P0.3038 ÷ 150) P 69.87

ix
. Answer: B
Handling cost per move (P200,000 ÷ 100 moves) P2,000
Model A: 20 x P2,000 ÷ 200 P 200
Model B: 80 x P2,000 ÷ 400 P 400

x
. Answer: C
Cost of change orders based on ABC
E: 8 x P600 ÷ 1,000 P4.80
M: 2 x P600 ÷ 1,000 P1.20

xi
. Answer: C
Activity Rates:
Setup (P100,000 ÷ 500) P200.00
Ordering (P40,000 ÷ 3,200) 12.50
Maintenance (P200,000 ÷ 4,000) 50.00
Power (P20,000 ÷ 80,000) 0.25
Overhead costs assigned to Job 500:
Setup (2 x P200) P 400
 Ordering (8 x P12.50) 100
Maintenance (40 x P50) 2,000
Power (60 x P025) 15
Total P2,515

xii
. Answer: D
Room and meals (7 days x P150) P1,050
Radiology (4 images x P95) 380
Pharmacy (5 orders x P20) 100
Chemistry lab (6 tests x P85) 510
Operating room (4.5 hours x P550) 2,475
Total P4,515

xiii
. Answer: D
SetupP 80,000 ÷ 100 x 2P1,600OrderingP 40,000 ÷ 500 x 5400MaintenanceP100,000 ÷ 2,500 x 251,000PowerP 20,000 ÷ 5,000 x 50
200 Total overhead assignedP3,200 Direct materials2,000Direct labor 2,400 Total costs assignedP7,600
xiv
. Answer: B
Direct materials P 30,000
Direct labor 24,000
Overhead 82,400
Total cost of the job P136,400
OH rate per DLH:
(P510,000 + P250,000 + P60,000 + P210,000) ÷ 100,000 P10.30 per DLH
Overhead allocated to proposed job: 8,000 x 10.30 82,400

xv
. Answer: D
Total DLH used (1,000 x 1) + (20 x 5) 2,000
Overhead allocated to Model 2 (0.5 x P480,000) P240,000
Overhead per unit of Model 2: (P240,000 ÷ 200) P1,200

xvi
. Answer: C
Overhead allocated to Model 2:
Handling (P140,000 ÷ 140 x 40 moves) P 40,000
Testing (P150,000 ÷ 375 x 125) 50,000
Labor­related (P190,000 ÷ 2) 95,000
Total P185,000
Overhead per unit, Model 2 (P185,000 ÷ 200) P925

xvii
. Answer: B
Overhead rate per DLH (P410,000 ÷ 10,000) P41
Overhead applied to Model A: (4,000 x P41) P164,000
Overhead applied to Model A per unit: (P164,000 ÷ 2,000) P82

xviii
. Answer: B
Activity rates;
Setups: (P90,000 ÷ 500 setups) P 180
Shipping: (P140,000 ÷ 700 shipments) 200
Engineering (P180,000 ÷ 30 change orders) 6,000

Overhead assigned to Model A

Setups (100 x P180) P 18,000
Shipping (200 x P200) 40,000
Engineering (15 x P6,000) 90,000
Total P148,000
Overhead per unit of Model A (P148,000 ÷ 2,000) P 74

xix
. Answer: A
Total overhead costs: (P400,000 + P900,000 + P300,000) P1,600,000
Overhead applied to X­MAN using direct labor hours
(15,000/40,0000) x P1,600,000 P600,000

xx
. Answer: B
Activity Rates:
Setups (400,000/1,000 setups) P400 per set up
Machining (900,000/50,000 MH) P 18 per MH
Inspection (300,000/1,500 Inspection) P200 per inspection
Overhead assigned to Machman using ABC:
(400xP400) + (26,000xP18) + (700xP200) P768,000

xxi
. Answer: C
Direct materials P1,000
Direct labor 4,000
Maintenance 500 x 4 2,000
Inspection 4 x 100 400
 Total P7,400
Activity Rate:
Inspection (P150,000 ÷ 1,500) P100/inspection
Maintenance (P100,000 ÷ 25,000) P4/MH

xxii
. Answer: D
OH rate per DLH: (P250,000 ÷ 50,000 DLH) = P5.00
Cost of the proposed job:
Direct materials P1,000
Direct labor 4,000
Overhead (800 hours x P5 4,000
Total P9,000

xxiii
. Answer: D
OH assigned to Product B: 6,000 MH x P15 per MH = P150,000

xxiv
. Answer: D
Purchasing cost (250 x P200) P 50,000
Processing costs (80,000 x P12) 960,000
Engineering cost (1,250 x P40) 50,000
Total costs assigned to Product A P1,060,000
Unit cost: (P1,060,000 ÷ 200,000) P 5.30

xxv
. Answer: B
Cost of use of equipment (0.65 x P80,000) P 52,000
Supplies (0.2 x P20,000) 4,000
Salary of second engineer (0.2 x P50,000) 10,000
Total cost assigned to designing tool activity P 66,000

xxvi
. Answer: C
Setup cost chargeable to Product M: (40/55 x P5,50 P4,000
Setup cost per unit, Product M: (P4,000 ÷ 800) P 5.00

xxvii
. Answer: B
Ordering costs chargeable to Product M: 5/15 x P3,200) P1,066.67
Ordering cost per unit, Product M: (P1,066.67 ÷ 400) P 2.67

xxviii
. Answer: D
Activity rate:
Setup cost: (5,500 ÷ 55) P100 per setup
Ordering: (P3,200 ÷ 20) P160 per order
Receiving cost: (P2,400 ÷ 40) P60 per receipt
Product development: (P2,800 ÷ 400) P 7 per part
General management: (P7,200 ÷ 8,000) P 0.90 per hour
Security: (P9,000 ÷ 9,000) P1.00 per sq. m.
Labor cost: (P56,000 ÷ 6,000) P9.33 per DLH

Cost of unused capacity:

(5 x P100) + (5 x P160) + (6 x P60) + (100 x P7) + (1,000 x P0.90)
+ (400 x P1) + (1,200 x P9.33) P14,856