Ch06 SM ManAcct4e

Ch06 SM ManAcct4e - Chapter 6 Activity-Based Costing...

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Chapter 6 Activity-Based Costing Multiple Choice 1. (LO 1 – Basic ABC) Answer: C 2. (LO 2 – ABC classification of overhead) Answer: B 3. (LO 2 – ABC classification of overhead) Answer: C 4. (LO 3, 4, and 5 – Basic ABC: overhead rates) Answer: B Proportion of overhead costs allocated to material handling: (20% x $1,000,000) = $200,000 Calculation of material handling overhead per shipment: $200,000 ÷ 20,000 total shipments = $10 per shipment Calculation of material handling overhead assigned to a job site requiring three deliveries: $10 X 3 deliveries = $30 5. (LO 3, 4, and 5 - Basic ABC: overhead rates) Answer: A Proportion of overhead costs allocated to customer contact: (30% x $800,000) = $240,000 Calculation of customer contact overhead per customer visit: $240,000 ÷ 10,000 visits = $24 per visit Calculation of customer contact overhead assigned to a job requiring two customer visits: $24 X 2 visits = $48 6 - 1
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Solutions Manual 6. (LO 4 – ABC in a JIT environment) Answer: C 7. (LO 5 – Traditional vs. ABC) Answer: B 8. (LO 5 – Traditional vs. ABC) Answer: A 9. (LO 5 – ABC and cross subsidies) Answer: B 10. (LO 6 – ABC in a nonmanufacturing environment) Answer: B 11. (LO 6 – ABC in a nonmanufacturing environment) Answer: A 12. (LO 6 - ABC in a nonmanufacturing environment) Answer: D 13. (LO 7 – Benefits of ABC) Answer: C 14. (LO 7 – Benefits of ABC) Answer: A 15. (LO 9 – Service Department cost allocation) Answer: B 16. (LO 9 – Service Department cost allocation using the step down method) Answer: C (25,000/100,000) * 10,000 = $2,500 6 - 2
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Chapter 6: Activity-Based Costing 17. (LO 9 – Service Department cost allocation using the direct method) Answer: B $12,600 * (150/350) = $5,400 Concept Questions 18. (LO 1 and 2 – ABC and Cooper’s Hierarchy) Activity based costing, or ABC, assigns costs based on activities that drive costs rather than the volume or number of units produced. The activities are procedures or processes that cause work to be accomplished. Activities consume resources and products require activities to be performed. The four categories of overhead are: unit level, batch level, product level, and facility level. Unit level costs are incurred each time a unit is produced. Batch level costs are incurred each time a batch of goods is produced. Product level costs are incurred as needed to support the production of different types of products or as changes are made to an existing product (for example, the introduction of an engineering change reducing production costs). Facility level costs sustain a facility’s manufacturing capabilities. 19. (LO 3 and 4 – Basic ABC: Stage 1 and Stage 2) The first stage of cost allocation is the identification of activities and the tracing of overhead costs to each activity. In many cases, this can be a difficult and time- consuming task. The second stage requires the identification of a cost driver for each activity and determining the cost per unit of cost driver (the predetermined
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Ch06 SM ManAcct4e - Chapter 6 Activity-Based Costing...

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