I-Rev4 - LESSON 4 Review material Review questions Question...

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LESSON 4 Review material Review questions Question 1 — Multiple choice a. The activity-based costing (ABC) technique uses a two-stage allocation process. Which of the following statements best describes these two stages? 1) All costs are assigned to activities, and then to the products based on the products’ use of the activities. 2) All costs are assigned to departments, and then to the products based upon the products’ use of the activities. 3) Service department costs are allocated to the production departments, and then to the products based upon the products’ use of the activities. 4) Indirect costs are assigned to activities, and then to the products based on the products’ use of the activities. b. When using activity-based costing in a manufacturing setting, the focus of the system is on which of the following? 1) Pricing cost objects 2) Evaluating performance 3) Minimizing manufacturing costs 4) Activities as fundamental cost objects c. The main limitation of activity-based costing is which of the following? 1) Increased number of cost pools 2) Extensive use of cause-and-effect cost allocations 3) Improves manager’s knowledge about product costing 4) Increased number of measurements required Use the following information to answer questions (d) and (e). Fine Cutlery Inc. is a manufacturer of quality carving knives. The company has always used a plant-wide allocation rate for allocating manufacturing overhead to its products. The plant manager believes it is time to change to a better method of cost allocation. The accounting department has established the following relationships between production activities and manufacturing overhead costs: Activity Cost driver Allocation rate Material handling Number of parts €4 per part Assembly Labour-hours €40 per hour Inspection Time spent by item at inspection station €6 per minute The previous plant-wide allocation rate method was based on direct manufacturing labour- hours, and if that method is used, the allocation rate is €400 per labour-hour. Management Accounting Fundamentals Review material 4 1
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d. Assume that a batch of 1,000 carving knives requires 2,000 parts, 20 direct manufacturing labour-hours, and 30 minutes of inspection time. What are the indirect manufacturing costs per carving knife to produce a batch of 1,000 carving knives, assuming the previous plant-wide allocation rate method is used? 1) €8.00 2) €9.80 3) €800.00 4) €980.00 e. Assume that a batch of 100 carving knives requires 200 parts, 12 direct manufacturing labour-hours, and 5 minutes of inspection time. What are the indirect manufacturing costs per carving knife to produce a batch of 1,000 carving knives, assuming the activity-based method of allocation is used? 1) €4.80
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I-Rev4 - LESSON 4 Review material Review questions Question...

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