Cost Accounting Systems

(B. Activity-Based Cost System)

ACTIVITY-BASED COST SYSTEM

THEORIES:
Outdated cost system
1. Symptoms of an outdated cost system include all of the following EXCEPT
A. product costs change because of changes in financial reporting.
B. products that are difficult to produce show little profit.
C. competitors' prices appear unrealistically low.
D. the company has a highly profitable niche all to itself.
2. Which of the following is NOT a sign of poor cost data?
A. Competitors' prices for high-volume products appear much too high.
B. The company seems to have a highly profitable niche all to itself.
C. Customers don't balk at price increases for low-volume products.
D. Competitors' prices for low-volume products appear much too high.
Activity-based management
3. Which system focuses on the management of activities with the objective of improving the value received by the customer
and the profit received by providing this value?
A. activity-based management
C. contemporary cost control
B. traditional cost management system
D. standard cost system
4. Activity-based management (ABM) is
A. a costing system in which multiple overhead cost pools are allocated using bases that include one or more
nonvolume related factors
B. a base used to allocate the cost of a resource to the different activities using it
C. the use of information obtained from ABC to make improvements in the firm
D. a base used to allocate the cost of an activity to products and customers
5. An objective of activity-based management is to
A. eliminate the majority of centralized activities in an organization.
B. reduce or eliminate non-value-added activities incurred to make a product or provide a service.
C. institute responsibility accounting systems in decentralized organizations.
D. all of the above
6. Primary concepts under activity-based management include all of the following except:
A. activity analysis
C. activity-based costing
B. total quality management
D. cost driver analysis
7. Which of the following falls under the Activity-Based Management umbrella?
Continuous
Business process
Activity-based
improvement
reengineering
costing
A. NO
NO
YES
B. YES
NO
NO
C. YES
YES
YES
D. NO
YES
NO
8. All of the following are ways that activities can be managed to achieve improvements in a process, except
A. activity induction
C. activity elimination
B. activity selection
D. activity sharing
Traditional Costing vs. ABC system
9. Which of the following is not a distinction between the traditional and ABC costing systems
A. the number of overhead cost pools tends to be higher in ABC systems
B. the number allocation bases tend to be higher in ABC system
C. costs within an ABC cost pool tend to be more homogeneous than the costs within a traditional systems cost pool
D. all ABC systems are one-stage costing systems, while traditional systems may be one- or two-stage
10. In contrast to a company that uses a single overhead rate, one that uses activity-based costing
A. will have higher product costs than one using a single overhead rate.
B. cannot compute budget variances.
C. will incur additional costs for recordkeeping.
D. must have a preponderance of fixed overhead costs.
Activity-based costing
Reason
11. Of the following, which is the best reason for using activity-based costing?
A. to keep better track of overhead costs
B. to more accurately assign overhead costs to cost pools so that these costs are better controlled
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Cost Accounting Systems

(B. Activity-Based Cost System)

C. to better assign overhead costs to products

D. to assign indirect service overhead costs to direct overhead cost pools
Benefits
12. The primary benefit of using ABC is that it provides
A. better management decisions.
B. enhanced control over overhead costs.
C. more cost pools.
D. more accurate product costing.
13. Which of the following is not a benefit of activity-based costing?
A. More accurate product costing.
B. Enhanced control over overhead costs.
C. Less costly to use.
D. Better management decisions.
Factors suggesting need to switch to ABC
14. Which of the following factors would suggest a need to switch to activity-based costing?
A. Product lines similar in volume and manufacturing complexity.
B. Overhead costs constitute a significant portion of total costs.
C. The manufacturing process has been stable.
D. Production managers use data provided by the existing system.
15. A least likely reason to use activity-based overhead rates is that
A. some departments are labor-intensive, some are machine-intensive.
B. significant amounts of overhead are driven by different factors.
C. rates calculated for some departments are much higher than for other departments.
D. all jobs require about the same amounts of cost-driving activities.
16. The presence of any of the following factors would suggest a switch to ABC except when
A. product line differ greatly in volume.
B. overhead costs constitute a minor portion of total costs.
C. the manufacturing process has changed significantly.
D. production managers are ignoring data provided by the existing system.
Characteristics
17. Which of the following is typical of activity-based costing systems?
A. Use of a single predetermined overhead rate.
B. Use of direct labor hours or direct labor cost to assign overhead.
C. Assumption of correlation between direct labor and incurrence of overhead cost.
D. Use of multiple cost drivers to allocate overhead.
18. All of the following statements are correct except that
A. activity-based costing has been widely adopted in service industries.
B. the objective of installing ABC in service firms is different than it is in a manufacturing firm.
C. a larger proportion of overhead costs are company-wide costs in service industries.
D. the general approach to identifying activities and activity cost pools is the same in a service company as in a
manufacturing company.
Application
19. ABC should be used in which of the following situations?
A. single-product firms with multiple steps
B. multiple-product firms with only a single process
C. multiple-product firms with multiple processing steps
D. in all manufacturing firms
Limitation
20. Which of the following is a limitation of activity-based costing?
A. More cost pools
C. Poorer management decisions
B. Less control over overhead costs
D. Some arbitrary allocations continue
21. Each of the following is a limitation of activity-based costing system except that:
A. it can be expensive to use.
B. it is more complex than the traditional costing.
C. more cost pools are used.
D. some arbitrary allocations still continue.
Cost behavior of high-volume & low-volume product
22. As compared to a high-volume product, a low-volume product
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Cost Accounting Systems

(B. Activity-Based Cost System)

A.
B.
C.
D.

usually requires less special handling.

is usually responsible for more overhead costs per unit.
requires relatively fewer machine setups.
requires use of direct labor hours as the primary cost driver to ensure proper allocation of overhead.

Cost assignment
23. Which of the following lists the most to least accurate method of cost assignment?
A. direct tracing, driver tracing, allocation C. driver tracing, direct tracing, allocation
B. allocation, direct tracing, driver tracing D. allocation, driver tracing, direct tracing
24. An activity-based costing system uses which of the following procedures?
A. Overhead costs are traced to departments, then costs are traced to products.
B. Overhead costs are traced to activities, then costs are traced to products.
C. Overhead costs are traced directly to products.
D. All overhead costs are expensed as incurred.
Steps
25. A well-designed activity-based costing system starts with
A. identifying the activity-cost pools.
B. computing the activity-based overhead rate.
C. assigning manufacturing overhead costs for each activity cost pool to products.
D. analyzing the activities performed to manufacture a product.
26. The first step in activity-based costing is to
A. assign manufacturing overhead costs for each activity cost pool to products.
B. compute the activity-based overhead rate per cost driver.
C. identify and classify the major activities involved in the manufacture of specific products.
D. identify the cost driver that has a strong correlation to the activity cost pool.
27. The last step in activity-based costing is to
A. identify the major activities that pertain to the manufacture of specific products.
B. allocate manufacturing overhead costs to activity cost pools.
C. identify the cost drivers that accurately measure each activitys contribution to the finished product.
D. assign manufacturing overhead costs for each activity cost pool to products.
28. Successful activity-based costing (ABC) implementation depends upon the firm having:
A. top management support
B. ABC linked to its competitive strategy
C. adequate resources
D. all of the above
Cost driver, activity driver & resource driver
29. Any activity that causes resources to be consumed is called a
A. just-in-time activity
C. facility-level activity
B. cost driver
D. nonvalue-added activity
30. A base used to allocate the cost of a resource to the different activities using that resource is
A. resource driver
C. activity driver
B. final cost object
D. driver
31. A base used to allocate the cost of products, customers, or other final cost objects is a(n)
A. resource driver
C. activity driver
B. final cost object
D. driver
32. Activity drivers differ from resource drivers in that activity drivers
A. are used to assign indirect costs while resource drivers are used to assign direct costs
B. assign the cost of activities to cost objects while resource drivers assign the cost of resources to activities
C. assign the cost of activities to resources and resource drivers assign the cost of resources to cost objects
D. are used to assign direct costs while resource drivers are used to assign indirect costs
33. An appropriate cost driver base should
A. have a cause-and-effect relationship with the activity and the use of resources
B. predict or explain activities' use of resources with reasonable accuracy
C. be based on the practical capacity of the resource to support activities
D. all of the above
Cost pool
34. A cost pool is
A. all of the costs of a particular department.
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(B. Activity-Based Cost System)

B. all costs in a group such as variable costs or discretionary fixed costs.

C. all costs related to a product or product line.
D. all costs that have the same driver.
Cost pool rate
35. More accurate product costing information is produced by assigning costs using
A. a volume-based, plant-wide rate.
B. volume-based, departmental rates.
C. activity-based pool rates.
D. all of the above
Cost allocation
36. Activity-based overhead rates are more useful than a single plant-wide rate if
A. overhead costs are driven by several activities.
B. direct labor cost varies significantly from department to department.
C. all products require about the same amounts of all activities.
D. manufacturing overhead costs are nearly all fixed.
37. In activity-based costing, preliminary cost allocations assign costs to
A. departments.
C. products.
B. processes.
D. activities.
38. In activity-based costing, final cost allocations assign costs to
A. departments.
C. products.
B. processes.
D. activities.
39. Which of the following best describes the flow of overhead costs in an activity-based costing system?
A. Overhead costs => direct labor cost or hours => products
B. Overhead costs => products
C. Overhead costs => activity cost pools => cost drivers => products
D. Overhead costs => machine hours => products
40. Finding a single cost driver that changes in the same proportion as all the variable factory overhead costs is:
A. simplified by breaking out the fixed portion of overhead cost
B. the first step in variable overhead cost management
C. difficult, but manageable
D. impossible
41. Total activity cost is the sum of
A. resource driver assigned costs and activity driver assigned costs
B. direct and indirect costs
C. directly traceable resource costs and resource driver assigned costs
D. opportunity costs and realized costs
Activity levels
Unit level
42. Unit-level costs are costs that
A. inevitably increase whenever a unit is produced
B. are caused by the number of batches produced and sold
C. are incurred to support the number of different products produced
D. are incurred to sustain capacity at a production site
43. Examples of unit-level costs are
A. portions of electricity and indirect materials
B. salaries of schedulers and setup personnel
C. salaries of designers and programmers
D. depreciation and insurance of building
44. Examples of unit level activities are
A. scheduling, setting up, and receiving
B. designing, changing, and advertising

C. heating, lighting, and security

D. cutting, painting, and packaging

45. All of the following are unit-based cost drivers except

A. machine hours
C. number of setups
B. number of units
D. direct labor hours
46. An example of a nonvolume-related overhead base would be:
A. Direct materials cost
C. Direct Labor cost
B. Machine hours
D. Number of setups
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Cost Accounting Systems

(B. Activity-Based Cost System)

Batch level
47. Batch-level resources are acquired
A. for individual units of product or service
B. for making a group of similar products
C. to produce and sell a specific product
D. to provide a general capacity to produce products and services.
48. Examples of batch-level activity drivers include
A. units of output and direct labor hours
B. number of batches and material moves
C. number of products and design changes
D. square footage occupied
49. Which of the following is not a batch-level activity?
A. Engineering changes.
C. Inspection.
B. Equipment setups.
D. Material handling.
Product-sustaining level
50. Examples of activities at the product level of costs include
A. cutting, painting, and packaging
B. scheduling, setting up, and moving
C. designing, changing, and advertising
D. heating, lighting and security
51. Which of the following activities is directly traceable to a product?
A. batch-level activities
C. facility-level activities
B. unit-level activities
D. product-sustaining activities
52. Designing and redesigning are activities that are classified as
A. Facility level
C. Unit level
B. Batch level
D. Product level
53. Which of the following is the best way to consider a product-level cost?.
A. A product-level cost can be avoided when a product line is discontinued.
B. A product-level cost can be avoided when a there is change in the production schedule so the product is not
produced this week.
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.
54. Examples of activities at the batch level of costs include
A. scheduling, setting up, and moving
B. designing, changing, and advertising
C. heating, lighting, and security
D. cutting, painting, and packaging
Facilities sustaining level
55. Which of the following activities may support all the organization's processes and are the highest level of activities?
A. batch-level activities
C. facility-level activities
B. product-sustaining activities
D. unit-level activities
56. In a pure activity-based cost system which of the following might be treated as period costs?
A. facility-level costs
C. batch-level costs
B. product-level costs
D. unit-level costs
57. Plant-level costs are costs that
A. inevitably increase whenever a unit is produced
B. are caused by the number of batches produced and sold
C. are incurred to support the number of different products produced
D. are incurred to sustain capacity at a production site
58. Which of the following is not considered to be a facility-level cost?
A. Cost of Property Insurance.
B. Cost of personnel administration.
C. Cost of Liability Insurance for only one of the product lines.
D. Cost of building security.
Value adding & Non-value adding activity
59. The following activity is value-added:
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Cost Accounting Systems

(B. Activity-Based Cost System)

A. Storage of raw materials

B. Turning a piece of metal on a lathe

C. Moving parts from machine to machine

D. All of these

60. An activity that adds cost to the product but does not increase it market value is a
A. value-added activity
C. cost driver
B. cost-benefit activity
D. nonvalue-added activity
61. When a firm redesigns a product to reduce the number of component parts, the firm is
A. increasing consumer value.
B. increasing the value added to the product.
C. decreasing product variety.
D. decreasing non-value-added costs.
62. Under activity-based costing, benchmarks for product cost should contain an allowance for
A. idle time.
C. spoilage.
B. idle time and scrap materials.
D. none of the above.
63. Elimination of non-value-added activities in a firm should:
A. be discouraged because of potential harmful effects
B. not affect customer value
C. not have priority because non-value-added activities do not affect a firm's performance
D. have priority only when a firm is operating at a loss
64. Page Companys cost allocation and product costing procedures follow activity-based costing principles. The following
activities have been identified and classified as being either value-adding or non-value adding as to each product.
1. Raw materials storage activity
2. Design engineering activity
3. Drill press activity
4. Heat treatment activity
5. Quality control inspection activity
6. Issuance of purchase order activity
How are the foregoing activities classified?
Value-adding
Non-value adding
A.
1, 2, 5, 6
3, 4
B.
1, 2, 4
3, 5, 6
C. 2, 4, 5
1, 3, 6
D. 2, 3, 4
1, 5, 6
Productivity Measures
65. Manufacturing cycle efficiency is a measure of
A. bottlenecks.
C. efficiency.
B. effectiveness.
D. quality.
66. The amount of time between the development and the production of a product is
A. the product life cycle.
C. production time.
B. lead time.
D. value-added time.
PROBLEMS:
Breakeven Analysis
i. Peal Company had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
P40
Setups
1,000
80
Engineering hours
60
2,000
Other data:
Total fixed costs (traditional)
P400,000
Total fixed costs (ABC)
P150,000
Units selling price
P80
What is the breakeven point in units using ABC?
A. 10,000 unit
C. 5,000 units
B. 5,000 units
D. 8,750 units
Traditional Costing
Overhead cost per unit
ii. Mary Manufacturing Company manufactures two products (X and Y). The overhead costs of P29,000 have been
divided into three cost pools that use the following activity drivers:
Product
No. of Orders No. of Labor Transactions No. of Labor Hours
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Cost Accounting Systems

(B. Activity-Based Cost System)

X
30
100
1,000
Y
20
300
4,000
Cost per pool
P5,000
P4,000
P20,000
Using traditional costing, what is the amount of overhead cost to be assigned to Product Y using labor hours as the
allocation base?
A. P21,750
C. P16,000
B. P 5,800
D. P23,200
Unit cost
iii. Arid Company produces products BH and XP. The direct cost of BH is P250 per unit and XP is P350 per unit. Fifty units
of BH and 150 units of XP were produced. Overhead amounting to P130,000 is allocated to products using direct costs as
the relevant cost driver.
The cost of XP per unit amounts to
A. P750
C. P1,050
B. P1,000
D. P1,250
Activity-based Costing
Batch-level costs
Allocated overhead
iv. One of Alien Companys activity cost pools is machine setups, with estimated overhead of P300,000. Alien produces
slacks (400 setups) and shirts (600 setups). How much of the machine setup cost pool should be assigned to slacks?
A. P 0
C. P150,000
B. P120,000
D. P180,000
v. The overhead rate for Machine Setups is P100 per setup. Products A and B have 80 and 60 setups, respectively. The
overhead assigned to each product is
A. Product A P8,000, Product B P8,000
C. Product A P8,000, Product B P6,000
B. Product A, P6,000, Product B P6,000
D. Product A, P6,000, Product B P8,000
vi. Sylvia Company has identified an activity cost pool to which it has allocated estimated overhead of 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 inspections.
The overhead assigned to each product is
A. Widgets P40,000, Gadgets P30,000, Targets P90,000
B. Widgets P480,000, Gadgets P360,000, Targets P1,080,000
C. Widgets P360,000, Gadgets P480,000, Targets P1,080,000
D. Widgets P480,000, Gadgets P360,000, Targets P1,080,000
Overhead cost per unit
vii. EMPIRE Company makes two products, E and M. E is being introduced this period, whereas M has been in production
for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. The only relevant
overhead item is the cost of engineering change orders. E and M 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.
If EMPIRE applies engineering change order cost on the basis of machine hours, the overhead cost per unit to be
assigned to E and M, respectively, are
A. P2.40 and P3.60, respectively
C. P4.80 and P3.60, respectively
B. P3.60 and P2.40, respectively
D. P3.60 and P4.80, respectively
viii. Beltran Company produces products X and Y. The direct cost of X is P250 per unit (P100 materials and P150 labor) and
Y is P350 (P230 material and P120 labor) per unit. Fifty units of X and 150 units of Y were produced. Overhead amounts
to P130,000 and is composed of material handling P12,000, labor support P60,000, machine operation P48,000, and
general administration P10,000. Material handling cost driver is material cost, labor support cost driver is labor cost.
Machine operation cost resulted from running the machines a total of 480 hours (three-fourth of which was for product X).
General administration effort related equally to product X and Y. Material handling chargeable per unit of X (rounded)
amounts to
A. P30; P 70
C. P60; P140
B. P40; P 80
D. P70; P 30
ix. Genco manufactures two versions of a product. Production and cost information show the following:
Model A
Model B
Units produced
200
400
Material moves (total)
20
80
Direct labor hours per unit
1
2
Material handling costs total P200,000. Under ABC, the material handling costs allocated to each unit of Model A and
Model B would be:
A.
B.
C.
D.
Model A
P100
P200
P333
P130
Model B
P333
P400
P200
P100
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Cost Accounting Systems

(B. Activity-Based Cost System)

x. EMPIRE Company makes two products, E and M. E is being introduced this period, whereas M has been in
production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. The only
relevant overhead item is the cost of engineering change orders. E and M 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.
If EMPIRE is using direct tracing, the amount of overhead per unit that will be assigned to E and M, respectively, are
A. P2.40 and P3.60, respectively
C. P4.80 and P1.20, respectively
B. P3.60 and P2.40, respectively
D. P1.20 and P4.80, respectively
Total allocated overhead
xi. Germie, Inc., has identified the following overhead costs and activity drivers for next year:
Overhead Item
Expected Cost
Activity Driver
Expected Quantity
Setup costs
P100,000
Number of setups
500
Ordering costs
40,000
Number of orders
3,200
Maintenance
200,000
Machine hours
4,000
Power
20,000
Kilowatt hours
80,000
The following are two of the jobs completed during the year:
Job 500
Job 501
Direct materials
P1,500
P2,000
Direct labor
P1,400
P2,400
Units completed
100
160
Direct labor hours
100
160
Number of setups
2
8
Number of orders
8
10
Machine hours
40
50
Kilowatt hours
60
100
The companys normal activity is 4,000 direct labor hours.
If the four activity drivers are used to allocate overhead costs, total overhead allocated to Job 500 would be
A. P2,766.50.
C. P2,515.00.
B. P2,415.00.
D. P2,815.00
Unit cost
xii. Wesleyan University Hospital plans to use activity-based costing to assign hospital indirect costs to the care of
patients. The hospital has identified the following activities and activity rates for the hospitals indirect costs:
Activity
Activity Rate
Room and meals
P150 per day
Radiology
P 95 per image
Pharmacy
P 20 per physician order
Chemistry lab
P 85 per test
Operating room
P550 per operating room hour
The records of two representative patients were analyzed, using the activity rates. The activity information associated
with the two patients is as follows:
Patient Flor
Patient Laura
Number of days
7.0
3
Number of images
4.0
2
Number of physician orders
5.0
1
Number of tests
6.0
2
Number operating room hours
4.5
1
Determine the activity cost associated with Patient Flor:
A. P4,500
C. P4,495
B. P4,550
D. P4,515
Total cost
xiii. Food Factory, Inc., has identified the following cost drivers for its expected overhead costs for the year:
Budgeted
Cost
Cost
Driver
Cost Pools
Cost
Driver
Level
Setup
P 80,000
Number of setups
100
Ordering
40,000
Number of orders
500
Maintenance
100,000
Machine hours
2,500
Power
20,000
Kilowatt hours
5,000
Total direct labor hours budgeted = 1,000 hours.
The following data applies to one of the products completed during the year:
Cost
Product X Activity Driver
Driver Consumption
Direct materials
P2,000 Number of setups
2
Direct labor
P2,400 Number of orders
5
Units completed
200 Machine hours
25
Direct labor hours
80 Kilowatt hours
50
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Cost Accounting Systems

(B. Activity-Based Cost System)

If the activity-based cost drivers are used to allocate overhead cost, the total cost of Product X will be:
A. P7,400
C. P4,400
B. P7,800
D. P7,600
xiv. Ray Manufacturing has four categories of overhead. The four categories and expected overhead costs for each
category for next year are listed as follows:
Maintenance
P510,000
Material handling
250,000
Setups
60,000
Inspection
210,000
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000
direct labor hours are budgeted for next year.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would
result in a new business in future years. Usually bids are based upon full manufacturing costs plus 10 percent.
Estimates for the proposed job are as follows:
Direct materials
P30,000
Direct labor (8,000 hours)
P24,000
Number of material moves
100
Number of inspections
120
Number of setups
24
Number of machine hours
4,000
The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected
activity for the four activity drivers that would be used are:
Machine hours
60,000
Material moves
20,000
Setups
3,000
Quality inspections
12,000
What is the total cost of the proposed job if Ray Manufacturing uses direct labor hours as its only activity driver?
A. P144,000
C. P112,400
B. P136,400
D. P106,400

Traditional Costing & Activity-based Costing

Questions 15 & 16 are based on the following information.
Gilmore Company produces two products in a single factory. The following production and cost information has been
determined:
Model 1
Model 2
Units produced
1,000
200
Material moves (total)
100
40
Testing time (total)
250
125
Direct labor hours per unit
1
5
The controller has determined total overhead to be P480,000. P140,000 relates to material moves; P150,000 relates to
testing; the remainder is related to labor time.
xv. If Gilmore uses direct labor hours to allocate overhead to each model, what would overhead per unit be for Model 2?
A. P 158.33
C. P 950.00
B. P 400.00
D. P1,200.00
xvi. If Gilmore uses activity-based costing to allocate overhead to each model, what would overhead per unit be for Model 2?
A. P158.33
C. P925.00
B. P415.93
D. P815.00
Questions 17 & 18 are based on the following information.
Hughes Company produces three products with the following production and cost information:
Model A
Model B
Model C
Units produced
2,000
6,000
12,000
Direct labor hours (total)
4,000
2,000
4,000
Number of setups
100
150
250
Number of shipments
200
225
275
Engineering change orders
15
10
5
Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000.
xvii. What would be the per unit overhead cost for Model A if direct labor hours were the allocation base?
A. P20.50
C. P82.00
B. P41.00
D. P76.00
xviii.What would be the per unit overhead cost for Model A if activity-based costing were used?
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Cost Accounting Systems

(B. Activity-Based Cost System)

A. P20.50
B. P74.00

C. P82.00
D. P76.00

Question Nos. 19 and 20 are based on the following:

Toylandia Company manufactures two products, X-MAN and Machman. Toylandia's overhead costs consist of setting up
machines, P400,000; machining, P900,000; and inspecting, P300,000.
Information on the two products is:
X-MAN
Machman
Direct labor hours
15,000
25,000
Machine setups
600
400
Machine hours
24,000
26,000
Inspections
800
700
xix. Overhead applied to X-MAN using traditional costing is
A. P600,000.
C. P832,000.
B. P768,000.
D. P960,000.
xx. Overhead applied to Machman using activity-based costing is
A. P 640,000.
C. P 832,000.
B. P 768,000.
D. P1,000,000.
Questions 21 & 22 are based on the following information.
The Oilfield plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the
coming year are as follows:
Maintenance
P100,000
Inspection
150,000
The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The
following data have been assembled for use in developing a bid for a proposed job:
Direct materials
P1,000
Direct labor
P4,000
Machine hours
500
Number of inspections
4
Direct labor hours
800
The total number of expected machine hours for all jobs during the year is 25,000, and the total expected number of
inspections is 1,500.
xxi. Using activity-based costing system and the appropriate activity drivers, the total cost of the potential job would be
A, P2,400
C. P7,400
B. P3,600
D. P7,750
xxii. Using direct labor hours to assign overhead, the total cost of the potential job would be
A. P 5,000
C. P 8,000
B. P11,000
D. P 9,000
Question Nos. 23 through 25 are based on the following:
Special Products recently installed an activity-based relational data base. Using the information contained in the activity
relational table, the following pool rates were computed:
P200 per purchase order
P12 per machine hour, process A
P15 per machine hours, process B
P40 per engineering hour
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. Other processes include engineering,
product handling, and procurement. The product relational table for Special is as follows:
Activity Usage
Activity Driver # and Name
Product A:
Product B:
1 Units
200,000
25,000
2 Purchase orders
250
125
3 Machine hours
80,000
10,000
4 Engineering hours
1,250
1,500
xxiii.How much overhead cost will be assigned to product B using process B?
A. P1,200,000
C. P120,000
B. P960,000
D. P150,000
xxiv.

What is the unit cost of Product A?

10

Cost Accounting Systems

(B. Activity-Based Cost System)

A. P4.71
B. P252.00

C. P4.80
D. P5.30

xxv. Dagger Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities,
improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the
following expenditures for manufacturing engineering:
Salaries
P150,000
Equipment
80,000
Supplies
20,000
Total
P250,000
The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the
equipments time is used for improving processes and sixty-five 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
B. P 66,000
D. P250,000
Use the following data to respond to questions 26 through 29
Consider the following facts for NM Company which produces product N and M
Activity
Cost Driver
Ns share Ms share Unused
Setups
# of set ups
10
40
5
Ordering
# of orders
5
10
5
Receiving
# of receipts
22
12
6
Product Dev.
# of parts
180
120
100
Gen Mgt
#, labor hrs
2,900
4,100
1,000
Security
Area covered
3,200
5,400
400
Materials
# of units produced
400
800
Labor
# of DLH
1,700
3,100
1,200

Cost
P 5,500
3,200
2,400
2,800
7,200
9,000
120,000
56,000

xxvi.
Set up cost chargeable per unit of M accounting for unused capacity amounts to
A. 2.50
C. 5.00
B. 2.75
D. 5.50
xxvii. Ordering cost chargeable per unit of N ignoring unused capacity amounts to
A. 2.00
C. 3.00
B. 2.67
D. 4.00
xxviii. The cost of unused capacity excluding labor costs amounts to
A. 11,260
C. 11,856
B. 11,460
D. 14,856

i.

ii.

iii.

Answer: D
BES (ABC) =
ABC fixed costs
Set ups
Engineering
Total Fixed Costs

350,000/40
80 x P1,000
2,000 x 60

Answer: D
Total overhead
Allocated OH to Product Y based on labor hours:
Answer: D
BH: (50 x P250)
XP: (150 x P350)
Total direct costs

8,750
P 150,000
80,000
120,000
P 350,000
(5,000 + 4,000 + 20,000)
4 20 x 29,000

P 12,500
52,500
P 65,000

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

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

v.

Answer: B
Setup cost per setup
Setup costs assigned to slacks

29,000
P23,200

P105,000

(P300,000 1,000)
(400 x P300)

P300
P120,000

Answer: C

11

Cost Accounting Systems

(B. Activity-Based Cost System)
Overhead allocated to:
Product A: (80 x P100)
Product B: (60 x P100)
vi.

P8,000
6,000

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
Cost of change order per hour
Cost of change order per unit:
E:
2 hours x P1.20
M:
3 hours x P1.20

10 x 600
P6,000/5,000 hours

P6,000
P1.20/MH

P2.40
P3.60

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

x.

xi.

Answer: B
Handling cost per move
Model A:
Model B:

P 5,000
34,500
P39,500
P0.3038
P 30.38
P 69.87

(P200,000 100 moves)

20 x P2,000 200
80 x P2,000 400

Answer: C
Cost of change orders based on ABC
E:
8 x P600 1,000
M:
2 x P600 1,000

P2,000
P 200
P 400

P4.80
P1.20

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

xii. Answer: D
Room and meals
Radiology
Pharmacy
Chemistry lab
Operating room
Total

P200.00
12.50
50.00
0.25
P 400
100
2,000
15

(7 days x P150)
(4 images x P95)
(5 orders x P20)
(6 tests x P85)
(4.5 hours x P550)

xiii. Answer: D
Setup
Ordering
Maintenance
Power
Total overhead assigned
Direct materials
Direct labor
Total costs assigned

P1,050
380
100
510
2,475
P4,515

P 80,000 100 x 2
P 40,000 500 x 5
P100,000 2,500 x 25
P 20,000 5,000 x 50

P1,600
400
1,000
200
P3,200
2,000
2,400
P7,600

xiv. Answer: B
Direct materials
Direct labor
Overhead
Total cost of the job
OH rate per DLH:
(P510,000 + P250,000 + P60,000 + P210,000) 100,000
Overhead allocated to proposed job: 8,000 x 10.30
xv.

P 30,000
24,000
82,400
P136,400
P10.30 per DLH
82,400

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

xvi. Answer: C
Overhead allocated to Model 2:
Handling
Testing
Labor-related
Total
Overhead per unit, Model 2
xvii. Answer: B
Overhead rate per DLH
Overhead applied to Model A:
Overhead applied to Model A per unit:

2,000
P240,000
P1,200

(P140,000 140 x 40 moves)

(P150,000 375 x 125)
(P190,000 2)
(P185,000 200)
(P410,000 10,000)
(4,000 x P41)
(P164,000 2,000)

12

P 40,000
50,000
95,000
P185,000
P925
P41
P164,000
P82

Cost Accounting Systems

(B. Activity-Based Cost System)
xviii. Answer: B
Activity rates;
Setups:
Shipping:
Engineering

(P90,000 500 setups)

(P140,000 700 shipments)
(P180,000 30 change orders)

Overhead assigned to Model A

Setups
Shipping
Engineering
Total
Overhead per unit of Model A

(100 x P180)
(200 x P200)
(15 x P6,000)

P 18,000
40,000
90,000
P148,000
P 74

(P148,000 2,000)

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

P 180
200
6,000

P1,600,000
P600,000

Answer: B
Activity Rates:
Setups
(400,000/1,000 setups)
Machining
(900,000/50,000 MH)
Inspection
(300,000/1,500 Inspection)
Overhead assigned to Machman using ABC:
(400xP400) + (26,000xP18) + (700xP200)

xxi. Answer: C
Direct materials
Direct labor
Maintenance 500 x 4
Inspection 4 x 100
Total
Activity Rate:
Inspection (P150,000 1,500)
Maintenance (P100,000 25,000)

P400 per set up

P 18 per MH
P200 per inspection
P768,000
P1,000
4,000
2,000
400
P7,400
P100/inspection
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
Processing costs
Engineering cost
Total costs assigned to Product A
Unit cost: (P1,060,000 200,000)

(250 x P200)
(80,000 x P12)
(1,250 x P40)

xxv. Answer: B
Cost of use of equipment
Supplies
Salary of second engineer
Total cost assigned to designing tool activity

xxviii.

P 52,000
4,000
10,000

(40/55 x P5,50
(P4,000 800)

Answer: B
Ordering costs chargeable to Product M:
Ordering cost per unit, Product M:
Answer: D
Activity rate:
Setup cost:
Ordering:
Receiving cost:
Product development:
General management:
Security:
Labor cost:

50,000
960,000
50,000
P1,060,000
P 5.30

(0.65 x P80,000)
(0.2 x P20,000)
(0.2 x P50,000)
P 66,000

xxvi. Answer: C
Setup cost chargeable to Product M:
Setup cost per unit, Product M:
xxvii.

P4,000
P 5.00

5/15 x P3,200)
(P1,066.67 400)

(5,500 55)
(P3,200 20)
(P2,400 40)
(P2,800 400)
(P7,200 8,000)
(P9,000 9,000)
(P56,000 6,000)

P1,066.67
P 2.67

P100 per setup

P160 per order
P60 per receipt
P 0.90 per hour
P1.00 per sq. m.
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

13

P 7 per part