Name: __________________________ Date: _____________

Use the following to answer questions 1-3:

Esmail Company is a wholesale distributor that uses activity-based costing for all of its overhead
costs. The company has provided the following data concerning its annual overhead costs and its
activity based costing system:

O v e r h e a d c o s ts :
W a g e s a n d s a la r ie s ............ $ 3 8 0 ,0 0 0
O th e r e x p e n s e s .................. 2 2 0 ,0 0 0
T o ta l .................................. $ 6 0 0 ,0 0 0

D is tr ib u tio n o f re s o u rc e c o n s u m p tio n :
A c tiv ity C o s t P o o ls
F illin g C u s to m e r
O rd ers S u p p o rt O th e r T o ta l
W a g e s a n d s a la r ie s .............. 55% 35% 10% 100%
O th e r e x p e n s e s .................... 25% 55% 20% 100%

T h e O th e r a c tiv ity c o s t p o o l c o n s is ts o f th e c o s ts o f id le c a p a c ity a n d

o rg a n iz a tio n -s u s ta in in g c o s ts .

T h e a m o u n t o f a c tiv ity fo r th e y e a r is a s fo llo w s :

A c tiv ity C o s t P o o l A c tiv ity

F illin g o r d e r s ..................... 4 ,0 0 0 o r d e r s
C u s to m e r s u p p o r t .............. 6 0 c u s to m e rs

1.What would be the total overhead cost per order according to the activity based costing
system? In other words, what would be the overall activity rate for the filling orders
activity cost pool? (Round to the nearest whole cent.)
A) $60.00
B) $66.00
C) $82.50
D) $37.50

2.What would be the total overhead cost per customer according to the activity based
costing system? In other words, what would be the overall activity rate for the customer
support activity cost pool? (Round to the nearest whole dollar.)
A) $3,500
B) $5,500
C) $4,233
D) $4,500

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 3.To the nearest whole dollar, how much wages and salaries cost would be allocated to a
customer who made 6 orders in a year?
A) $2,264
B) $2,530
C) $1,998
D) $3,995

Use the following to answer questions 4-6:

Njombe Corporation manufactures a variety of products. In the past, Njombe has been using a
traditional costing system in which the predetermined overhead rate was 150% of direct labor
cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this
system was distorting costs and selling prices, Njombe has decided to switch to an activity-based
costing system for manufacturing overhead costs using three activity cost pools. Selling prices
are still to be set at 200% of unit product cost under the new system. Information on these cost
pools for next year are as follows:

E s tim a te d
A c tiv ity C o s t P o o l E s tim a te d A c tiv ity O verh ea d C o st
M a c h in e S e tu p s ..... 400 N u m b e r o f s e tu p s $ 1 5 0 ,0 0 0
Q u a lity C o n tr o l ..... 1 ,5 0 0 N u m b e r o f in s p e c tio n s $ 1 8 0 ,0 0 0
O th e r O v e r h e a d ..... 3 0 ,0 0 0 M a c h in e h o u rs $ 4 8 0 ,0 0 0

In fo rm a tio n (o n a p e r u n it b a s is ) re la te d to th re e p o p u la r p ro d u c ts a t N jo m b e a re
a s fo llo w s :

M odel #19 M odel #36 M odel #58

D ir e c t m a te r ia l c o s t ................ $400 $540 $310
D ir e c t la b o r c o s t ..................... $810 $600 $220
N u m b e r o f s e tu p s ................... 2 3 1
N u m b e r o f in s p e c tio n s ........... 1 3 1
N u m b e r o f m a c h in e h o u r s ...... 4 8 10

4.Under the traditional system, what would be the selling price of one unit of Model #36?
A) $2,536
B) $2,712
C) $4,080
D) $5,506

5.Under the activity-based costing system, what would be the selling price of one unit of
Model #36?
A) $2,536
B) $2,712

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C) $4,080
D) $5,506

6.In comparing the traditional system with the activity-based costing system, which of
Njombe's Models had higher unit product costs under the traditional system?
A) #19
B) #58
C) #19 and #58
D) #36 and #58

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Use the following to answer questions 7-11:

Carter Lumber sells lumber and general building supplies to building contractors in a medium-
sized town in Montana. Data regarding the store's operations follow:

Sales are budgeted at $380,000 for November, $390,000 for December, and $400,000 for
January.
Collections are expected to be 70% in the month of sale, 27% in the month following the sale,
and 3% uncollectible.
The cost of goods sold is 65% of sales.
The company purchases 80% of its merchandise in the month prior to the month of sale and
20% in the month of sale. Payment for merchandise is made in the month following the
purchase.
Other monthly expenses to be paid in cash are $22,000.
Monthly depreciation is $20,000.
Ignore taxes.

S ta te m e n t o f F in a n c ia l P o s itio n
O c to b e r 3 1

A s s e ts
C a s h ............................................................................................ $ 1 3 ,0 0 0
A c c o u n ts re c e iv a b le
( n e t o f a llo w a n c e f o r u n c o lle c tib le a c c o u n ts ) ........................ 7 7 ,0 0 0
I n v e n to r y .................................................................................... 1 9 7 ,6 0 0
P ro p e rty , p la n t a n d e q u ip m e n t
( n e t o f $ 5 0 2 ,0 0 0 a c c u m u la te d d e p r e c ia tio n ) .......................... 9 9 2 ,0 0 0
T o ta l a s s e ts ................................................................................. $ 1 ,2 7 9 ,6 0 0

L ia b ilitie s a n d S to c k h o ld e rs E q u ity
A c c o u n ts p a y a b le ....................................................................... $ 2 4 0 ,0 0 0
C o m m o n s to c k ........................................................................... 7 8 0 ,0 0 0
R e ta in e d e a r n in g s ....................................................................... 2 5 9 ,6 0 0
T o ta l lia b ilitie s a n d s to c k h o ld e r s e q u ity ................................... $ 1 ,2 7 9 ,6 0 0

7.The net income for December would be:

A) $114,500
B) $94,500
C) $101,400
D) $82,800

8.The cash balance at the end of December would be:

A) $182,400
B) $114,400

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C) $13,000
D) $195,400

9.The accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A) $105,300
B) $88,700
C) $117,000
D) $207,900

10.Accounts payable at the end of December would be:

A) $253,500
B) $50,700
C) $208,000
D) $258,700

11.Retained earnings at the end of December would be:

A) $259,600
B) $342,400
C) $422,000
D) $445,100

12.For May, Young Company has budgeted its cash receipts at $125,000 and its cash
disbursements at $138,000. The company's cash balance on May 1 is $17,000. If the
desired May 31 cash balance is $20,000, then how much cash must the company borrow
during the month (before considering any interest payments)?
A) $4,000
B) $8,000
C) $12,000
D) $16,000

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Use the following to answer questions 13-14:

The following standards for variable manufacturing overhead have been established for a
company that makes only one product:

S ta n d a r d h o u r s p e r u n it o f o u tp u t ............... 3 .2 h o u r s
S ta n d a r d v a r ia b le o v e r h e a d r a te ................. $ 1 2 .7 0 p e r h o u r

T h e fo llo w in g d a ta p e rta in to o p e ra tio n s fo r th e la s t m o n th :

A c tu a l h o u r s ................................................ 1 ,6 0 0 h o u r s
A c tu a l to ta l v a r ia b le o v e r h e a d c o s t ............. $ 1 9 ,6 0 0
A c tu a l o u tp u t ............................................... 4 0 0 u n its

13.What is the variable overhead spending variance for the month?

A) $3,344 F
B) $720 U
C) $3,344 U
D) $720 F

14.What is the variable overhead efficiency variance for the month?

A) $576 U
B) $4,064 U
C) $3,920 U
D) $3,920 F

Use the following to answer questions 15-16:

The Maxwell Company has a standard costing system in which variable manufacturing overhead
is assigned to production on the basis of machine hours. The following data are available for
July:

- Actual variable manufacturing overhead cost incurred: $22,620

- Actual machine hours worked: 1,600
- Variable overhead spending variance: $3,420 unfavorable
- Total variable overhead variance: $4,620 unfavorable

15.The variable overhead efficiency variance for July is:

A) $8,040 unfavorable
B) $8,040 favorable
C) $1,200 unfavorable

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 D) $1,200 favorable

16.The standard number of machine hours allowed for July production is:
A) 1,500 hours
B) 1,600 hours
C) 1,700 hours
D) 2,270 hours

Use the following to answer questions 17-18:

Vermeillen Corporation uses a standard costing system in which variable manufacturing

overhead is assigned to production on the basis of the number of machine setups. The following
data pertain to one month's operations:

- Variable manufacturing overhead cost incurred: $70,000

- Total variable overhead variance: $4,550 favorable
- Standard machine setups allowed for actual production: 3,550
- Actual machine setups incurred: 3,500

17.The standard variable overhead rate per machine setup is:

A) $20.00
B) $21.30
C) $18.44
D) $21.00

18.The variable overhead spending variance is:

A) $1,000 favorable
B) $1,000 unfavorable
C) $3,500 unfavorable
D) $3,500 favorable

19.The direct labor standards for a particular product are:

4 hours of direct labor @ $12.00 per direct labor-hour = $48.00

During October, 3,350 units of this product were made, which was 150 units less than
budgeted. The labor cost incurred was $159,786 and 13,450 direct labor-hours were
worked. The direct labor variances for the month were:

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 L a b o r E ffic ie n c y
L a b o r R a te V a ria n c e V a ria n c e
A ) $ 1 ,6 1 4 U $600 U
B ) $ 1 ,6 1 4 U $600 F
C ) $ 1 ,6 1 4 F $600 U
D ) $ 1 ,6 1 4 F $600 F
A) Item A
B) Item B
C) Item C
D) Item D

20.The direct labor budget is based on:

A) the desired ending inventory of finished goods.
B) the beginning inventory of finished goods.
C) the required production for the period.
D) the required materials purchases for the period.

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Answer Key

1.B
2.C
3.B
4.C
5.D
6.A
7.D
8.D
9.A
10.D
11.C
12.D
13.D
14.B
15.C
16.A
17.D
18.D
19.C
20.C

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