Test Bank for Managerial Accounting, Third Edition

Achievement Test 2: Chapters 3-4 Name ___________________________Managerial Accounting, 3e Instructor ________________________Weygandt, Kieso, & Kimmel Section # _________ Date __________

Part I II III IV V Total

Points 36 10 24 20 10 100

Score

REMINDER, CHAPTER 3 (Process Costing) is not on exam 2.

PART I — MULTIPLE CHOICE (36 points)

Instructions: Designate the best answer for each of the following questions.

____ 9. The primary benefit of activity-based costing is that it leads toa. more cost pools used to assign overhead costs to products.b. more accurate product costing.c. enhanced control over overhead costs.d. better management decisions.

____ 10. All of the following are value-added activities in a manufacturing operation excepta. assembly.b. engineering design.c. inspections.d. machining.

____ 11. ABC costing is an approach for allocatinga. direct materials to products.b. direct labor to products.c. manufacturing overhead to products.d. direct materials and direct labor to products.

____ 12. The first step in activity-based costing is toa. assign overhead costs for each activity cost pool to products.b. compute the activity-based overhead rate.c. identify cost drivers that accurately measure each activity's contribution to

the finished product.d. identify and classify the major activities involved in the manufacture of

specific products.

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Test Bank for Managerial Accounting, Third Edition

PART II — TRUE/FALSE (10 points)

Instructions: Designate whether each of the following statements is true or false by circling the T or F.

T F 1. The flow of costs is essentially the same in a job order and a process cost system.

T F 2. The method of assigning costs is essentially the same in a job order and a process cost system.

T F 3. Machine hours are widely used in allocating manufacturing overhead costs in a process cost system.

T F 4. Manufacturing costs in beginning work in process are ignored in computing the cost of units transferred out and the cost of ending work in process.

T F 5. A cost reconciliation schedule is prepared to assign total costs to units transferred out and in ending work in process.

T F 6. Activity-based costing allocates overhead to multiple activity cost pools and assigns the activity cost pools to products by means of cost drivers.

T F 7. The first step in activity-based costing is to identify the cost driver that has a strong correlation to the activity pool.

T F 8. An activity-based overhead rate is computed by dividing the estimated overhead per activity by the number of cost drivers expected to be used per activity.

T F 9. Nonvalue-added activities are production-related activities that add cost to a product without increasing its market value.

T F 10. Product-level activities are required to support or sustain an entire production process.

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Test Bank for Managerial Accounting, Third Edition

PART III — PROCESS COSTING (24 points)

OMIT QUESTIONS ABOUT PROCESS COSTING

PART IV — ACTIVITY-BASED COSTING (20 points)

Bright Window Company designs and builds custom windows for luxury homes. Most of the windows are custom made but occasionally the company does mass production on order. Its budgeted manufacturing overhead costs for the year 2005 are as follows:

Overhead Cost Pools Amount Purchasing $ 180,000Production (cutting, milling, finishing) 400,000Setting up machines 135,000Inspecting 160,000Utilities 300,000

Total budget overhead costs $1,175,000

For the last three years, the company has been charging overhead to products on the basis of machine hours. For the year 2005, 100,000 machine hours are budgeted.

Susan Craft, owner-manager of Bright Window recently directed her accountant to implement the activity-based costing system she has repeatedly proposed. At Susan's request, the accountant and production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

TotalOverhead Cost Pools Activity Cost Drivers Drivers Purchasing Number of orders 500Production (cutting, milling, finishing) Direct labor hours 80,000Setting up machines Number of setups 1,000Inspecting Number of inspections 5,000Utilities Square feet occupied 75,000

During this month, the company received an order for 50 window sets from a housing development contractor. The accountant prepares cost estimates for producing components for 50 window sets so Susan can submit a contract price per window set to the contractor. The following data for the production of 50 window sets is accumulated:

Direct materials $120,000Direct labor $135,000Machine hours 12,000Direct labor hours 10,000Number of purchase orders 50Number of machine setups 80Number of inspections 380Number of square feet occupied 7,000

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Test Bank for Managerial Accounting, Third Edition

Instructions(a) Compute the predetermined overhead rate using traditional costing with machine

hours as the basis.(b) Compute the manufacturing cost per window set under traditional costing.(c) Compute the manufacturing cost per window set under the proposed activity-based

costing.

PART V — ABC COST DRIVERS (10 points)

Sharpe Corporation manufactures all-terrain vehicles (ATV) in its Columbia, Missouri plant.

InstructionsIdentify an appropriate cost driver that may be used to assign each of the following costs to each line of ATVs. Cost drivers may be used more than once. Cost drivers are listed below.

Cost Drivers

Machine hoursNumber of partsNumber of finished vehiclesEngineering hoursSquare footageNumber of setupsNumber of employees/direct labor hoursNumber of testsNumber of orders

Cost Cost Driver

1. Assembling __________________________

2. Engineering __________________________

3. Machining __________________________

4. Ordering and receiving __________________________

5. Painting __________________________

6. Machine setup __________________________

7. Storing __________________________

8. Supervising __________________________

9. Packing and shipping __________________________

10. Inspecting and testing __________________________

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Test Bank for Managerial Accounting, Third Edition

Solutions — Achievement Test 2: Chapters 3-4

PART I — MULTIPLE CHOICE (36 points)1. b 5. c 9. b2. a 6. c 10. c3. d 7. c 11. c4. a 8. d 12. d

PART II — TRUE/FALSE (10 points)

1. T 6. T2. F 7. F3. T 8. T4. F 9. T5. T 10. F

PART III — PROCESS COSTING (24 points)

OMIT QUESTIONS ABOUT PROCESS COSTING

PART IV — ACTIVITY-BASED COSTING (20 points)

(a) Predetermined overhead rate using machine hours:$1,175,000 ÷ 100,000 hours = $11.75 per machine hour

(b) Manufacturing cost per window set under traditional costing:Direct materials $120,000Direct labor 135,000Overhead (12,000 × $11.75) 141,000

Total cost of 50 window sets $396,000

Cost per window set ($396,000 ÷ 50) $7,920

(c) Manufacturing cost per window set under activity-based costing:

Computation of Activity-Based Overhead Rate

Activity Cost Pool Estimated Overhead

Total Estimated Drivers

Activity-Based Overhead Rate

Purchasing $ 180,000 500 orders $360 per orderProduction 400,000 80,000 D/L hrs. $5 per D/L hr.Setting up machines 135,000 1,000 setups $135 per setupInspecting 160,000 5,000 inspections $32 per inspectionUtilities 300,000 75,000 sq. feet $4 per sq. foot

$1,175,000

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Test Bank for Managerial Accounting, Third Edition

Assignment of Overhead to Order of 50 Window Sets

Expected Activity-BasedActivity Cost Pool Use of Driver Overhead Rate Cost AssignedPurchasing 50 orders $360 $ 18,000Production 10,000 D/L hrs. $5 50,000Setting up machines 80 setups $135 10,800Inspecting 380 inspections $32 12,160Utilities 7,000 sq. ft. $4 28,000

$118,960

Total manufacturing cost per window set under ABC:Direct materials $120,000Direct labor 135,000Overhead 118,960

Total cost of 50 window sets $373,960

Total cost per window set: ($373,960/50) $7,479.20

PART V — ABC COST DRIVERS (10 points)

1. Number of parts 6. Number of setups2. Engineering hours 7. Square footage3. Machine hours 8. Number of employees/direct labor hours4. Number of orders 9. Number of finished vehicles5. Number of parts 10. Number of tests

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