Question 1

Which of the following best describes the main reason companies refine their cost allocation systems from a plantwide overhead rate to departmental or activity-based costing?

Accepted Answer

To increase the accuracy of product cost information and reduce cost distortion.

Question 2

A company estimates its total manufacturing overhead (MOH) for the year to be $$1,000,000 and its total direct labor hours to be 62,500. What is the plantwide predetermined overhead rate?

Provide your answer using the formula: 
$$ 	ext{Predetermined Overhead Rate} = \frac{	ext{Total Estimated MOH}}{	ext{Total Estimated Allocation Base}} $

Accepted Answer

$$ \16$$ $ per direct labor hour

Question 3

Which of the following conditions would most likely indicate that a company should use departmental overhead rates instead of a plantwide rate?

Accepted Answer

Each department incurs different types and amounts of manufacturing overhead, and products use departments to different extents.

Question 4

Given the following data for the Machining Department: 
Total Departmental Overhead Cost Pool = $$400,000 
Total Departmental Allocation Base = 12,500 DL hours 
What is the departmental overhead rate?

Use the formula: 
$$ 	ext{Departmental Overhead Rate} = \frac{	ext{Total Estimated Departmental Overhead}}{	ext{Total Estimated Departmental Allocation Base}} $

Accepted Answer

$$ \32$$ $ per DL hour

Question 5

A job used 1 direct labor hour in the Machining Department and 9 direct labor hours in the Assembly Department. If the Machining Department overhead rate is $$32 per DL hour and the Assembly Department overhead rate is 12 $$per DL hour, what is the total manufacturing overhead allocated to the job?

Accepted Answer

$140

Question 6

Which of the following is a key advantage of activity-based costing (ABC) over traditional costing systems?

Accepted Answer

ABC reduces cost distortion by allocating overhead based on activities and their usage.

Question 7

A company has the following activity cost pools and allocation bases:
- Machine Setup: $$80,000, 8,000 setups
- Materials Handling: 200$$,000, 400,000 parts
What is the activity cost allocation rate for Machine Setup?

Use the formula:
$$ 	ext{Activity Cost Allocation Rate} = \frac{	ext{Total Estimated Activity Cost Pool}}{	ext{Total Estimated Activity Allocation Base}} $$

Accepted Answer

$$10.00$$ per setup

Question 8

Which of the following is an example of a batch-level activity in the cost hierarchy?

Accepted Answer

Machine setup costs incurred whenever a new production order is started

Question 9

A company is considering switching to an ABC system. Which of the following situations would most likely increase the benefits of adopting ABC?

Accepted Answer

The company has high indirect costs and produces many different products that use resources differently.

Question 10

Which of the following is NOT one of the eight wastes identified in lean operations (DOWNTIME)?

Accepted Answer

Product differentiation

Question 11

Which of the following best describes the 'pull system' in lean operations?

Accepted Answer

Production is triggered by actual customer demand, resulting in smaller batches and reduced inventory.

Question 12

Which of the following is a prevention cost in the cost of quality framework?

Accepted Answer

Training employees to avoid defects

Question 13

A company incurs $$50,000 in prevention costs, 30$$,000 in appraisal costs, $$20,000 in internal failure costs, and 10$$,000 in external failure costs. What percentage of total quality costs are prevention costs?

Use the formula:
$$ 	ext{Percentage} = \frac{	ext{Prevention Costs}}{	ext{Total Quality Costs}} 	imes 100 $$

Accepted Answer

40%

Question 14

Which of the following is a key drawback of lean production systems?

Accepted Answer

They are vulnerable to supply chain disruptions such as natural disasters.

Question 15

Which of the following is the correct order of the five-step data cleaning process before using activity cost pool and driver data?

Accepted Answer

Remove irrelevant data, remove duplicate records, standardize data, deal with missing data, filter out data outliers

Question 16

A company using a plantwide overhead rate finds that its high-volume products are overcosted and its low-volume products are undercosted. What is the most likely cause?

Accepted Answer

The plantwide rate does not account for the different resources consumed by each product.

Question 17

Which of the following is an example of a non-value-added activity?

Accepted Answer

Inspecting products for defects

Question 18

A company allocates manufacturing overhead using the following departmental rates: Cutting Department: $$9 per machine hour; Finishing Department: 18 $$per direct labor hour. Job 484 used 8 machine hours in Cutting and 7 direct labor hours in Finishing. What is the total manufacturing overhead allocated to Job 484?

Use the formula:
$$ 	ext{MOH Allocated} = (	ext{Cutting Rate} 	imes 	ext{Machine Hours}) + (	ext{Finishing Rate} 	imes 	ext{Direct Labor Hours}) $$

Accepted Answer

$198

Question 19

Which of the following is a facility-level activity?

Accepted Answer

Factory utilities

Activity-Based Costing, Departmental Overhead Rates, and Lean Operations

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