Question 1

A company uses a plantwide overhead rate to allocate manufacturing overhead (MOH). Estimated MOH for the year is $1,000,000 and the estimated allocation base is 62,500 direct labor (DL) hours. What is the predetermined MOH rate, and how much MOH would be allocated to a job that uses 20 DL hours?

Accepted Answer

$$\16$ per DL hour; $$\$$320$$ allocated ($$\1$$,000,000/62,500 = \$$16$$; $$20 	imes \16$$ = \$$320)$$

Question 2

Which of the following scenarios would most likely benefit from using departmental overhead rates instead of a plantwide rate?

Accepted Answer

A company with multiple departments that incur different types and amounts of overhead and whose products use the departments to different extents.

Question 3

Given the following data, calculate the departmental overhead rate for the Machining Department: Total departmental overhead cost pool = $400,000; Total departmental allocation base = 12,500 DL hours.

Accepted Answer

$$\32$ per DL hour ($$\$$400,000/12,500)$$

Question 4

A job used 4 DL hours in the Machining Department and 6 DL hours in the Assembly Department. If the Machining Department overhead rate is $$32 per DL hour and the Assembly Department rate is 12 $$per DL hour, what is the total MOH allocated to the job?

Accepted Answer

$$\128$$ + \$$72 = \200$

Question 5

Which of the following is a primary 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 6

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 each activity?

Accepted Answer

Machine Setup: $$\10$ per setup ($$\$$80,000/8,000$$); Materials Handling: $$\0.50$ per part ($$\$$200,000/400,000)$$

Question 7

Using ABC, if Job 101 used 2 setups, 20 parts, 1 machine hour, 9 DL hours, 3 inspections, and 52 cubic feet packaged, and the rates are $$10/setup, 0.50/$$part, $$24/machine hour, 3/DL $$hour, $$5/inspection, 0.25/$$cubic foot, what is the total MOH allocated to Job 101?

Accepted Answer

$$20 + 10$$ + $$24 + 27$$ + $$15 + 13$$ = $$109$$

Question 8

Which of the following is a batch-level activity according to the cost hierarchy?

Accepted Answer

Machine setup costs incurred whenever a new production order is started.

Question 9

A company is considering switching to ABC because managers are losing bids they expected to win and winning bids they expected to lose. What does this indicate?

Accepted Answer

The current cost system may be distorting costs, and a refined system like ABC could provide more accurate information.

Question 10

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

Accepted Answer

Standardization

Question 11

In a Just-in-Time (JIT) system, which of the following is a key characteristic?

Accepted Answer

Raw materials are purchased just in time for production and goods are completed just in time for delivery.

Question 12

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

Accepted Answer

Employee training to avoid defects.

Question 13

A company’s cost of quality report shows high internal failure costs. Which action would most likely reduce these costs?

Accepted Answer

Investing more in prevention activities such as better training and process improvements.

Question 14

Which of the following is the correct formula for calculating the activity cost allocation rate in ABC?

Accepted Answer

$$	ext{Activity Cost Allocation Rate} = \frac{	ext{Total Estimated Activity Cost Pool}}{	ext{Total Estimated Activity Allocation Base}}$$

Question 15

Which of the following best describes a value-added activity?

Accepted Answer

An activity for which the customer is willing to pay because it adds value to the final product.

Question 16

Which of the following is a limitation of activity-based costing (ABC)?

Accepted Answer

It can be costly and time-consuming to implement and maintain.

Question 17

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.

Activity-Based Costing, Lean Operations, and the Costs of Quality: Study Notes

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