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Mr. Gregory White
Mr. Gregory White, Master's Degree
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Experience:  M.A., M.S. Education / Educational Administration
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First step of activity-based costing

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TeacherGreg,
11) The first step in activity-based costing is to
A. compute the activity-based overhead rate per cost driver
B. assign manufacturing overhead costs for each activity cost pool to product
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
12) An activity that has a direct cause-effect relationship with the resources consumed is a(n)
A. overhead rate
B. cost driver
C. cost pool
D. product activity
13) What sometimes makes implementation of activity-based costing difficult in service industries is
A. identifying activities, activity cost plus, and cost drivers
B. the labeling of activities as value-added
C. that a larger proportion of overhead costs are company-wide costs
D. attempting to reduce or eliminate nonvalue-added activities
14) Each of the following is a limitation of activity-based costing EXCEPT
A. It is more complex than traditional costing.
B. It can be expensive to use.
C. More cost pools are used.
D. Some arbitrary allocations continue.
15) Which of the following is a nonvalue-added activity?
A. Machining
B. Engineering design
C. Inspection
D. Packaging
16) Poodle Company manufactures two products, Mini A and Maxi B. Poodle's overhead costs consist of setting up machines, $800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:
Mini A Maxi B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Maxi B using traditional costing using direct labor hours is
A. $1,536,000
B. $1,280,000
C. $1,670,000
D. $2,000,000
17) Poodle Company manufactures two products, Mini A and Maxi B. Poodle's overhead costs consist of setting up machines, $800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:
Mini A Maxi B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Mini A using traditional costing using direct labor hours is
A. $1,536,000
B. $1,670,000
C. $1,200,000
D. $1,920,000
18) Which of the following factors would suggest a switch to activity-based costing?
A. Overhead costs constitute a significant portion of total costs.
B. The manufacturing process has been stable.
C. Product lines similar in volume and manufacturing complexity.
D. Production managers use data provided by the existing system.
19) Walton, Inc. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $16, while the cost of assembling each unit is estimated at $17. Unassembled units can be sold for $55, while assembled units could be sold for $71 per unit. What decision should Walton make?
A. Sell before assembly; the company will save $15 per unit.
B. Process further; the company will save $1 per unit.
C. Sell before assembly; the company will save $1 per unit.
D. Process further; the company will save $16 per unit.
20) The cost to produce Part A was $10 per unit in 2005. During 2006, it has increased to $11 per unit. In 2006, Supplier Company has offered to supply Part A for $9 per unit. For the make-or-buy decision,
A. incremental costs are $1 per unit
B. net relevant costs are $1 per unit
C. incremental revenues are $2 per unit
D. differential costs are $2 per unit
Submitted: 5 years ago.
Category: Essays
Expert:  Mr. Gregory White replied 5 years ago.

11. C. identify and classify the major activities involved in the manufacture of specific products

12. B. cost driver

13. C. that a larger proportion of overhead costs are company-wide costs

14. C. More cost pools are used.

15. C. Inspection

16.D. $2,000,000

17.C. $1,200,000

18. A. Overhead costs constitute a significant portion of total costs.

19.C. Sell before assembly; the company will save $1 per unit.

20.D. differential costs are $2 per unit

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