AT2-1 Third Edition

Test Bank for Managerial Accounting,

Achievement Test 2: Chapters 3-4 Managerial Accounting, 3e Weygandt, Kieso, & Kimmel

Name ___________________________ Instructor ________________________ Section # _________ Date __________

Part Points Score

I 36

II 10

III 24

IV 20

V 10

Total 100

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 to a. 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 except a. assembly. b. engineering design. c. inspections. d. machining. ____ 11. ABC costing is an approach for allocating a. 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 to a. 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.

AT2-2 Third Edition PART II TRUE/FALSE (10 points)

Test Bank for Managerial Accounting,

Instructions: Designate whether each of the following statements is true or false by circling the T or F. T T T T T T T T F F F F F F F F 1. The flow of costs is essentially the same in a job order and a process cost system. 2. The method of assigning costs is essentially the same in a job order and a process cost system. 3. Machine hours are widely used in allocating manufacturing overhead costs in a process cost system. 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. 5. A cost reconciliation schedule is prepared to assign total costs to units transferred out and in ending work in process. 6. Activity-based costing allocates overhead to multiple activity cost pools and assigns the activity cost pools to products by means of cost drivers. 7. The first step in activity-based costing is to identify the cost driver that has a strong correlation to the activity pool. 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. 9. Nonvalue-added activities are production-related activities that add cost to a product without increasing its market value. 10. Product-level activities are required to support or sustain an entire production process.

T T

F F

AT2-3 Third Edition PART III PROCESS COSTING (24 points)

Test Bank for Managerial Accounting,

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 Purchasing Production (cutting, milling, finishing) Setting up machines Inspecting Utilities Total budget overhead costs Amount $ 180,000 400,000 135,000 160,000 300,000 $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. Overhead Cost Pools Purchasing Production (cutting, milling, finishing) Setting up machines Inspecting Utilities Activity Cost Drivers Number of orders Direct labor hours Number of setups Number of inspections Square feet occupied Total Drivers 500 80,000 1,000 5,000 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 Direct labor Machine hours Direct labor hours Number of purchase orders Number of machine setups Number of inspections Number of square feet occupied $120,000 $135,000 12,000 10,000 50 80 380 7,000

AT2-4 Third Edition

Test Bank for Managerial Accounting,

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. Instructions Identify 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 hours Number of parts Number of finished vehicles Engineering hours Square footage Number of setups Number of employees/direct labor hours Number of tests Number of orders Cost 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Assembling Engineering Machining Ordering and receiving Painting Machine setup Storing Supervising Packing and shipping Inspecting and testing Cost Driver __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________

AT2-5 Third Edition

Test Bank for Managerial Accounting,

Solutions Achievement Test 2: Chapters 3-4 PART I MULTIPLE CHOICE (36 points) 1. b 5. c 9. 2. a 6. c 10. 3. d 7. c 11. 4. a 8. d 12. PART II TRUE/FALSE (10 points) 1. 2. 3. 4. 5. T F T F T 6. 7. 8. 9. 10. T F T T F

b c c d

PART III PROCESS COSTING (24 points) OMIT QUESTIONS ABOUT PROCESS COSTING PART IV ACTIVITY-BASED COSTING (20 points) (a) (b) Predetermined overhead rate using machine hours: $1,175,000 100,000 hours = $11.75 per machine hour Manufacturing cost per window set under traditional costing: Direct materials $120,000 Direct labor 135,000 Overhead (12,000 $11.75) 141,000 Total cost of 50 window sets $396,000 Cost per window set ($396,000 50) (c) $7,920

Manufacturing cost per window set under activity-based costing: Computation of Activity-Based Overhead Rate

Activity Cost Pool Purchasing Production Setting up machines Inspecting Utilities

Estimated Overhead $ 180,000 400,000 135,000 160,000 300,000 $1,175,000

Total Estimated Drivers 500 orders 80,000 D/L hrs. 1,000 setups 5,000 inspections 75,000 sq. feet

Activity-Based Overhead Rate $360 per order $5 per D/L hr. $135 per setup $32 per inspection $4 per sq. foot

AT2-6 Third Edition

Test Bank for Managerial Accounting, Assignment of Overhead to Order of 50 Window Sets

Activity Cost Pool Purchasing Production Setting up machines Inspecting Utilities

Expected Use of Driver 50 orders 10,000 D/L hrs. 80 setups 380 inspections 7,000 sq. ft.

Activity-Based Overhead Rate $360 $5 $135 $32 $4

Cost Assigned $ 18,000 50,000 10,800 12,160 28,000 $118,960

Total manufacturing cost per window set under ABC: Direct materials $120,000 Direct labor 135,000 Overhead 118,960 Total cost of 50 window sets $373,960 Total cost per window set: ($373,960/50) PART V ABC COST DRIVERS (10 points) 1. 2. 3. 4. 5. Number of parts Engineering hours Machine hours Number of orders Number of parts 6. 7. 8. 9. 10. Number of setups Square footage Number of employees/direct labor hours Number of finished vehicles Number of tests $7,479.20