Multiple Choice Answers

1. Addison Company produces two products: A and B. Annual production and sales is 1,000 units of Product A and 500 units of Product B. The company uses activity- based costing to determine product costs. The estimated overhead costs and expected activity for each of the company’s three overhead activity centers are as follows:

Expected Cost Driver Activity
Activity Center Estimated Overhead Costs Total Product A Product B
Activity 1 $20,272 800 500 300
Activity 2 29,380 1,300 800 500
General Factory 21,634 380 200 180
Total $71,286

What amount of the cost for Activity 2 will be allocated to Product A under the activity-based costing system?

$14,690
$15,669
$19,587
$18,080

 
2. Excelsior Corporation recently used $90,000 of direct materials and $1,500 of indirect materials in production activities. To record these transactions Excelsior would:
increase Manufacturing Overhead for $1,500.
decrease Manufacturing Overhead for $1,500.
increase Work-in-Process Inventory for $91,500.
increase Manufacturing Overhead for $91,500.

3. Anaheim Corporation operates a highly automated plant that produces various components used in commercial aircraft. If the firm uses activity-based costing, freight charges on goods sent to customers would best be charged to various product-lines on the basis of:
direct labor hours.
machine hours.
number of units produced.
number of orders shipped.

4. The salaries of a manufacturing plant’s management are an example of a:
facility-level activity.
product-sustaining level activity.
batch-level activity.
unit-level activity.

5. An accountant recently increased Work-in-Process Inventory and decreased Manufacturing Overhead. The accountant was:
applying a predetermined overhead amount to production.
recording a year-end adjustment for an insignificant amount of underapplied overhead.
recognizing actual overhead incurred during the period.
recognizing the completion of production.

6. Elliott Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job 1501:

Direct materials used $4,200
Direct labor hours worked 300
Direct labor rate per hour $ 8.00
Machine hours used. 200
Predetermined overhead rate per machine hour $15.00

What is the total manufacturing cost recorded on Job 1501?
$ 8,800.
$ 9,600.
$10,300.
$11,100.

7. Which of the following is the proper sequence of events in an activity-based costing system?
Assignment of cost to products, identification of cost pools, identification of cost drivers, calculation of cost application rates.
Identification of cost pools, identification of cost drivers, calculation of cost application rates, assignment of cost to products.
Identification of cost drivers, identification of cost pools, calculation of cost application rates, assignment of cost to products.
Calculation of cost application rates, identification of cost drivers, identification of cost pools, assignment of cost to products.
8. Which of the following types of companies would most likely use process costing?
Textile manufacturers.
Aircraft manufacturers.
Custom-machining firms.
Shipbuilders.

9. The labor time required to assemble a part is an example of a:
facility-level activity.
product-sustaining level activity.
batch-level activity.
unit-level activity.

10. Which of the following types of companies would most likely use job-order costing?
House builders.
Gasoline refiners.
Chemical manufacturers.
Microchip processors.