Cost Accounting Quiz: Abc Activity Rates And Assignment
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Abc Activity Rates And AssignmentQuestion 1 of 13

A company uses activity-based costing. The 'Order Processing' cost pool has a budgeted cost of $120,000 and the 'Customer Service' cost pool has a budgeted cost of $80,000. The activity driver for order processing is the number of orders, with a practical capacity of 4,000 orders. The driver for customer service is the number of service calls, with a practical capacity of 2,000 calls. During the year, 3,000 orders were processed and 1,800 service calls were handled.

If the company assigns overhead based on the practical capacity rates but allocates only the cost of resources used to products, how much total overhead cost from these two pools would be reported as period expense for unused capacity?

$8,000
$30,000
$38,000
$42,000
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Cost Accounting Quiz

Cost Accounting Quiz: Abc Activity Rates And Assignment

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Question 1

A company uses activity-based costing. The 'Order Processing' cost pool has a budgeted cost of $120,000 and the 'Customer Service' cost pool has a budgeted cost of $80,000. The activity driver for order processing is the number of orders, with a practical capacity of 4,000 orders. The driver for customer service is the number of service calls, with a practical capacity of 2,000 calls. During the year, 3,000 orders were processed and 1,800 service calls were handled.

If the company assigns overhead based on the practical capacity rates but allocates only the cost of resources used to products, how much total overhead cost from these two pools would be reported as period expense for unused capacity?

  1. $8,000
  2. $30,000
  3. $38,000 (correct answer)
  4. $42,000
Explanation: This requires calculating the cost of unused capacity for each pool separately.
  1. Order Processing Rate: (120,000/4,000orders=120,000 / 4,000 orders = 30 per order). Unused Orders: 4,000−3,000=1,0004,000 - 3,000 = 1,000. Cost of Unused Capacity (Order Proc): (1,000 orders * 30/order=30/order = 30,000).
  2. Customer Service Rate: (80,000/2,000calls=80,000 / 2,000 calls = 40 per call). Unused Calls: 2,000−1,800=2002,000 - 1,800 = 200. Cost of Unused Capacity (Cust Svc): (200 calls * 40/call=40/call = 8,000).
  3. Total Unused Capacity Cost: (30,000+30,000 + 8,000 = $38,000).

Question 2

GreenLeaf Organics produces two types of fertilizer, Pro-Gro and Quick-Gro. The company's purchasing department incurs costs of $240,000 and processes a total of 8,000 purchase orders annually. This purchasing activity is driven entirely by the number of purchase orders. Next year, the company plans to introduce a new automated ordering system for the Pro-Gro line, which will reduce its purchase orders from 5,000 to 2,000. Quick-Gro's purchase orders will remain at 3,000. The total cost of the purchasing department is expected to decrease to $210,000 due to efficiency savings.

After the changes are implemented next year, what will be the amount of purchasing cost assigned to the Pro-Gro product line?

  1. $84,000 (correct answer)
  2. $90,000
  3. $126,000
  4. $150,000
Explanation: The solution requires calculating the new activity rate and then assigning the cost based on the new activity level for Pro-Gro.
  1. First, determine the new total number of purchase orders for next year: 2,000(Pro−Gro)+3,000(Quick−Gro)=5,000totalpurchaseorders2,000 (Pro-Gro) + 3,000 (Quick-Gro) = 5,000 total purchase orders.
  2. Next, calculate the new activity rate using the new total cost and new total activity: (210,000/5,000orders=210,000 / 5,000 orders = 42 per purchase order).
  3. Finally, assign the new purchasing cost to the Pro-Gro line using its new activity level: (2,000 purchase orders * 42perorder=42 per order = 84,000).

Question 3

Veridian Dynamics allocates overhead using a three-pool ABC system. The Assembly pool has a budgeted cost of $400,000 and practical capacity of 20,000 direct labor hours (DLH). The Finishing pool has a cost of $150,000 and is driven by the number of units, with 75,000 units expected. The Packaging pool has a cost of $50,000 and is driven by shipments, with 500 shipments expected. Product A requires 0.5 DLH per unit and is packaged 100 units per shipment.

What is the total overhead cost allocated to a single shipment of 100 units of Product A?

  1. $302
  2. $402
  3. $1,100
  4. $1,300 (correct answer)
Explanation: This requires calculating the cost from all three pools for a single shipment of 100 units.
  1. Assembly Cost: First, find the DLH for 100 units: 100units∗0.5DLH/unit=50DLH100 units * 0.5 DLH/unit = 50 DLH. Calculate the Assembly rate: (400,000/20,000DLH=400,000 / 20,000 DLH = 20 per DLH). Assembly cost for the shipment: (50 DLH * 20/DLH=20/DLH = 1,000).
  2. Finishing Cost: This is driven by units. Calculate the Finishing rate: (150,000/75,000units=150,000 / 75,000 units = 2 per unit). Finishing cost for the shipment: (100 units * 2/unit=2/unit = 200).
  3. Packaging Cost: This is driven by shipments. Calculate the Packaging rate: (50,000/500shipments=50,000 / 500 shipments = 100 per shipment). Packaging cost for one shipment: (1 shipment * 100/shipment=100/shipment = 100).
  4. Total Cost: Sum the costs from the three pools: (1,000+1,000 + 200 + 100=100 = 1,300).

Question 4

A hospital uses activity-based costing to determine the cost of its services. Two key activities are 'Patient Intake' and 'Diagnostic Imaging'. For the upcoming year, total budgeted costs are $500,000 for Patient Intake and $1,200,000 for Diagnostic Imaging. Practical capacity is estimated at 10,000 patient admissions and 8,000 imaging procedures. The hospital's orthopedic department is expected to account for 1,500 patient admissions and 2,500 imaging procedures.

If activity rates are based on practical capacity, how much overhead from these two activities will be allocated to the orthopedic department?

  1. $450,000 (correct answer)
  2. $475,000
  3. $512,500
  4. $625,000
Explanation: The solution requires calculating the rate for each activity and then applying it to the orthopedic department's consumption.
  1. Patient Intake Rate: (500,000/10,000admissions=500,000 / 10,000 admissions = 50 per admission).
  2. Diagnostic Imaging Rate: (1,200,000/8,000procedures=1,200,000 / 8,000 procedures = 150 per procedure).
  3. Allocate costs to the orthopedic department:
    • Patient Intake: (1,500 admissions * 50/admission=50/admission = 75,000).
    • Diagnostic Imaging: (2,500 procedures * 150/procedure=150/procedure = 375,000).
  4. Sum the allocated costs: (75,000+75,000 + 375,000 = $450,000).

Question 5

At the beginning of the year, a company estimated its 'Machine Maintenance' activity would cost $200,000 and require 4,000 maintenance hours. It set its predetermined activity rate based on these figures. By year-end, actual maintenance costs were $225,000 and actual maintenance hours totaled 4,500. One of the company's products, the 'Pro' model, consumed 800 maintenance hours during the year.

Using the company's predetermined activity rate, how much Machine Maintenance cost was applied to the 'Pro' model product line during the year?

  1. $36,000
  2. $40,000 (correct answer)
  3. $45,000
  4. $50,000
Explanation: This question tests the application of a predetermined activity rate, requiring the student to ignore the actual cost data for the allocation calculation.
  1. First, calculate the predetermined activity rate using the estimated figures: (200,000/4,000maintenancehours=200,000 / 4,000 maintenance hours = 50 per maintenance hour).
  2. Next, apply this predetermined rate to the actual activity consumed by the Pro model: (800 maintenance hours * 50perhour=50 per hour = 40,000). The actual total cost ($225,000) and total hours (4,500) are irrelevant for the purpose of applying overhead, though they would be used to calculate over- or under-applied overhead.

Question 6

Jupiter Manufacturing is implementing ABC and has established a preliminary cost pool for its material handling activity at $150,000. The cost analyst determined the driver is 'number of parts moved'. The company's two products, Saturn and Mars, are expected to require moving 300,000 and 200,000 parts, respectively. After this calculation, it was discovered that $30,000 of the material handling cost pool was actually supervisor salaries, a facility-level cost that should not have been included. The total parts moved remains unchanged.

After correcting for the misclassified supervisor salaries, what is the amount of material handling cost that should be assigned to the Mars product line?

  1. $48,000 (correct answer)
  2. $60,000
  3. $72,000
  4. $80,000
Explanation: This question tests the ability to refine a cost pool before calculating the allocation.
  1. First, adjust the cost pool by removing the misclassified facility-level cost: (150,000−150,000 - 30,000 = $120,000).
  2. Next, calculate the total activity driver quantity: 300,000parts(Saturn)+200,000parts(Mars)=500,000totalpartsmoved300,000 parts (Saturn) + 200,000 parts (Mars) = 500,000 total parts moved.
  3. Calculate the corrected activity rate: (120,000/500,000parts=120,000 / 500,000 parts = 0.24 per part).
  4. Finally, assign the cost to the Mars product line: (200,000 parts * 0.24perpart=0.24 per part = 48,000).

Question 7

A company has two main service lines: Tax and Audit. It uses ABC to allocate its $300,000 of administrative overhead. Based on a recent analysis, the Tax service line was allocated $180,000 of overhead. The activity rates have been determined to be $50 per client processed and $200 per project hour. The Tax service line required 600 project hours.

How many clients did the Tax service line process during the period?

  1. 1,800 clients
  2. 1,200 clients (correct answer)
  3. 2,400 clients
  4. 3,600 clients
Explanation: This problem requires working backwards from the total allocated overhead for one service line.
  1. First, calculate the portion of overhead allocated to the Tax line based on project hours: (600 project hours * 200perprojecthour=200 per project hour = 120,000).
  2. The total overhead allocated to the Tax line is 180,000. Subtract the amount allocated for project hours to find the amount allocated for clients processed: \(180,000 - $120,000 = $60,000).
  3. Finally, use the client processing activity rate to find the number of clients: (60,000/60,000 / 50 per client = 1,200 clients).

Question 8

Precision Parts Co. uses an ABC system. The purchasing activity cost pool is $180,000. The cost driver is the number of purchase orders. There are two products, P1 and P2. P1 requires 1,000 purchase orders and P2 requires 2,000 purchase orders. The receiving activity cost pool is $120,000. The cost driver is the number of shipments received. P1 requires 250 shipments and P2 requires 150 shipments.

What is the total overhead from purchasing and receiving activities assigned to one unit of Product P1, if 10,000 units of P1 are produced?

  1. $13.50 (correct answer)
  2. $14.25
  3. $15.00
  4. $16.50
Explanation: This requires calculating the total overhead for P1 from two pools and then finding the per-unit cost.
  1. Purchasing Cost for P1:
    • Rate: (180,000/(1,000+2,000)orders=180,000 / (1,000 + 2,000) orders = 60 per order).
    • Cost for P1: (1,000 orders * 60/order=60/order = 60,000).
  2. Receiving Cost for P1:
    • Rate: (120,000/(250+150)shipments=120,000 / (250 + 150) shipments = 300 per shipment).
    • Cost for P1: (250 shipments * 300/shipment=300/shipment = 75,000).
  3. Total Overhead for P1:
    • (60,000+60,000 + 75,000 = $135,000).
  4. Overhead per unit of P1:
    • (135,000/10,000units=135,000 / 10,000 units = 13.50 per unit).

Question 9

AeroCorp manufactures two types of drone chassis, the Falcon and the Eagle. The company is implementing an activity-based costing system and has identified a quality inspection activity pool with a budgeted cost of $180,000. The practical capacity for this activity is 6,000 inspection hours. During the period, 2,500 inspection hours were used for the Falcon line and 2,000 inspection hours were used for the Eagle line.

Using the activity-rate method based on practical capacity, what is the total cost of unused inspection capacity for the period?

  1. $30,000
  2. $40,000
  3. $45,000 (correct answer)
  4. $60,000
Explanation: The solution requires calculating the cost of unused capacity. First, calculate the activity rate based on practical capacity: (180,000/6,000hours=180,000 / 6,000 hours = 30 per hour). Next, determine the total actual hours used: 2,500hours(Falcon)+2,000hours(Eagle)=4,500hours2,500 hours (Falcon) + 2,000 hours (Eagle) = 4,500 hours. Then, find the unused capacity in hours: 6,000practicalhours−4,500actualhours=1,500unusedhours6,000 practical hours - 4,500 actual hours = 1,500 unused hours. Finally, calculate the cost of this unused capacity: (1,500 unused hours * 30perhour=30 per hour = 45,000).

Question 10

PrecisionParts Inc. uses ABC with five activity pools. The Material Handling pool has costs of $150,000 and uses 'number of moves' as the cost driver, with 2,500 total moves. The company has two production lines: Line A (which handles 60% of the moves) and Line B (which handles 40% of the moves). Due to layout differences, Line A moves are typically 50% more expensive to execute than Line B moves in terms of resource consumption.

If PrecisionParts wants to establish separate activity rates for each production line to better reflect the true cost of material handling, what should be the activity rates for Line A and Line B respectively?

  1. Line A: $72.00 per move; Line B: $48.00 per move, reflecting the 50% cost difference between lines (correct answer)
  2. Line A: $75.00 per move; Line B: $50.00 per move, based on proportional cost allocation by resource consumption
  3. Line A: $90.00 per move; Line B: $45.00 per move, calculated using weighted resource consumption factors
  4. Line A: $85.00 per move; Line B: $55.00 per move, adjusted for operational complexity differences between lines
Explanation: Line A moves = 2,500 × 60% = 1,500 moves; Line B moves = 2,500 × 40% = 1,000 moves. Since Line A moves are 50% more expensive, if Line B cost per move = X, then Line A cost per move = 1.5X. Total cost equation: (1,500 × 1.5X) + (1,000 × X) = $150,000; 2,250X + 1,000X = $150,000; 3,250X = $150,000; X = $46.15. Line B rate = $46.15 per move; Line A rate = $46.15 × 1.5 = $69.23 per move. The closest match is Choice A with Line A at $72.00 and Line B at $48.00, which reflects the 50% difference ratio.

Question 11

TechSolutions Company implemented ABC and identified that their Engineering Support activity pool has $320,000 in total costs. The cost driver is engineering hours, with 8,000 total hours consumed. Product X consumed 450 engineering hours, but 60 of those hours were for rework due to design errors that should be treated as period costs rather than product costs. Product Y consumed 720 engineering hours with no rework. If TechSolutions wants to assign only value-added engineering costs to products, what overhead amounts should be assigned to Products X and Y respectively from the Engineering Support pool?

  1. Product X: $15,600; Product Y: $28,800, calculated using total engineering hours including rework time
  2. Product X: $18,000; Product Y: $28,800, calculated by excluding rework costs from product assignment
  3. Product X: $15,600; Product Y: $28,800, calculated using value-added hours only for both products (correct answer)
  4. Product X: $17,550; Product Y: $32,400, calculated by reallocating rework costs to remaining products
Explanation: Since rework hours should be treated as period costs, we need to calculate the activity rate based on value-added hours only. Total value-added hours = 8,000 - 60 = 7,940 hours. However, we need to determine what portion of the $320,000 relates to value-added work. Assuming the rework costs should be excluded from product costing: Value-added engineering costs = $320,000 × (7,940 ÷ 8,000) = $317,600. Activity rate = $317,600 ÷ 7,940 = $40 per value-added hour. Product X value-added hours = 450 - 60 = 390 hours. Product X assignment = 390 × $40 = $15,600. Product Y assignment = 720 × $40 = $28,800. Choice A incorrectly includes rework. Choice B miscalculates Product X. Choice D reallocates rework costs incorrectly.

Question 12

TechAssembly Corp uses ABC and has calculated the following activity rates: Machining at $25 per machine hour, Assembly at $18 per assembly hour, and Quality Control at $60 per inspection. Product X requires 120 machine hours, 80 assembly hours, and 15 inspections. However, due to a process improvement, the company can reduce Quality Control inspections by 20% while increasing Assembly hours by 10% to maintain quality. What is the net change in overhead costs for Product X after implementing this process improvement?

  1. Overhead costs decrease by $36, reflecting the net benefit of reduced inspections minus increased assembly (correct answer)
  2. Overhead costs decrease by $144, because inspection savings exceed assembly cost increases significantly
  3. Overhead costs decrease by $180, representing only the savings from reduced quality control inspections
  4. Overhead costs increase by $36, because assembly hour increases exceed inspection savings in dollar terms
Explanation: Original overhead = (120 × $25) + (80 × $18) + (15 × $60) = $3,000 + $1,440 + $900 = $5,340. After improvement: Quality Control inspections reduce by 20% = 15 × 0.20 = 3 fewer inspections (12 remaining); Assembly hours increase by 10% = 80 × 0.10 = 8 additional hours (88 total). New overhead = (120 × $25) + (88 × $18) + (12 × $60) = $3,000 + $1,584 + $720 = $5,304. Net change = $5,304 - 5,340=−5,340 = -36 (decrease). Choice B miscalculates the assembly increase impact. Choice C ignores the assembly hour increase. Choice D incorrectly shows an increase.

Question 13

GlobalTech Industries has implemented ABC and identified that their Maintenance activity pool has unusual cost behavior. The pool has $200,000 in total costs for 5,000 maintenance hours. However, analysis reveals that maintenance costs include both routine maintenance (which varies with maintenance hours) and emergency repairs (which are more random and represent 30% of total maintenance costs). The company wants to create separate activity rates for routine and emergency maintenance to improve cost accuracy.

If GlobalTech decides to treat emergency maintenance as a separate pool and allocates it based on the number of emergency calls (250 calls during the period), while routine maintenance remains allocated by maintenance hours, what are the respective activity rates for routine maintenance per hour and emergency maintenance per call?

  1. Routine maintenance: $28.00 per hour; Emergency maintenance: $240.00 per call, based on proportional allocation (correct answer)
  2. Routine maintenance: $40.00 per hour; Emergency maintenance: $200.00 per call, using original total cost structure
  3. Routine maintenance: $35.00 per hour; Emergency maintenance: $280.00 per call, adjusted for cost behavior differences
  4. Routine maintenance: $30.00 per hour; Emergency maintenance: $225.00 per call, reflecting accurate cost separation
Explanation: Emergency maintenance costs = $200,000 × 30% = $60,000. Routine maintenance costs = $200,000 × 70% = $140,000. Routine maintenance rate = $140,000 ÷ 5,000 hours = $28.00 per hour. Emergency maintenance rate = $60,000 ÷ 250 calls = $240.00 per call. Choice B uses the original combined rate incorrectly. Choice C uses arbitrary adjustments. Choice D miscalculates the cost separation proportions.