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COST ACCOUNTING 13 EDITION HORNGREN (CHAPTER 5 QUIZ AND EXERCISES) CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT (INSTANT DOWNLOAD)

COST ACCOUNTING 13 EDITION HORNGREN (CHAPTER 5 QUIZ AND EXERCISES) CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT (INSTANT DOWNLOAD)
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Solution Guide / Answer Key:

Accounting

Cost Accounting 13/e

Horngren, Foster, Datar, Rajan & Ittner

 

CHAPTER 5 QUIZ

 

1.       Production-cost cross-subsidization results from

 

  1. allocating indirect costs to multiple products.
  2. assigning  traced costs to each product.
  3. assigning costs to different products using varied costing systems within the same organization.
  4. assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products. 

 

2.       In refining a cost system

 

  1. total direct costs are unchanged because they can be traced in an economically feasible way to the product and traced costs are more accurate.
  2. the costs are grouped in homogeneous pools of the same or similar amounts.
  3. the criterion of cause-and-effect is used to relate indirect costs to a factor that systematically links to a cost object.
  4. the organization looks for cost-allocation bases that will provide a uniform spreading of indirect costs to each product.

 

 Question 3 is based on the following data:

      The average cost data are for In-Sync Fixtures Company's (a retailer) only two product lines, Marblette and Italian Marble. 

                                                                        Marblette                 Italian Marble          

            Purchase volume                                     20,000                         1,000   

            Purchase cost per unit                                  $50                                    $250   

            Shipments received                                         12                                         12   

            Hours used per shipment            *                                 5                                          3  

        * These data were accumulated after a careful activity analysis.

 

      Currently, In-Sync Fixtures uses a traditional costing system with indirect costs allocated using purchased cost of goods as a basis.  In-Sync Fixtures is considering refining the allocation of  their receiving costs of $40,000.  They realize that the Italian Marble is heavier and requires more care than the Marblette but that the Marblette comes in larger volume.

 

3.       Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures?

 

a.       The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base.

b.       The traditional allocation method currently being used is causing product-cost cross-subsidization with the product line Marblette being undercosted.

c.       The cost allocated to the Italian Marble product line under the current traditional system is more than the activity-based costing allocated cost.

d.      The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because it probably will cost less to trace the costs to the product lines.

 

4.       Building or plant security is an example of

 

  1. unit-level costs.                                                 c. product-sustaining costs.
  2. batch-level costs.                                               d. facility-sustaining costs.

 

 

5.       The allocation of indirect costs in an activity-based costing system

 

  1. may require other costs to be allocated  to activities before the costs of the activities can be allocated to the products.
  2. is simplified because more costs are identified as direct costs.
  3. requires the use of heterogeneous cost pools.
  4. is simplified because a limited number of activities are identified as cost objects.

 

Information for questions 6 and 7 is given below.

      Chris has a custom curtain and chair cover shop.  The job-costing system was designed using an activity-based approach.  There are two direct-cost categories (direct materials and direct labor) and three indirect cost pools.  These three cost pools represent three activity areas of work at the shop. 

 

Activity Area                Cost Driver used for Allocation                                    Cost-Allocation Rate

Materials handling               Number of pieces in the pattern                         $  2.00 per piece

Stitching                             Number of pieces in the pattern                         $25.00 per piece

Assembly/Installation                      Direct labor hours                                             $15.00 per hour

 

In October Chris made and installed five sets of curtains and chair covers for clients.  A set includes curtains for two windows and coverings for three chairs. The direct labor rate is $20.00 per hour.  Cost data for curtains and covers follows:

Direct                                       Direct              

   Units                         Material                        Number                        Labor  

Produced                     Costs               of Pieces          Hours  

            Curtains                                          10                          $2,000                   1                  20                  Chair coverings                            15                          $3,375                   6                  90

 

6.       The cost for a set of curtains and chair coverings would be

 

a.        $5,375.                         b.   $2,385.                    c.   $2,085.                    d.   $1,253.

 

7.       The indirect costs for the shop in October were

 

a.       $11,925.                        b.   $5,375.                    c.   $4,900.                    d.  $4,350.

 

8.       Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management?

 

a.       Pricing and product-mix decisions                       c.   Design decisions

b.   Cost reduction decisions                         d.   Discretionary decisions

 

9.       Which of the following statements is more representative of activity-based costing in comparison to a department-costing system?

 

a.       The use of multiple cost-allocation bases.

b.       The use of indirect-cost rates for significant resource use.

c.       The use of the cause-and-effect criterion.

d.       The use of multiple cost pools.

     

10.   A significant limitation of activity-based costing is the

 

  1. attention given to indirect cost allocation.
  2. many necessary calculations.
  3. operations staff’s attitude toward the accounting staff.
  4. use it makes of technology.
  5.  

WRITING/DISCUSSION EXERCISES

 

1.      Explain undercosting and overcosting of products or services

 

Why should the management cost accountants be the first to recognize cost smoothing or over/undercosting? 


2.      Present three guidelines for refining a costing system

 

Whose work is it to “refine” a costing system? 

 

3.      Distinguish between the traditional and the activity-based costing approaches to designing a costing system

 

If activity-based costing is so good why has it not been used before? 

 

4.      Describe a four-part cost hierarchy

 

As a cost reduction measure for batch-level costs, the number of units processed per batch were increased.  What effect could this have on company-wide costs? 


5.      Cost products or services using activity-based costing

 

Activity-based costing has so many advantages, increased accuracy for product costing and added value for decision making, why is it a more recent development in costing systems? 

 

6.      Use activity-based costing systems for activity-based management

 

Can a company (organization) use activity-based costing and not have activity-based management? 

 

7.      Compare activity-based costing and department-costing systems

 

Wouldn’t a company benefit from structuring their departments to match the defined activities used in ABC so that costs would be easier to assign to the activities when they were also the department’s? 

 

8.       Evaluate the costs and benefits of implementing activity-based costing systems


Is it possible that when all the signs point to the need for costing system refinement, specifically ABC, that it is really too late to do anything?  ABC is so expensive and time-intensive in its implementation that it’s possible that a company couldn’t get it done in time to be effective. 

 



FILE: MS WORD

 

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