AFAR – QUIZ 1

THEORIES
1. An objective of activity-based management is to
A. Eliminate the majority of centralized activities in an organization.
B. Reduce or eliminate non-value-added activities incurred to make a product or provide a service.
C. Institute responsibility accounting systems in decentralized organizations.
D. All of the above

2. A basic assumption of activity-based costing (ABC) is that

A. All manufacturing costs vary directly with units of production.
B. Products or services require the performance of activities, and activities consume resources.
C. Only costs that respond to unit-level drivers are product costs.
D. Only variable costs are included in activity-cost pools.

3. All the following are examples of non-value-added activities except:

A. Ordering
B. Receiving
C. Assembling
D. Inspections
E. Setting up

4. A base used to allocate the cost of a resource to the different activities using that resource Is a(n):
A. Resource driver
B. Activity driver
C. final cost object
D. Driver
E. Setting up

5. A base used to allocate the cost of products, customers, or other final cost objects is a(n):
A. Resource driver
B. Activity driver
C. Final cost object
D. Driver
E. Setting up

6. A cost pool is
A. All the costs of a particular department.
B. All costs in a group such as variable costs or discretionary fixed costs.
C. All costs related to a product or product line.
D. All costs that have the same driver.

7. Which of the following statements is true?

A. The traditional approach to costing uses many different cost drivers.
B. Costs that are indirect to products are by definition traceable directly to products.
C. Costs that are indirect to products are traceable to some activity.
D. All of the above statements are true.

8. A(n) method first traces costs to a department and then to products.

A. Direct costing
B. Absorption costing
C. Traditional costing
D. D activity-based costing

9. A(n) method first traces costs to activities and then to products.

A. Direct costing
B. Absorption costing
C. Traditional costing
D. Activity-based costing

10. The term "relevant range" as used in cost accounting means the range over which:
A. Relevant costs are incurred
B. Cost relationships are valid
C. Costs may fluctuate
D. Sales volume fluctuates
E. Production may vary
 AFAR – QUIZ 1
11. Within a relevant range, the amount of fixed cost per unit:
A. Differs at each production level on a per-unit basis
B. Remains constant in total /
C. Decreases as production increases on a per-unit basis
D. Increases as production decreases on a per-unit basis
E. All of the above

12. When a manufacturing company has a highly automated manufacturing plant producing many different products, which of
the following is the more appropriate basis of applying manufacturing overhead costs to work in process?
A. Direct labor hours
B. Direct labor dollars
C. Machine hours
D. Cost of materials used

13. What costs are treated as product costs under variable (direct) costing?
A. Only direct costs
B. Only variable production costs
C. All variable costs
D. All variable and fixed manufacturing costs

14. An ending inventory valuation on an absorption costing balance sheet would

A. Sometimes be less than the ending inventory valuation under variable costing.
B. Always be less than the ending inventory valuation under variable costing.
C. Always be the same as the ending inventory valuation under variable costing.
D. Always be greater than or equal to the ending inventory valuation under variable costing.

15. Under absorption costing, fixed manufacturing overhead could be found in all the following except the:
A. Work-in-process account.
B. Finished goods inventory account.
C. Cost of Goods Sold.
D. Period costs.

16. The three primary inventory accounts in a manufacturing company are

A. Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory.
B. Merchandise Inventory, Work in Process Inventory, and Finished Goods Inventory.
C. Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory.
D. Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory.

17. Costs that are incurred to preclude defects and improper processing are:
A. Prevention costs
B. Detection costs
C. appraisal costs
D. Failure costs

18. Costs that are incurred for monitoring and inspecting are:
A. Prevention costs
B. Detection costs
C. Appraisal costs
D. Failure costs

19. Costs that are incurred when customers complain are:

A. Prevention costs
B. Detection costs
C. Appraisal costs
D. Failure costs

20. Direct Labor is a:

Conversion Cost Manufacturing Cost Prime Cost
A. YES YES YES
B. NO YES YES
C. NO NO NO
D. NO NO YES
E. YES YES NO
 AFAR – QUIZ 1
PROBLEM SOLVING

Problem 1: (Fixed, Variable, and Semi variable Production Costs) Alcapone Instruments
Co. developed the following regression equations to indicate costs at various activity
levels:
Direct labor = $4 per unit
Materials = $3 per unit
Supervision = $5,000
Power = $300 + $.25 per unit+ $.50 per machine hour per unit
Factory supplies = $250 + $.75 per unit
Depreciation-equipment = $1 per machine hour
Depreciation-building = $10,000
During the next period, the company anticipates production of 20,000 units and usage of 3,000
machine hours.

Required: Prepare a schedule of the production costs to be incurred during the next period,
determine the Total Production Cost. (2points)
Problem 2: Putnam Company manufactures computer stands. What is the beginning balance
of Finished Goods Inventory? if Cost of Goods Sold is $107,000; the ending balance of Finished
Goods Inventory is $20,000; and Cost of Goods Manufactured is $50,000 less than Cost of Goods
Sold?
B. $70,000
C. $77,000
D. $157,000
E. $127,000
 AFAR – QUIZ 1
Problem 3: (Method of Least Squares) The management of 7Eleven Inc. would like to separate
the fixed and variable components of electricity as measured against machine hours in one of its
plants. Data collected over the most recent six months follow:

Month Electricity Cost Machine

Cost Hours
January 1,100 4,500
February 1,110 4,700
March 1,050 4,100
April. 1,200 5,000
May 1,060 4,000
June. 1,120 4,600
Required: Using the method of least squares, compute the (Round estimates to the nearest
cent)
(3.1.) fixed cost
(3.2.) variable cost rate for electricity expense.
 AFAR – QUIZ 1
Problem 4: (ABC) Dusty Blue Inc. recently installed an activity-based relational database.
Using the information contained in the activity relational table, the following pool rates were
computed:
$200 per purchase order
$12 per machine hour, process A
$15 per machine hour, process B
$40 per engineering hour

Two products are produced by Dusty Blue Inc.: A and B. Each product has an area in the plant
that is dedicated to its production. The plant has two manufacturing processes, process A and
process B. Other processes include engineering, product handling and procurement. The
product relational table for Special is as follows:

1. How much overhead cost will be assigned to product A using the number of purchase orders?
A. 50,000
B. 25,000
C. 40,000,000
D. 66,750

2. How much overhead cost will be assigned to product B using engineering hours?
A. 50,000
B. 60,000
C. 1,000,000
D. 400,500

3. How much overhead cost will be assigned to product A using process A?

A. 1,200,000
B. 2,400,000
C. 960,000
D. 120,000

4. How much overhead cost will be assigned to product B using process B?

A. 1,200,000
B. 960,000
C. 120,000
D. 150,000

5. What is the unit cost of Product A?

A. 4.71
B. 3.76
C. 252.00
D. 5.30

6. What is the unit cost of Product B?

A. 9.40
B. 6.00
C. 252.00
D. 6.41
 AFAR – QUIZ 1
Problem 5 (Variable and Absorption Costing)

The following information has been extracted from the financial records of Horchata
Corporation for its first year of operations:

5.1. Based on absorption costing, Horchata Corporation's income in its first year of operations
a. $21,000 higher than it would be under variable costing.
b. $70,000 higher than it would be under variable costing.
c. $30,000 higher than it would be under variable costing.
d. higher than it would be under variable costing, but the exact difference cannot be determined from the
information given.

5.2. Based on absorption costing, the Cost of Goods Manufactured for Horchata Corporation's first year would be
a. $200,000.
b. $270,000.
c. $300,000.
d. $210,000.

5.3. Based on absorption costing, what amount of period costs will Horchata Corporation deduct?
a. $70,000
b. $79,000
c. $30,000
d. $58,000
 AFAR – QUIZ 1
Problem 6: The following information is for the Rayne Manufacturing Company for November

Calculate the following.

6.1. COGM
6.2. COGS