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An example of a production overhead would be:

Answer
Labour costs
Materials
Supervisory costs
Office Rent
The budgeted sales for the next four quarters are $192,000, $288,000, $288,000 and
$336,000, respectively. It is estimated that sales will be paid for as follows: 75% of
the total will be paid in the quarter that the sales were made. Of the balance 50% will
be paid in the quarter after the sale was made. The remaining 50% will be paid in the
quarter after this. The amount of cash received in quarter 3 will be:
Answer
$240,000
$324,000
$276,000
$144,000
GL Sports Company plans to sell 24,000 units during the month of July. If the
company has 5,000 units on hand at the start of the month, and plans to have 4,000
units on hand at the end of the month, how many units must be produced during the
month?
Answer
28,000.
24,000.
25,000.
23,000.
Product under-costing occurs when the product:
Answer
consumes a high level of resources, and reports a high cost per unit
consumes a low level of resources, but reports a high cost per unit
consumes a low level of resources, and reports a low cost per unit
consumes a high level of resources, but reports a low cost per unit
If actual output is lower than budgeted output which of the following costs would you
expect to be lower than the original budget?
Answer
Total fixed costs
Total variable costs
Variable costs per unit
Fixed costs per unit

Which of the following is not frequently cited as a benefit of the budget process?
Answer
Budgets provide a method of allocating and using resources within the
organization
Budgets eliminate the opportunity for slack or padding within an
organization
Budgets are an early warning system. They highlight where
investigation and appropriate correction action is necessary
Budgets help to monitor and control operations
Flugent Manufacturing uses activity-based costing to compute product costs for
external reports. The company has three activity cost pools and applies overhead
using predetermined overhead rates for each activity cost pool. Estimated costs
totalled $40,000 and expected activity equals 2,500 for this activity cost pool. Actual
activity for the current year was 2,490. The amount of overhead applied for this
activity during the year was:
Answer
$96,190.
$39,840.
$36,300.
$40,000.
Feedback:
The correct answer is B (Learning Objectives 2 and 3):
First, determine the activity rate for this activity as follows.
Activity rate = Estimated cost Total expected activity
Activity rate = $40,000 2,500 = $16.00
Then, determine the amount of overhead applied for Activity 3 as follows.
Overhead applied = Actual activity x Activity rate
Amount of overhead applied = 2,490 x $16.00 = $39,840

Han Winterwear sales are 50% in cash and 50% on credit. Seventy percent of the
credit sales are collected in the month of sale, 20% in the month following sale, and
5% in the second month following sale. The remainder is uncollectible. The following
are budgeted sales data:
Total sales:
September: $50,000
October: $70,000
November: $60,000
December: $80,000
Total cash receipts in December would be budgeted to be:
Answer
$75,750.
$68,000.
$28,000.
$83,500.

Feedback: Month of Sale Collected during December Calculation December: Credit


$28,000 ($80,000 x .50 x .70)Cash 40,000 ($80,000 x .50) November 6,000 ($60,000 x .
50 x .20)October 1,750 ($70,000 x .50 x .05)Total $75,750

Which of the following statements explaining aspects of activity-based costing is


correct?
Answer
One of the goals of activity-based management is the elimination of
waste by allocating costs to products that waste resources.
Activity-based costing uses a number of activity cost pools, each of
which is allocated to products on the basis of direct labour-hours.
Activity rates in activity-based costing are computed by dividing costs
from the first-stage allocations by the activity measure for each
activity cost pool.
An activity-based costing system is generally easier to implement and
maintain than traditional costing system.
Feedback:
The correct answer is B (Learning Objective 1):
Rather than using a single allocation base (such as direct labor-hours), activity-based
costing uses a number of allocation bases for assigning costs to products (thus
statement A is false). Generally, an activity-based costing system is harder (rather than
easier) to implement and maintain than a traditional costing system (thus statement C
is false). Rather than eliminating waste by allocating costs to products that waste
resources, activity-based management is a management approach that focuses on
managing activities as a way of eliminating waste and reducing delays and defects (thus
statement D is false). Statement B is true.

The elimination of non-value added activities by an organization will:


Answer
Enhance product quality.
Reduce costs without changing the product's desirability.
Reduce costs but only at the sacrifice of customer satisfaction
Increase customer satisfaction.
In activity-based costing, overhead costs are allocated into:
Answer
cost pools.
cost centres.
cost accounts.
cost groups.
Which of the following will NOT appear in a cash budget?
Answer
Wages
Depreciation of machinery
Sales revenue
Machinery bought on hire purchase

Koo Tech Resources makes and sells a single product. Each unit of product requires
2.6 hours of labour at a labour rate of $9.10 per hour. The company needs to
prepare a Direct Labour Budget for the second quarter of next year. The budgeted
direct labour cost per unit of product would be:
Answer
$20.80.
$18.20.
$14.00.
$23.66.
Feedback:
Labour rate $ 9.10
Direct labour hours required per unit of product X 2.6
Budgeted direct labour cost per unit of product $23.66

When there are batch-level or product-level costs, in comparison to a traditional cost


system, an activity-based costing system ordinarily will shift costs from:
Answer
Low-volume to high-volume products.
Standardized to specialized products.
Specialized to standardized products.
High-volume to low-volume products
Which of the following explains what is the term "budgetary period"?
Answer
A specific year for which the budget has been prepared
The period for which the budget is prepared
The subdivisions of the main budget
The period in which the budget is finalise
Which of the following statements is/are true?
I) Activity-based costing is not particularly relevant for service industry businesses.
II) Activity-based costing is an alternative to full costing.

Answer
Both I and II are true.
Only I is true.
Only II is true.
Neither I nor II is true.
Which of the following shows the planned quantities of units to be manufactured and
the expected cost of making these units?
Answer
Sales budget
Capital budget
Production budget

Cash flow budget


All of the following are examples of batch-level activities except:
Clerical activity associated with processing purchase orders to produce an
A)order for a standard product.

B)

C)

D)

Purchase order processing.

Setting up equipment.

Worker recreational facilities.

Feedback:
The correct answer is D (Learning Objective 1):
Batch-level activities are activities that are performed each time a batch of goods is
handled or processed, regardless of how many units are in a batch. Further, the amount
of resources consumed depends on the number of batches run rather than on the
number of units in the batch. Worker recreational facilities relate to the organization as
a whole rather than to specific batches and, as such, would not be considered a batchlevel activity. On the other hand, purchase order processing, setting up equipment, and
the clerical activities described are activities that are performed each time a batch of
goods is handled or processed, and, as such, are batch-level activities.

Cost of activities performed on each individual unit of a product or service would be


identified as:
Answer
batch-level costs
product-level costs
organisation-sustaining costs
unit-level costs
it Sun Engineering uses activity-based costing to determine the costs of its two
products: X and Y. The estimated total cost and expected activity for one of the
company's three activity cost pools are as follows:
Estimated Cost: $14,000
Expected Activity (Product X): 400
Expected Activity (Product Y): 300
The activity rate under the activity-based costing system for this activity is:
Answer
$4.00.
$18.00.
$20.00.
$8.59.
Feedback:

The correct answer is D (Learning Objective 2):


The activity rate for this activity is determined as follows.
Activity rate = Estimated cost Total expected
Activity rate = $14,000 (300 + 400) = $20.00

Hwa Hong Ltd. prepared a flexible budget which revealed total production costs of
$79,000 at an anticipated 10,000 unit activity level. Variable production costs were
(per unit) $1.50 for direct materials, $3.50 for direct labour, and $0.75 for variable
factory overhead. How much are total anticipated production costs in Hwa Hong's
flexible budget for an activity level of 10,800 units?
Answer
$79,000
$83,600
$62,100
$21,500
Activity based costing (ABC) has determined that the shipment setup costs should
be accounted for at the batch-level of activities. ABC believes that the costs assigned
to the shipment setup for the current period will be $440,000. ABC is estimating that
there will be 400 shipments totalling 8,000 units during the current period. How much
cost should be allocated to an order of 70 units that requires three shipments to
deliver?
Answer
$3,850
$1,100
$3,300
$165
The number of shipments (3) should be multiplied times the cost per shipment ($440,000/400) for
a total of $3,300.

The financial plans prepared by managerial accountants are referred to as


Answer
budgets.
treasurer's reports.
financial statements.
controller's opinions.
Chibucos Company has two products: A and B. The annual production and sales level of Product A
is 9,094 units. The annual production and sales level of Product B is 15,826. The company uses
activity-based costing and has prepared the following analysis showing the estimated total cost
and expected activity for each of its three activity cost pools.

The activity rate under the activity-based costing system for Activity 3 is closest to:

A)

B)

C)

D)

$29.32.

$30.00.

$33.33.

$41.53.

The budget or schedule that provides necessary input data for the direct materials
budget is the:
Answer
cash budget.
production budget.
raw materials purchases budget.
schedule of cash collections
JJ Pte. Ltd. produces and sells mugs. To prevent out of stock situations, the
company requires that 20% of the next month's sales be on hand at the end of each
month.
Budgeted sales of mugs over the next four months are:
Budgeted sales in units:
January: 60,000
February: 80,000
March: 120,000
April: 100,000
Budgeted production for March would be:
Answer
116,000 units.
100,000 units.
124,000 units.
140,000 units.
Activity-based costing identifies five levels of activities. Which of the following is not
one of them?
Answer
direct materials level activities
product-level activities

batch-level activities
organisation-sustaining activities
2 error

All of the following are examples of product-level activities except:


Answer
Parts administration.
Testing a prototype of a new product.
Advertising a product.
Human resource management.
Developing a flexible budget produces:
Answer
a?budget that is adjusted to reflect different costs at different activity
levels
a?budget that will be changed at the end of the month in order to
reflect the actual costs of a department
a?budget that is constantly being changed
a?budget that comprises variable costs only
When a production budget is being prepared the quantity that needs to be produced
is calculated by the following equation:
Answer
Quantity sold plus closing stock less opening stock
Opening stock less quantity sold
Opening stock plus quantity sold plus closing stock
Opening stock less quantity sold plus closing stock