BGN 5e Exam Questions - Chapter 3

1. Grenier Company uses activity-based costing to determine the costs of its two products:
A and B. The estimated total cost and expected activity for each of the company's three
activity cost pools are as follows:

Activity Estimated Expected Activity

Cost Pool Cost Product A Product B Total
Activity 1 $19,800 800 300 1,100
Activity 2 $16,000 2,200 1,800 4,000
Activity 3 $14,000 400 300 700

The activity rate under the activity-based costing system for Activity 3 is closest to:
A) $4.00.
B) $8.59.
C) $18.00.
D) $20.00.

Feedback – The correct answer is D:

Learning Objective 2 – Determine the activity rate for Activity 3 as follows:
Activity rate = Estimated cost ÷ total expected activity = $14,000 ÷ 700 = $20.00

2. Liston Company has two products: #1 and #2. 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:

Activity Estimated
Cost Overhead Expected Activity
Pool Cost Product #1 Product #2 Total
Activity A $ 80,000 200 800 1,000
Activity B $ 58,400 1,000 500 1,500
Activity C $360,000 600 5,400 6,000

The annual production and sales level of Product #1 is 18,188 units. The annual
production and sales level of Product #2 is 31,652. The overhead cost per unit of Product
#2 under activity-based costing is closest to:
A) $2.02.
B) $5.00.
C) $12.87.
D) $22.40.

Feedback – The correct answer is C:

Learning Objective 3 – Determine the overhead cost for Product #2 as follows:
 Activity Rate (A) Actual Overhead Cost Applied
(estimated overhead cost Activity to Production
÷ estimated activity) (B) (A) x (B)
Activity A: ($80,000 ÷ 1,000) = $80.00 800 $ 64,000.00
Activity B: ($58,400 ÷ 1,500) = $38.93* 500 19,465.00
Activity C: ($360,000 ÷ 6,000) = $60.00 5,400 324,000.00
Total overhead cost per unit for Product #2 407,465.00
Divided by number of units produced ÷ 31,652
Overhead cost per unit of Product #2 $ 12.87
* rounded

3. Sigmund Company 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 and activities
for the current year are presented below for the three activity cost pools:

Estimated
Overhead Expected
Cost Activity
Activity 1 $ 58,656 2,400
Activity 2 $ 60,048 4,800
Activity 3 $130,324 4,400

Actual costs and activities for the current year were as follows:

Actual
Overhead Actual
Cost Activity
Activity 1 $ 58,476 2,370
Activity 2 $ 59,798 4,830
Activity 3 $130,234 4,450

The total amount of the debits to the Manufacturing Overhead account during the year
was closest to:
A) $248,508.
B) $248,988.
C) $251,110.
D) $250,334

Feedback – The correct answer is A:

Learning Objective 5 – Actual manufacturing overhead costs are recorded directly as a
debit to the Manufacturing Overhead account. As such, determine the total amount of the
debits to the Manufacturing Overhead account during the year as follows:
 Actual
Overhead
Cost
Activity 1 $ 58,476
Activity 2 59,798
Activity 3 130,234
Total $248,508

4. Johnsen Company 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 and activities
for the current year are presented below for the three activity cost pools:

Estimated
Overhead Expected
Cost Activity
Activity A $117,312 2,400
Activity B $120,096 4,800
Activity C $260,648 4,400

Actual costs and activities for the current year were as follows:

Actual
Overhead Actual
Cost Activity
Activity A $116,952 2,370
Activity B $119,596 4,830
Activity C $260,468 4,450

The total credits to the Manufacturing Overhead account during the year were closest to:
A) $497,016.
B) $497,976.
C) $500,310.
D) $502,668.

Feedback – The correct answer is C:

Learning Objectives 3 and 5 – Manufacturing overhead costs applied to production are
recorded directly as a credit to the Manufacturing Overhead account. As such, determine
the total amount of credits to Manufacturing Overhead account (that is, amount of
overhead applied to production) as follows:

Activity Rate (A) Actual Overhead Cost Applied

(estimated overhead cost Activity to Production
 ÷ estimated activity) (B) (A) x (B)
Activity A: ($117,312 ÷ 2,400) = $48.88 2,370 $115,845.60
Activity B: ($120,096 ÷ 4,800) = $25.02 4,830 120,846.60
Activity C: ($260,648 ÷ 4,400) = 4,450 263,618.00
$59.24*
Total $500,310.20
* rounded