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Activity based costing, department allocation practice exam

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The following are production and cost data for two products, X and Y.

Product X
Product Y
Contribution margin per unit
Machine set-ups needed per unit?

The company can only perform 14,000 set-ups each period yet there is unlimited demand for each product. What is the maximum contribution margin for the year?


Glendale Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data:

Wages and Salaries

Resources are consumed as follows:
Activity Cost Pools

Setting Up
Wages and salaries

How much total cost would be allocated to the Assembly cost pool?
A) $223,100
B) $246,300
D) $215,700

30)?Koreen Manufacturing Co. has three production departments. Koreen allocates maintenance costs to the departments based on their use of machine hours. The maintenance cost for March was $180,000. The departments usage of labor and machine hours in March were:

DepartmentMachine hours Labor hours
A 500? 3,000
B 500? 5,000
C 800? 2,000
How much maintenance cost should be allocated to the department B for March?


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Practice exam problems - managerial cost accounting

Use the following information for the next 2 questions.
Direct Direct Direct
Materials Labor Cost Labor Hours
Job 400 $200 $800 40
Job 401 250 200 10
Job 402 500 600 32
O'Hare Sisters Manufacturing uses job costing and applies overhead using a normal costing system using direct labor hours as the allocation base. This period's estimated overhead cost is $400,000, estimated direct labor cost is $500,000 and estimated direct labor hours are 25,000. This period actual overhead cost was $420,000, actual direct labor cost was $390,000, and actual direct labor hours were 20,000.
1. What is the overhead allocation rate?
a. $21/hour
b. $10/hour
c. $16/hour
d. $18/hour
2. What is the total manufacturing cost of Job 400?
a. $1,200
b. $1,000
c. $1,320
d. $1,640
3. Manufacturers may track scrap to determine whether
a. Resources are being used efficiently
b. Machines need replacing
c. Job costs are being recorded accurately
d. Cash flow forecasts are accurate.
4. Direct materials in job costing
a. Can be traced to each product
b. Are allocated to each product
c. Are the only costs recorded in cost of goods sold
d. Are expensed as period costs, not product costs
5. Perry Company started 6,000 units during the month of March. 600 units were in the beginning work in process inventory and 400 units in the ending work in process inventory. Units completed and transferred out during March will be
a. 6,000
b. 6,400
c. 6,200
d. 5,400

Use the following information for the next 2 questions.
Gholson, Inc. employs a process costing system in which direct materials are added at the beginning of the process. Direct material costs from the prior period for beginning work in process are $1,250. The current period's direct material costs total $31,500. The company began the period with 500 units, 70% complete, started 10,500 units, and finished the period with 1,000 units, 40% complete.
6. Using a FIFO system, the direct material cost per equivalent unit is
a. $3.00
b. $2.98
c. $3.20
d. $2.55
7. Using the weighted average method, the direct material cost per equivalent unit for the period is
a. $3.00
b. $2.98
c. $3.20
d. $2.55
8. In the weighted average method, costs from beginning work in process are averaged with costs incurred during the current period and then allocated to units completed and ending work in process.
_____ True _______ False
9. Which method(s) do traditional accounting systems use to assign the following costs to cost objects (departments or units)?
Direct Costs Overhead Costs
a. Allocate Trace
b. Trace Allocate
c. Allocate Allocate
d. Trace Trace
10. ABC systems differ from traditional costing systems because ABC systems use
a. Multiple activity cost pools and cost drivers to allocate overhead costs
b. Multiple activity cost pools and cost drivers to allocate direct costs
c. More automation and information technology to allocate overhead costs
d. Less automation and information technology to allocate overhead costs
11. In an ABC system, an activity is best defined as a
a. Type of task performed in an organization
b. Collection of activities in a particular department
c. Collection of cost drivers associated with a particular cost pool
d. Group of cost pools associated with a particular department
12. Which of the following is not part of the process used to assign costs in an ABC system?
a. Identify activities
b. Differentiate value-adding and non-value-adding activities
c. Identify the relevant cost object
d. Assign costs to activity-based pools

13. Cervantes Industries provides an in-house cafeteria for production and administrative employees. This service costs $25,000 per month, plus $3 per meal served. The company has 800 production employees and 400 administrative employees. During the past month 5,500 meals were served to production employees and 2,000 to administrative.
The amount of cost allocated to the administrative department using actual meals served as the basis is
a. $16,675
b. $12,667
c. $14,325
d. $18,500
14. Under the direct method
a. A support department's costs are allocated only to final operating department users
b. A support department's costs are allocated only to other support departments
c. The costs of the support departments are allocated sequentially
d. The costs of the support departments are allocated in order of their magnitude
15. The practice of using only one base to allocate both fixed and variable costs is called
a. Single-rate allocation
b. Activity-based allocation
c. Budgeted allocation
d. Direct allocation
16. The best allocation base choice for an ABC cost pool is a(n)
a. Cost driver
b. Activity dictionary
c. Allocation rate
d. Financial measure

Information for Question 17 and 18:
Recyclers, Inc. reprocesses paper and obtains 2 main products, a by-product, and waste. By-product revenues are treated as a reduction in joint costs. During the period, 1,000 tons were processed at a cost of $12,000 for materials and processing, resulting in the following:
Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Main-1 200 $4,000 $2,000 $10,000
Main-2 400 5,000 6,000 12,000
By-product 300 2,000 -0- 2,000
Waste 100 -0- -0- -0-
17. If the firm allocates joint costs to the main products using the physical output method, how much will be allocated to Main-1?
a. $2,000
b. $2,400
c. $2,222
d. $3,333
18. If the firm allocates joint costs to the main products using the sales value at split-off point method, how much will be allocated to Main-2?
a. $5,556
b. $4,545
c. $5,333
d. $6,666

Information for 19 and 20:

A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows:
Sales Value Separable Sales Value After
Product at Split-Off Cost Further Processing
J $200 $100 $400
K 300 200 600
L 100 50 140
M 20 10 40
19. Which of the four products should not be further processed?
a. J
b. K
c. L
d. M
20. Assume that K is processed further and that management is considering an alternative to the current process. The new separable cost of processing would be $250. If the firm is to be no worse off, the product must sell for at least
a. $550
b. $650
c. $750
d. $850

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