ACCOUNTING 203 Chapter 3 Practice Test True and False Statements 1. Activity –based costing involves a two-stage allocation process in which overhead costs are first assigned to departments and then to jobs on the basis of direct labor-hours. 2. In the second-stage allocation in activity-based costing, costs that were not allocated in the first stage are assigned to the company’s most profitable products. 3. The activity rates in the activity-based costing are not intended to set targets for how quickly a task should be completed. 4. Under activity-based costing, overhead can be overapplied or underapplied. 5. In activity-based costing unit product costs computed for external financial reports include direct materials, direct labor, and manufacturing overhead. Multiple Choice Questions 6. Providing the power required to run production equipment is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity. 7. Angela 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 Cost Activity 1………..…..$21,753 Activity 2……………$23,475 Activity 3……………$38519 Expected Activity 900 2,500 1,300 Actual activity for the current year was as follows: Actual Activity Activity 1…………… 895 Activity 2…………… 2,495 Activity 3…………… 1,340 The amount of overhead for Activity 3 during the year was closet to: A) $38,519.00. B) $39,704.20. C) $38,564.00. D) $23,876.80. Use the following to answer questions 8-9: Angara Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system: Activity Cost Pools (and Activity Measures) Machine related (machine hours)…………………. Batch setup (setups)………………………………. General factory…………………………………… Activity Cost Pools Machine related………… Batch setup……………… General factory…………. Total 8,000 8,000 9,000 Estimated Overhead Cost $137,600 $532,800 $105,300 Expected Activity Product X Product Y 1,000 7,000 3,000 5,000 7,000 2,000 8. The activity rate for the batch setup activity cost pool is closet to: A) $66.60. B) $106.60. C) $97.00. D) $177.60. 9. Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closet to: A) $298,900. B) $533,000. C) $291,000. D) $387,850. ANSWERS 1. F 2. F 3. T 4. T 5. T 6. A 7. B 8. A 9. A