Cost Accumulation Systems Paper 3


Process value analysis is a key component of activity-based management that links product costing and


Nile Co. is a manufacturer whose cost assignment and product costing procedures follow activity-based costing principles. Activities have been identified and classified as being either value-adding or nonvalue-adding as to each product. Which of the following activities used in Nile’s production process is nonvalue-adding?


The series of activities in which customer usefulness is added to the product is the definition of


The use of activity-based costing (ABC) normally results in


"Davis Corporation has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 15% of direct labor cost. Monthly direct labor cost for its main product is $30,000. In an attempt to distribute quality control costs more equitably, Davis is considering activity-based costing (ABC). The monthly data shown below have been gathered for the main product. The three activities are (1) incoming materials inspection, (2) in-process inspection, and (3) product certification. Costs are to be allocated to each activity on the basis of cost drivers."
Activity Cost Driver Cost Rate Quantity for Main Product
1 Number of types of materials $12 per type 12 types
2 Number of units $0.14 per unit 17,500 units
3 Number of orders $77 per order 30 orders
The monthly quality control cost assigned to the main product using ABC is


Which of the following statements about activity-based costing (ABC) is false?


Because of changes that are occurring in the basic operations of many firms, all of the following represent trends in the way indirect costs are allocated except


Multiple or departmental overhead rates are considered preferable to a single or plantwide overhead rate when


Factory Company makes two products, X and Z. X is being introduced this period, and Z has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. Assume that the only relevant overhead item is the cost of engineering change orders; that X and Z are expected to require eight and two change orders, respectively; that X and Z are expected to require 2 and 3 machine hours, respectively; and that the cost of a change order is $600. If Factory applies engineering change order costs on the basis of machine hours, the cross-subsidy per unit arising from this peanut-butter costing approach is


"ALF Co. is an assisted-living facility that provides services in the form of residential space, meals, and other occupant assistance (OOA) to its occupants. ALF currently uses a traditional cost accounting system that defines the service provided as assisted living, with service output measured in terms of occupant days. Each occupant is charged a daily rate equal to ALF’s annual cost of providing residential space, meals, and OOA divided by total occupant days. However, an activity-based costing (ABC) analysis has revealed that occupants’ use of OOA varies substantially. This analysis determined that occupants could be grouped into three categories (low, moderate, and high usage of OOA) and that the activity driver of OOA is nursing hours. The driver of the other activities is occupant days. The following quantitative information was also provided:"
Occupant Category Annual Occupant Days Annual Nursing Hours
Low usage 36,000 90000
Medium usage 18,000 90000
High usage 64,000 120000
"The total annual cost of OOA was $7.5 million, and the total annual cost of providing residential space and meals was $7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate should be"


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