COST AND MANAGEMENT ACCOUNTING CMA03A3 BSR3A01 FNM03A3 Activity based costing Question Bank Multiple Choice Questions 1 Property taxes and insurance is an example of a cost that would be considered to be A B C D unit level batch level product level organization sustaining Personnel administration is an example of a an A B C D unit level activity batch level activity product level activity organization sustaining activity 2 3 Matt Company uses activity based costing The company has two products A and B The annual production and sales of Product A is 8 000 units and of Product B is 6 000 units There are three activity cost pools with estimated total cost and expected activity as follows Estimated Expected Activity Activity Cost Pool Cost Product Product A B Total Activity 1 R20 000 100 Activity 2 R37 000 800 400 200 500 1 000 Activity 3 R91 200 800 3 000 3 800 4 The cost per unit of Product A under activity based costing is closest to A R2 40 B R3 90 C R10 59 D R6 60 Leeds Catering uses activity based costing for allocating its overhead costs The company has provided the following data concerning the activity rates in its activity based costing system Wages Supplies Other Activity Cost Pools Preparing Arranging Meals Functions R0 80 R0 40 R180 00 R290 00 expenses R0 20 R140 00 The number of meals served is the measure of activity for the Preparing Meals activity cost pool The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool Management would like to know whether the company made any money on a recent function at which 90 meals were served The company catered the function for a fixed price of R25 00 per meal The cost of the raw ingredients for the meals was R13 90 per meal This cost is in addition to the costs of wages supplies and other expenses detailed above For the purposes of preparing action analyses management has assigned ease of adjustment codes to the costs as follows wages are classified as a Yellow cost supplies and raw ingredients as a Green cost and other expenses as a Red cost Suppose an action analysis report is prepared for the function mentioned above What would be the yellow margin in the action analysis report Round to the nearest whole pound A B C D R421 R601 R496 R546 5 Leeds Catering uses activity based costing for its overhead costs The company has provided the following data concerning the activity rates in its activity based costing system Wages Supplies Other Activity Cost Pools Preparing Arranging Meals Functions R0 80 R0 40 R180 00 R290 00 expenses R0 20 R140 00 The number of meals served is the measure of activity for the Preparing Meals activity cost pool The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool Management would like to know whether the company made any money on a recent function at which 90 meals were served The company catered the function for a fixed price of R25 00 per meal The cost of the raw ingredients for the meals was R13 90 per meal This cost is in addition to the costs of wages supplies and other expenses detailed above For the purposes of preparing action analyses management has assigned ease of adjustment codes to the costs as follows wages are classified as a Yellow cost supplies and raw ingredients as a Green cost and other expenses as a Red cost Suppose an action analysis report is prepared for the function mentioned above What would be the red margin in the action analysis report Round to the nearest whole pound A B C D R263 R113 R163 R413 6 7 8 Jennifer Company has two products A and B The company uses activity based costing The estimated total cost and expected activity for each of the three activity cost pools are as follows Estimated Expected Activity Activity Cost Pool Cost Product A Product B Total Activity 1 R23 500 400 Activity 2 R18 000 500 Activity 3 R34 600 600 100 200 300 500 700 900 The activity rate under the activity based costing system for Activity 3 is closest to A R36 24 B R38 44 C R84 56 D R115 33 True False In activity based costing there are a number of activity cost pools each of which is allocated to products and other costing objects using its own unique measure of activity Bridget Company uses activity based costing The company has two products A and B The annual production and sales of Product A is 2 000 units and of Product B is 3 000 units There are three activity cost pools with estimated total cost and expected activity as follows Estimated Expected Activity Activity Cost Pool Cost Product A Product B Total Activity 1 R9 000 Activity 2 R12 000 350 750 400 500 Activity 3 R48 000 1 200 1 600 400 100 400 The cost per unit of Product A under activity based costing is closest to A R6 00 R9 60 R8 63 R13 80 B C D 9 some manufacturing costs i e the costs of idle capacity and An activity based costing system that is designed for internal decision making will not conform to externally regulated accounting principles because A organisation sustaining costs will not be assigned to products some non manufacturing costs are assigned to products B first stage allocations may be based on subjective interview C data D system that is designed for internal decision making will not conform to generally accepted accounting principles all of the these are reasons why an activity based costing 10 Paul Company has two products A and B The company uses activity based costing The estimated total cost and expected activity for each of the company s three activity cost pools are as follows Estimated Expected Activity Activity Cost Pool Cost Product A Product B Total Activity 1 R22 000 Activity 2 R16 240 Activity 3 R14 600 400 380 500 100 200 250 500 580 750 The activity rate under the activity based costing system for Activity 3 is closest to A R70 45 B R28 87 C R19 47 D R58 40 11 When combining activities in an activity based costing system batch level activities should be combined with unit level activities whenever possible True False 12 Which of the following is not a limitation of activity based costing A Maintaining an activity based costing system is more costly than maintaining a traditional direct labour based costing system B Changing from a traditional direct labour based costing system to an activity based costing system changes product margins and other key performance indicators used by managers Such changes are often resisted by managers In practice most managers insist on fully allocating