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Watson’s Computer Company uses ABC to account for its manufacturing process.

Watson’s Computer Company uses ABC to account for its manufacturing process..

Question 1 of 20

5.0 Points

Watson’s Computer Company uses ABC to account for its manufacturing process.



Indirect   activity budget

Allocation base (cost driver)


Materials handling


Based on number of parts


Machine setup


Based on number of setups




Based on number of parts




Based on number of finished units

 Watson’s Computer Company expects to produce 2,250 computers. Watson’s Computer Company also expects to use 13,000 parts and have 20 setups. The allocation rate for materials handling will be:


A. $4. 

B. $6.80. 

C. $23.11. 

D. $7.01.

Question 2 of 205.0 Points

Which term listed below describes a system where companies purchase raw materials when needed in production and complete finished goods when needed by customers?

A. Internal failure costs 

B. Backflush costing 

C. Just-in-time 

D. External failure costs

Question 3 of 205.0 Points

The entry to record the purchase of raw materials on account using a job costing system would include a:

A. credit to work-in-process inventory. 

B. debit to accounts payable. 

C. debit to work-in-process inventory. 

D. debit to raw materials inventory.

Question 4 of 205.0 Points

If jobs have been under costed due to under allocation of manufacturing overhead, then cost of goods sold (COGS) is too low and which of the following corrections must be made?

A. Decrease COGS for the amount of the under allocation 

B. Increase COGS for double the amount of the under allocation 

C. Decrease COGS for double the amount of the under allocation 

D. Increase COGS for the amount of the under allocation

Question 5 of 205.0 Points

Which of the following is a lean strategy?

A. Group like machines together. 

B. Produce in smaller batches than a traditional system. 

C. Maintain a higher level of inventory than a traditional system. 

D. Lengthen setup times relative to a traditional system.

Question 6 of 205.0 Points

In job costing, the journal entry to record the use of direct materials on jobs is to debit work-in-process inventory and credit:

A. raw materials inventory. 

B. finished goods inventory. 

C. manufacturing overhead. 

D. wages payable.

Question 7 of 205.0 Points

The predetermined indirect cost allocation rate is computed as:

A. total estimated indirect costs / total estimated amount of the allocation base. 

B. total amount of the allocation base / total estimated indirect costs. 

C. total estimated indirect costs + total estimated amount of the allocation base. 

D. total amount of the allocation base – total estimated indirect costs.

Question 8 of 205.0 Points

The cost of downtime caused by quality problems with the raw materials would be classified as what type of cost?

A. Prevention cost 

B. Appraisal cost 

C. External failure cost 

D. Internal failure cost

Question 9 of 205.0 Points

Which of these documents informs the storeroom to send specific materials to the factory floor?

A. Receiving report 

B. Bill of materials 

C. Purchase order 

D. Materials requisition

Question 10 of 205.0 Points

A system that focuses on activities as the fundamental cost object and uses the costs for these activities to compile indirect costs of goods and services is:

A. appraisal costs. 

B. value engineering. 

C. activity-based costing. 

D. prevention costs.

Question 11 of 205.0 Points

Service firms develop a predetermined rate for some costs. This rate is called the:

A. labor rate. 

B. direct cost rate. 

C. indirect cost allocation rate. 

D. hourly cost rate.

Question 12 of 20

5.0 Points

Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee table consists of 20 separate parts totaling $240 in direct materials, and each requires 5 hours of machine time to produce. Additional information follows.



Allocation Base

Cost Allocation Rate


Materials handling

Number of parts

$2.00 per part



Machine hours

$2.75 per machine hour



Number of parts

$1.00 per part



Number of finished units

$3.00 per finished unit

 What is the cost of machining per coffee table?

A. $15 

B. $21 

C. $13.75 

D. $55

Question 13 of 205.0 Points

The benefits of using the ABC costing system are higher if the company:

A. has high indirect costs. 

B. produces many different products that use differing amounts of resources. 

C. has high indirect costs and produces many different products that use differing amounts of resources. 

D. produces only one product.

Question 14 of 205.0 Points

The first step in developing an ABC system is:

A. calculate an activity cost allocation rate for each activity. 

B. allocate the costs to the cost object using the activity cost allocation rates. 

C. select an allocation base for each activity. 

D. identify the primary activities and estimate a total cost pool for each.

Question 15 of 205.0 Points

Showboat Corporation had actual manufacturing overhead costs for the most recent year of $29,500. Manufacturing overhead is allocated using a predetermined manufacturing overhead rate of $1.50 per direct labor hour. Direct labor cost is $19 per hour. At the end of the year, Cabaret Corporation found it had over allocated manufacturing overhead by $1,250. How much manufacturing overhead was allocated in total during the year?

A. $28,250 

B. $29,500 

C. $30,750 

D. $1,250

Question 16 of 205.0 Points

Venus Crates manufactures custom crates for a variety of uses. The following data have been recorded for Job 551, which was recently completed. Direct materials used cost $7,200. There were 82 machine hours used on this job. The predetermined overhead rate is $30 per machine hour used. There were 175 direct labor hours worked on this job at a direct labor wage rate of $24 per hour. What is the total manufacturing cost of Job 551?

A. $13,860 

B. $4,200 

C. $2,460 

D. $7,457

Question 17 of 205.0 Points

A(n) ________ is an estimated manufacturing overhead rate computed before the year begins.

A. cost allocation 

B. cost driver 

C. predetermined manufacturing overhead rate 

D. actual manufacturing overhead rate

Question 18 of 205.0 Points

Which of the following is a result of cost distortion?

A. Over costing of all products 

B. Under costing of all products 

C. Accurate costing of all products 

D. Over costing of some products and under costing of other products

Question 19 of 20

5.0 Points

Here are selected data for Sunny Sky Corporation.


Beginning raw materials inventory


Beginning work-in-process   inventory



Beginning finished goods inventory


Cost of materials purchased



Cost of direct materials   requisitioned


Direct labor incurred



Actual manufacturing overhead


Cost of goods manufactured



Cost of goods sold


Manufacturing overhead rate (% of   direct labor)


What is the ending work-in-process inventory balance?

A. $161,500 

B. $170,250 

C. $211,200 

D. $229,950

Question 20 of 205.0 Points

Which term listed below describes costs incurred when the company fails to detect poor quality goods or services before delivery to the customer?

A. Internal failure costs 

B. Value-added activity 

C. External failure costs 

D. Just-in-time production

Watson’s Computer Company uses ABC to account for its manufacturing process.

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