Question

1. Which one of the following cast drivers would best be associated with the activity of physician time in a medical clinic?

1. The number of accreditations held by the clinic.
2. Physician minutes with a patient
3. Number of new patients visits
4. Number of continuing patient visits

1. 2. Magnolia Industries combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours. Activity based costing would likely show that with Magnolia’s current procedures that:
   1. All of the company’s products are over costed
   2. All of the company’s products are under costed
   3. The company’s high-volume products are under costed ‘the company’s high-volume products are overs costed
   4. The company’s low volume products are over costed
2. When determining customer profitability, activity-based costing can be used to analyze
   1. All answers are correct
   2. Special packaging and handling
   3. Sales visits
   4. Orders processed
   5. Billing and collections
3. Baxter customer service dept follows up on a customer complaint by telephone inquiry. During a recent period, the dept initiated 10,000 calls and incurred costs of 312,000. Of these calls 3,800 were for the company’s wholesale operation; the remainder was the retail division. Costs allocated to the retail division are:
   1. 203,000
   2. 31,200
   3. 193,440
   4. 118,560
   5. 0
4. Which of the following is not a broad, cost classification category typically used in a activity based costing?
   1. Product sustaining level
   2. Batch level
   3. Unit level
   4. Management level
   5. Facility level
5. The following tasks are associated with an activity-based costing system
   1. Assignment of cost to products
   2. Calculation of pool rates
   3. Identification of cost drivers
   4. Identification of cost pools
6. Which of the following choices correctly expresses the proper order of the preceding tasks?
   1. 4,2,1,3
   2. 4,3,2,1
   3. 1,2,3,4
   4. 2,4,1,3
   5. 3,4,2,1,

Answer 1

Q1. Which one of the following cast (cost) drivers would best be associated with the activity of physician time in a medical clinic?

Answer. The Cost driver that would best be associated with the activity of physician time in a medical clinic is Physician minutes with a patient, that is spent on a patient. Number of accreditations held by clinic, number of new patient and continuing patient visits are not the cost drivers

Q2. Baxter customer service dept follows up on a customer complaint by telephone inquiry. During a recent period, the dept initiated 10,000 calls and incurred costs of 312,000. Of these calls 3,800 were for the company’s wholesale operation; the remainder was the retail division. Costs allocated to the retail division are:

Answer: $193,440

Wholesale operation 3,800 calls, Retail operation call 6,200 calls; Total operation Calls 10,000, Total Costs- $312,000

Cost Allocated to Retail Division = ($321,000 $\times$ 6,200) $\div$ 10,000 = $193,440

Q3. The following tasks are associated with an activity-based costing system.

1. Assignment of cost to products
2. Calculation of pool rates
3. Identification of cost drivers
4. Identification of cost pool

Which of the following choices correctly expresses the proper order of the preceding tasks

Answer. Correct answer is 4, 3, 2, 1.

In ABC, first of all, costing pool are identified, each cost pool are associated with cost driver, and then pool rates are calculated and finally cost are assigned to product on the basis of pool rates. So the Correct order is 4, 3, 2, 1.

Q4. Which of the following is not a broad, cost classification category typically used in a activity based costing?

1. Product sustaining level
2. Batch level
3. Unit level
4. Management level
5. Facility level

Answer. Management Level

Unit level, Batch level, Facility level and Product sustaining level- all are broad cost classification category in Activity based Costing system, except management level.

Q5. Magnolia Industries combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours. Activity based costing would likely show that with Magnolia’s current procedures that:

1. All of the company’s products are over costed
2. All of the company’s products are under costed
3. The company’s high-volume products are overs costed
4. The company’s low volume products are over costed

Answer. The company's high volume product are over costed is the correct answer. The reason is that the other costing pool are ignored and other cost driver too not taken into account.