Question

Jackson manufactures products X and Y, applying overhead on the basis of labor hours. X, a low-volume product, requires a variety of complex manufacturing procedures. Y, on the other hand, is both a high-volume product and relatively simplistic in nature. What would an activity-based costing system likely disclose about products X and Y as a result of Jackson's current accounting procedures?
X Y
A.Undercosted Undercosted
B.Undercosted Overcosted
C.Overcosted Undercosted
D.Overcosted Overcosted
E.Costed correctly Costed correctly

Consider the following statements about zero-base budgeting:
I. The budget for virtually every activity in an organization is initially set to the level that existed during the previous year.
II. The budget forces management to rethink each phase of an organization's operations before resources are allocated.
III. To receive funding for the upcoming period, individual activities must be justified in terms of continued usefulness to the organization.
Which of the above statements is (are) true?
A. II only.
B. III only.
C. I and II.
D. II and III.
E. I, II, and III.

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses?
Revenues Expenses
A.Underestimate Underestimate
B.Underestimate Overestimate
C.Overestimate Underestimate
D.Overestimate Overestimate
E.Estimate correctly Estimate correctly

Answer 1

Answer to first question in the list: Option-(B): X - Undercosted; Y-Overcosted Reason: It is given that overhead costs are allocated to products traditionally using direct labor hours as the basis. When X, a low-volume product, requires a variety of complex manufacturing procedures, it tends to use low volume of direct labor hours and so low volume of overhead costs only will be allocated to X when direct labor hour is used as the basis for overhead allocation. Similarly, when Y, on the other hand, whichis both a high-volume product and relatively simplistic in nature, it tends to use more direct labor hours and so high volume of overhead costs will be allocated to Y when direct labor hour is used as the basis for overhead allocation. Therefore, Option-(B) is the correct answer.