1 activity based management is not suitable for service companies as it deals with t 4306472

1 activity based management is not suitable for service companies as it deals with t 4306472

1) Activity-based management is not suitable for service companies as it deals with the proper allocation of manufacturing overhead.

2) While using an activity-based costing in service companies, the allocation of indirect costs to the cost object is the last step of the process.

3) Activity-based costing can be used in determining the cost of services as well as products.

4) The steps of an activity-based costing for a service firm are significantly different from that used for a manufacturing firm.

5) Dunby Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base. The estimated indirect costs for this year amount to $150,000. The company is expected to work for 5,000 direct labor hours during the year. The direct labor rate is $250 per hour. Clients are billed at 140% of direct labor cost. Last month, Dunby's consultants spent 175 hours on Xyme Inc. What is the predetermined overhead allocation rate per direct labor hour?

A) $250 per hour

B) $30 per hour

C) $280 per hour

D) $350 per hour

6) Dunby Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base. The estimated indirect costs for this year amount to $150,000. The company is expected to work for 5,000 direct labor hours during the year. The direct labor rate is $250 per hour. Clients are billed at 140% of direct labor cost. Last month, Dunby's consultants spent 175 hours on Xyme Inc. Calculate the total cost assigned to Xyme.

A) $49,000

B) $43,750

C) $38,500

D) $61,250

7) Dunby Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect costs using a single plantwide rate with direct labor hours as the allocation base. The estimated indirect costs for this year amount to $150,000. The company is expected to work for 5,000 direct labor hours during the year. The direct labor rate is $250 per hour. Clients are billed at 140% of direct labor cost. Last month, Dunby's consultants spent 175 hours on Xyme Inc. Calculate the operating income from Xyme.

A) $49,000

B) $43,750

C) $38,500

D) $12,250

8) Dunby Inc., a law consulting firm, has been using a single plantwide rate with direct labor hours as the allocation base to allocate overhead costs. The direct labor rate is $250 per hour. Clients are billed at 140% of direct labor cost. Chandler Massey, the president of Dunby, decided to develop an ABC system to accurately allocate the indirect costs. He identified two activities that amount to the total indirect costs—travel and information technology support. The other relevant details are given below:

Activity

Allocation Base

Estimated costs

Estimated Quantity of Allocation Base

Travel

Miles driven

$ 95,000

2,500 miles

IT Support

Direct labor hours

55,000

1,350 DLH

Total

$150,000

The predetermined overhead allocation rate for travel will be ________.

A) $40.74 per mile

B) $38.00 per mile

C) $78.74 per mile

D) $250 per mile

9) Dunby Inc., a law consulting firm, has been using a single plantwide rate with direct labor hours as the allocation base to allocate overhead costs. The direct labor rate is $250 per hour. Chandler Massey, the president of Dunby, decided to develop an ABC system to accurately allocate the indirect costs. He identified two activities that amount to the total indirect costs— travel and information technology support. The other relevant details are given below:

Activity

Allocation Base

Estimated costs

Estimated Quantity of Allocation Base

Travel

Miles driven

$ 95,000

2,500 miles

IT Support

Direct labor hours

55,000

1,350 DLH

Total

$150,000

During the current month, Dunby's consultants spent 175 labor hours for Xyme Inc. The job required the professionals to travel 30 miles in total. Determine the total cost of the consulting job using the ABC system.

A) $43,750

B) $8,270

C) $7,130

D) $52,020

10) Vincent Jardine, a CPA, has a firm in the state of New York. Vincent uses ABC to allocate overhead costs and has computed the following predetermined overhead allocation rates:

Activity            Allocation Base      Allocation Rate  

Photocopy expensesNumber of pages$0.75per page

Cost of MaintenanceNumber of labor hours$10.00per hour

Vincent has important contacts in the northeastern parts of New York. During the past month, Vincent completed a job for Nurix Inc. The job required 135 labor hours and 4,000 photocopies. Determine the amount of indirect costs to be allocated to the job.

11) Florian Plant Services completed a special landscaping job for Pierre Designs Company. Florian uses ABC and has the following predetermined overhead allocation rates:

Predetermined Overhead

ActivityAllocation Base      Allocation Rate

DesigningNumber of designs$275per design

PlantingNumber of plants$15per plant

The Pierre Designs project required $1,200 in landscape materials; $700 in direct labor; one design; and 35 plants.

Requirements:

1. What is the total cost of the work done for Pierre Designs?

2. If Pierre Designs paid $3,900 for the job, what is the operating income or loss?

3. If Florian desires an operating income of 50% of cost, how much should the company charge for the Pierre Designs project?

2)

3)

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