This Is a Comprehensive Problem Comparing Absorption Costing and ABC

question 9

Multiple Choice

This is a comprehensive problem comparing absorption costing and ABC. It is suggested that as you progress through the problem, keep track of the correct solutions, because these values will be used again later in the problem set. Dehli Inkstone specializes in inkstone creation. Each finished inkstone needs 1½ pounds of special materials which cost $20 a pound. (One pound contains 16 ounces.) Drilling requires 1 direct labor hours, for which workers are paid $10 per hour, and 40 minutes of machine time. The preliminary product (a 'basic') is inspected to ensure that it is sound. Fifteen percent of the basics are rejected. It is not possible to rework these, and they have no salvage value. Each approved stone is handed to a master craftsperson who spends two hours making a 'Standard' product or three hours creating a 'Masterpiece'. Standards use half an hour of machine time and Masterpieces one hour. Finished inkstones are inspected again before packing. Four percent of finished products fail the final quality control assessment and are destroyed. Crafts persons are paid $18 per hour. It takes a 'basic' worker six minutes to package each inkstone in bubble wrap and a shipping carton, which cost 50 cents in materials and weigh 6 ounces in total.
Total overheads are estimated to be $587,400 per year and 97,900 direct labor hours are budgeted. Production plans for the year call for 60% of output to be Standard inkstones and the balance Masterpieces.
What is true when ABC is used in Dehli Inkstone?

• A)Machine operations costs run $5.025 per machine hour
• B)Labor-related costs are $0.143 per direct labor dollar
• C)Inspection costs are $1.891 per inspection
• D)Labor-based overheads are 19.6% per direct labor dollar
• E)None of the above

Analyze and calculate asset depreciation using various methods such as straight-line, double-declining balance, and units-of-production.

Recognize the impact of not recording amortization or depreciation expenses on financial statements.

Understand the differentiation between capital and revenue expenditures and the impact on asset valuation.

Identify and account for impairment losses on assets and their effect on financial statements.

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Definitions:

Insomnia

A sleep disorder characterized by difficulty falling asleep, staying asleep, or obtaining restorative sleep, leading to daytime impairment.

Sleep Apnea

A sleep disorder characterized by pauses in breathing or periods of shallow breathing during sleep.

N-Sleep

Refers to non-rapid eye movement (NREM) sleep, which encompasses stages 1 through 3 of the sleep cycle, involving deepening sleep and physiological rest.

Alpha Rhythms

Brainwaves detected through EEG, associated with relaxed, wakeful states, typically with closed eyes.