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Chapter 5 Through 10
Activity-Based Costing and
Activity-Based Management
1)
A
top-selling product might actually result in losses for the company.
2)
Companies
that undercost products will most likely lose market share.
3)
If
companies increase market share in a given product line because their reported
costs are less than their actual costs, they will become more profitable in the
long run.
4)
As
product diversity and indirect costs increase, it is usually best to switch
away from an activity based cost system to a broad averaging system.
5)
If a
company undercosts one of its products, then it will overcost at least one of
its other products.
6)
Direct
costs plus indirect costs equal total costs.
7)
When
refining a costing system, a company should classify as many costs as possible
as indirect costs.
8)
In a
homogeneous cost pool, all costs have a similar cause-and-effect relationship
with the cost-allocation base.
9)
Indirect
labor and distribution costs would most likely be in the same activity-cost
pool.
10)
Activity-based
costing helps identify various activities that explain why costs are
incurred.
11)
Direct
tracing of costs improves cost accuracy.
12)
A
cost-allocation base is a necessary element when using a strategy that will
refine a costing system.
13)
An
activity-based costing system is necessary for costing services that are
similar.
14)
Traditional
systems are likely to undercost complex products with lower production
volume.
15)
For
activity-based cost systems, activity costs are assigned to products in the
proportion of the demand they place on activity resources.
16)
Unit-level
measures can distort product costing because the demand for overhead resources
may be driven by batch-level or product-sustaining activities.
17)
Output
unit-level costs cannot be determined unless you know how many units are in a
given batch.
18)
Using
multiple unit-level cost drivers generally constitutes an effective
activity-based cost system.
19)
Misleading
cost numbers are larger when unit-level assignments and the alternative
activity-cost-driver assignments are proportionately similar to each
other.
20)
Availability
of reliable data and measures should be considered when choosing a
cost-allocation base.
21)
When
designing a costing system, it is easiest to calculate total costs first, and
then per-unit costs.
22)
ABC
systems attempt to trace more costs as direct costs.
23)
ABC
systems create homogeneous cost pools linked to different activities.
24)
ABC
systems seek a cost allocation base that has a cause-and-effect relationship
with costs in the cost pool.
25)
For
service organizations, activity-based cost systems may be used to clarify
appropriate cost assignments.
26)
ABC
reveals opportunities for improving the way work is done.
27)
Activity-based
management refers to the use of information derived from ABC analysis to
analyze and improve operations.
28)
Information
derived from an ABC analysis might be used to eliminate nonvalue-added
activities.
29)
ABC
costing systems are primarily for use in manufacturing and marketing and not
for design engineering.
30)
Department-costing
systems are a further refinement of ABC systems.
31)
ABC
systems are useful in manufacturing, but not in the merchandising or service
industries.
32)
Costing
systems with multiple cost pools are considered ABC systems.
33)
Regarding
department wide systems, the benefits of an ABC system must be balanced against
its costs and limitations.
34)
ABC
systems always provide decision-making benefits that exceed implementation
costs.
35)
The
primary costs of an ABC system are the measurements necessary to implement the
system.
36)
Simply
because activity-based costing systems employ more activity-cost drivers, they
provide more accurate product costs than traditional systems.
37)
If
products are alike, then for costing purposes:
A)
a simple
costing system will yield accurate cost numbers
B)
an
activity-based costing system should be used
C)
multiple
indirect-cost rates should be used
D)
varying
demands will be placed on resources
38)
Undercosting
a particular product may result in:
A)
loss of
market share
B)
lower
profits
C)
operating
inefficiencies
D)
understating
total product costs
39)
Overcosting
of a product is MOST likely to result from:
A)
misallocating
direct labor costs
B)
overpricing
the product
C)
undercosting
another product
D)
understating
total product costs
40)
A
company produces three products; if one product is overcosted then:
A)
one
product is undercosted
B)
one or
two products are undercosted
C)
two
products are undercosted
D)
no
products are undercosted
41)
Misleading
cost numbers are MOST likely the result of misallocating:
A)
direct
material costs
B)
direct
manufacturing labor costs
C)
indirect
costs
D)
All of
these answers are correct.
42)
An
accelerated need for refined cost systems is due to:
A)
global
monopolies
B)
rising
prices
C)
intense
competition
D)
a shift
toward increased direct costs
43)
The use
of a single indirect-cost rate is more likely to:
A)
undercost
high-volume simple products
B)
undercost
low-volume complex products
C)
undercost
lower-priced products
D)
Both B
and C are correct.
44)
Uniformly
assigning the costs of resources to cost objects when those resources are
actually used in a nonuniform way is called:
A)
overcosting
B)
undercosting
C)
peanut-butter
costing
D)
department
costing
45)
Refining
a cost system includes:
A)
classifying
as many costs as indirect costs as is feasible
B)
creating
as many cost pools as possible
C)
identifying
the activities involved in a process
D)
seeking
a lesser level of detail
46)
Greater
indirect costs are associated with:
A)
specialized
engineering drawings
B)
quality
specifications and testing
C)
inventoried
materials and material control systems
D)
All of
these answers are correct.
47)
Design
of an ABC system requires:
A)
that the
job bid process be redesigned
B)
that a
cause-and-effect relationship exists between resource costs and individual
activities
C)
an
adjustment to product mix
D)
Both B
and C are correct.
48)
ABC
systems create:
A)
one
large cost pool
B)
homogenous
activity-related cost pools
C)
activity-cost
pools with a broad focus
D)
activity-cost
pools containing many direct costs
49)
Logical
cost allocation bases include:
A)
cubic
feet of packages moved to measure distribution activity
B)
machine
hours to measure setup activity
C)
direct
manufacturing labor hours to measure designing activity
D)
All of
these answers are correct.
50)
ABC
systems:
A)
highlight
the different levels of activities
B)
limit
cost drivers to units of output
C)
allocate
costs based on the overall level of activity
D)
generally
undercost complex products
51)
A single
indirect-cost rate may distort product costs because:
A)
there is
an assumption that all support activities affect all products
B)
it
recognizes specific activities that are required to produce a product
C)
costs
are not consistently recorded
D)
it fails
to measure the correct amount of total costs
52)
Traditional
cost systems distort product costs because:
A)
they do
not know how to identify the appropriate units
B)
competitive
pricing is ignored
C)
they
emphasize financial accounting requirements
D)
they
apply average support costs to each unit of product
53)
Which of
the following statements about activity-based costing is NOT true?
A)
Activity-based
costing is useful for allocating marketing and distribution costs.
B)
Activity-based
costing is more likely to result in major differences from traditional costing
systems if the firm manufactures only one product rather than multiple
products.
C)
Activity-based
costing seeks to distinguish batch-level, product-sustaining, and
facility-sustaining costs, especially when they are not proportionate to one
another.
D)
Activity-based
costing differs from traditional costing systems in that products are not
cross-subsidized.
54)
Activity-based
costing (ABC) can eliminate cost distortions because ABC:
A)
develops
cost drivers that have a cause-and-effect relationship with the activities
performed
B)
establishes
multiple cost pools
C)
eliminates
product variations
D)
recognizes
interactions between different departments in assigning support costs
55)
Product
lines that produce different variations (models, styles, or colors) often
require specialized manufacturing activities that translate into:
A)
fewer
indirect costs for each product line
B)
decisions
to drop product variations
C)
a
greater number of direct manufacturing labor cost allocation rates
D)
greater
overhead costs for each product line
Answer
the following questions using the information below:
Merriman
Company provides the following ABC costing information:
Activities Total Costs Activity-cost drivers
Account
inquiry hours $400,000 10,000 hours
Account
billing lines $280,000 4,000,000 lines
Account
verification accounts $150,000 40,000 accounts
Correspondence
letters $ 50,000 4,000 letters
Total costs $880,000
The
above activities are used by Departments A and B as follows:
Department A Department B
Account
inquiry hours 2,000 hours 4,000 hours
Account
billing lines 400,000 lines 200,000 lines
Account
verification accounts 10,000 accounts 8,000 accounts
Correspondence
letters 1,000 letters 1,600 letters
56)
How much
of the account inquiry cost will be assigned to Department A?
A)
$80,000
B)
$400,000
C)
$160,000
D)
None of
these answers are correct.
57)
How much
of the account billing cost will be assigned to Department B?
A)
$28,000
B)
$280,000
C)
$14,000
D)
None of
these answers are correct.
58)
How much
of account verification costs will be assigned to Department A?
A)
$30,000
B)
$37,500
C)
$150,000
D)
$10,000
59)
How much
of correspondence costs will be assigned to Department B?
A)
$1,600
B)
$12,500
C)
$50,000
D)
$20,000
60)
How much
of the total costs will be assigned to Department A?
A)
$158,000
B)
$80,000
C)
$224,000
D)
$880,000
61)
How much
of the total costs will be assigned to Department B?
A)
$158,000
B)
$80,000
C)
$224,000
D)
$880,000
62)
Dalrymple
Company produces a special spray nozzle. The budgeted indirect total cost of
inserting the spray nozzle is $80,000. The budgeted number of nozzles to be
inserted is 40,000. What is the budgeted indirect cost allocation rate for this
activity?
A)
$0.50
B)
$1.00
C)
$1.50
D)
$2.00
63)
Activity-based
costing is most likely to yield benefits for companies with all of the
following characteristics EXCEPT:
A)
numerous
products that consume different amounts of resources
B)
operations
that remain fairly consistent
C)
a highly
competitive environment, where cost control is critical
D)
accessible
accounting and information systems expertise to maintain the system
64)
Each of
the following statements is true EXCEPT:
A)
traditional
product costing systems seek to assign all manufacturing costs to products
B)
ABC
product costing systems seek to assign all manufacturing costs to products
C)
traditional
product costing systems are more refined than an ABC system
D)
cost
distortions occur when a mismatch (incorrect association) occurs between the
way indirect costs are incurred and the basis for their assignment to
individual products
Answer
the following questions using the information below:
Happy
Valley Land and Snow Company provides the following ABC costing information:
Activities Total Costs Activity-cost drivers
Labor
hours $160,000 8,000 hours
Gas $18,000 6,000 gallons
Invoices $20,000 2,500 invoices
Total costs $198,000
The
above activities used by their three departments are:
Lawn Department Bush Department Plowing Department
Labor
hours 2,500 hours 1,200 hours 4,300
hours
Gas 1,500 gallons 800 gallons 3,700 gallons
Invoices 1,600 invoices 400 invoices 500
invoices
65)
How much
of the labor cost will be assigned to the Lawn Department?
A)
$50,000
B)
$12,800
C)
$20,000
D)
None of
these answers are correct.
66)
How much
of the gas cost will be assigned to the Plowing Department?
A)
$25,000
B)
$11,100
C)
$15,000
D)
None of
these answers are correct.
67)
How much
of invoice cost will be assigned to the Bush Department?
A)
$3,200
B)
$4,000
C)
$12,800
D)
$20,000
68)
How much
of the gas cost will be assigned to the Lawn Department?
A)
$2,400
B)
$10,000
C)
$4,500
D)
$11,100
69)
How much
of the total cost will be assigned to the Plowing Department?
A)
$198,000
B)
$101,100
C)
$67,300
D)
$86,000
70)
How much
of the total costs will be assigned to the Lawn Department?
A)
$50,000
B)
$29,600
C)
$100,000
D)
$67,300
71)
The MOST
likely example of an output unit-level cost is:
A)
general
administrative costs
B)
paying
suppliers for orders received
C)
engineering
costs
D)
machine
depreciation
72)
The MOST
likely example of a batch-level cost is:
A)
utility
costs
B)
machine
repairs
C)
product-designing
costs
D)
setup
costs
73)
Design
costs are an example of:
A)
unit-level
costs
B)
batch-level
costs
C)
product-sustaining
costs
D)
facility-sustaining
costs
74)
________
costs support the organization as a whole.
A)
Unit-level
B)
Batch-level
C)
Product-sustaining
D)
Facility-sustaining
75)
It is
usually difficult to find good cause-and-effect relationships between ________
and a cost allocation base.
A)
unit-level
costs
B)
batch-level
costs
C)
product-sustaining
costs
D)
facility-sustaining
costs
76)
To set
realistic selling prices:
A)
all
costs should be allocated to products
B)
costs
should only be allocated when there is a strong cause-and-effect
relationship
C)
only
unit-level costs and batch-level costs should be allocated
D)
only
unit-level costs should be allocated
77)
Different
products consume different proportions of manufacturing overhead costs because
of differences in all of the following EXCEPT:
A)
selling
prices
B)
customers'
customization specifications
C)
setup
times
D)
product
design
78)
Unit-level
cost drivers are most appropriate as an overhead assignment base when:
A)
several
complex products are manufactured
B)
only one
product is manufactured
C)
direct
labor costs are low
D)
factories
produce a varied mix of products
79)
With
traditional costing systems, products manufactured in small batches and in
small annual volumes may be ________ because batch-related and
product-sustaining costs are assigned using unit-related drivers.
A)
overcosted
B)
fairly
costed
C)
undercosted
D)
ignored
Answer
the following questions using the information below:
Products
S5 and CP8 each are assigned $50.00 in indirect costs by a traditional costing
system. An activity analysis revealed that although production requirements are
identical, S5 requires 45 minutes less setup time than CP8.
80)
According
to an ABC system, CP8 is ________ under the traditional system.
A)
undercosted
B)
overcosted
C)
fairly
costed
D)
accurately
costed
81)
According
to an ABC system, S5 uses a disproportionately:
A)
smaller
amount of unit-level costs
B)
larger
amount of unit-level costs
C)
smaller
amount of batch-level costs
D)
larger
amount of batch-level costs
82)
Put the
following ABC implementation steps in order:
A Compute
the allocation rates.
B Compute
the total cost of the products.
C Identify
the products that are the cost objects.
D Select
the cost allocation bases.
A)
DACB
B)
DBCA
C)
BADC
D)
CDAB
83)
ABC
systems identify ________ costs used by products.
A)
all
B)
short-term
fixed
C)
short-term
variable
D)
long-term
fixed
84)
The
focus of ABC systems is on:
A)
long-term
decisions
B)
short-term
decisions
C)
make-or-buy
decisions
D)
special-pricing
decisions
85)
When
designing a costing system, it is easiest to:
A)
calculate
total costs first and then per-unit cost
B)
calculate
per-unit costs first and then total costs
C)
calculate
long-term costs first and then short-term costs
D)
calculate
short-term costs first and then long-term costs
86)
ABC
assumes all costs are ________ because over the long run management can adjust
the amount of resources employed.
A)
fixed
B)
variable
C)
committed
D)
nondiscretionary
87)
A
manufacturing firm produces multiple families of products requiring various
combinations of different types of parts. Of the following, the MOST
appropriate cost driver for assigning materials handling costs to the various
products is:
A)
direct
labor hours
B)
number
of units produced
C)
number
of parts used
D)
number
of suppliers involved
Answer
the following questions using the information below:
Barnes
Corporation manufactures two models of office chairs, a standard and a deluxe
model. The following activity and cost information has been compiled:
Number of Number of Number of
Product Setups Components Direct Labor
Hours
Standard 22 8 375
Deluxe 28 12 225
Overhead
costs $20,000 $40,000
88)
Assume a
traditional costing system applies the $60,000 of overhead costs based on direct
labor hours. What is the total amount of overhead costs assigned to the
standard model?
A)
$24,800
B)
$35,200
C)
$37,500
D)
$22,500
89)
Assume a
traditional costing system applies the $60,000 of overhead costs based on
direct labor hours. What is the total amount of overhead costs assigned to the
deluxe model?
A)
$24,800
B)
$35,200
C)
$37,500
D)
$22,500
90)
Number
of setups and number of components are identified as activity-cost drivers for
overhead. Assuming an activity-based costing system is used, what is the total
amount of overhead costs assigned to the standard model?
A)
$24,800
B)
$35,200
C)
$37,500
D)
$22,500
91)
Number
of setups and number of components are identified as activity-cost drivers for
overhead. Assuming an activity-based costing system is used, what is the total
amount of overhead costs assigned to the deluxe model?
A)
$24,800
B)
$35,200
C)
$37,500
D)
$22,500
Answer
the following questions using the information below:
Speedy
Racer Corporation manufactures two models of motorized go-carts, a standard and
a deluxe model. The following activity and cost information has been compiled:
Number of Number of Number of
Product Setups Components Direct Labor
Hours
Standard 15 10 750
Deluxe 35 15 500
Overhead
costs $30,000 $50,000
92)
Assume a
traditional costing system applies the $80,000 of overhead costs based on
direct labor hours. What is the total amount of overhead cost assigned to the
standard model?
A)
$32,000
B)
$48,000
C)
$50,000
D)
$30,000
93)
Assume a
traditional costing system applies the $80,000 of overhead costs based on
direct labor hours. What is the total amount of overhead cost assigned to the
deluxe model?
A)
$32,000
B)
$48,000
C)
$50,000
D)
$30,000
94)
Number
of setups and number of components are identified as activity-cost drivers for
overhead. Assuming an activity-based costing system is used, what is the total
amount of overhead cost assigned to the standard model?
A)
$51,000
B)
$30,000
C)
$29,000
D)
$48,000
95)
Number
of setups and number of components are identified as activity-cost drivers for
overhead. Assuming an activity-based costing system is used, what is the total
amount of overhead cost assigned to the deluxe model?
A)
$51,000
B)
$50,000
C)
$48,000
D)
$25,000
Answer
the following questions using the information below:
Tiger
Pride produces two product lines: T-shirts and Sweatshirts. Product
profitability is analyzed as follows:
T-SHIRTS SWEATSHIRTS
Production
and sales volume 60,000 units 35,000 units
Selling
price $16.00 $29.00
Direct
material $ 2.00 $ 5.00
Direct
labor $ 4.50 $ 7.20
Manufacturing
overhead $ 2.00 $ 3.00
Gross
profit $ 7.50 $13.80
Selling
and administrative $ 4.00 $ 7.00
Operating profit $ 3.50 $
6.80
Tiger
Pride's managers have decided to revise their current assignment of overhead
costs to reflect the following ABC cost information:
Activity Activity cost Activity-cost
driver
Supervision $100,920 Direct
labor hours (DLH)
Inspection $124,000 Inspections
Activities demanded
T-SHIRTS SWEATSHIRTS
0.75 DLH/unit 1.2 DLH/unit
45,000 DLHs 42,000 DLHs
60,000 inspections 17,500 inspections
96)
Under
the revised ABC system, the activity-cost driver rate for the supervision
activity is:
A)
$2.58
B)
$2.40
C)
$2.24
D)
$1.16
97)
Under
the revised ABC system, supervision costs allocated to Sweatshirts will
be:
A)
$48,720
B)
$100,800
C)
$100,920
D)
None of
these answers are correct.
98)
Under
the revised ABC system, total overhead costs allocated to Sweatshirts will
be:
A)
$
48,720
B)
$
76,720
C)
$224,920
D)
None of
these answers are correct.
99)
Under
the revised ABC system, overhead costs per unit for the Sweatshirts will
be:
A)
$1.39
per unit
B)
$1.60
per unit
C)
$2.19
per unit
D)
$2.47
per unit
100)
Using an
ABC system, next year's estimates show manufacturing overhead costs will total
$228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices
remain the same, the profitability that can be expected is:
A)
$5.41
per t-shirt
B)
$4.39
per t-shirt
C)
$1.11
per t-shirt
D)
($0.81)
per t-shirt
Answer
the following questions using the information below:
Mayan
Potters manufactures two sizes of ceramic paperweights, regular and jumbo. The
following information applies to their expectations for the planning period:
Cost
Pool Overhead Costs Activity-cost driver
Materials
handling $ 45,000 90,000 orders
Machine
maintenance $300,000 15,000 maintenance hours
Setups $270,000 45,000
setups
Inspections $105,000 21,000
inspections
Total support costs $720,000
Production Estimates
Production units:
Regular = 8,000,000 units
Jumbo = 16,000,000 units
Machine-hours = 200,000 mh
Labor-hours = 400,000 dlh
Mayan
Potters uses an ABC system and assigns overhead costs based on the overhead
activity information provided above.
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