ACC/350 Cost Accounting Week 6 Quiz - Strayer

ACC 350 Week 6 Quiz – Strayer

  

Chapter 5  

 

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.

 

 

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ACC 350 Week 6 Quiz - Strayer

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