(Level 1) Multiple-Choice Questions

(LO 5.1) Fably Inc. is a specialty clothing shop that employs dozens of tailors and several supervisors who oversee the tailors’ work in the production facility. Supervisor labor is considered manufacturing overhead. Which of the following allocation bases is most likely to be the cost driver of supervisor labor?

• Direct labor hours

• Machine hours

• Units produced

• Square footage

(LO 5.1) The Glow Company produces motion-sensor LED candles. The company has considerable manufacturing overhead costs, including a number of employees who meticulously examine the quality of the candles before they are shipped to customers. Which of the following allocation bases is most likely to be the cost driver of quality control?

• Direct labor hours

• Machine hours

• Units produced

• Square footage

Using a traditional job-order cost system with a single allocation base may result in the undercosting of a product or service. Undercosting a product or service can result in:

• overstated product efficiency.

• overstated product market share.

• overstated product profitability.

• undercosting all products and services.

Crimson Box produces two products. Per the company’s traditional job-costing system, Basic Box and Premium Box cost $30 and $50 to produce, respectively. Recently, Crimson Box implemented a two-stage allocation system, which indicated a cost of $25 for the Basic Box and $65 for the Premium Box.The implementation of a two-stage cost allocation revealed that Basic Box was .

• undercosted

• overcosted
• cross-costed

• inefficient

When Crimson Box implements two-stage cost allocation, how are manufacturing overhead costs affected?

• Total manufacturing overhead costs increase.

• Total manufacturing overhead costs decrease.

• Total manufacturing overhead costs are unchanged.

• Total manufacturing overhead costs increase, but product costs remain the same.

Activity-based costing differs from two-stage job-order costing in that it attempts to establish a cause-effect relationship between cost drivers and indirect costs.

• True

• False

(LO 5.2) Which of the following cost systems is least likely to conform to GAAP?

• Job order costing

• Process costing

• Activity-based costing

• Variable costing

Which of the following is a type of costing method?

• Traditional job-order costing

• Two-stage job-order costing

• Activity-based costing

• Process costing

Which of the following indirect costs can be included as a product cost under activity-based costing but should not be included as a product cost according to GAAP?

• Machine depreciation

• Factory rent

• Supervisor labor

• Advertising expenses

Which of the following indirect costs is not included as a product cost under activity-based costing but should be included as a product cost according to GAAP?

• Machine depreciation

• Factory rent

• Supervisor labor

• Advertising expenses