WorksheetsMS12: ACTIVITY BASED COSTING
Total questions: 86
Worksheet time: 46mins
Which of the following statements is true?
Costs that are indirect to products are traceable to some activity.
The traditional approach to costing uses many different cost drivers.
Costs that are indirect to products are by definition traceable directly to products.
All of the above statements are true.
Mass customization can be achieved through the use of
Activity-based costing.
Flexible manufacturing systems.
Just-in-time inventory.
all of the above.
Process value analysis is a key component of activity-based management that links product costing and
Continuous improvement.
Reduction of the number of cost pools.
Overhead rates based on broad averages.
Accumulation of heterogeneous cost pools.
An approach to developing new ways to perform existing activities is called
Benchmarking.
Caveat analysis.
Process value analysis.
Re-engineering.
A(n) _______________ method first traces costs to a department and then to products.
absorption costing
activity-based costing
direct costing
traditional costing
Traditional overhead allocations result in which of the following situations?
The resulting allocations cannot be used for financial reports.
Overhead costs are assigned as period costs to manufacturing operations.
Low-volume products are assigned too much, and high-volume products are assigned too little overhead.
High-volume products are assigned too much overhead, and low-volume products are assigned too little overhead.
Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called
department costing.
overcosting.
peanut-butter costing.
undercosting.
Which of the following is NOT a trait of a traditional cost management system?
allocation intensive
focus on managing activities
narrow and rigid product costing
unit-based drivers
Symptoms of an outdated cost system include all of the following EXCEPT
competitors' prices appear unrealistically low.
products that are difficult to produce show little profit.
the company has a highly profitable niche all to itself.
product costs change because of changes in financial reporting.
Which of the following is NOT a sign of poor cost data?
The company seems to have a highly profitably niche all to itself.
Customers don't balk at price increases for low-volume products.
Competitors' prices for low-volume products appear much too high.
Competitors' prices for high-volume products appear much too high.
Traditionally, managers have focused cost reduction efforts on
activities.
costs.
departments.
processes.
An objective of activity-based management is to
eliminate the majority of centralized activities in an organization.
institute responsibility accounting systems in decentralized organizations.
reduce or eliminate non-value-added activities incurred to make a product or provide a service.
all of the above
A(n)_______________ method first traces costs to activities and then to products.
absorption costing
activity-based costing
direct costing
traditional costing
An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is
Activity-based costing.
Cycle-time costing.
Direct costing.
Variable costing.
Activity-based costing and generally accepted accounting principles differ in that ABC
does not define product costs in the same manner as GAAP.
cannot be used to compute an income statement, but GAAP can.
information is useful only to managers, while GAAP information is useful to all organizational stakeholders.
is concerned only with costs generated from automated processes, but GAAP is concerned with costs generated from both manual and automated processes.
Design of an ABC system requires
an adjustment to product mix.
that the job bid process be redesigned.
that a cause-and-effect relationship exists between resource costs and individual activities.
both (A) and (C).
In an activity-based costing system, what should be used to assign a department's manufacturing overhead cost to products produced in varying lot sizes?
A single cause and effect relationship.
Multiple cause and effect relationships.
Relative net sales values of the products.
A product's ability to bear cost allocations.
A basic assumption of activity-based costing (ABC) is that
Only variable costs are included in activity-cost pools.
All manufacturing costs vary directly with units of production.
Only costs that respond to unit-level drivers are product costs.
Products or services require the performance of activities, and activities consume resources.
Book Co. uses the activity-based costing approach for cost allocation and product costing purposes. Printing, cutting, and binding functions make up the manufacturing process. Machinery and equipment are arranged in operating cells that produce a complete product starting with raw materials. Which of the following are characteristic of Boo's activity-based costing approach?
I. Cost drivers are used as a basis for cost allocation.
II. Costs are accumulated by department or function for purposes of product costing.
III. Activities that do not add value to the product are identified and reduced to the extent possible.
The UNIQUE feature of an ABC system is the emphasis on
costing individual jobs.
department indirect-cost rates.
individual activities.
multiple-cost pools.
ABC should be used in which of the following situations?
in all manufacturing firms
single-product firms with multiple steps
multiple-product firms with only a single process
multiple-product firms with multiple processing steps
In activity-based costing, preliminary cost allocations assign costs to
activities.
departments.
processes.
products.
In activity-based costing, final cost allocations assign costs to
activities.
departments.
processes.
products.
ABC systems create
one large cost pool.
activity-cost pools with a broad focus.
homogenous activity-related cost pools.
activity-cost pools containing many direct costs.
What is the normal effect on the numbers of cost pools and allocation bases when an activity-based cost (ABC) system replaces a traditional cost system?
Cost Pools Increase
Allocation Bases Increase
No effect
No effect
If activity-based costing is implemented in an organization without any other changes being effected, total overhead costs will
remain constant and simply be spread over products differently.
be reduced because of the elimination of non-value-added activities.
be reduced because organizational costs will not be assigned to products or services.
be increased because of the need for additional people to gather information on cost drivers and cost pools.
The use of activity-based costing normally results in
Equalizing setup costs for all product lines.
Decreased setup costs being charged to low-volume products.
Substantially greater unit costs for low-volume products than is reported by traditional product costing.
Substantially lower unit costs for low-volume products than is reported by traditional product costing.
The resource utilized by a given product divided by the total amount of the resource available is called the
Activity driver.
Consumption ratio.
Cost object.
Sustaining activity.
In Activity-based Costing, which of the following would be considered a value-added activity?
Bookkeeping.
Engineering designs.
Repair of machines.
Storage of inventory.
In the pharmaceutical or food industries, quality control inspections would most likely be viewed as
business-value-added activities.
non-value-added activities.
process-efficiency activities.
value-added-activities.
All of the following are examples of non-value-added activities except:
assembling
expediting
handling
reworking
The ideal standard quantity for nonvalue-added activities is
zero
practical capacity
the currently attainable quantity standard
the cost of resources acquired in advance of usage
The following items are used in tracing costs in an ABC system. In which order are they used?
cost object
cost driver
activity driver
cost pool
An item or event that has a cause-effect relationship with the incurrence of a variable cost is called a
cost driver.
mixed cost.
direct cost.
predictor.
Which of the following is typically regarded as a cost driver in traditional accounting practices?
number of customers served
number of direct labor hours worked
number of purchase orders processed
number of transactions processed
A cost pool is
All costs that have the same driver.
All of the costs of a particular department.
All costs related to a product or product line.
All costs in a group such as variable costs or discretionary fixed costs.
The activities that drive resource requirements are called the
Activity drivers.
Cost objects.
Resource drivers.
Sustaining activities.
Products make diverse demands on resources because of differences in all of the following EXCEPT
batch size.
complexity.
selling price.
volume.
__________________ are causal factors that explain the consumption of overhead.
Activity drivers
Cost objectives
Cost catchers
Cost pools
Unit-level cost drivers are most appropriate a
__________________ are causal factors that explain the consumption of overhead.
Activity drivers
Cost catchers
Cost objectives
Cost pools
Unit-level cost drivers are most appropriate as an overhead assignment base when
direct labor costs are low.
only one product is manufactured.
factories produce a varied mix of products.
several complex products are manufactured.
All of the following are unit-based activity drivers EXCEPT
direct labor hours
machine hours
number of setups
number of units
All of the following are nonunit-based activity drivers EXCEPT
number of direct labor hours
number of material moves
number of inspections
number of setups
_____ are those performed each time a unit is produced or sold.
Batch-level activities.
Facility-sustaining activities.
Sustaining activities.
Unit-level activities.
Examples of activities at the unit level of costs include:
heating, lighting, and security
scheduling, setting up, and moving
cutting, painting, and packaging
designing, changing, and advertising
In allocating variable costs to products,
a volume-based cost driver should be used.
a company should never use more than one cost driver.
direct labor hours should always be used as the allocation base.
a company should use the same allocation base that it uses for fixed costs.
_____ are those that a company performs when it makes a group of units.
Batch-level activities.
Facility-sustaining activities.
Sustaining activities.
Unit-level activities.
Examples of activities at the batch level of costs include:
heating, lighting, and security
scheduling, setting up, and moving
cutting, painting, and packaging
designing, changing, and advertising
If JIT manufacturing is used, maintenance of the production equipment would be classified as a
cell-level activity
product-level activity
facility-level activity
unit-level activity
Testing a prototype of a new product is an example of a
Batch-level activity.
Product-level activity.
Organization-sustaining activity.
Unit-level activity.
Examples of activities at the product level of costs include:
cutting, painting, and packaging
heating, lighting, and security
designing, changing, and advertising
scheduling, setting up, and moving
Which of the following is not a type of sustaining activity?
Capacity-sustaining.
Customer-sustaining.
Distribution-channel sustaining.
Unit-sustaining.
_____ relate to an entire plant as a whole.
Batch-level activities.
Sustaining activities.
Facility-sustaining activities.
Unit-level activities.
Which of the following statements about activity-based costing is not true?
In activity-based costing, cost drivers are what cause costs to be incurred.
Activity-based costing is useful for allocating marketing and distribution costs.
Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.
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.
Examples of activities at the plant level of costs include:
cutting, painting, and packaging
heating, lighting, and security
designing, changing, and advertising
scheduling, setting up, and moving
A time-and-motion study revealed that it should take 1 hour to produce a product that currently takes 3 hours to produce. Labor is $8 per hour. Nonvalue-added costs are
$0
$8
$16
$24
Setup time for a product is six hours. A firm that uses JIT and produces the same product has reduced setup time to 30 minutes. Setup labor is $24 per hour. Value-added costs are
$12
$24
$132
$144
Each unit of product requires 8 gallons of raw material. Due to scrap and rework, each unit has been averaging 9 gallons of raw material. The raw material costs $4 per gallon. Value-added costs are
$2
$4
$32
$36
A company keeps 20 days of raw materials inventory on hand to avoid shutdowns due to raw materials shortages. Carrying costs average $2,000 per day. A competitor keeps 10 days of inventory on hand the competitor's carrying costs average $1,000 per day. Value-added costs are
$0
$10,000
$20,000
$40,000
New Rage Cosmetics has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor cost for Satin Sheen makeup is $27,500. In an attempt to distribute quality control costs more equitably, New Rage is considering activity-based costing. The monthly data shown in the chart below have been gathered for Satin Sheen. The monthly quality control cost assigned to Satin Sheen makeup using activity-based costing is
$8,500.50
$88.64 per order.
$525.50 lower than the cost using the traditional system.
$525.50 higher than the cost using the traditional system.
ALF Co. is an assisted-living facility that provides services in the form of residential space, meals, and other occupant assistance (OOA) to its occupants. ALF currently uses a traditional cost account system that defines the service provided as assisted living, with service output measured in terms of occupant days. Each occupant is charged a daily rate equal to ALF's annual cost of providing residential space, meals and OOA divided by total occupant days. However, an activity-based costing (ABC) analysis has revealed that occupant's use of OOA varies substantially. This analysis determined that occupants could be grouped into three categories (low, moderate, and high usage of OOA) and that the activity driver of OOA is nursing hours. The driver of the other activities is occupant days. The following quantitative information was also provided: The total annual cost of OOA was $7.5 million, and the total annual cost of providing residential space and meals was $7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate should be
$620.00 for all occupants.
$182.50 for occupants in the low-usage category.
$245.00 for occupants in the high-usage category.
$145.00 for occupants in the medium-usage category.
How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool?
$123,000
$222,000
$307,500
$492,000
How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision-making?
$0.
$82,000.
$104,000.
$164,000.
How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool?
$164,000
$389,500
$494,000
$615,000
What is the cost assigned to the creating BOMs activity?
$15,000
$62,500
$87,500
$250,000
What is the cost assigned to the improving processes activity?
$50,000
$87,500
$102,000
$250,000
What is the cost assigned to the training employees activity?
$55,000
$62,500
$162,500
$250,000
What is the cost assigned to the designing tooling activity?
$50,000
$66,000
$162,500
$250,000
If the company uses activity-based costing, how much overhead cost should be allocable to Job 101?
$1,300
$2,000
$5,000
$5,600
If the company uses activity-based costing, compute the cost of each unit of Job 102.
$340
$392
$440
$520
The company prices its products at 140% of cost. If the company uses activity-based costing, the price of each unit of Job 103 would be
$98
$100
$116
$140
How much overhead cost will be assigned to product A using the number of purchase orders?
$25,000
$50,000
$66,750
$40,000,000
How much overhead cost will be assigned to product B using engineering hours?
$50,000
$60,000
$400,500
$1,000,000
How much overhead cost will be assigned to product A using process A?
$120,000
$960,000
$1,200,000
$2,400,000
How much overhead cost will be assigned to product B using process B?
$120,000
$150,000
$960,000
$1,200,000
What is the unit cost of Product A?
$3.76
$4.71
$5.30
$252.00
What is the unit cost of Product B?
$6.00
$6.41
$9.40
$252.00
On the basis of standard costs, the total contribution budgeted for the TV board is
$1,950,000
$2,275,000
$2,340,000
$2,470,000
On the basis of activity-based costs (ABC), the total contribution budgeted for the TV board is
$1,594,000
$1,950,000
$2,037,100
$2,557,100
On the basis of standard costs, the total contribution budgeted for the PC board is
$2,360,000
$2,920,000
$2,960,000
$3,000,000
On the basis of activity-based costs, the total contribution budgeted for the PC board is
$1,594,000
$1,950,000
$2,360,000
$2,557,100
The predetermined overhead rate under the traditional costing system is closest to:
$13.17
$21.60
$37.46
$270.66
The overhead cost per unit of Product B under the traditional costing system is closest to:
$2.63
$4.32
$7.49
$54.13
The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-based costing system is closest to:
$13.17
$24.15
$28.97
$83.66
The overhead cost per unit of Product A under the activity-based costing system is closest to:
$11.24
$70.79
$81.20
$86.97
