Cost Accounting Ch 9

The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.

False. The death spiral is continually increasing the prices to match the increased reported costs.

Predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.

False. It's used in both first and second stage cost allocations.

Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC) system?

Number of components per completed unit.

Volume-based costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of direct material used in the production process. Activity-based costing (ABC) has consistently shown that Volume-based costing ___________ the cost of high volume products and ______________ the cost of low volume products.

Overstates and Understates. High volume products have too much allocated because they have more of the volume activity. The opposite is true for low volume

Which of the following should not be used as the allocation base in a company that appropriately uses a single plantwide rate?

Sales Volume. Sales volume is not related to production, while all the others are.

Activity-based costing (ABC) is a costing technique that uses a two stage allocation process. Which of the following statements best describes these two stages?

The costs are assigned to activities, and then to the products based upon their use of the activities.

Traditional product costing systems (e.g., job and process costing) are designed primarily to accumulate cost information for financial reporting.

True

Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities.

True.

Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.

True. Applying cost-benefit principles is fundamental to choosing any costing system.

In general, traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).

True. Low volume products get less cost under traditional costing since they use less of the volume cost drivers.

The plantwide cost allocation method should be used by companies that manufacture products that are similar and use the same resources.

True. Since the products are similar and use the same resources, all of the products should cost roughly the same.

The department cost allocation method provides more accurate product cost information for managerial decision-making than the plantwide cost allocation method.

True. The information is more accurate because some of the variations in the product can be captured.

Which of the following statements is true? A) One of the lessons learned from activity-based costing (ABC) is that all costs are really a function of volume. B) Direct cost allocations are required for the plantwide and department allocation methods. C) A problem with activity-based costing (ABC) is that it requires more recordkeeping than other methods. D) The primary purpose of the plantwide and department allocation methods is allocating direct costs to specific products.

C) A problem with activity-based costing (ABC) is that it requires more recordkeeping than other methods.