Cost quiz 2

Which of the following statements is true of ABC systems? ABC systems provide valuable information to managers beyond accurate product costs. ABC systems assume all costs are variable costs. ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs. ABC systems are time-driven cost systems.

ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs.

Which of the following statements is true of activity-based costing? Activity based costing is more suited to companies with high product diversity than companies with single product line. Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services. In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs. The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.

Activity based costing is more suited to companies with high product diversity than companies with single product line.

________ is considered while choosing a cost allocation base for activity costs in ABC costing. Availability of reliable data and measures Market share of a product Marketing strategy and material price level Product price level

Availability of reliable data and measures

It is difficult for firms to find appropriate benchmarks because differences can exist across companies in their strategies, inventory costing methods, depreciation methods, and so on. True False

False

Which of the following is true of flexible budget? It calculates total variable cost by multiplying actual units by budgeted variable cost per unit. It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit. It calculates revenues by multiplying budgeted units by actual selling price per unit. It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.

It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.

Which of the following is true of refinement of a costing system? t is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs. While refining a costing system, companies should identify as many indirect costs as is economically feasible. A homogeneous cost pool will use multiple cost drivers to allocate costs. It reduces the use of broad averages for assigning the cost of resources to cost objects.

It reduces the use of broad averages for assigning the cost of resources to cost objects.

If management experiences an unfavorable direct materials efficiency variance, which of the following would not be the possible corrective action? Improve the design of the product Provide additional training for the direct laborers Purchase higher quality materials Negotiate lower prices for material acquisition

Negotiate lower prices for material acquisition

________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced. Product-sustaining costs Facility-sustaining costs Batch-level costs Unit-level costs

Product-sustaining costs

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. Given this change in the cost structure ________? Chess will now have a lower sales price. The costing results for chess pieces under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system. Chess pieces have benefited from the new system. Chess pieces are definitely more accurately costed.

The costing results for chess pieces under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system.

Which of the following is a reason that has accelerated the demand for refinements to the costing system? The increased of automated processes has led to the increase in direct manufacturing cost leading to a decrease in break even point. The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of break even point. The declining demand for customized products has led managers to decrease the variety of products and services their companies offer. The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.

The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.

Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget? The flexible-budget amounts are difficult to determine. A firm's inefficiencies will be part of the data. They are not based on realized benchmarks and can be unrealistic The expected future changes are not included in the standards.

They are not based on realized benchmarks and can be unrealistic

Using activity-cost rates rather than department indirect-cost rates to allocate costs results in different product costs when ________. a single activity accounts for a sizable portion of department costs different activities have the same cost-allocation base there are several homogeneous cost pools different products use different resources in the same proportion

a single activity accounts for a sizable portion of department costs

A favorable variance indicates that ________. actual operating income is less than the budgeted amount actual revenues exceed budgeted revenues budgeted costs are less than actual costs budgeted contribution margin is more than the actual amount

actual revenues exceed budgeted revenues

An efficiency variance reflects the difference between ________. an actual input quantity and a budgeted input quantity a standard input quantity in a company and its main competitors actual input quantities used last period and current period an actual input quantity used in a company and its main competitors

an actual input quantity and a budgeted input quantity

A master budget is ________. a type of flexible budget once actual results are known a budget which starts from a zero base based on the level of expected output at the start of the budget period developed at the end of a period

based on the level of expected output at the start of the budget period

The process by which a company's products or services are measured relative to the best possible levels of performance is known as ________. benchmarking variance analysis efficiency a standard costing system

benchmarking

A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________. emphasizes how managers can achieve higher sales is easy to analyze and interpret can be used to eliminate nonvalue-added activities takes the choices and judgment challenges away from the managers

can be used to eliminate nonvalue-added activities

An unfavorable sales-volume variance could result from ________. competitors taking market share an inefficiency of a purchasing manager in bargaining with suppliers an inappropriate assignment of labor or machines to specific jobs a decrease in actual selling price compared to anticipated selling price

competitors taking market share

The goal of a properly constructed ABC system is to ________. identify more indirect costs have separate allocation rates for each department develop the best cost system that meets the cost/benefit test have the most accurate cost system

develop the best cost system that meets the cost/benefit test

The degree to which a predetermined objective or target is met is known as ________. effectiveness variance efficiency marking

effectiveness

________ costs support the organization as a whole. Product-sustaining Batch-level Unit-level Facility-sustaining

facility-sustaining

ABC systems help managers to ________. evaluate direct material costs more efficiently improve the inventory turnaround time identify new designs to reduce costs value ending inventory more accurately

identify new designs to reduce costs

Refining a cost system involves which of the following? identifying the activities involved in a process and understanding how those activities consume resources Seeking an easier and more cost effective way to calculate average costs classifying as many costs as indirect costs as is feasible creating as many cost pools as possible to capture all costs

identifying the activities involved in a process and understanding how those activities consume resources

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs. factory prime committed indirect

indirect

Activity based costing system differs from traditional costing systems in the treatment of ________. indirect costs direct labor costs prime costs direct material costs

indirect costs

It only makes sense to implement an ABC system when ________. its benefits exceed its implementation costs a single product is produced in bulk production process is labor-intensive it traces more costs as direct costs

its benefits exceed its implementation costs

The emphasis on variance analysis and its use in performance evaluation must be such that: managers focus on setting easy to attain targets Management should stretch resources to meet goals even if continuous improvement and quality suffers management should set targets that challenge but are reasonably achievable and require creativity and resourcefulness by personnel held accountable larger unfavorable variances should result in negative consequences for personnel held accountable

management should set targets that challenge but are reasonably achievable and require creativity and resourcefulness by personnel held accountable

Lavender Company is a logistics company and has recently implemented ABC system. Using activity-based information, it decides to reduce the bulkiness of the packages delivered, thereby reducing costs. This suggests that ABC system helps managers in ________ decisions. process-improvement pricing product-mix product-design

process-improvement

If a sales-volume variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance. production manager logistic manager financial supervisor sales supervisor

production manager

Which of the following cost and cost allocation base have a strong cause and effect relationship? setup costs and square feet administration costs and cubic feet machine maintenance and setup hours quality control costs and the number of inspections

quality control costs and the number of inspections

Cannady produces six products. Under their traditional cost system using one cost driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of SR6 was determined to be $178.00 per unit. Given this change in the cost ________. SR6 will now command a higher sales price SR6 has benefited from the new system the costing results for SR6 under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system SR6 is definitely more accurately costed

the costing results for SR6 under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system

A variance is ________. the difference between actual variable cost per unit and standard fixed cost per unit the standard units of inputs for one output the difference between an actual result and a budgeted performance the difference between actual fixed cost per unit and standard variable cost per unit

the difference between an actual result and a budgeted performance

ABC and traditional systems are quite similar in ________. the treatment of direct costs evaluating performance the allocation of overheads the identification of cost pools

the treatment of direct costs

When "available time" (i.e., setup-hours) is used to calculate a cost of a resource and to allocate costs to cost objects , the system is called: job costing hybrid costing process costing time-driven activity based costing

time-driven activity based costing

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. ignored fairly costed overcosted undercosted

undercosted

An unfavorable flexible-budget variance for variable costs may be the result of ________. paying lower prices for inputs than were budgeted using more input quantities than were budgeted selling output at a higher selling price than budgeted selling less quantity compared to the budgeted

using more input quantities than were budgeted

An unfavorable flexible-budget variance for variable costs may be the result of ________. selling less quantity compared to the budgeted selling output at a higher selling price than budgeted using more input quantities than were budgeted paying lower prices for inputs than were budgeted

using more input quantities than were budgeted

In a flexible budget ________. variable costs are kept at the same level of static budget fixed costs are kept at the same level of static budget fixed costs are calculated proportionately for the actual level of sales variable costs are calculated proportionately for the budgeted level of sales

variable costs are calculated proportionately for the budgeted level of sales

A favorable efficiency variance for direct materials might indicate that ________. there is an unexpected increase in direct labor rates lower-quality materials were purchased management hired underskilled workers work is scheduled efficiently

work is scheduled efficiently

An unfavorable efficiency variance for direct manufacturing labor might indicate that ________. there is unexpected increase in direct labor rates more higher-skilled workers were scheduled than planned work is scheduled inefficiently lower-quality materials were purchased

work is scheduled inefficiently