IE475 Ch 5

Understate the cost of low volume products

A company using a volume-based overhead assignment (allocation) method will tend to: Understate the cost of high volume products. Either understate or overstate the cost of high volume products depending on the specific manufacturing factors involved. Understate the cost of all products. Understate the cost of low volume products. Overstate the cost of low volume products.

Activity consumption cost driver

A measure of frequency and intensity of demands placed on activities by cost objects is:

A resource consumption cost drive

A measure of the quantity of resources consumed by an activity is:

Helping improve cycle time.

ABC costing helps an organization implement its strategy through all of the following means except: Identifying value added and non-value added activities. Helping improve cycle time. Providing a basis for effective utilization of capacity. Providing accurate cost information. Identifying the most profitable products and customers.

Processing

All of the following are low-value-added activities except: Processing. Warranty service. Inspection. Reworking. Moving.

Volume-related

Costs at the unit-level of activity should be allocated to products using cost drivers that are: Volume-related. Product-related. Design-related. Customer-oriented. Order-related.

Products that use relatively more of this base tend to be overcosted.

If a costing system uses a single base to allocate overhead costs that are results of several production activities: Products that use relatively more of this base tend to be overcosted. Products that use relatively less of this base tend to be overcosted. Products that use relatively more of this base tend to be undercosted. Products may be over- or under-costed, depending on the overhead rate. Products may be over- or under-costed, depending on the activity level.

Volume-based costing

If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the:

Overhead costs are traced to activities, then costs are traced to products.

Overhead costs are allocated to cost objects in an activity-based costing system in the following manner: Overhead costs are traced from resources to cost objects. Overhead costs are traced to departments, then costs are traced to products. Overhead costs are traced to activities, then costs are traced to products. Overhead costs are traced to activities, then costs are traced to departments and then allocated to products.

Batch-level costs.

Purchase order, set-up, and inspection costs are examples of: Product-level costs. Department-level costs. Batch-level costs. Unit-level costs. Facility-level costs.

Firms that manufacture multiple product lines.

The use of activity-based costing is most appropriate for: Firms that have very low manufacturing overhead costs relative to other costs of production. Firms that manufacture multiple product lines. Firms that are labor intensive. Firms that manufacture a small number of product lines. Firms with high levels of production activity.

Underapply overhead to the product line.

Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to: Overapply overhead to the product line. Overstate direct labor costs. Understate direct labor costs. Underapply overhead to the product line. Either over- or under-apply overhead to the product line depending on many other factors.

All are correct

Volume-based overhead rates may cause undesirable strategic effects such as: All of these answer choices are correct. Unprofitable cross-subsidization of products. Ineffective management of operations for process improvement. Incorrect decisions.

Plant management salaries

Which of the following activities is a facility-level activity? Direct labor. Product design. Materials handling. Plant management salaries. Depreciation on a highly specialized piece of production equipment.

Number of material handling transactions

Which of the following is a batch-level cost driver? Output units. Number of engineering change orders. Number of employees. Square feet of plant area occupied. Correct! Number of materials handling transactions.

Facilitate better product pricing decisions.

Which of the following is a benefit of activity-based costing? Reduced overhead costs. More accurate measures of production volume. Having fewer cost drivers than volume-based costing systems. Facilitate better product pricing decisions. More streamlined manufacturing processes.

Customer cost analysis

Which of the following is a description of categorizing related customer costs into cost pools on the basis of cost drivers? Customer value assessment. Customer profitability analysis. Customer revenue analysis. Customer equity analysis. Customer cost analysis.

Placing purchase orders

Which of the following would not be considered a facility-level activity? Providing security for the plant. Placing purchase orders. Factory property taxes and insurance. Closing the books each month.