ACCT Exam 2.5
Recognizing ABC information is not always perfect because ________.
it balances the need for better information against the costs of creating a complex system
It only makes sense to implement an ABC system when ________.
its benefits exceed its implementation costs
Facility - sustaining costs are the costs of activities ________.
that managers cannot trace to individual products or services but that support the organization as a whole
One reason for assigning selling and distribution costs to products for analytical purposes is ________.
to ensure that all costs are considered
Management accountants use the cost hierarchy to first calculate the ________.
total costs of each product and then they compute per - unit 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.
Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity?
$68,750 / 11,000 = $6.25
Extreme Manufacturing Company provides the following ABC costing information: How much of the account inquiry cost will be assigned to Department A?
(Account inquiry 1/account inquiry2)*Account inquiry hoursA
Extreme Manufacturing Company provides the following ABC costing information: How much of the account billing cost will be assigned to Department B?
(account billing 1/ Acct Biling2) * acct biling lines B
Which of the following statements is true of a peanut - butter costing system?
A peanut - butter costing system broadly averages or spreads the cost of resources uniformly to cost objects.
Which of the following reasons explain why ABC concepts may be of great value to service companies?
A significant portion of the cost structure of a service firm is composed of indirect costs
Which of the following statements is true of ABC systems?
ABC systems provide valuable information to managers beyond accurate product costs.
Which of the following statements about ABC is not true?
ABC should be implemented solely by the accountants as they are the guardians of the accounting information system
Which of the following statements is true of ABC systems?
ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies.
Aqua Company produces two products - Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua?
Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
Advanced Technology Products produces 10 different fastners. Each time a type of fastener is produced, the equipment must be stopped and items such as filters and drill bits must be changed, oil must be added to the equipment and some parts need lubrication. This work must be done before the products can be produced, the costs related to this activity would be part of which cost pool?
Batch - level costs
Put the following ABC implementation steps in order ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases.
CDAB
________ costs support the organization as a whole.
Facility - sustaining
The fundamental cost objects of ABC are _________.
activities
Demand for refinements to the costing system has accelerated due to ________.
competition in product markets
The goal of a properly constructed ABC system is to ________.
develop the best cost system that meets the cost/benefit test
Refining a cost system involves which of the following?
identifying the activities involved in a process and understanding how those activities consume resources
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
It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________.
product - pricing errors are minimal
Using activity - cost rates rather than department indirect - cost rates to allocate costs results in different product costs when ________.
there are several homogeneous cost pools
