Chapter 5

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 statements is true of costing systems?

ABC systems classify some indirect costs as direct costs helping to improve processes

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 is true of activity-based costing?

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

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

Which of the following statements is true of implementing an ABC system?

Identifying the cost-allocation bases defines the number of activity pools into which costs must be grouped in an ABC system.

Which of the following is true of refinement of a costing system?

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

Which of the following is a reason that has accelerated the demand for refinements to the costing system?

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

Demand for refinements to the costing system has accelerated due to ________.

competition in product markets

Activity-based costing (ABC) can eliminate cost distortions because ABC systems

establish a cause-and-effect relationship with the activities performed

ABC systems create ________.

homogenous activity-related cost pools

Refining a cost system includes ________.

identifying the activities involved in a process

Activity based costing system differs from traditional costing systems in the treatment of ________.

indirect costs

An accelerated need for refined cost systems is due to ________.

intense competition

Overcosting a particular product may result in ________.

loss of market share

Product-cost cross-subsidization

means that if a company undercosts one of its products, it will overcost at least one of its other products

Product-cost cross-subsidization ________.

means that if a company undercosts one of its products, it will overcost at least one of its other products

For a company with diverse products, under costing overhead of a product will lead to ________.

misallocating indirect costs of another product

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.

undercosted

Activity-based costing is most likely to yield benefits for companies ________. A) with complex product design processes

with complex product design processes