ACC 307 CH 5

Traditional cost systems distort product costs because: A) they do not know how to identify the appropriate units B) competitive pricing is ignored C) they emphasize financial accounting requirements D) they apply average support costs to each unit of product

D

A single indirect-cost rate may distort product costs because: A) there is an assumption that all support activities affect all products B) it recognizes specific activities that are required to produce a product C) costs are not consistently recorded D) it fails to measure the correct amount of total costs

A

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

A

ABC systems identify ________ costs used by products. A) all B) short-term fixed C) short-term variable D) long-term fixed

A

ABC systems: A) highlight the different levels of activities B) limit cost drivers to units of output C) allocate costs based on the overall level of activity D) generally undercost complex products

A

Activity-based costing (ABC) can eliminate cost distortions because ABC: A) develops cost drivers that have a cause-and-effect relationship with the activities performed B) establishes multiple cost pools C) eliminates product variations D) recognizes interactions between different departments in assigning support costs

A

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: A) 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. B) Chess pieces have benefited from the new system. C) Chess pieces are definitely more accurately costed. D) Chess will now have a lower sales price.

A

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. 10) The total amount of indirect cost assigned to produce chess pieces using the traditional method is ________ the total amount assigned using ABC. A) more than B) less than C) identical to D) None of these answers are correct.

A

Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT: A) selling prices B) customers' customization specifications C) setup times D) product design

A

Factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products because: A) more variations and complexities require more activities B) they require more engineers C) they require more direct laborers D) they buy more robotics

A

If products are different, then for costing purposes: A) an ABC costing system will yield more accurate cost numbers B) a simple costing system should be used C) a single indirect-cost rate should be used D) none of the above

A

Overcosting a particular product may result in: A) loss of market share B) pricing the product too low C) operating efficiencies D) understating total product costs

A

Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8. 10) According to an ABC system, CP8 is ________ under the traditional system. A) undercosted B) overcosted C) fairly costed D) accurately costed

A

The focus of ABC systems is on: A) long-term decisions B) short-term decisions C) make-or-buy decisions D) special-pricing decisions

A

To set realistic selling prices: A) all costs should be allocated to products B) costs should only be allocated when there is a strong cause-and-effect relationship C) only unit-level costs and batch-level costs should be allocated D) only unit-level costs should be allocated

A

When designing a costing system, it is easiest to: A) calculate total costs first and then per-unit cost B) calculate per-unit costs first and then total costs C) calculate long-term costs first and then short-term costs D) calculate short-term costs first and then long-term costs

A

A company produces three products; if one product is overcosted then: A) one product is undercosted B) one or two products are undercosted C) two products are undercosted D) no products are undercosted

B

ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed. A) fixed B) variable C) committed D) nondiscretionary

B

ABC systems create: A) one large cost pool B) homogenous activity-related cost pools C) activity-cost pools with a broad focus D) activity-cost pools containing many direct costs

B

Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT: A) numerous products that consume different amounts of resources B) operations that remain fairly consistent C) a highly competitive environment, where cost control is critical D) accessible accounting and information systems expertise to maintain the system

B

Activity-based management (ABM) includes decisions about all EXCEPT: A) pricing and product mix B) smoothing costs C) reducing costs D) improving processes

B

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. 8) The total amount of indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC. A) more than B) less than C) identical to D) None of these answers are correct.

B

Design of an ABC system requires: A) that the job bid process be redesigned B) that a cause-and-effect relationship exists between resource costs and individual activities C) an adjustment to product mix D) Both B and C are correct.

B

It only makes sense to implement an ABC system when: A) ABC provides information to make better decisions B) its benefits exceed implementation costs C) ABC traces more costs as direct costs D) there is a strong cause-and-effect relationship between costs in the cost pools and their cost- allocation bases

B

Products make diverse demands on resources because of differences in all of the following EXCEPT: A) volume B) selling price C) batch size D) complexity

B

Smaller cost distortions occur when the traditional systems' single indirect-cost rate and the activity- cost-driver rates: A) use the same total costs for computations B) are similar in proportion to each other C) are more different than alike D) use the same cost driver units

B

Unit-level cost drivers are most appropriate as an overhead assignment base when: A) several complex products are manufactured B) only one product is manufactured C) direct labor costs are low D) factories produce a varied mix of products

B

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

B

Which of the following is NOT a sign that a "smoothing out" costing system exists? A) Operations managers don't use the data originated by the cost system. B) Products that a company is well suited to make and sell show large profits. C) New product variations have been added, but the cost system has not been upgraded. D) The company loses bids they believe were priced competitively.

B

Which of the following is a sign that an ABC system may be useful? A) There are small amounts of indirect costs. B) Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity. C) Products a company is less suited to produce and sell show small profits. D) Operations staff agrees with accountants about the costs of manufacturing and marketing products and services.

B

Which of the following statements about activity-based costing is NOT true? A) Activity-based costing is useful for allocating marketing and distribution costs. B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. C) Activity-based costing seeks to distinguish batch-level, product-sustaining, and facility-sustaining costs, especially when they are not proportionate to one another. D) Activity-based costing differs from traditional costing systems in that products are not cross- subsidized.

B

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is: A) direct labor hours B) number of units produced C) number of parts used D) number of suppliers involved

C

A primary reason for assigning selling and distribution costs to products for analytical purposes is: A) to justify a varied product mix B) that controllers are required to assign all costs when valuing inventories C) that different processes, products, and customers require different quantities of selling and distribution activities D) that all indirect costs must be assigned

C

Activity-based costing systems provide better product costs when they: A) employ more activity-cost drivers B) employ fewer activity-cost drivers C) identify and cost more indirect cost differences among products D) always yield more accurate product costs than traditional systems

C

An accelerated need for refined cost systems is due to: A) global monopolies B) rising prices C) intense competition D) a shift toward increased direct costs

C

Design costs are an example of: A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

C

Each of the following statements is true EXCEPT: A) traditional product costing systems seek to assign all manufacturing costs to products B) ABC product costing systems seek to assign all manufacturing costs to products C) traditional product costing systems are more refined than an ABC system D) cost distortions occur when a mismatch (incorrect association) occurs between the way indirect costs are incurred and the basis for their assignment to individual products

C

For service organizations that bill customers at a predetermined average rate, activity-based cost systems can help to: A) clarify appropriate cost assignments for various service activities B) identify the profitability of various service activities C) Both A and B are correct. D) None of these answers are correct.

C

Misleading cost numbers are most likely the result of misallocating: A) direct material costs B) direct manufacturing labor costs C) indirect costs D) All of these answers are correct.

C

One department indirect-cost rate is sufficient when: A) activities relate to more than one level of the cost hierarchy B) product costs are significantly cross-subsidized C) the same allocation base is appropriate for all departmental activities D) it is a service department

C

Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8. According to an ABC system, S5 uses a disproportionately: A) smaller amount of unit-level costs B) larger amount of unit-level costs C) smaller amount of batch-level costs D) larger amount of batch-level costs

C

Refining a cost system includes: A) classifying as many costs as indirect costs as is feasible B) creating as many cost pools as possible C) identifying the activities involved in a process D) seeking a lesser level of detail

C

The goal of a properly constructed ABC system is to: A) have the most accurate cost system B) identify more indirect costs C) develop the best cost system for an economically reasonable cost D) have separate allocation rates for each department

C

Undercosting of a product is most likely to result from: A) misallocating direct labor costs B) underpricing the product C) overcosting another product D) overstating total product costs

C

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called: A) overcosting B) undercosting C) peanut-butter costing D) department costing

C

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. A) overcosted B) fairly costed C) undercosted D) ignored

C

A key reason for using an ABC system rather than a department-costing system is because ABC assigns indirect costs: A) using broader averages B) more simply than a department-costing system C) in a less costly manner D) to reflect differences required by different processes as well as customers

D

ABC systems: A) reveal activities that can be eliminated B) help control nonfinancial items such as number of setup hours C) help identify new designs to reduce costs D) All of these answers are correct.

D

Activity-based-costing information: A) should be used when services place similar demands on resources B) usually results in peanut-butter costing C) will yield inaccurate cost numbers when products are similar D) may assist in improving product design and efficiency

D

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: A) SR6 will now command a higher sales price B) SR6 has benefited from the new system C) SR6 is definitely more accurately costed D) 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

D

Companies use ABC system information to: A) analyze costs B) prepare budgets C) evaluate performance D) All of these answers are correct.

D

Greater indirect costs are associated with: A) specialized engineering drawings B) quality specifications and testing C) inventoried materials and material control systems D) All of these answers are correct.

D

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that: A) product costs will reflect their relative consumption of resources B) nonvalue-added costs can be eliminated C) there is less likelihood of cross subsidizing of product costs D) All of these answers are correct.

D

It is usually difficult to find good cause-and-effect relationships between ________ and a cost allocation base. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

D

Logical cost allocation bases include: A) cubic feet of packages moved to measure distribution activity B) number of setups used to measure setup activity C) number of design hours to measure designing activity D) All of these answers are correct.

D

Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into: A) fewer indirect costs for each product line B) decisions to drop product variations C) a greater number of direct manufacturing labor cost allocation rates D) greater overhead costs for each product line

D

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. A) DACB B) DBCA C) BADC D) CDAB

D

The most likely example of a batch-level cost is: A) utility costs B) machine repairs C) product-designing costs D) setup costs

D

The most likely example of an output unit-level cost is: A) general administrative costs B) paying suppliers for orders received C) engineering costs D) machine depreciation

D

The unique feature of an ABC system is the emphasis on: A) costing individual jobs B) department indirect-cost rates C) multiple-cost pools D) individual activities

D

The use of a single indirect-cost rate is more likely to: A) undercost high-volume simple products B) undercost low-volume complex products C) undercost lower-priced products D) Both B and C are correct.

D

________ costs support the organization as a whole. A) Unit-level B) Batch-level C) Product-sustaining D) Facility-sustaining

D

ABC costing systems are primarily for use in manufacturing and marketing and NOT for design engineering. T/F

F

ABC systems always provide decision-making benefits that exceed implementation costs. T/F

F

ABC systems are useful in manufacturing, but NOT in the merchandising or service industries. T/F

F

ABC systems attempt to trace more costs as indirect costs. T/F

F

ABC systems create heterogeneous cost pools linked to different activities. T/F

F

An activity-based costing system is necessary for costing services that are similar. T/F

F

As product diversity and indirect costs increase, it is usually best to switch away from an activity based cost system to a broad averaging system. T/F

F

Costing systems with multiple cost pools are considered ABC systems. T/F

F

If companies increase market share in a given product line because their reported costs are less than their actual costs, they will become more profitable in the long run. T/F

F

Indirect labor and distribution costs would most likely be in the same activity-cost pool. T/F

F

Output unit-level costs CANNOT be determined unless you know how many units are in a given batch. T/F

F

Simply because activity-based costing systems employ more activity-cost drivers, they provide more accurate product costs than traditional systems. T/F

F

Traditional systems are likely to overcost complex products with lower production volume. T/F

F

Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system. T/F

F

When designing a costing system, it is easiest to calculate per-unit costs first, and then total costs. T/F

F

A cost-allocation base is a necessary element when using a strategy that will refine a costing system. T/F

T

A top-selling product might actually result in losses for the company. T/F

T

ABC reveals opportunities to focus on value added activities. T/F

T

ABC systems are a further refinement of department-costing systems. T/F

T

ABC systems seek a cost allocation base that has a cause-and-effect relationship with costs in the cost pool. T/F

T

Activity-based costing helps identify various activities that explain why costs are incurred. T/F

T

Activity-based management refers to the use of information derived from ABC analysis to analyze and improve operations. T/F

T

Availability of reliable data and measures should be considered when choosing a cost-allocation base. T/F

T

Companies that overcost products will most likely lose market share. T/F

T

Direct costs plus indirect costs equal total costs. T/F

T

Direct tracing of costs improves cost accuracy. T/F

T

For activity-based cost systems, activity costs are assigned to products in the proportion of the demand they place on activity resources. T/F

T

For service organizations, activity-based cost systems may be used to clarify appropriate cost assignments. T/F

T

If a company overcosts one of its products, then it will undercost at least one of its other products. T/F

T

In a homogeneous cost pool, all costs have a similar cause-and-effect relationship with the cost- allocation base. T/F

T

Information derived from an ABC analysis might be used to eliminate nonvalue-added activities. T/F

T

Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost- driver assignments are proportionately dissimilar to each other. T/F

T

Regarding department wide systems, the benefits of an ABC system must be balanced against its costs and limitations. T/F

T

The primary costs of an ABC system are the measurements necessary to implement the system. T/F

T

Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities. T/F

T

When refining a costing system, a company should classify as many costs as possible as direct costs. T/F

T