ACCT 102 Ch02b

misallocating indirect costs of another product

For a company with diverse product, undercosting overhead of a product will lead to ______.

decision-making based on product cost information is provided

It is important that product costs reflect the diversity and complexity of the manufacturing process so that _____.

business-sustaining

It is usually difficult to find good cause-and-effect relationships between _____ and a cost allocation base

c) process-improvement

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 freight and storage costs. This suggests that ABC system helps managers in _____ decisions.

to ensure that all product-related costs are considered

One reason for assigning selling and distribution costs to products for analytical purposes is _____.

b) 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 reason that has accelerated the demand for improvements to costing systems? a) the declining demand for customized products has led managers to decrease the variety of products and services their company offers b) the use of product and process technology has led to an increase in indirect costs and a decrease in direct costs c) the increase of automated processes has led to the increase in direct manufacturing cost leading to a decrease in breakeven point d) the increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of breakeven point

d) operations staff has substantial disagreements with the reported costs of manufacturing and marketing products and services

Which of the following is a sign that an absorption costing system is being used by a multi-product firm with significant indirect costs? a) all indirect manufacturing costs are allocated using unit-level, batch-level, product-level, customer-level or facility-level cost drivers b) products that a company is well-suited to make and sell show large profits c) operations staff has no substantial disagreements with the reported costs of manufacturing and marketing products and services d) operations staff has substantial disagreements with the reported costs of manufacturing and marketing products and services

c) ABC systems provide valuable information to managers beyond accurate product costs

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

indirect costs

Activity based costing systems differ from traditional costing systems in the treatment of _____.

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

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

number of parts used

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 _____.

there is an assumption that all support activities affect all products in the same way

A single indirect-cost rate distorts product costs because _____.

can be used to eliminate nonvalue-added activities

A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis _____.

variable

ABC allocates all costs as if they were _____ because the amounts allocated are a function of the use of activity cost dirvers

the treatment of business-level costs

ABC and traditional systems are most similar in _____.

homogenous activity-related cost pools

ABC systems create _____.

c) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs

Aqua Company produces two product - 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. Aqua is using a single cost pool to allocate indirect costs with number of units sold as the cost driver. Which of the following statements is true of Aqua? a) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs b) Aqua will undercost Alpha's indirect costs because alpha has high direct costs c) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs d) Aqua will overcost Beta's indirect costs because beta has high indirect costs

undercosted

Assume a company with material batch-related and product-sustaining costs uses absorption costing. When comparing products manufactured in small batches and in small annual volumes with products manufactured in large batches and in large annual volumes, the products manufactured in small batches will probably be _____.

indirect costs

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under its absorption costing system the firm uses one cost driver - direct labor hours and the cost of a set of wooden chess pieces is $325. 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, direct labor hours and type of woods used. The new cost of aset of chess pieces was determined to be $298 per set. The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of _____.

total costs increased

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under its absorption costing system the firm uses one cost driver - direct labor hours and the cost of a set of wooden chess pieces is $325. 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, direct labor hours and type of woods used. The new cost of aset of chess pieces was determined to be $298 per set. All else being equal, given this change in the cost allocation system_____.

develop the best cost system for an economically reasonable cost

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under its absorption costing system the firm uses one cost driver - direct labor hours and the cost of a set of wooden chess pieces is $325. 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, direct labor hours and type of woods used. The new cost of aset of chess pieces was determined to be $298 per set. The goal of Chess Woods newly constructed ABC system is to _____.

greater overhead costs for each product line

Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into _____.

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

Product-cost cross-subsidization ______.

undercosted

Products S5 and CP8 are assigned $100 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less batch setup time than CP8 According to an ABC system, CP8 is _____ under the traditional system.

smaller amount of batch-level costs than would be reported under an absorption costing system

Products S5 and CP8 are assigned $100 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less batch setup time than CP8 According to an ABC system, S5 uses a disproportionately _____.

CDAB

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

it balances the need for better information against the costs of creating a complex system

Recognizing ABC information is not always perfect because _____

indirect

Service companies in particular find great value from ABC because a vast majority of their cost structure is composed of _____ costs.

c) activity based costing classifies some of the costs treated as indirect costs under absorption costing as direct costs

Which of the following statements is true of activity-based costing? a) activity based costing ignores the allocation of 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 classifies some of the costs treated as indirect costs under absorption costing as direct costs d) chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems

b) activity based costing is more suited to companies with high product diversity than companies with single product line

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

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

Which of the following statements is true of costing systems? a) single-indirect cost pool systems always result in overcosting of products b) single-indirect cost pool systems classify some direct costs as indirect costs c) ABC systems always result in overcosting of products d) ABC systems classify some indirect costs as direct costs helping to improve processes

product-sustaining costs

_____ are the costs of activities undertaken to support individual products or services regardless of the number of units

business-sustaining

_____ costs support the organization as a whole

only one product is manufactured

unit-level cost drivers are most appropriate as an overhead assignment base when _____.