Chapter 18 Quiz

Which one of the following would be the best cost driver for the activity of purchasing? a) Total number of items ordered b) Total dollar value of items orders c) The number of purchase orders issued d) The number of employees in the purchasing department

c) The number of purchase orders issued

The primary objective of just-in-time processing is to a) identify value-added activities. b) identify relevant activity cost drivers. c) eliminate or reduce all manufacturing inventories. d) accumulate overhead in activity cost pools.

c) eliminate or reduce all manufacturing inventories.

Which of the following is a relevant facility-level cost driver for air conditioning costs in a chiropractor's office? a) Floor space b) Direct labor hours c) Machine hours d) Direct material cost

a) Floor space

If a traditional costing system allocates too much overhead to one product, the firm is likely to experience which of the following problems? a) The firm may lose market share to competitors b) The firm may be underpricing the product c) The product is in danger of becoming obsolete d) An increase in the number of defective products produced

a) The firm may lose market share to competitors

Which of the following is not typical of traditional costing systems? a) Use of multiple cost drivers to allocate overhead. b) Use of a single predetermined overhead rate. c) Assumption of correlation between direct labor and incurrence of overhead cost. d) Use of direct labor hours or direct labor cost to assign overhead.

a) Use of multiple cost drivers to allocate overhead.

The costs that are easiest to trace directly to products are a) direct materials and direct labor. b) direct labor and overhead. c) direct materials and overhead. d) none of the above; all three costs are equally easy to trace to the product.

a) direct materials and direct labor.

To assign overhead costs to an individual product, the activity-based overhead rate is multiplied by a) the number of cost drivers used per product. b) the number of direct labor hours used during the period. c) the number of employees who participate in manufacturing the product. d) the number of products produced during the period.

a) the number of cost drivers used per product.

Which of the following would not be an overhead activity cost pool? a) Shipping b) Direct materials c) Packaging d) Inspecting and testing

b) Direct materials

Any activity that causes resources to be consumed is called a a) non-value-added activity. b) cost driver. c) just-in-time activity. d) facility-level activity.

b) cost driver.

An activity that adds costs to the product but does not increase its market value is a a) cost driver. b) non-value-added activity. c) cost-benefit activity. d) value-added activity.

b) non-value-added activity.

What is the primary barrier to using activity-based costing in a service company? a) A large number of cost pools. b) A shortage of potential cost drivers. c) A large portion of overhead costs are company-wide costs. d) A limited number of arbitrary allocation decisions.

c) A large portion of overhead costs are company-wide costs.

Which of the following should not be included as part of the cost pool of machine setups? a) Salaries of those supervising machine operators b) Supplies needed in changing machines from one production setting to another c) Cost of the accounts payable supervisor's salary d) Depreciation on machines and parts used for different setups

c) Cost of the accounts payable supervisor's salary

Which of the following is not one of the four steps involved in calculating unit costs under activity-based costing? a) Compute the overhead rate per cost driver. b) Assign manufacturing overhead costs for each cost pool to products, using the overhead rates. c) Identify the cost driver that has a minor correlation to the costs accumulated in the activity cost pool. d) Identify and classify the major activities involved in the manufacture of specific products, and allocate manufacturing overhead costs to the appropriate cost pools.

c) Identify the cost driver that has a minor correlation to the costs accumulated in the activity cost pool.

Which of the following is a limitation of activity-based costing? a) Activity-based costing can be used only if approved by the Institute of Management Accountants. b) Activity-based costing can only be used by firms involved in manufacturing. c) Activity-based costing systems can only be used by firms with a state-of-the-art technology. d) Activity-based costing can be expensive to use.

d) Activity-based costing can be expensive to use.

Which of the following is not a reason in support of using activity-based costing? a) Activity-based costing leads to enhanced control over overhead costs. b) Activity-based costing leads to more cost pools. c) Activity-based costing leads to better management decisions. d) Employee turnover will decrease as a result of using activity-based costing.

d) Employee turnover will decrease as a result of using activity-based costing.

Which statement is true about activity-based costing (ABC)? a) It uses a single basis of allocation. b) It can be used only in a process cost system. c) It focuses on units of production. d) It focuses on activities performed to produce a product.

d) It focuses on activities performed to produce a product.

What is the primary benefit of activity-based costing? a) Arbitrary allocations of overhead costs b) The cost of implementation c) All these are primary benefits of ABC d) More cost pools and therefore more accurate product costing

d) More cost pools and therefore more accurate product costing

Which best describes the flow of overhead costs in an activity-based costing system? a) Overhead costs → direct labor cost or hours → products b) Overhead costs → machine hours → products c) Overhead costs → products d) Overhead costs → activity cost pools → cost drivers → products

d) Overhead costs → activity cost pools → cost drivers → products

Advances in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by a) increasing direct labor costs and decreasing overhead costs. b) increasing direct labor costs and increasing overhead costs. c) decreasing direct labor costs and decreasing overhead costs. d) decreasing direct labor costs and increasing overhead costs.

d) decreasing direct labor costs and increasing overhead costs.

What overhead allocation basis is used by many companies with automated manufacturing processes to reduce product cost distortions? a) units produced b) direct materials c) direct labor d) machine hours

d) machine hours