CHAPTER 7
The activity rates in activity-based costing are used to determine how quickly a particular task should be done
FALSE
Assembling a product is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity
A) Unit-level activity.
A plantwide predetermined overhead rate based on direct labor-hours results in low overhead costs for products with a high direct labor-hour content and high overhead costs for products with a low direct labor-hour content
FALSE
Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours
FALSE
An activity rate is computed for each product
FALSE
Companies use three common approaches to assign overhead costs to products—plantwide overhead rate, departmental overhead rates, and activity-based costing. The most accurate of these three approaches is the plantwide overhead rate
FALSE
Departmental overhead rates applied on the basis of a single activity measure will eliminate any distortions in unit costs due to product diversity
FALSE
Direct labor is an appropriate allocation base for overhead when overhead costs and direct labor are not highly correlated.
FALSE
In activity-based costing, departmental overhead rates are used to apply overhead to products
FALSE
In general, activities and costs on different levels in the cost hierarchy—such as unit-level and batch-level costs and activities—should be combined in an activity-based costing system if doing so simplifies the costing system
FALSE
Product-level activities relate to specific products and typically must be carried out whenever a batch is run or a unit of the product is made
FALSE
The activity rates in activity-based costing are computed by dividing the direct labor hours for an activity cost pool by the measure of activity for the activity cost pool.
FALSE
The challenge in designing an activity-based costing system is to identify all of the activities that explain the variation in overhead costs
FALSE
Unit-level activities are performed each time a new departmental unit such as a regional sales office is created.
FALSE
A department's overhead costs are generally caused by a variety of factors including the range of products processed in the department, the number of batch set-ups that are required, and the complexity of the products
TRUE
Production order processing is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity
B) Batch-level activity.
The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity.Answer: B
B) Batch-level activity.
Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department? A) Machine-hours B) Direct labor-hours C) Number of orders processed D) Cost of materials purchased
C) Number of orders processed
Parts administration is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity
C) Product-level activity.
In activity-based costing, unit product costs computed for external financial reports include: A) direct materials and manufacturing overhead. B) direct labor and manufacturing overhead. C) direct materials, direct labor, and manufacturing overhead. D) direct materials and direct labor.
C) direct materials, direct labor, and manufacturing overhead.
Privott, Inc., manufactures and sells two products: Product Z9 and Product N0. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity The activity rate for the Labor-Related activity cost pool under activity-based costing is closest to: A) $91.49 per DLH B) $934.30 per DLH C) $114.37 per DLH D) $34.47 per DLH
D) $34.47 per DLH
Property taxes are an example of a cost that would be considered to be: A) Unit-level. B) Batch-level. C) Product-level. D) Facility-level
D) Facility-level
When a company changes from a traditional costing system to an activity-based costing system, the unit product costs of high-volume products typically change more than the unit product costs of low-volume products
FALSE
Rather than using a single allocation base such as direct labor-hours or machine-hours, inactivity-based costing a company uses a number of allocation bases for assigning costs to products
TRUE
When a company changes from a traditional costing system to an activity-based costing system, costs will ordinarily shift from high-volume products to low-volume products when the activity-based costing system includes batch-level or product-level costs
TRUE
When a company changes from a traditional costing system to an activity-based costing system, the unit product costs of low-volume products typically increase more than the unit product costs of high-volume products decrease
TRUE
When a company implements activity-based costing, overhead cost often shifts from high-volume products to low-volume products, with a higher unit cost resulting for the low-volume products.
TRUE
When designing an activity-based costing system, related activities are frequently combined to reduce the amount of detail and record-keeping cost
TRUE
In activity-based costing, the total activity in an activity cost pool can be computed by: A) dividing the total overhead cost in the activity cost pool by the activity cost pool's activity rate. B) multiplying the total overhead cost in the activity cost pool by the activity cost pool's activity rate. C) dividing the activity cost pool's activity rate by the direct labor-hours required to make a product. D) multiplying the activity cost pool's activity rate by the direct labor-hours required to make a product.
A) dividing the total overhead cost in the activity cost pool by the activity cost pool's activity rate.
Activity-based costing involves a two-stage allocation process in which overhead costs are first assigned to activity cost pools and then allocated to products using activity measures.
TRUE
Overhead allocation based solely on a measure of volume such as direct labor-hours: A) is a key aspect of the activity-based costing model. B) will systematically overcost high-volume products and undercost low-volume products C) will systematically overcost low-volume products and undercost high-volume products. D) must be used for external financial reporting.
B) will systematically overcost high-volume products and undercost low-volume products
Activity-based management involves focusing on activities to eliminate waste, decrease processing time, and reduce defects
TRUE
An activity cost pool in activity-based costing is a "cost bucket" in which costs related to a particular activity measure are accumulated
TRUE
An activity measure in activity-based costing expresses how much of an activity is carried out and it is used as the allocation base for assigning overhead costs to products and services
TRUE
An activity-based costing system is generally more difficult to set up and run than a traditional cost system
TRUE
Batch-level activities are performed each time a batch of goods is processed. The cost of a batch-level activity does not depend on the number of units in the batch
TRUE
Facility-level costs cannot be traced on a cause-and-effect basis to individual products.
TRUE
In activity-based costing, a separate activity rate (i.e., predetermined overhead rate) is computed for each activity cost pool by dividing the estimated overhead cost in the activity cost pool by the total expected activity for the activity cost pool
TRUE
In activity-based costing, each major activity has its own overhead cost pool, its own activity measure, and its own overhead rate
TRUE
In activity-based costing, unit product costs computed for external financial reports include direct materials, direct labor, and manufacturing overhead costs
TRUE
In activity-based costing, unit product costs computed for external financial reports include manufacturing overhead costs that are computed by multiplying activity rates by the activities required to produce a product.
TRUE