ACCT 3270 EXAM 2

ABC and traditional systems are quite similar in ________. A) the treatment of direct costs B) the allocation of overheads C) evaluating performance D) the identification of cost pools

A

Operating decisions primarily deal with ________. A) the best use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) satisfying stockholders

A

Using department indirect-cost rates to allocate costs will result in results similar to ABC if: A) a single activity accounts for a sizable portion of the costs of the department B) several activities cause a sizable portion of the costs of the department C) a single activity accounts for a small portion of the costs of the department D) several activities cause a small portion of the costs of the department

A

Which of the following is a financial budget? A) budgeted balance sheet B) cash receivables budget C) production budget D) cost of goods sold budget

A

Which of the following is not true of a properly executed budgetary cycle? A) deviations from plan are only investigated at the conclusion of the fiscal year as actual data can be finally compiled B) past performance and market feedback are considered in setting budget amounts C) specific financial and nonfinancial expectations are set D) during the fiscal year, managers investigate deviations from plans

A

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

B

It only makes sense to implement an ABC system when ________. A) a single product is produced in bulk B) its benefits exceed its implementation costs C) it traces more costs as direct costs D) production process is labor-intensive

B

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) equal to D) more accurate than

B

Expected direct costs amounts to $927,000 for the period. Support cost requirements of both products are substantially different from one another. Zitriks uses an ABC costing system. Which of the following is true of Canton's overhead costing? A) Multiple cost pools are appropriate for Canton's because of high direct costs. B) Single cost pool is appropriate for Canton's because of high direct costs. C) Multiple cost pools are appropriate for Canton's because of diverse support costs. D) Single cost pool is appropriate for Canton's because of diverse support costs.

C

For a company which produce its products in batches, the CEO's salary is a(n) ________ cost. A) batch-level B) output unit-level C) facility-sustaining D) product-sustaining

C

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 costs. This suggests that ABC system helps managers in ________ decisions. A) pricing B) product-mix C) process-improvement D) product-design

C

One reason for assigning selling and distribution costs to products for analytical purposes is ________. A) to justify a varied product-mix B) that these costs should be included in the cost of goods sold in the income statement C) to ensure that all costs are considered D) that all direct costs must be assigned

C

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs. A) prime B) factory C) indirect D) committed

C

The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour. Nichols' management is considering to implement ABC system because ________. A) ABC system can be implemented cheaply B) ABC system provides more accurate direct cost figures C) ABC system is a highly refined costing system D) ABC system requires minimal expertise to operate

C

Which of the following has accelerated need for refined cost systems? A) global monopolies B) rising prices C) intense competition D) a shift toward increased direct costs

C

Which of the following is a limitation of using past performance as a basis for judging actual results? A) It does not account for productivity increases over the periods. B) It increases the incentive for managers to introduce budgetary slack. C) It assumes inefficiencies of previous periods without considering possible efficiencies of the budget period. D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions.

C

A budget is an end product of negotiations among senior and subordinate mangers because ________. A) budgeting is their mutual responsibility B) senior managers alone cannot spare the time required for the budgeting process C) senior managers are responsible for providing information on competitors performance and subordinate managers are responsible for information on external market conditions D) senior managers want very challenging targets, while subordinates may want targets that are relatively easier to achieve.

D

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

D

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

D

________ is an example of an output unit-level cost in the cost hierarchy. A) Factory rent expense B) Building security costs C) Top management compensation costs D) Machine depreciation

D

Activity based costing system differs from traditional costing systems in the treatment of ________. A) direct labor costs B) direct material costs C) prime costs D) indirect costs

D

Which of the following is a sign that an ABC system will provide benefits? A) There are relatively few indirect cost pools associated with the product and the indirect costs are a small percentage of total product cost B) All the products produced are similar and sell in equal proportions (sales mix) C) Operations staff has no substantial disagreements with the reported costs of manufacturing and marketing products and services. D) All or most indirect costs are treated as output-unit level costs.

D

Which of the following is true of a budget? A) Budgets are used to express only the operational plans and not the strategic plans of a company. B) Budgets do not account for nonfinancial aspects of the upcoming period. C) Budgets are most useful when they are planned independent of the company's strategic plans. D) Budgets help managers to revise their plans and strategies.

D

Which of the following reasons explain why ABC concepts may be of great value to service companies? A) It allows for more accurate cost accounting for inventory B) It promotes more accurate cost of goods sold reporting C) It helps make financial reporting more accurate D) A significant portion of the cost structure of a service firm is composed of indirect costs

D

Financing decisions primarily deal with ________. A) the use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) preparing financial statements for stockholders

B

For a business that offers customers a store where product can be purchased and picked up or a delivery service that can ship the product directly to the customer, which of the following would most likely be the best cost allocation base for distribution costs? A) number of customer service phone calls and emails per period B) number of pounds of product shipped or delivered C) Electricity costs for the period D) Number of products sold

B

Recognizing ABC information is not always perfect because ________. A) it mostly uses far too many indirect cost pools than what is actually required B) it balances the need for better information against the costs of creating a complex system C) it lacks the simplicity that traditional systems used to have to allocate overhead costs D) it never measures how the resources of an organization are used

B

The preparation of all the budgets in the master budget forces managers to think about their business operations and to formulate plans, while: A) detecting inaccurate historical records to avoid errors in budgets B) setting expectations against which actual results can be compared C) completing the budgeting tasks with minimal cross functional feedback D) ignoring financial risks and opportunities

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

A single indirect-cost rate distorts product costs because ________. A) there is an assumption that all support activities affect all products in a uniform way B) it recognizes specific activities that are required to produce a product C) competitive pricing is ignored D) it assumes all costs are product costs

A

Activity-based costing is most likely to yield benefits for companies ________. A) with complex product design processes that vary significantly from product to product B) with operations that remain fairly consistent across product lines C) in a monopolistic market D) having nominal percentage of indirect costs

A

For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what would be the best allocation base for human resource adminstration costs? A) direct labor hours B) electricity costs C) number of parts purchased D) machine hours

A

Advanced Technology Products produces 10 different fastners. Each time a type of fastener is produced, the equipment must be stopped and items such as filters and drill bits must be changed, oil must be added to the equipment and some parts need lubrication. This work must be done before the products can be produced, the costs related to this activity would be part of which cost pool? A) Output-level costs B) Batch-level costs C) Product-sustaining costs D) Service-sustaining costs

B

Which method of allocation probably best estimates actual overhead costs used? Why? A) Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs. B) Single direct labor-hours cost driver because it is easiest to analyze and interpret. C) Three activity-cost drivers because they best reflect the relative consumption of resources. D) Three activity-cost drivers because product costs can be significantly cross-subsidized.

C

Which of the following is true of budgets when they are administered thoughtfully? A) They eliminate subjectivity in performance evaluation. B) They can eliminate the uncertainty faced by a company. C) They promote coordination within the subunits of a company. D) They are a substitute the planning and coordination functions of management.

C

Budgets incorporate managements goals and A) are a strategic long range plan B) are both a short range and long range profit plan C) includes only financial aspects of an operation as those are the only items that can be quantified in a profit plan D) express management's operating and financial plan for a specified period - usually a fiscal year

D

When "available time" (i.e., setup-hours) is used to calculate a cost of a resource and to allocate costs to cost objects , the system is called: A) job costing B) process costing C) hybrid costing D) time-driven activity based costing

D

A master budget ________. A) is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions B) is only prepared for manufacturers as they are the only type of company with material purchases and work-in-process accounts. C) improves companies' market capitalization and evolves from both the investing and financing decisions D) is another name given to the financial budget

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

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________. A) establish a cause-and-effect relationship with the activities performed B) use single cost pool for all overhead costs, thereby enabling simplicity C) use a broad average to allocate all overhead costs D) never consider interactions between different departments in assigning support costs

A

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

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

A

The fundamental cost objects of ABC are ________. A) activities B) cost drivers C) products D) services

A

Which of the following statements is true of budgets? A) Master budgets express management's operating and financial plans. B) Financial budgets are prepared before the master budget is prepared. C) Operating budgets are prepared independently of the master budget. D) The budgeted balance sheet is the first budget prepared as management is very much concerned with projected financial position

A

ABC systems help managers to ________. A) value ending inventory more accurately B) identify new designs to reduce costs C) evaluate direct material costs more efficiently D) improve the inventory turnaround time

B

Activity-based costing information can be used for ________. A) product-mix decisions B) pricing decisions C) advertisement decisions D) inventory valuation

B

Which of the following is a reason that has accelerated the demand for refinements to the costing system? A) The declining demand for customized products has led managers to decrease the variety of products and services their companies offer. B) The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs. C) The increased of automated processes has led to the increase in direct manufacturing cost leading to a decrease in break even point. D) The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of break even point.

B

Which of the following is true of master budgets? A) They include only financial aspects of a plan and exclude nonfinancial aspects. B) Includes both financial and nonfinancial aspects of management's plans. C) They aid in quantifying the expectations of all stakeholders. D) They must be administered rigidly after they are committed to.

B

Which of the following statements about ABC is not true? A) A byproduct of ABC implementation can improve the efficiency of operations B) ABC should be implemented solely by the accountants as they are the guardians of the accounting information system C) ABC may empower employees to also implement cost saving projects D) Although implementation of ABC can be a refinement of a cost system, it has its limitations

B

Which of the following statements is true of ABC systems? A) ABC system will always result in higher product costs. B) ABC system employs multiple activity-cost drivers. C) ABC system is least suited for service companies. D) ABC system is simpler compared to traditional systems.

B

Which of the following statements is true of ABC systems? A) ABC systems provide less insight than traditional systems into the management of the indirect costs. B) ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies. C) Service companies find great value from ABC because a vast majority of their cost structure is composed of direct costs. D) ABC systems is valuable for pricing decisions but not for understanding, managing, and reducing costs in government institutions.

B

Which of the following statements is true of a peanut-butter costing system? A) A peanut-butter costing system typically has more-homogeneous indirect cost pools. B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects. C) A peanut-butter costing system assumes that all costs are variable. D) In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume.

B

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 peanut-butter costing is the accurate distribution of all direct costs to the products.

B

________ is considered while choosing a cost allocation base for activity costs in ABC costing. A) Marketing strategy and material price level B) Availability of reliable data and measures C) Product price level D) Market share of a product

B

When costs are assigned using the single cost driver, number of pages printed, then Hospital Systems ________. A) is fairly billed because resources are allocated uniformly to all jobs B) is grossly under billed for the job, while other jobs will be unfairly over billed C) will likely seek to do business with competitors D) will contribute too little to profits, and Wallace Printing will not want to accept additional work from the company

C

Aqua Company produces two products-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. Alpha is using a single cost pool to allocate indirect costs. 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.

C

Facility-sustaining costs are the costs of activities ________. A) undertaken to support individual products or services regardless of the number of units or batches in which the units are produced B) related to a group of units of a product or services, rather than each individual unit of product or service C) that managers cannot trace to individual products or services but that support the organization as a whole D) performed on each individual unit of a product or service such as the cost of energy, machine depreciation, and repair

C

For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that: A) direct labor costs of the product are misallocated B) direct material costs of the product are misallocated C) indirect costs of another product are misallocated D) direct costs of another product are misallocated

C

Product-cost cross-subsidization means that: A) when one product is overcosted, it results in more than one other product being overcosted B) when a company undercosts more than one of its products, it will overcost more than one of its other products C) when a company undercosts one of its products, it will overcost at least one of its other products D) when one product is overcosted it results in all other products being overcosted

C

Refining a cost system involves which of the following? A) classifying as many costs as indirect costs as is feasible B) creating as many cost pools as possible to capture all costs C) identifying the activities involved in a process and understanding how those activities consume resources D) Seeking an easier and more cost effective way to calculate average costs

C

The following conditions with departmental indirect-cost rates will result in allocation of costs similar to ABC costing except: A) a single activity accounts for a sizable portion of the costs of the department B) Significant costs are incurred on different activities within a department C) several activities cause a sizable portion of the costs of the department D) significant costs are incurred for different activities with different cost -allocation bases within a department

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 that meets the cost/benefit test D) have separate allocation rates for each department

C

The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of ________. A) labor costs B) prime costs C) indirect costs D) material costs

C

Which of the following cost and cost allocation base have a strong cause and effect relationship? A) administration costs and cubic feet B) setup costs and square feet C) quality control costs and the number of inspections D) machine maintenance and setup hours

C

Which of the following is true of refinement of a costing system? A) While refining a costing system, companies should identify as many indirect costs as is economically feasible. B) A homogeneous cost pool will use multiple cost drivers to allocate costs. C) It reduces the use of broad averages for assigning the cost of resources to cost objects. D) It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs.

C

Which of the following is true with activity based cost accounting? 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) The focus is on activities that account for a sizable fraction of indirect costs . D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.

C

Which of the following ordering of the levels best depicts the cost hierarchy within an ABC system? A) batch-level, output unit-level, product-sustaining level, and facility-sustaining level B) batch-level, output unit-level, facility-sustaining levels, product-sustaining levels C) output unit-level, batch-level, product-sustaining level, and facility-sustaining level D) facility-sustaining level, output unit-level, batch-level, product-sustaining level

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

________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced. A) Unit-level costs B) Batch-level costs C) Product-sustaining costs D) Facility-sustaining costs

C

Expected direct costs amounts to $9,130,000 for the period. Support cost requirements of both products are substantially different from one another. Canton uses an ABC costing system. Which of the following statements is true of implementing an ABC system? A) Managers should never compromise on the cause-and-effect relationship of cost drivers and costs. B) The three guidelines for refining costing systems should be ignored while implementing an ABC costing system. C) The heterogeneous cost pools give managers greater confidence in the activity and product cost numbers from the ABC system. D) Identifying the cost-allocation bases defines the number of activity pools into which costs must be grouped in an ABC system.

D

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

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________. A) total costs reflect market price B) value-added costs can be eliminated C) there is high likelihood of cross-subsidizing of product costs D) product-pricing errors are minimal

D

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

D

Johnson Superior Products Inc. produces hospital equipment and the setup requirements vary from product to product. Johnson produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution costs are pooled together. Costs in this pool are allocated using number of customer orders for the easiness of costing operations. Based on the information provided, which of the following arguments is valid? A) Johnson has clearly failed to identify as many direct costs as is economically feasible. B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect relationship with the single cost driver that is used as the cost-allocation base for Johnson. C) Johnson has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as direct costs. D) Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.

D

Management accountants use the cost hierarchy to first calculate the ________. A) labor costs of each product and then they compute material costs B) overhead costs of each product and then they compute prime costs C) factory costs of each product and then they compute labor costs D) total costs of each product and then they compute per-unit costs

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

Top management compensation cost is an example of ________ in the cost hierarchy. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

D

When costs are assigned using the single cost driver, number of pages printed, then ________. A) Excellent Printers will want to retain this highly profitable customer B) Money Managers will likely seek to do business with competitors C) Money Managers is unfairly over billed for its use of printing resources D) Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed

D

Which of the following is a sign that an ABC system may be useful for an organization? A) Significant amounts of indirect costs are allocated using multiple cost pools. B) Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity. C) Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs. D) Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.

D