Acct 4

Question 7 Which of the following is a sign that an ABC system may be useful? Operations throughout the plant are fairly similar. There are small amounts of overhead costs. Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity. The company's products all show large profits.

Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.

Question 11 Willow Company produces seven products. PQ-6 costs $240.00 per unit under their traditional cost system using one cost driver. 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 PQ-6 was determined to be $190.00 per unit. Given this change in the cost: PQ-6 costing results under the new system depend on the adequacy and quality of the estimated sales and sales revenue used by the system. Willow has been understating the profit for PQ-6. Willow's other products will be assigned a smaller share of overhead costs. Willow should raise the sales price for PQ-6.

Willow has been understating the profit for PQ-6.

Differences between the costs calculated by activity-based costing systems and traditional costing systems will decrease when volume based assignments and cost driver assignments: use the same cost driver units. are more different than alike. are different in proportion to each other. are similar in proportion to each other

are similar in proportion to each other

Question 1 Volume-based cost drivers in traditional cost systems distort product costs because they: recognize specific activities that are required to produce a product. assume that all products use all overhead resources to a similar extent. fail to measure the correct amount of total costs for all products. do not consistently record costs

assume that all products use all overhead resources to a similar extent

Question 6 Activity-based costing (ABC) can reduce cost distortions because ABC: recognizes interactions between different departments in assigning overhead costs. develops cost drivers that link the activities performed to the products manufactured. employs capacity-related cost drivers. establishes multiple cost pools.

develops cost drivers that link the activities performed to the products manufactured.

Question 8 Product lines that produce different variations (models, styles, or colors) often require specialized activities that translate into: decisions to drop product variations. more overhead costs for each product line. lower overhead costs for each product line. more favorable direct labor cost ratios.

more overhead costs for each product line.

Question 10 Willow Company produces seven products. PQ-6 costs $240.00 per unit under their traditional cost system using one cost driver. 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 PQ-6 was determined to be $190.00 per unit. The total amount of overhead costs assigned to product PQ-6 using the traditional cost method is ________ the total amount assigned using ABC. approximately the same identical to more than less than

more than

Question 5 It is important that the product costs reflect the diversity and complexity of the manufacturing process so that: All of the above are correct. product costs will reflect their relative consumption of resources. there is more likelihood of cost distortions. better information related to resource constraints can be captured and communicated.

product costs will reflect their relative consumption of resources.

Design of an activity-based cost system requires that: the job bid process be redesigned. resource costs be linked to the activities performed. resource costs be linked to the activities performed and the cost of activities be linked to cost objects. the cost of activities be linked to cost objects.

resource costs be linked to the activities performed and the cost of activities be linked to cost objects.

The use of volume-based measures to assign overhead costs is more likely to: undercost specialty low-volume and complex products. undercost complex products. undercost high-volume products. undercost specialty low-volume products.

undercost specialty low-volume and complex products.

Question 4 Products M5 and A8 each are assigned $100.00 in overhead costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, M5 requires 45 minutes less setup time than A8. According to an ABC system, A8 is ________ under the traditional cost system. overcosted fairly costed undercosted accurately costed

undercosted