ACCT 5370 Chapter 3 Sample Questions

Managers usually decide which cost driver to use based upon which of the following factors? a. Causal relation. b. Cost considerations. c. Generally accepted costing techniques. d. Uniform cost driver standards.

a. Causal relation.

Which of the following is the primary criterion for selecting a cost driver? a. Causal relation. b. Benefits received. c. Reasonableness. d. Fairness.

a. Causal relation.

What is the first step in the activity analysis process used to implement Activity Based Management? a. Chart, from start to finish, the activities used to complete the product or service b. Classify activities as value-added or non-value-added c. Eliminate non-value-added activities d. Continuously improve and reevaluate the efficiency of value-added activities or replace them with more efficient activities

a. Chart, from start to finish, the activities used to complete the product or service

Which is not an example of a cost driver? a. General and administrative expenses. b. Machine hours. c. Number of inspections. d. Number of different customers.

a. General and administrative expenses.

Which of the following is not a step in activity based costing? a. Identify the departments that consume resources and assign costs to those departments. b. Identify the cost drivers associated with each activity. c. Compute a cost rate per cost driver unit. d. Assign cost to products by multiplying the cost driver rate times the volume of cost driver consumed by the product.

a. Identify the departments that consume resources and assign costs to those departments.

Activity-based costing (ABC) assigns costs first to a. activities, then to the products based on each product's use of activities. b. products, then to the activities based on each activity's use of products. c. services, then to the activities based on each service's use of activities. d. None of the above answers is correct.

a. activities, then to the products based on each product's use of activities.

Activity-based costing first assigns costs to a. activities. b. products. c. departments. d. plants

a. activities.

Resources used for an activity are measured by the a. cost driver rate times the cost driver volume. b. resources supplied to an activity. c. expenditures for the activity. d. unused resource capacity.

a. cost driver rate times the cost driver volume.

Often the most interesting and challenging step(s) of activity-based costing (ABC) which also require(s) the manager to know the product is to a. identify the activities that consume resources, and assign costs to those activities. b. identify the cost driver(s) associated with each activity. c. compute a cost rate per cost driver unit. d. assign costs to products by multiplying the cost driver rate by the volume of cost drivers consumed by the product.

a. identify the activities that consume resources, and assign costs to those activities.

The first step in activity-based costing (ABC) is to a. identify the activities that consume resources, and assign costs to those activities. b. identify the cost driver(s) associated with each activity. c. compute a cost rate per cost driver unit. d. assign costs to products by multiplying the cost driver rate by the volume of cost drivers consumed by the product.

a. identify the activities that consume resources, and assign costs to those activities.

Bush Enterprises adopts Strategic activity-based costing and management techniques which would most likely shift the mix of activities and products away from a. less profitable to more profitable applications. b. less complex to more complex applications. c. high volume to low volume applications. d. less prestigious to more prestigious applications.

a. less profitable to more profitable applications.

Activity-based costing assigns more costs to items produced in __________ than traditional methods do. a. small runs b. medium runs c. large runs d. extra large runs

a. small runs

The value chain begins with which of the following? a. supplier. b. research and development. c. design. d. production.

a. supplier.

The major cost pool(s) for traditional methods is/are a. the "plant." b. the employees. c. the activity center. d. the management team.

a. the "plant."

Which of the following are resources supplied to an activity in activity-based costing? a. the expenditures for the activity. b. actual resource usage. c. estimated resource usage. d. unused resource capacity.

a. the expenditures for the activity.

Activity-based costing first assigns costs to activities, then to a. the products based on each product's use of activities. b. the plant based on each plant's use of activities. c. the departments based on each department's use of activities. d. the industry based on each industry's use of activities.

a. the products based on each product's use of activities.

Which statement best describes an activity center? a. An organizational command post from which management controls activity. b. A unit of the organization that performs a set of tasks. c. A think-tank where managers select value-added activities. d. A part of the organization that has been designated for in depth study of specific activities.

b. A unit of the organization that performs a set of tasks.

What provides a systematic way for organizations to evaluate the processes that they use to produce goods and services for their customers? a. Cost-benefit analysis b. Activity analysis c. Process evaluation and review technique d. Flow charting

b. Activity analysis

What is the second step in the activity analysis process used to implement Activity Based Management? a. Chart, from start to finish, the activities used to complete the product or service. b. Classify activities as value-added or non-value-added. c. Eliminate non-value-added activities. d. Continuously improve and reevaluate the efficiency of value-added activities or replace them with more efficient activities.

b. Classify activities as value-added or non-value-added.

Which of the following is the second step in activity based costing? a. Identify the activities that consume resources and assign costs to those activities. b. Identify the cost drivers associated with each activity. c. Compute a cost rate per cost driver unit. d. Assign cost to products by multiplying the cost driver rate times the volume of cost driver consumed by the product.

b. Identify the cost drivers associated with each activity.

Which of the following is a systematic way for organizations to identify and eliminate activities that add costs but not value to the product? a. customer profitability analysis. b. activity analysis. c. systems analysis. d. cost-based analysis.

b. activity analysis.

Which term describes the costs of activities that the company can eliminate without reducing product quality, performance, or value? a. non-value-performance-quality-added costs. b. non-value-added costs. c. non-performance-added costs. d. non-quality-added costs.

b. non-value-added costs.

The use of activity-based costing and activity-based management have resulted in a. less need to maintain good relationships with suppliers. b. overhead costs being reduced substantially. c. increased number of supervisory personnel being hired. d. All of the answers are correct.

b. overhead costs being reduced substantially.

Marshall Manufacturing Co. uses an activity-based costing system. The company has gathered the following information concerning various cost pools and activity drivers; [Activity Cost Pool / Normal Cost] Material Handling: $10,000 Machine setups: $40,000 Inspections: $2,500 Electricity Costs: $20,000 [Activity Cost Driver / Activity Level] Number of moves: 5,000 Number of setups: 2,000 Number of inspections: 500 Kilowatt Hours: 10,000 The following data was collected and is specific to Item No. 824. Direct Material Cost: $15,000 Direct Labor Cost: 5,000 (@ $10 per hour) Number of machine setups: 100 Number of material moves: 250 Number of inspections: 50 Kilowatt hours of electricity used: 500 Units produced: 1,000 What would be the unit cost for the materials handling activity at Marshall Manufacturing Co.? a. $ 4.00 b. $80.00 c. $ 2.00 d. $ 1.00

c. $ 2.00 Material Handling cost = $10,000 Cost Driver = No. of Moves = 5,000 Unit cost for material handling = $10,000/5,000 = $2.00

Marshall Manufacturing Co. uses an activity-based costing system. The company has gathered the following information concerning various cost pools and activity drivers; [Activity Cost Pool / Normal Cost] Material Handling: $10,000 Machine setups: $40,000 Inspections: $2,500 Electricity Costs: $20,000 [Activity Cost Driver / Activity Level] Number of moves: 5,000 Number of setups: 2,000 Number of inspections: 500 Kilowatt Hours: 10,000 The following data was collected and is specific to Item No. 824. Direct Material Cost: $15,000 Direct Labor Cost: 5,000 (@ $10 per hour) Number of machine setups: 100 Number of material moves: 250 Number of inspections: 50 Kilowatt hours of electricity used: 500 Units produced: 1,000 What is the cost of one unit of item 824? a. $ 3.75 b. $116.25 c. $ 23.75 d. None of the above

c. $ 23.75 Direct Materials: $15,000 (given) Direct Labor: $5,000 (given) Machine Setups: $2,000 (($40,000 / $2,000) x 100) Material Moves: $500 (($10,000 / $5,000) x 250) Inspections: $250 (($2,500 / 500) x 50) Electricity: $1,000 (($20,000 / $10,000) x 500) Total: $23,750 / 1,000 units produced = $23.75

Marshall Manufacturing Co. uses an activity-based costing system. The company has gathered the following information concerning various cost pools and activity drivers; [Activity Cost Pool / Normal Cost] Material Handling: $10,000 Machine setups: $40,000 Inspections: $2,500 Electricity Costs: $20,000 [Activity Cost Driver / Activity Level] Number of moves: 5,000 Number of setups: 2,000 Number of inspections: 500 Kilowatt Hours: 10,000 The following data was collected and is specific to Item No. 824. Direct Material Cost: $15,000 Direct Labor Cost: 5,000 (@ $10 per hour) Number of machine setups: 100 Number of material moves: 250 Number of inspections: 50 Kilowatt hours of electricity used: 500 Units produced: 1,000 What would be the unit cost for the inspection activity on Item No. 824? a. $ 4.00 b. $80.00 c. $ 5.00 d. $ 1.00

c. $ 5.00 Inspection Cost = $2,500 Cost Driver = No. of inspections = 500 $2,500/500 = $5.00 per inspection

Which of the following statements is true concerning activity-based costing (ABC)? a. ABC can distort product costs. b. ABC fails to recognize that the demand for overhead activities is driven by product-sustaining activities. c. ABC permits management to focus on the increased efficiencies and better resource utilization. d. ABC first assigns costs to products, then to cost pools.

c. ABC permits management to focus on the increased efficiencies and better resource utilization.

Which of the following statement accurately describes activity-based costing (ABC)? a. ABC considers the entire plant to be one cost pool. b. ABC uses a separate cost pool for each department. c. ABC uses a cost pool for each activity center. d. ABC uses a cost pool for each industry.

c. ABC uses a cost pool for each activity center.

How does activity-based management treats fixed costs? a. As costs which vary directly with volume. b. As costs which cannot be controlled over the long-run. c. As costs which may vary for reasons other than volume. d. As sunk costs which have no future economic benefit.

c. As costs which may vary for reasons other than volume.

Which statement is true in an activity-based costing environment? a. Managers do not need to know product costs. b. Companies use departmental overhead rates. c. Companies compute the rate for each cost driver in each activity center. d. Companies compute the rate for up to three cost drivers in each activity center.

c. Companies compute the rate for each cost driver in each activity center.

Which of the following represents the third step in activity based costing? a. Identify the activities that consume resources and assign costs to those activities. b. Identify the cost drivers associated with each activity. c. Compute a cost rate per cost driver unit. d. Assign cost to products by multiplying the cost driver rate times the volume of cost driver consumed by the product.

c. Compute a cost rate per cost driver unit.

Which of the following is not a step in activity based costing? a. Identify the activities that consume resources and assign costs to those activities. b. Identify the cost drivers associated with each activity. c. Compute a cost rate per department or plant. d. Assign cost to products by multiplying the cost driver rate times the volume of cost driver consumed by the product.

c. Compute a cost rate per department or plant.

What is the third step in the activity analysis process used to implement Activity Based Management? a. Chart, from start to finish, the activities used to complete the product or service. b. Classify activities as value-added or non-value-added. c. Eliminate non-value-added activities. d. Continuously improve and reevaluate the efficiency of value-added activities or replace them with more efficient activities.

c. Eliminate non-value-added activities.

Which one of the following activities is appropriate as a cost driver for material handling costs? a. Number of direct labor hours used b. Number of machine hours used c. Number of raw material moves d. Number of units produced

c. Number of raw material moves

For which one of the following activities is it more difficult to obtain reasonable measures to allocate the costs? a. Indirect labor b. Machine setups c. Plant administration d. Quality control inspections

c. Plant administration

Which of the following reflects the simplest allocation method for a factory? a. The department allocation method. b. The unit cost allocation method. c. The plantwide allocation method. d. The use of activity-based costing.

c. The plantwide allocation method.

Which of the following does not represent how managers make cost-benefit decisions as to the use of activity analysis or traditional costing methods? a. They reject activity analysis and stay with the simpler traditional method. b. They use activity-based costing because they want information that will help them be competitive. c. They use traditional costing as a special analysis, but not as an ongoing information system. d. They use activity-based costing as a special analysis, but not as an ongoing information system.

c. They use traditional costing as a special analysis, but not as an ongoing information system.

What do managers use to analyze the cost-generating and revenue-generating components of a company's activities? a. Low cost solution b. Critical path c. Value chain d. Optimal solution

c. Value chain

Which of the following is a non-value added cost? a. Running machines. b. Performing surgeries. c. Waiting for work. d. Speaking to customers.

c. Waiting for work.

How are overhead costs accumulated in an activity-based costing system? a. in a single, plant-wide pool. b. by departments. c. in pools established by identified cost drivers. d. in facility-level activities.

c. in pools established by identified cost drivers.

The major cost pool(s) for activity-based costing is/are a. the "plant." b. the department. c. the activity center. d. the "plant" and the department.

c. the activity center.

Activity-based management starts with activity analysis. The four steps in activity analysis are: 1. Chart, from start to finish, the activities used to complete the product or service 2. Classify activities as value-added or non-value-added 3. Eliminate non-value-added activities 4. Continuously improve and reevaluate the efficiency of value-added activities or replace them with more efficient activities. The value-added activities identified in Step 2 make up the a. low cost solution. b. critical path. c. value chain. d. optimal solution.

c. value chain.

One of the lessons of activity-based costing (ABC) is that costs depend on a. volume of the product, only. b. complexity of the product, only. c. volume and complexity of the product. d. factors other than the volume or complexity of the product.

c. volume and complexity of the product.

Marshall Manufacturing Co. uses an activity-based costing system. The company has gathered the following information concerning various cost pools and activity drivers; [Activity Cost Pool / Normal Cost] Material Handling: $10,000 Machine setups: $40,000 Inspections: $2,500 Electricity Costs: $20,000 [Activity Cost Driver / Activity Level] Number of moves: 5,000 Number of setups: 2,000 Number of inspections: 500 Kilowatt Hours: 10,000 The following data was collected and is specific to Item No. 824. Direct Material Cost: $15,000 Direct Labor Cost: 5,000 (@ $10 per hour) Number of machine setups: 100 Number of material moves: 250 Number of inspections: 50 Kilowatt hours of electricity used: 500 Units produced: 1,000 What would be the amount of machine setup cost allocated to Item No. 824? a. $40,000 b. $ 8,000 c. $ 2,500 d. $ 2,000

d. $ 2,000 Machine Set up cost = $40,000 Cost Driver = No. of setups = 20.00 per setup Item 824 needs 100 setups Allocated cost = $20.00 × 100 = $2,000

Marshall Manufacturing Co. uses an activity-based costing system. The company has gathered the following information concerning various cost pools and activity drivers; [Activity Cost Pool / Normal Cost] Material Handling: $10,000 Machine setups: $40,000 Inspections: $2,500 Electricity Costs: $20,000 [Activity Cost Driver / Activity Level] Number of moves: 5,000 Number of setups: 2,000 Number of inspections: 500 Kilowatt Hours: 10,000 The following data was collected and is specific to Item No. 824. Direct Material Cost: $15,000 Direct Labor Cost: 5,000 (@ $10 per hour) Number of machine setups: 100 Number of material moves: 250 Number of inspections: 50 Kilowatt hours of electricity used: 500 Units produced: 1,000 What would be the amount of quality inspection cost allocated to Item No. 824? a. $2,500 b. $ 125 c. $1,000 d. $ 250

d. $ 250 Inspection Cost = $2,500 Cost Driver = No. of inspections = 500 $2,500/500 = $5.00 per inspection Item 824 needs 50 inspections Allocated cost = $5.00 × 50= $250

Marshall Manufacturing Co. uses an activity-based costing system. The company has gathered the following information concerning various cost pools and activity drivers; [Activity Cost Pool / Normal Cost] Material Handling: $10,000 Machine setups: $40,000 Inspections: $2,500 Electricity Costs: $20,000 [Activity Cost Driver / Activity Level] Number of moves: 5,000 Number of setups: 2,000 Number of inspections: 500 Kilowatt Hours: 10,000 The following data was collected and is specific to Item No. 824. Direct Material Cost: $15,000 Direct Labor Cost: 5,000 (@ $10 per hour) Number of machine setups: 100 Number of material moves: 250 Number of inspections: 50 Kilowatt hours of electricity used: 500 Units produced: 1,000 What would be the unit cost for the machine setup activity at Marshall Manufacturing Co.? a. $ 4.00 b. $80.00 c. $ 2.00 d. $20.00

d. $20.00 Machine Set up cost = $40,000 Cost Driver = No. of setups = $20.00 per setup

Which of the following is an example of a non-value-added cost? a. Storage b. Moving items c. Waiting for work d. All of the above are non-value-added costs.

d. All of the above are non-value-added costs.

Bush Enterprises adopts Strategic activity-based costing and management techniques which would most likely result in a. adding surcharges for particular customers b. "firing" some customers c. seeking to serve more profitable customers d. All of the answers are correct.

d. All of the answers are correct.

In what way(s) do managers make cost-benefit decisions as to the use of activity analysis or traditional costing methods? a. They reject activity analysis and stay with the simpler traditional method. b. They use activity-based costing because they want information that will help them be competitive. c. They use activity-based costing as a special analysis, but not as an ongoing information system. d. All of the answers are correct.

d. All of the answers are correct.

The second step in Activity-based costing (ABC) is to identify the cost driver(s) associated with each activity. Cost drivers usually relate to a. volume of production. b. hours used in production. c. marketing process. d. All of the answers are correct.

d. All of the answers are correct.

Which of the following is an example of non-value added activities? a. Storage. b. Moving items. c. Waiting for work. d. All of the answers are correct.

d. All of the answers are correct.

Which of the following is not a step accountants must follow in activity-based costing? a. Identify the activities that consume resources and assign costs to them. b. Identify the cost drivers associated with each activity. c. Compute a cost rate per cost driver. d. Compute the variance between the estimated cost driver and the actual cost driver.

d. Compute the variance between the estimated cost driver and the actual cost driver.

What is the final step in the activity analysis process used to implement Activity Based Management? a. Chart, from start to finish, the activities used to complete the product or service. b. Classify activities as value-added or non-value-added. c. Eliminate non-value-added activities. d. Continuously improve and reevaluate the efficiency of value-added activities or replace them with more efficient activities.

d. Continuously improve and reevaluate the efficiency of value-added activities or replace them with more efficient activities.

Which formula correctly identifies the predetermined indirect cost rate in an activity-based costing system? a. Actual indirect cost divided by the actual volume of the allocation base. b. Estimated indirect cost divided by the actual volume of the allocation base. c. Actual cost divided by the estimated volume of the allocation base. d. Estimated indirect cost divided by the estimated volume of the allocation base.

d. Estimated indirect cost divided by the estimated volume of the allocation base.

Which of the following are not examples of non-value-added costs? a. Storage b. Moving items c. Waiting for work d. Production

d. Production

Which of the following statements is true concerning how companies benefit from using an activity-based accounting system? a. They have had few changes in activities over time and few corresponding changes have been made in the accounting system. b. They have low overhead costs. c. They have a narrow range of products. d. They have wide variations in the volume of individual production runs and setups are costly (i.e., complex production methods).

d. They have wide variations in the volume of individual production runs and setups are costly (i.e., complex production methods).

Activity-based management starts with which of the following? a. activity benefit analysis. b. activity cost cutting. c. activity-based costing. d. activity analysis.

d. activity analysis.

The last step in activity-based costing (ABC) is to a. identify the activities that consume resources, and assign costs to those activities. b. identify the cost driver(s) associated with each activity. c. compute a cost rate per cost driver unit. d. assign costs to products by multiplying the cost driver rate by the volume of cost drivers consumed by the product.

d. assign costs to products by multiplying the cost driver rate by the volume of cost drivers consumed by the product.

The value chain ends with which of the following? a. production. b. marketing. c. distribution. d. customer service.

d. customer service.

Activity-based management can reduce customer response time by all of the following, except for a. identifying those activities that consume the most resources. b. making activities more efficient. c. identifying non-value added activities. d. identifying fraudulent activities.

d. identifying fraudulent activities.

Traditional cost allocation methods include which of the following? a. plantwide allocation, only. b. department allocation, only. c. activity-based costing. d. plantwide and department allocation.

d. plantwide and department allocation.

The value chain is a linked set of value-creating activities leading from a. supplier to marketing. b. research and development to distribution. c. design to customer service. d. raw material sources to the ultimate end use of the goods or services produced.

d. raw material sources to the ultimate end use of the goods or services produced.