Chapter 5

Successful adoptions of activity-based costing typically occur when companies rely heavily on:

multidisciplinary project teams.

Activity-based costing systems:

often reveal products that were under- or overcosted by traditional costing systems.

The division of activities into unit-level, batch-level, product-sustaining level, and facility-level categories is commonly known as a cost:

hierarchy.

Alamo's customer service department follows up on customer complaints by telephone inquiry. During a recent period, the department initiated 7,000 calls and incurred costs of $203,000. If 2,940 of these calls were for the company's wholesale operation (the remainder were for the retail division), costs allocated to the retail division should amount to:

$117,740.

The following tasks are associated with an activity-based costing system: 1—Calculation of cost application rates 2—Identification of cost drivers 3—Assignment of cost to products 4—Identification of cost pools Which of the following choices correctly expresses the proper order of the preceding tasks?

4, 2, 1, 3.

Of the following organizations, activity-based costing cannot be used by: A. manufacturers. B. financial-services firms. C. book publishers. D. hotels. E. none of the above, as all are able to use this costing system.

A. manufacturers. B. financial-services firms. C. book publishers. D. hotels. E. none of the above, as all are able to use this costing system.

Which of the following activity cost pools and activity measures likely has the lowest degree of correlation?

Activity cost pool:Employee travel to job sites (sites are within 100-mile radius of company headquarters) Activity measures: Number of employees

The salaries of a manufacturing plant's management are said to arise from:

facility-level activities.

Which of the following choices correctly depicts a cost that arises from a batch-level activity and one that arises from a facility-level activity?

Batch Facility Inspection Property taxes

Under a traditional costing system, which of the following costs would likely be classified as indirect with respect to the various products manufactured? A. Plant maintenance. B. Factory supplies. C. Utilities. D. Machinery depreciation. E. All of the above would be considered indirect costs.

E. All of the above would be considered indirect costs.

Consider the following statements regarding traditional costing systems:

I. Overhead costs are applied to products on the basis of volume-related measures. III. Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements.

Consider the following statements:

I. Product diversity creates costing problems because diverse products tend to utilize manufacturing activities in different ways. II. Overhead costs that are not incurred at the unit level create costing problems because such costs do not vary with traditional application bases such as direct labor hours or machine hours.

Consider the following factors: I. The degree of correlation between consumption of an activity and consumption of a particular cost driver. II. The likelihood that a particular cost driver will induce a desired behavioral effect. III. The likelihood that a particular cost driver will cause an increase in the cost of measurement. Which of these factors should be considered in the selection of a cost driver?

I. The degree of correlation between consumption of an activity and consumption of a particular cost driver. II. The likelihood that a particular cost driver will induce a desired behavioral effect. III. The likelihood that a particular cost driver will cause an increase in the cost of measurement.

Which of the following is the proper sequence of events in an activity-based costing system?

Identification of cost pools, identification of cost drivers, calculation of cost application rates, assignment of cost to products.

Which of the following is least likely to be classified as a facility-level activity in an activity-based costing system?

Machine processing cost.

Which of the following is not a broad, cost classification category typically used in activity-based costing?

Management-level.

Which of the following tasks is not normally associated with an activity-based costing system?

Preparation of allocation matrices.

Which of the following generally fails to signal the need for a new product-costing system?

Product-line profit margins are easy to explain.

Williams Corporation is changing from a traditional costing system to an activity-based system. As a result of this action, which of the following costs would likely change from indirect to direct?

Production setup, finished-goods inspection, and product shipping.

Which of the following is least likely to be classified as a batch-level activity in an activity-based costing system?

Property taxes.

Grossman Enterprises is converting to an activity-based costing system and needs to depict the various activities in its manufacturing process along with the activities' relationships. Which of the following is a possible tool that the company can use to accomplish this task?

Storyboards.

Dreyfus Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent study of product no. 519 revealed a traditionally-derived total cost of $1,019, a selling price of $1,850 based on that figure, and a newly computed activity-based total cost of $1,215. Which of the following statements is true?

The company may have been extremely competitive in the marketplace from a price perspective.

Consider the following statements regarding product-sustaining activities:

They are needed to support an entire product line.

Koski manufactures products J and K, applying overhead on the basis of labor hours. J, a lowvolume product, requires a variety of complex manufacturing procedures. K, on the other hand, is both a high-volume product and relatively simplistic in nature. What would an activity-based costing system likely disclose about products J and K as a result of Koski's current accounting procedures?

Undercosted: J Overcosted: K

Jackson manufactures products X and Y, applying overhead on the basis of labor hours. X, a low-volume product, requires a variety of complex manufacturing procedures. Y, on the other hand, is both a high-volume product and relatively simplistic in nature. What would an activitybased costing system likely disclose about products X and Y as a result of Jackson's current accounting procedures?

X:Undercosted Y:Overcosted

Moon Bay Manufacturing uses machine hours to apply manufacturing overhead to products. This method of costing would likely be acceptable if the company has:

a large proportion of unit-level activities and fairly identical consumption ratios among product lines.

Widely varying consumption ratios:

are reflective of product-line diversity.

In an activity-based costing system, materials receiving would typically be classified as a:

batch-level activity.

Many traditional costing systems:

combine widely varying elements of overhead into a single cost pool.

In comparison with a system that uses a single, volume-based cost driver, an activity-based costing system is preferred when a company has:

product-line diversity or a large proportion of nonunit-level activities.

Foster, Inc., an appliance manufacturer, is developing a new line of ovens that uses controlled-laser technology. The research and testing costs associated with the new ovens is said to arise from a:

product-sustaining activity.

Vanguard combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours. Activity-based costing would likely show that with Vanguard's current procedures,

the company's high-volume products are overcosted.

Consumption ratios are useful in determining:

the existence of product-line diversity.

In an activity-based costing system, direct materials used would typically be classified as a:

unit-level cost.