Managerial Accounting Chapter 3 Test 1 Raymond Besser

An activity in activity-based costing is an event that causes the consumption of overhead resources.

True

Facility-level activities are activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made.

True

In general, activities and costs should be combined in an activity-based costing system only if they fall within the same level in the cost hierarchy.

True

In the second-stage allocation in activity-based costing, overhead costs are allocated from activity cost pools to products.

True

The challenge in designing an activity-based costing system is to identify a reasonably small number of activities that explain the bulk of the variation in overhead costs.

True

The plant manager's work is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Facility-level activity.

D. Facility-level activity.

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.

Activity-based costing involves a two-stage allocation process in which overhead costs are first assigned to departments and then allocated to products using activity measures.

False

Material handling 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.

Setting up a machine to change from producing one product to another 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.

All other things the same, the unit product costs of high volume products will decrease and the unit product costs of low volume products will increase when switching from a traditional costing system to an activity-based costing system if: A. the activity-based costing system uses direct labor-hours as a measure of activity for at least one activity cost pool. B. the activity-based costing system includes at least one batch-level cost. C. the activity-based costing system includes at least one unit-level cost. D. the activity-based costing system uses machine-hours as a measure of activity for at least one activity cost pool.

B. the activity-based costing system includes at least one batch-level cost.

Testing a prototype of a new product 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, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by: A. the direct labor-hours required by the product. B. the machine-hours required by the product. C. the total activity for the activity cost pool. D. the total direct labor-hours for the activity cost pool.

C. the total activity for the activity cost pool.

Which of the following would be classified as a product-level activity? A. Setting up a machine for a batch of a standard product. B. Operating a cafeteria for employees. C. Running the Human Resource department. D. Advertising a product.

D. Advertising a product.

Which of the following would be classified as a product-level activity? A. Setting up a machine for a standard product. B. Operating a cafeteria for employees. C. Personnel administration. D. Testing a prototype for a new model.

D. Testing a prototype for a new model.

In activity-based costing, unit product costs computed for external financial reports do NOT include: A. direct materials. B. direct labor. C. manufacturing overhead. D. selling costs.

D. selling costs.

When switching from a traditional costing system to an activity-based costing system that contains some batch-level costs: A. the unit product costs of both high and low volume products typically increase. B. the unit product costs of both high and low volume products typically decrease. C. the unit product costs of high volume products typically increase and the unit product costs of low volume products typically decrease. D. the unit product costs of high volume products typically decrease and the unit product costs of low volume products typically increase.

D. the unit product costs of high volume products typically decrease and the unit product costs of low volume products typically increase.

Batch-level activities are performed each time a batch of goods is processed. The cost of a batch-level activity is proportional to the number of units in the batch.

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 departmental overhead rates.

False

If a company has a great deal of product diversity, activity-based costing will generally yield less accurate product costs than traditional methods based on direct labor or machine hours.

False

When designing an activity-based costing system, accountants should be tasked with identifying the activities they think are important and that consume most of the resources in the organization.

False

A plantwide predetermined overhead rate based on direct labor-hours results in high overhead costs for products with a high direct labor-hour content and low overhead costs for products with a low direct labor-hour content.

True

Activities consume resources. In activity-based costing an attempt is made to trace the costs of those activities directly to the products that cause them.

True

Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers. The costs of these resources have no obvious connection with direct labor.

True