Question 1

ABC costing systems cannot be used in marketing decisions.

Accepted Answer

A) True 
 B)False  False

Question 2

Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:
 
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 ________.

Accepted Answer

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 
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

Question 3

Increased used of automation, computer integrated manufacturing, and utilization of robots have lead to an increase in indirect costs relative to direct costs.

Accepted Answer

A) True 
 B)False  True

Question 4

Activity-based costing information can be used for ________.

Accepted Answer

A)  product-mix decisions 
B)  pricing decisions 
C)  advertisement decisions 
D)  inventory valuation 
A)  product-mix decisions 
B)  pricing decisions 
C)  advertisement decisions 
D)  inventory valuation

Question 5

Extreme Manufacturing Company provides the following ABC costing information:
 
The above activities are used by Departments A and B as follows:
 
How much of the account inquiry cost will be assigned to Department A?

Accepted Answer

A)  $54,000 
B)  $320,000 
C)  $160,000 
D)  $84,000 
A)  $54,000 
B)  $320,000 
C)  $160,000 
D)  $84,000

Question 6

Companies often use costing systems that have features of ABC systems but that do not emphasize individual activities.

Accepted Answer

A) True 
 B)False

Question 7

Answer the following questions using the information below:
Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set.
-The goal of a properly constructed ABC system is to ________.

Accepted Answer

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 
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

Question 8

Which of the following is a sign that an ABC system may be useful for an organization?

Accepted Answer

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. 
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.

Question 9

Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:
 
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $600 per labor hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 460 parts, 5 direct manufacturing labor hours, and 18 minutes of inspection time.

Accepted Answer

A)  $6.00 per remote control 
B)  $13.30 per remote control 
C)  $32.00 per remote control 
D)  $1,330.00 per remote control 
A)  $6.00 per remote control 
B)  $13.30 per remote control 
C)  $32.00 per remote control 
D)  $1,330.00 per remote control

Question 10

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity?

Accepted Answer

A)  $0.16 
B)  $0.32 
C)  $1.16 
D)  $6.25 
A)  $0.16 
B)  $0.32 
C)  $1.16 
D)  $6.25

Question 11

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.

Accepted Answer

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)  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

Question 12

Columbus Company provides the following ABC costing information:
 
The above activities used by their three departments are:
 
How much of the gas cost will be assigned to the Lawn Department?

Accepted Answer

A)  $1,800 
B)  $3,800 
C)  $2,400 
D)  $8,000 
A)  $1,800 
B)  $3,800 
C)  $2,400 
D)  $8,000

Question 13

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?

Accepted Answer

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. 
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.

Question 14

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?

Accepted Answer

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. 
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.

Question 15

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs.

Accepted Answer

A)  prime 
B)  factory 
C)  indirect 
D)  committed 
A)  prime 
B)  factory 
C)  indirect 
D)  committed

Question 16

Answer the following questions using the information below:
Eagle Eye Company produces two types of lenses-L7 and L9.
 
What is the total indirect costs (a) under ABC system?

Accepted Answer

A)  $43,000 
B)  $58,000 
C)  $55,500 
D)  $46,000 
A)  $43,000 
B)  $58,000 
C)  $55,500 
D)  $46,000

Question 17

Implementing activity-based costing system involves use of different cost rates for different activities to compute indirect costs of a product.

Accepted Answer

A) True 
 B)False

Question 18

How does ABC costing system help service companies?

Accepted Answer

The widespread use of ABC systems in ser

Question 19

Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways.
 
If the facility lease expense of $380,000 is allocated on the basis of vehicles in the fleet, the amount allocated to the Truck Rental Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)

Accepted Answer

A)  $131,273 
B)  $247,826 
C)  $132,174 
D)  $190,000 
A)  $131,273 
B)  $247,826 
C)  $132,174 
D)  $190,000

Question 20

Rachel's Pet Supply Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:
   
Assume a traditional costing system applies the $160,000 of overhead costs based on direct labor hours.
a.What is the total amount of overhead costs assigned to the standard model?
b.What is the total amount of overhead costs assigned to the deluxe model?
Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.
c.What is the total amount of overhead costs assigned to the standard model?
d.What is the total amount of overhead costs assigned to the deluxe model?
e.Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?

Accepted Answer

a.[$160,000 / (650 + 150)] × 650 = $130,

ABC costing systems cannot be used in marketing decisions.

Increased used of automation, computer integrated manufacturing, and utilization of robots have lead to an increase in indirect costs relative to direct costs.

Activity-based costing information can be used for ________.

Extreme Manufacturing Company provides the following ABC costing information: The above activities are used by Departments A and B as follows: How much of the account inquiry cost will be assigned to Department A?

Companies often use costing systems that have features of ABC systems but that do not emphasize individual activities.

Which of the following is a sign that an ABC system may be useful for an organization?

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity?

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of the gas cost will be assigned to the Lawn Department?

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs.

Answer the following questions using the information below: Eagle Eye Company produces two types of lenses-L7 and L9. What is the total indirect costs (a) under ABC system?

Implementing activity-based costing system involves use of different cost rates for different activities to compute indirect costs of a product.

How does ABC costing system help service companies?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

Filters

Exam 5: Activity-Based Costing and Activity-Based Management

ABC costing systems cannot be used in marketing decisions.

Increased used of automation, computer integrated manufacturing, and utilization of robots have lead to an increase in indirect costs relative to direct costs.

Activity-based costing information can be used for ________.

Extreme Manufacturing Company provides the following ABC costing information: The above activities are used by Departments A and B as follows: How much of the account inquiry cost will be assigned to Department A?

Companies often use costing systems that have features of ABC systems but that do not emphasize individual activities.

Which of the following is a sign that an ABC system may be useful for an organization?

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity?

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.

Columbus Company provides the following ABC costing information: The above activities used by their three departments are: How much of the gas cost will be assigned to the Lawn Department?

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs.

Answer the following questions using the information below: Eagle Eye Company produces two types of lenses-L7 and L9. What is the total indirect costs (a) under ABC system?

Implementing activity-based costing system involves use of different cost rates for different activities to compute indirect costs of a product.

How does ABC costing system help service companies?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

Filters