Question 1

Indicate whether each of the following statements is

Accepted Answer

The allocation of indirect costs using a

Question 2

Activity-based costing does not use volume-based cost drivers.

Accepted Answer

A) True 
 B)False

Question 3

Companies operating in a highly automated environment that produce many different products with varying levels of production should use activity-based cost drivers to improve the accuracy of their cost allocations.

Accepted Answer

A) True 
 B)False

Question 4

Sweetheart Brands packages single-sized servings of sugar and sugar substitute for fast food restaurants.The activities required to package sugar are fewer and less complex than for sugar substitute.The direct costs of producing the two products are as follows: $\begin{array}{c}
\begin{array}{|l|}
\hline\
\hline \text {Direct materials}\
\hline \text {Direct labor}\
\hline
\end{array}
\begin{array}{l|}
\hline\text { Sugar }\
\hline \$  0.02 \
\hline \$  0.04 \
\hline 
\end{array}
\begin{array}{l|}
\hline \text { Sugar Substitute } \
 \hline\$0.04 \
\hline 0.08\
\hline  
\end{array}
 
\end{array}$
 Overhead is currently assigned to the two products on the basis of machine hours.The following information is provided regarding overhead costs: $$\begin{array} { | l | r | r | r | r | r | } 
\hline  { \text { Activity } } & \text { Traceable Costs } & \text { Cost Driver } & \text { Sugar Line } & \text { Sugar Sub. Line } & \text { Total } \
\text { Setup } & \$ 50,000 & \text { No. of setups } & 125 & 125 & 250 \
\hline \text { Packing } & 120,000 & \text { No. of machine hrs. } & 10,000 & 40,000 & 50,000 \
\hline \text { Inspection } & 30,000 & \text { No. of batches } & 250 & 350 & 600 \
\hline & \$ 200,000 & & & & \
\hline
\end{array}$$ Required:
1)Compute the predetermined overhead rate under the current method of overhead cost allocation.How much total overhead cost will be assigned to each product under the current system?
2)Compute the three activity rates that would be used in an activity-based system.How much total overhead cost will be assigned to each product under an ABC system?
3)Assuming an ABC system to be more precise,by how much does the company's current costing system over- or undercost the products? Be specific.

Accepted Answer

Answers will vary
Feedback: 1)Allocation

Question 5

Mason Company is planning to introduce an activity-based costing system.Which of the following actions by employees could lower the success of the new system?

Accepted Answer

A)  Employees may purposely report on their time cards different amounts of time than they actually worked.
Perhaps,amounts "of" time
Agree.Changed.JMF 
B)  Employees may decrease their productivity to demonstrate their dissatisfaction with the new system. 
C)  Employees may resist having to maintain additional records (such as the number of setups). 
D)  All of these answers are correct.
Perhaps,amounts "of" time
Agree.Changed.JMF 
A)  Employees may purposely report on their time cards different amounts of time than they actually worked.
Perhaps,amounts "of" time
Agree.Changed.JMF 
B)  Employees may decrease their productivity to demonstrate their dissatisfaction with the new system. 
C)  Employees may resist having to maintain additional records (such as the number of setups). 
D)  All of these answers are correct.
Perhaps,amounts "of" time
Agree.Changed.JMF

Question 6

Many automated processes generate costs that have no cause and effectcause-and-effect relationship with volume-based cost drivers.

Accepted Answer

A) True 
 B)False

Question 7

Total quality control cost is the sum of voluntary and failure costs.

Accepted Answer

A) True 
 B)False

Question 8

Farber Company produces its product in three departments,Prepping,Machining,and Finishing.A customer recently returned a defective product that had not been machined properly.The company's accountant would classify the repair cost as an internal failure cost.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an example of a prevention cost?

Accepted Answer

A)  Downtime 
B)  Inventory inspection 
C)  Product design 
D)  Repair and rework 
A)  Downtime 
B)  Inventory inspection 
C)  Product design 
D)  Repair and rework

Question 10

Franklin Manufacturing manufactures two models of windows,bay windows and casement windows.Franklin uses an activity based costing system.The following information about the activities used to product the company's products has been provided. Produce
Agree.Change made.JMF $\begin{array}{|l|c|c|c|c|}
\hline {\text { Category }} & {\text { Estimated Cost }} & \text { Cost Driver } & \text { Bay Windows } & \text { Casement } \
\hline \text { Unit-level } & \$  125,000 & \text { Labor hours } & 750 & 500 \
\hline \text { Batch-level } & \$  75,000 & \text { Inspections } & 30 & 20 \
\hline \text { Product-level } & \$  35,000 & \text { Storage Space } & 3500 \text { sq feet } & 2100 \text { sq feet } \
\hline \text { Facility-level } & \$  165,000 & \text { Machine hours } & 9,000 & 6,000 \
\hline
\end{array}$ Which of the following best describes the impact of undercosting in the allocation of production costs?
I don't think this info is necessary for the question.Perhaps add to the question something like: impact of undercosting in the allocation of production costs.
Agree.Change made.JMF

Accepted Answer

A)  This is a goal of all companies because undercosting.Undercosting all products allows for larger profit margins. 
B)  Companies will use target pricing to undercost products. 
C)  Undercosting some products will lead to overcosting other products,which may then become overpriced and lose market share. 
D)  Undercosting some products can lead to overcosting other products,which is acceptable because it all balances out in the long run.
Produce
Agree.Change made.JMF
I don't think this info is necessary for the question.Perhaps add to the question something like: impact of undercosting in the allocation of production costs.
Agree.Change made.JMF 
A)  This is a goal of all companies because undercosting.Undercosting all products allows for larger profit margins. 
B)  Companies will use target pricing to undercost products. 
C)  Undercosting some products will lead to overcosting other products,which may then become overpriced and lose market share. 
D)  Undercosting some products can lead to overcosting other products,which is acceptable because it all balances out in the long run.
Produce
Agree.Change made.JMF
I don't think this info is necessary for the question.Perhaps add to the question something like: impact of undercosting in the allocation of production costs.
Agree.Change made.JMF

Question 11

Because volume-based allocation rates assign more cost to high-volume products,low-volume products are often undercosted.

Accepted Answer

A) True 
 B)False

Question 12

In a highly automated manufacturing company,labor costs vary considerably with volume of production.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following activity costs would likely be included in a batch-level activity cost pool?

Accepted Answer

A)  Per unit inspection costs 
B)  Machine set-up costs 
C)  Quality control costs 
D)  All of these answers are correct. 
A)  Per unit inspection costs 
B)  Machine set-up costs 
C)  Quality control costs 
D)  All of these answers are correct.

Question 14

All of the following are examples of volume- based drivers except:

Accepted Answer

A)  machine hours. 
B)  number of product design changes. 
C)  direct labor hours. 
D)  number of units. 
A)  machine hours. 
B)  number of product design changes. 
C)  direct labor hours. 
D)  number of units.

Question 15

All of the following quality costs are directly controllable by management except?

Accepted Answer

A)  Repair and rework 
B)  Product design 
C)  Training costs 
D)  Reliability testing 
A)  Repair and rework 
B)  Product design 
C)  Training costs 
D)  Reliability testing

Question 16

In an activity-based costing system,a volume-based cost driver is appropriate for product-level activities.

Accepted Answer

A) True 
 B)False

Question 17

Voluntary costs refer to:

Accepted Answer

A)  prevention and appraisal costs. 
B)  prevention and internal failure costs. 
C)  appraisal and external failure costs. 
D)  internal failure costs and external failure costs. 
A)  prevention and appraisal costs. 
B)  prevention and internal failure costs. 
C)  appraisal and external failure costs. 
D)  internal failure costs and external failure costs.

Question 18

Which of the following activity costs should usually be ignored when making a decision regarding whether to eliminate a product?

Accepted Answer

A)  Product-level costs 
B)  Batch-level costs 
C)  Unit-level costs 
D)  Facility-level costs 
A)  Product-level costs 
B)  Batch-level costs 
C)  Unit-level costs 
D)  Facility-level costs

Question 19

Electricity to run sanding machines in a furniture-making department is an example of a(n):

Accepted Answer

A)  unit-level cost. 
B)  batch-level cost. 
C)  product-level cost. 
D)  facility-level cost. 
A)  unit-level cost. 
B)  batch-level cost. 
C)  product-level cost. 
D)  facility-level cost.

Question 20

What is the principal reason that direct labor hours is no longer an effective base for allocating indirect costs in many modern manufacturing companies?

Accepted Answer

A)  Automation 
B)  Workers are not as productive as they were in the past 
C)  Movement from full-time to part-time workers 
D)  Changes in generally accepted accounting principles 
A)  Automation 
B)  Workers are not as productive as they were in the past 
C)  Movement from full-time to part-time workers 
D)  Changes in generally accepted accounting principles

Indicate whether each of the following statements is

Activity-based costing does not use volume-based cost drivers.

Companies operating in a highly automated environment that produce many different products with varying levels of production should use activity-based cost drivers to improve the accuracy of their cost allocations.

Mason Company is planning to introduce an activity-based costing system.Which of the following actions by employees could lower the success of the new system?

Many automated processes generate costs that have no cause and effectcause-and-effect relationship with volume-based cost drivers.

Total quality control cost is the sum of voluntary and failure costs.

Farber Company produces its product in three departments,Prepping,Machining,and Finishing.A customer recently returned a defective product that had not been machined properly.The company's accountant would classify the repair cost as an internal failure cost.

Which of the following is an example of a prevention cost?

Because volume-based allocation rates assign more cost to high-volume products,low-volume products are often undercosted.

In a highly automated manufacturing company,labor costs vary considerably with volume of production.

Which of the following activity costs would likely be included in a batch-level activity cost pool?

All of the following are examples of volume- based drivers except:

All of the following quality costs are directly controllable by management except?

In an activity-based costing system,a volume-based cost driver is appropriate for product-level activities.

Voluntary costs refer to:

Which of the following activity costs should usually be ignored when making a decision regarding whether to eliminate a product?

Electricity to run sanding machines in a furniture-making department is an example of a(n):

What is the principal reason that direct labor hours is no longer an effective base for allocating indirect costs in many modern manufacturing companies?

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 5: Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Indicate whether each of the following statements is

Activity-based costing does not use volume-based cost drivers.

Companies operating in a highly automated environment that produce many different products with varying levels of production should use activity-based cost drivers to improve the accuracy of their cost allocations.

Mason Company is planning to introduce an activity-based costing system.Which of the following actions by employees could lower the success of the new system?

Many automated processes generate costs that have no cause and effectcause-and-effect relationship with volume-based cost drivers.

Total quality control cost is the sum of voluntary and failure costs.

Farber Company produces its product in three departments,Prepping,Machining,and Finishing.A customer recently returned a defective product that had not been machined properly.The company's accountant would classify the repair cost as an internal failure cost.

Which of the following is an example of a prevention cost?

Because volume-based allocation rates assign more cost to high-volume products,low-volume products are often undercosted.

In a highly automated manufacturing company,labor costs vary considerably with volume of production.

Which of the following activity costs would likely be included in a batch-level activity cost pool?

All of the following are examples of volume- based drivers except:

All of the following quality costs are directly controllable by management except?

In an activity-based costing system,a volume-based cost driver is appropriate for product-level activities.

Voluntary costs refer to:

Which of the following activity costs should usually be ignored when making a decision regarding whether to eliminate a product?

Electricity to run sanding machines in a furniture-making department is an example of a(n):

What is the principal reason that direct labor hours is no longer an effective base for allocating indirect costs in many modern manufacturing companies?

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters