Question 1

Which of the following is NOT a limitation of activity-based costing?

Accepted Answer

A)  Maintaining an activity-based costing system is more costly than maintaining a traditional direct labour-based costing system. 
B)  Changing from a traditional direct labour-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers. Such changes are often resisted by managers. 
C)  In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system. This results in overstated costs. 
D)  More accurate product costs may result in increasing the selling prices of some products. 
A)  Maintaining an activity-based costing system is more costly than maintaining a traditional direct labour-based costing system. 
B)  Changing from a traditional direct labour-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers. Such changes are often resisted by managers. 
C)  In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system. This results in overstated costs. 
D)  More accurate product costs may result in increasing the selling prices of some products.

Question 2

Worker recreational facilities are examples of costs that would ordinarily be considered to be incurred at which of the following activity levels?

Accepted Answer

A)  Unit-level activity. 
B)  Batch-level activity. 
C)  Product-level activity. 
D)  Organization-sustaining activity. 
A)  Unit-level activity. 
B)  Batch-level activity. 
C)  Product-level activity. 
D)  Organization-sustaining activity.

Question 3

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers.

Accepted Answer

A) True 
 B)False

Question 4

Activity-based-costing (ABC)charges products for the cost of capacity used,NOT for idle capacity.
Required:
a)The use of which activity level,budgeted (same as expected)or maximum capacity,is consistent with ABC? Explain.
b)How might the use of ABC based on maximum capacity activity level enhance a firm's ability to compete on price? Explain.

Accepted Answer

a)Use of maximum capacity activity level

Question 5

Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows:
  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Expected Activity }$$\begin{array}{|l|r|r|r|r|}
\hline \begin{array}{l}
\text { Activity Cost } \
\text { Pool }
\end{array} & \text { Estimated Cost } & \text { Product A } & \text { Product B } & \text { Total } \
\hline \text { Activity 1 } & \$ 16,660 & 600 & 100 & 700 \
\hline \text { Activity 2 } & 18,450 & 1,100 & 700 & 1,800 \
\hline \text { Activity 3 } & 9,731 & 60 & 160 & 220 \
\hline
\end{array}$

-The cost per unit of Product A is closest to which of the following?

Accepted Answer

A)  $27.91. 
B)  $56.38. 
C)  $141.04. 
D)  $70.52. 
A)  $27.91. 
B)  $56.38. 
C)  $141.04. 
D)  $70.52.

Question 6

Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 units. The company has traditionally used direct labour hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labour hours per unit, and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $98,785.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for externalreports. The new activity-based costing system would have three factory overhead activity cost pools-Activity 1, Activity 2, and General Factory-with estimated overhead costs and expected activity as follows:

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Expected Activity }$
$\begin{array}{|l|r|r|r|r|r}
\hline \begin{array}{l}
\text { Activity Cost } \
\text { Pool }
\end{array} & \begin{array}{r}
\text { Estimated } \
\text { Overhead Cost }
\end{array} & \text { Product A } & \text { Product B } & \text { Total } \
\hline \text { Activity 1 } & \$ 30,528 & 1,000 & 600 & 1,600 \
\hline \text { Activity 2 } & 17,385 & 1,700 & 200 & 1,900 \
\hline \text { General Factory } & \underline{50,872} & 510 & 660 & 1,170 \
\hline \text { Total } & \$ 98,785 & & &\
\hline
\end{array}$

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.)
- The predetermined overhead rate (i.e.,activity rate)for Activity 2 under the activity-based costing system is closest to which of the following?

Accepted Answer

A)  $9.15. 
B)  $10.23. 
C)  $51.99. 
D)  $86.93. 
A)  $9.15. 
B)  $10.23. 
C)  $51.99. 
D)  $86.93.

Which of the following is NOT a limitation of activity-based costing?

Worker recreational facilities are examples of costs that would ordinarily be considered to be incurred at which of the following activity levels?

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers.

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

Filters

Exam 7: Activity-Based Costing: A Tool to Aid Decision Making

Which of the following is NOT a limitation of activity-based costing?

Worker recreational facilities are examples of costs that would ordinarily be considered to be incurred at which of the following activity levels?

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers.

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

Filters