Question 1

A cost hierarchy describes

Accepted Answer

A) a technique for direct cost tracing. 
B) the process of arranging costs by importance. 
C) the logic of segregating costs by value-chain classification. 
D) the logic of separating one indirect cost pool into multiple pools according to activity level. 
E) a technique of differentiating fixed and variable costs. 
A) a technique for direct cost tracing. 
B) the process of arranging costs by importance. 
C) the logic of segregating costs by value-chain classification. 
D) the logic of separating one indirect cost pool into multiple pools according to activity level. 
E) a technique of differentiating fixed and variable costs.

Question 2

A well designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis

Accepted Answer

A) can be used to improve the efficiency of activities. 
B) is easy to analyze and interpret. 
C) takes the choices and judgement challenges away from managers. 
D) emphasizes how managers can achieve higher sales. 
E) helps identify trends in the market place. 
A) can be used to improve the efficiency of activities. 
B) is easy to analyze and interpret. 
C) takes the choices and judgement challenges away from managers. 
D) emphasizes how managers can achieve higher sales. 
E) helps identify trends in the market place.

Question 3

Explain how traditional (simple)cost systems, using a single unit-level cost rate, may distort product costs.

Accepted Answer

Unit-level measures can distort product

Question 4

A busy law office has a central administration set up, with the administration work for all lawyers shared by the clerical staff.Clients are billed at the firm's hourly rate by the firm.The arrangement is that whenever there is administration work to be done, it is assigned to whoever is available at the time.One of the lawyers has complained that she hardly ever uses the administration services, and so her year end bonus should be larger than those who require the administration services.Therefore they are considering tracking the administration work done for each lawyer separately so that they know how many hours of administration services is being used by each lawyer.At the end of the year, the bonus of each lawyer would be reduced by a charge reflecting the administration services she/he used in the year.If the firm institutes this new approach, this will mean that

Accepted Answer

A) there will be no more cross subsidization. 
B) there will still be cross-subsidization between lawyers but not between their clients. 
C) the new information gathered will enable the firm to be able to reduce its costs. 
D) there will still be cross-subsidization between clients but not between lawyers. 
E) they will be using a departmental costing system. 
A) there will be no more cross subsidization. 
B) there will still be cross-subsidization between lawyers but not between their clients. 
C) the new information gathered will enable the firm to be able to reduce its costs. 
D) there will still be cross-subsidization between clients but not between lawyers. 
E) they will be using a departmental costing system.

Question 5

Activity-based cost systems create

Accepted Answer

A) one large cost pool. 
B) homogeneous activity-related cost pools. 
C) activity-cost pools with a broad focus. 
D) activity-cost pools containing many direct costs. 
E) heterogenous activity-related cost pools. 
A) one large cost pool. 
B) homogeneous activity-related cost pools. 
C) activity-cost pools with a broad focus. 
D) activity-cost pools containing many direct costs. 
E) heterogenous activity-related cost pools.

Question 6

Resources sacrificed on activities that cannot be traced to individual products or services, but which support the organization as a whole are which of the following?

Accepted Answer

A) output unit-level costs 
B) service-sustaining costs 
C) batch-level costs 
D) product-sustaining costs 
E) facility-sustaining costs 
A) output unit-level costs 
B) service-sustaining costs 
C) batch-level costs 
D) product-sustaining costs 
E) facility-sustaining costs

Question 7

Activity-based cost systems

Accepted Answer

A) apply average support costs to each unit of product. 
B) limit cost drivers to units of output. 
C) allocate costs based on the overall level of activity. 
D) generally undercost complex products. 
E) highlight the different levels of activities. 
A) apply average support costs to each unit of product. 
B) limit cost drivers to units of output. 
C) allocate costs based on the overall level of activity. 
D) generally undercost complex products. 
E) highlight the different levels of activities.

Question 8

Cocoa Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model.The following activity and cost information has been compiled:
     Required:
Assume a traditional (simple)costing system applies the $80,000 of overhead costs based on direct labour 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 indirect costs assigned to the standard model?
d.What is the total amount of indirect 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.[$80,000/(650 + 150)] × 650 = $65,000

Question 9

Answer the following question(s)using the information below.Ernsting Printers has contracts to complete weekly supplements required by forty-six customers.For the year 2018, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.For 2018 Ernsting Printers has decided to evaluate the use of additional cost pools.After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis:
   During 2018, two customers, Wealth Managers and Health Systems, are expected to use the following printing services:
  
-Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Wealth Managers during 2018?

Accepted Answer

A) $2,500 
B) $21,000 
C) $1,500 
D) $2,700 
E) $2,100 
A) $2,500 
B) $21,000 
C) $1,500 
D) $2,700 
E) $2,100

Question 10

Findland Furniture Manufacturing makes two models of office chairs: regular and deluxe.Summary data for the two products showed the following:
   * Under the company's current costing, manufacturing overhead is allocated on the basis of direct labour-hours.The overhead for the year follows:
   The following table presents the activity levels that relate to the overhead costs:
   The market price for the regular chairs is $ 104 with expected sales of 40,000 units.The company expects to sell 25,000 deluxe chairs at a selling price of $170 per unit.Required:
Determine the unit gross profit for the deluxe chair using both traditional and activity-based costing methods.

Accepted Answer

Traditional costing:
 @#IMG-DLM& * ($1,200,000/125

Question 11

In an activity-cost pool

Accepted Answer

A) a measure of the activity performed serves as the cost allocation base. 
B) the costs have a cause-and-effect relationship with the cost-allocation base for that activity. 
C) the cost pools are homogeneous over time. 
D) costs in a cost pool can always be traced directly to products. 
E) each pool pertains to a narrow and focused set of costs. 
A) a measure of the activity performed serves as the cost allocation base. 
B) the costs have a cause-and-effect relationship with the cost-allocation base for that activity. 
C) the cost pools are homogeneous over time. 
D) costs in a cost pool can always be traced directly to products. 
E) each pool pertains to a narrow and focused set of costs.

Question 12

Whitman Printing Ltd.has contracts to complete weekly supplements required by its' customers.For the current year, manufacturing overhead cost estimates total $336,000 for an annual production capacity of 12 million pages.Whitman Printing decided to evaluate the use of additional cost pools.After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis:
   Two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
   Pages are a direct cost at $0.03 per page.Design costs per job average $1,000 and $1,200 for Money Managers and Hospital Systems, respectively.Whitman Printing sets prices at $0.10 per page plus 120% of design costs.Assume that all costs are variable.Required:
Prepare income statements in contribution margin format for both customers using:
a.Traditional (simple)costing with overhead applied on a page capacity basis
b.Activity-based costing
c.How much a page should Money Managers be charged if Whitman Printing wants to breakeven on this customer? Assume that manufacturing overhead costs are fixed and that they are allocated to customers based on pages sold as a percentage of production capacity; and, that design costs are also fixed.

Accepted Answer

Traditional costing overhead rate = $336

Question 13

Match the cost driver in the right column below to the appropriate function in the left column.
A)Number of shipments
B)Number of purchase orders
C)Number of employees
D)Number of customers
E)Number of desktop computers
F)Number of invoices
-Purchasing

Accepted Answer

The answer of Match the cost driver in the right...

Question 14

Which of the following is TRUE concerning selecting a cost-allocation base in an ABC system?

Accepted Answer

A) Cost-allocation bases are not relevant in defining the number of activity pools. 
B) All costs can be directly identified with a specific activity. 
C) The allocation base chosen may be constrained by the availability of reliable data. 
D) Costs may need to be allocated to services first, before the costs of services can be allocated to activities. 
E) Output unit-level costs cannot be related to a cost-allocation base. 
A) Cost-allocation bases are not relevant in defining the number of activity pools. 
B) All costs can be directly identified with a specific activity. 
C) The allocation base chosen may be constrained by the availability of reliable data. 
D) Costs may need to be allocated to services first, before the costs of services can be allocated to activities. 
E) Output unit-level costs cannot be related to a cost-allocation base.

Question 15

How are cost drivers selected in activity-based costing systems?

Accepted Answer

First, indirect costs are divided into h

Question 16

A cost hierarchy is a categorization of costs into different cost pools on the basis of different classes of cost drivers or different degrees of difficulty in determining cause-and-effect relationships.

Accepted Answer

A) True 
 B)False

Question 17

Traditional cost systems can be used to

Accepted Answer

A) reveal activities that can be eliminated. 
B) help control nonfinancial items such as number of setup hours. 
C) help identify new designs to reduce costs. 
D) can be used to enhance budgeting. 
E) accurately assign direct costs. 
A) reveal activities that can be eliminated. 
B) help control nonfinancial items such as number of setup hours. 
C) help identify new designs to reduce costs. 
D) can be used to enhance budgeting. 
E) accurately assign direct costs.

Question 18

Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?

Accepted Answer

No.Traditional systems contain smaller a

Question 19

All costs in a homogeneous cost pool have

Accepted Answer

A) only one cost driver that will accurately represent the relationship between the costs and the activity. 
B) to be adjusted at year end to actual costs. 
C) the same cost behaviour. 
D) the same or a similar cause-and-effect (or benefits-received)relationship with a single cost driver that is used as the cost-allocation base. 
E) a causal relationship with manufacturing costs. 
A) only one cost driver that will accurately represent the relationship between the costs and the activity. 
B) to be adjusted at year end to actual costs. 
C) the same cost behaviour. 
D) the same or a similar cause-and-effect (or benefits-received)relationship with a single cost driver that is used as the cost-allocation base. 
E) a causal relationship with manufacturing costs.

Question 20

If the cost of an activity increases with the number of purchase orders placed, rather than to the quantity of items purchased, it is which of the following?

Accepted Answer

A) market-sustaining cost 
B) output unit-level cost 
C) facility-sustaining cost 
D) product-sustaining (service-sustaining)costs 
E) batch-level cost 
A) market-sustaining cost 
B) output unit-level cost 
C) facility-sustaining cost 
D) product-sustaining (service-sustaining)costs 
E) batch-level cost

A cost hierarchy describes

A well designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis

Explain how traditional (simple)cost systems, using a single unit-level cost rate, may distort product costs.

Activity-based cost systems create

Resources sacrificed on activities that cannot be traced to individual products or services, but which support the organization as a whole are which of the following?

Activity-based cost systems

In an activity-cost pool

Match the cost driver in the right column below to the appropriate function in the left column. A)Number of shipments B)Number of purchase orders C)Number of employees D)Number of customers E)Number of desktop computers F)Number of invoices -Purchasing

Which of the following is TRUE concerning selecting a cost-allocation base in an ABC system?

How are cost drivers selected in activity-based costing systems?

A cost hierarchy is a categorization of costs into different cost pools on the basis of different classes of cost drivers or different degrees of difficulty in determining cause-and-effect relationships.

Traditional cost systems can be used to

Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?

All costs in a homogeneous cost pool have

If the cost of an activity increases with the number of purchase orders placed, rather than to the quantity of items purchased, it is which of the following?

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Analysis of Cost Behaviour

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters

Exam 5: Activity-Based Costing and Management

A cost hierarchy describes

A well designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis

Explain how traditional (simple)cost systems, using a single unit-level cost rate, may distort product costs.

Activity-based cost systems create

Resources sacrificed on activities that cannot be traced to individual products or services, but which support the organization as a whole are which of the following?

Activity-based cost systems

In an activity-cost pool

Match the cost driver in the right column below to the appropriate function in the left column. A)Number of shipments B)Number of purchase orders C)Number of employees D)Number of customers E)Number of desktop computers F)Number of invoices -Purchasing

Which of the following is TRUE concerning selecting a cost-allocation base in an ABC system?

How are cost drivers selected in activity-based costing systems?

A cost hierarchy is a categorization of costs into different cost pools on the basis of different classes of cost drivers or different degrees of difficulty in determining cause-and-effect relationships.

Traditional cost systems can be used to

Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?

All costs in a homogeneous cost pool have

If the cost of an activity increases with the number of purchase orders placed, rather than to the quantity of items purchased, it is which of the following?

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Analysis of Cost Behaviour

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters