Question 1

Once a cost pool has been established,it should not need to be revisited or revised.

Accepted Answer

A) True 
 B)False

Question 2

ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.

Accepted Answer

A) committed 
B) fixed 
C) variable 
D) non-discretionary 
A) committed 
B) fixed 
C) variable 
D) non-discretionary

Question 3

From a purely ________ standpoint,department rates and activity-cost-driver rates will give the same product costs if significant costs are incurred for different activities within a department but different outputs use resources from the different activities in the same proportions.

Accepted Answer

A) financial accounting 
B) decision making 
C) product-costing 
D) management accounting 
A) financial accounting 
B) decision making 
C) product-costing 
D) management accounting

Question 4

Department-costing systems are a further refinement of ABC systems.

Accepted Answer

A) True 
 B)False

Question 5

Smaller cost distortions occur when the traditional system's single indirect-cost rate and the activity-cost-driver rates:

Accepted Answer

A) are similar in proportion to each other. 
B) use the same total costs for computations. 
C) use the same cost driver units. 
D) are more different than alike. 
A) are similar in proportion to each other. 
B) use the same total costs for computations. 
C) use the same cost driver units. 
D) are more different than alike.

Question 6

Answer the following questions using the information below:
Warne Limited manufactures remote controls.Currently,the company uses a plant-wide rate for allocating manufacturing overhead.The plant manager believes it is time to refine the method of cost-allocation and has the accounting department identify the primary production activities and their cost drivers:
 $$\begin{array} { l r r } 
\text { Activities } & \text { Cost Driver } & \text { Allocation Rate } \
\text { Material handling } & \text { Number of parts } & \$ 3 \text { per part } \
\text { Assembly } & \text { Labour hours } & \$ 30 \text { per hour } \
\text { Inspection } & \text { Time at inspection station } & \$ 4.50 \text { per minute }
\end{array}$$ The current traditional cost method allocates overhead based on direct manufacturing labour hours using a rate of $200 per labour hour.
-What are the indirect manufacturing costs per remote control assuming the traditional method is used and a batch of 500 remote controls is produced? The batch requires 1000 parts,10 direct manufacturing labour hours and 15 minutes of inspection time.

Accepted Answer

A) $2.00 per remote control 
B) $2000.00 per remote control 
C) $0.25 per remote control 
D) $4.00 per remote control 
A) $2.00 per remote control 
B) $2000.00 per remote control 
C) $0.25 per remote control 
D) $4.00 per remote control

Question 7

Some well-known companies have achieved significant benefits from ABC systems with relatively few cost drivers.

Accepted Answer

A) True 
 B)False

Question 8

Answer the following questions using the information below:
Geelong Publishing has contracts to complete weekly supplements required by 46 customers.For the year 2018,manufacturing overhead cost estimates total $420 000 for an annual production capacity of 12 million pages.
For 2018,Geelong Publishing has decided to evaluate the use of additional cost pools.After analysing manufacturing overhead costs,it was determined that the number of design changes,set-ups and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis:
 $\begin{array} { l r r } \text { Cost Pool } & \text { Manufacturing Overhead Costs } & \text { Activity Level } \ \text { Design changes } & \$ 60000 & 400 \text { design changes } \ \text { Set-ups } & 320000 & 8000 \text { set-ups } \ \text { Inspections } & 40000 & 8000 \text { inspections } \ \text { Total manufacturing overhead costs } & \$ 420000 & \end{array}$

During 2018, two customers, Kidscare Books and Biodata Research, are expected to use the following printing services:

$\begin{array} { l r r } \text { Activity } & \text { Kid scare Books } & \text { Biodata Research } \ \text { Pages } & 60000 & 76000 \ \text { Design changes } & 10 & 0 \ \text { Set-ups } & 20 & 10 \ \text { Inspections } & 30 & 38 \end{array}$
-Using the three cost pools to allocate overhead costs,what is the total manufacturing overhead cost estimate for Kidscare Books during 2018?

Accepted Answer

A) $5096 
B) $6850 
C) $2450 
D) $3250 
A) $5096 
B) $6850 
C) $2450 
D) $3250

Question 9

Traditional systems are capable of producing reasonably accurate costs,but only under certain conditions.

Accepted Answer

A) True 
 B)False

Question 10

Answer the following questions using the information below:
Geelong Publishing has contracts to complete weekly supplements required by 46 customers.For the year 2018,manufacturing overhead cost estimates total $420 000 for an annual production capacity of 12 million pages.
For 2018,Geelong Publishing has decided to evaluate the use of additional cost pools.After analysing manufacturing overhead costs,it was determined that the number of design changes,set-ups and inspections are the primary manufacturing overhead cost drivers.The following information was gathered during the analysis:
 $\begin{array} { l r r } \text { Cost Pool } & \text { Manufacturing Overhead Costs } & \text { Activity Level } \ \text { Design changes } & \$ 60000 & 400 \text { design changes } \ \text { Set-ups } & 320000 & 8000 \text { set-ups } \ \text { Inspections } & 40000 & 8000 \text { inspections } \ \text { Total manufacturing overhead costs } & \$ 420000 & \end{array}$

During 2018, two customers, Kidscare Books and Biodata Research, are expected to use the following printing services:

$\begin{array} { l r r } \text { Activity } & \text { Kid scare Books } & \text { Biodata Research } \ \text { Pages } & 60000 & 76000 \ \text { Design changes } & 10 & 0 \ \text { Set-ups } & 20 & 10 \ \text { Inspections } & 30 & 38 \end{array}$
-When costs are assigned using the single cost driver,number of pages printed,then:

Accepted Answer

A) Kidscare Books will likely seek to do business with competitors. 
B) Kidscare Books is unfairly over-billed for its use of printing resources. 
C) Kidscare Books is grossly under-billed for the job,while other jobs will be unfairly over-billed. 
D) Geelong Publishing will want to retain this highly profitable customer. 
A) Kidscare Books will likely seek to do business with competitors. 
B) Kidscare Books is unfairly over-billed for its use of printing resources. 
C) Kidscare Books is grossly under-billed for the job,while other jobs will be unfairly over-billed. 
D) Geelong Publishing will want to retain this highly profitable customer.

Question 11

ABC costing systems are primarily for use in manufacturing and marketing and not for design engineering.

Accepted Answer

A) True 
 B)False

Question 12

Answer the following questions using the information below:
The Sparky Electrical Products Company has an Electric Mixer Division and an Electric Lamp Division.Of a $30 000 000 bond issue,the Electric Mixer Division used $21 000 000 and the Electric Lamp Division used $9 000 000 for expansion.Interest costs on the bond totalled $1 500 000 for the year.
-What amount of interest costs should be allocated to the Electric Mixer Division?

Accepted Answer

A) $4 300 000 
B) $1 050 000 
C) $450 000 
D) $21 000 000 
A) $4 300 000 
B) $1 050 000 
C) $450 000 
D) $21 000 000

Question 13

Activities are at the heart of both ABM and ABC.

Accepted Answer

A) True 
 B)False

Question 14

Managers set cost reduction targets in terms of reducing the cost per unit of the activity:

Accepted Answer

A) cost pools. 
B) cost analysis. 
C) cost savings. 
D) cost drivers. 
A) cost pools. 
B) cost analysis. 
C) cost savings. 
D) cost drivers.

Question 15

________ are at the heart of both ABM and ABC.

Accepted Answer

A) Costs 
B) Activities 
C) Processes 
D) Conventions 
A) Costs 
B) Activities 
C) Processes 
D) Conventions

Question 16

To calculate the activity-driver rate,the total cost of resources in the form of indirect costs,including personnel,supervision,insurance,space occupancy,technology and supplies,is divided by ________ capacity.

Accepted Answer

A) theoretical 
B) actual 
C) practical 
D) budgeted 
A) theoretical 
B) actual 
C) practical 
D) budgeted

Question 17

Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

A key reason for assigning indirect cost

Question 18

Which of the following illustrates a purpose for allocating costs to cost objects?

Accepted Answer

A) To provide information to customers 
B) To measure liabilities 
C) To determine a selling price the market will bear 
D) To motivate managers and employees 
A) To provide information to customers 
B) To measure liabilities 
C) To determine a selling price the market will bear 
D) To motivate managers and employees

Question 19

Activity-based management focuses on observing and analysing activities as a basis for making a range of decisions,including pricing outputs,deciding on output mix,how to reduce costs,how to improve processes,product design,profitability and customer satisfaction.

Accepted Answer

A) True 
 B)False

Question 20

Answer the following questions using the information below:
Kosciuszko Land and Snow Company provides the following ABC costing information:
 $$\begin{array}{l}
\begin{array} { l r c } 
\text { Activities } & \text { Total Costs } & \text { Activity-cost Drivers } \
\text { Labour hours } & \$ 240000 & 12000 \text { hours } \
\text { Fuel } & \$ 27000 & 9000 \text { litres } \
\text { Invoices } & \$ 30000 & 3750 \text { invoices } \
 { \text { Total costs } } & \$ 1912000 &
\end{array}\\
\text { The above activities used by their three departments are: }\\
\begin{array} { l c c c } 
& \text { Lawn Department } & \text { Bush Department } & \text { Ploughing Department } \
\text { Labour hours } & 2500 \text { hours } & 1200 \text { hours } & 4300 \text { hours } \
\text { Fuel } & 1500 \text { litres } & 800 \text { litres } & 3700 \text { litres } \
\text { Invoices } & 1600 \text { invoices } & 400 \text { invoices } & 500 \text { invoices }
\end{array}
\end{array}$$
-How much of the fuel cost will be assigned to the Ploughing Department?

Accepted Answer

A) $15 000 
B) $11 100 
C) $25 000 
D) None of these answers are correct. 
A) $15 000 
B) $11 100 
C) $25 000 
D) None of these answers are correct.

Once a cost pool has been established,it should not need to be revisited or revised.

ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.

From a purely ________ standpoint,department rates and activity-cost-driver rates will give the same product costs if significant costs are incurred for different activities within a department but different outputs use resources from the different activities in the same proportions.

Department-costing systems are a further refinement of ABC systems.

Smaller cost distortions occur when the traditional system's single indirect-cost rate and the activity-cost-driver rates:

Some well-known companies have achieved significant benefits from ABC systems with relatively few cost drivers.

Traditional systems are capable of producing reasonably accurate costs,but only under certain conditions.

ABC costing systems are primarily for use in manufacturing and marketing and not for design engineering.

Activities are at the heart of both ABM and ABC.

Managers set cost reduction targets in terms of reducing the cost per unit of the activity:

________ are at the heart of both ABM and ABC.

To calculate the activity-driver rate,the total cost of resources in the form of indirect costs,including personnel,supervision,insurance,space occupancy,technology and supplies,is divided by ________ capacity.

Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems. _ _

Which of the following illustrates a purpose for allocating costs to cost objects?

Activity-based management focuses on observing and analysing activities as a basis for making a range of decisions,including pricing outputs,deciding on output mix,how to reduce costs,how to improve processes,product design,profitability and customer satisfaction.

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

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

Measuring and Reporting Sustainability

Filters

Exam 8: Activity-Based Management and Activity-Based Costing

Once a cost pool has been established,it should not need to be revisited or revised.

ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.

From a purely ________ standpoint,department rates and activity-cost-driver rates will give the same product costs if significant costs are incurred for different activities within a department but different outputs use resources from the different activities in the same proportions.

Department-costing systems are a further refinement of ABC systems.

Smaller cost distortions occur when the traditional system's single indirect-cost rate and the activity-cost-driver rates:

Some well-known companies have achieved significant benefits from ABC systems with relatively few cost drivers.

Traditional systems are capable of producing reasonably accurate costs,but only under certain conditions.

ABC costing systems are primarily for use in manufacturing and marketing and not for design engineering.

Activities are at the heart of both ABM and ABC.

Managers set cost reduction targets in terms of reducing the cost per unit of the activity:

________ are at the heart of both ABM and ABC.

To calculate the activity-driver rate,the total cost of resources in the form of indirect costs,including personnel,supervision,insurance,space occupancy,technology and supplies,is divided by ________ capacity.

Which of the following illustrates a purpose for allocating costs to cost objects?

Activity-based management focuses on observing and analysing activities as a basis for making a range of decisions,including pricing outputs,deciding on output mix,how to reduce costs,how to improve processes,product design,profitability and customer satisfaction.

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

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

Measuring and Reporting Sustainability

Filters