Question 1

Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports

Accepted Answer

A) True 
 B)False

Question 2

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } 
\hline \text { Cost data } & \
\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \
\hline \text { Total hours for year } & 60,000 \text { hours } \
\hline \text { Direct labour cost per hour } & £ 10 \
\hline
\end{array}$$ 
Data for 3 products only
$$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { F roduct B } & \text { Product C } \
\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \
\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \
\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \
\hline
\end{array}$$ $$\begin{array} { | l | r | r | } 
\hline \text { ABC data for all products } & & \
\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \
\hline \text { Number of set-ups } & 200,000 & 1,000 \
\hline \text { Inspection time (hours) } & 500,000 & 3,000 \
\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \
\hline \text { Number of purchases } & 100,000 & 500\
\hline \text { Number of shipments } & 100,000 & 500\
\hline &1,000,000\
\hline
\end{array}$$ 
$$\begin{array} { | l | c | c | c | } 
\hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \
\hline \text { Number of set-ups } & 20 & 180 & 30 \
\hline \text { Inspection time (hours) } & 20 & 50 & 300 \
\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \
\hline \text { Number of purchases } & 3 & 4 & 5 \
\hline \text { Number of shipments } & 3 & 4 & 6 \
\hline
\end{array}$$
- Determine the total overhead cost for product B using the number of hours to apply overhead

Accepted Answer

A) £16,667 
B) £50,000 
C) £21,667 
D) £21,000 
A) £16,667 
B) £50,000 
C) £21,667 
D) £21,000

Question 3

Lindsey Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 5,000 units and of Product B is 2,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:$\begin{array}{lrr}
&\text { Estimated}&& \text { Expected Activity }\
\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\ 
 \text {Activity 1.  } &£ 24,000& 200 &800 &1,000\
 \text { Activity 2. } &£36,900 & 750 & 150 &900\
 \text {  Activity 3.} &£ 63,000 &1,000 &800&1,800\
\end{array}$

The cost per unit of Product A under activity-based costing is closest to

Accepted Answer

A) £14.11. 
B) £13.77. 
C) £7.00. 
D) £17.70. 
A) £14.11. 
B) £13.77. 
C) £7.00. 
D) £17.70.

Question 4

Customer-level activities relate to specific customers and are not tied to any specific products

Accepted Answer

A) True 
 B)False

Question 5

In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers

Accepted Answer

A) True 
 B)False

Question 6

Bridget Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 2,000 units and of Product B is 3,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows.$\begin{array}{lrr}
&\text { Estimated}& \text {Expected Activity }\
\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\
 \text {Activity 1  } &£ 9,000&400 &350 &760\
\
 \text { Activity 2. } &£ 12,000& 100 & 400 &500\
\
 \text { Activity 3 } &£ 84,000& 400 &1,200 & 1,600\
\end{array}$

The cost per unit of Product A under activity-based costing is closest to

Accepted Answer

A) £6.00. 
B) £9.60. 
C) £8.63. 
D) £13.80. 
A) £6.00. 
B) £9.60. 
C) £8.63. 
D) £13.80.

Question 7

Transaction drivers usually take more effort to record than duration drivers

Accepted Answer

A) True 
 B)False

Question 8

Anola Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:$\begin{array}{lrr}
&\text { Estimated}& \text {Expected Activity }\
\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\
 \text {Activity 1  } &£ 18,000&300 &200 &500\
\
 \text { Activity 2. } &£ 16,000& 500 & 100 &600\
\
 \text { Activity 3 } &£ 27,000& 600 &300 & 900\
\end{array}$

The activity rate under the activity-based costing system for Activity 3 is closest to

Accepted Answer

A) £30.00. 
B) £30.50. 
C) £90.00. 
D) £67.78. 
A) £30.00. 
B) £30.50. 
C) £90.00. 
D) £67.78.

Question 9

The practice of assigning the costs of idle capacity to products can result in unstable unit product costs

Accepted Answer

A) True 
 B)False

Question 10

Khalika Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:$\begin{array}{lrr}
&\text { Estimated}&& \text { Expected Activity }\
\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\ 
 \text {Activity 1.  } &£ 16,800& 100 & 700 &800\
 \text { Activity 2. } &£ 22,000 & 200 & 800 &1,00\
 \text {  Activity 3.} &£ 34,300 &500 &600&1,100\
\end{array}$

The activity rate under the activity-based costing system for Activity 3 is closest to

Accepted Answer

A) £31.18. 
B) £25.21. 
C) £57.17. 
D) £66.45. 
A) £31.18. 
B) £25.21. 
C) £57.17. 
D) £66.45.

Question 11

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } 
\hline \text { Cost data } & \
\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \
\hline \text { Total hours for year } & 60,000 \text { hours } \
\hline \text { Direct labour cost per hour } & £ 10 \
\hline
\end{array}$$ 
Data for 3 products only
$$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { F roduct B } & \text { Product C } \
\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \
\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \
\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \
\hline
\end{array}$$ $$\begin{array} { | l | r | r | } 
\hline \text { ABC data for all products } & & \
\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \
\hline \text { Number of set-ups } & 200,000 & 1,000 \
\hline \text { Inspection time (hours) } & 500,000 & 3,000 \
\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \
\hline \text { Number of purchases } & 100,000 & 500\
\hline \text { Number of shipments } & 100,000 & 500\
\hline &1,000,000\
\hline
\end{array}$$ 
$$\begin{array} { | l | c | c | c | } 
\hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \
\hline \text { Number of set-ups } & 20 & 180 & 30 \
\hline \text { Inspection time (hours) } & 20 & 50 & 300 \
\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \
\hline \text { Number of purchases } & 3 & 4 & 5 \
\hline \text { Number of shipments } & 3 & 4 & 6 \
\hline
\end{array}$$
- Determine the total overhead cost for product B using the using the activity based data

Accepted Answer

A) £26,667 
B) £50,000 
C) £46,733 
D) £21,000 
A) £26,667 
B) £50,000 
C) £46,733 
D) £21,000

Question 12

Paul Company has two products: A andB. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:$\begin{array}{lrr}
&\text { Estimated}& \text {Expected Activity }\
\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\
 \text {Activity 1  } &£ 22,000&400 &100 &500\
\
 \text { Activity 2. } &£ 16,240& 380& 200 &580\
\
 \text { Activity 3 } &£14,600& 500 &250 & 750\
\end{array}$

The activity rate under the activity-based costing system for Activity 3 is closest to

Accepted Answer

A) £70.45. 
B) £28.87. 
C) £19.47. 
D) £58.40. 
A) £70.45. 
B) £28.87. 
C) £19.47. 
D) £58.40.

Question 13

Reach Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Reach's headquarter activities are assigned to two activity cost pools: General Service and Research Service. These costs are then allocated to the three branch offices. Information for next year related to this activity-based costing system is as follows:$\begin{array}{lrr}
 \text { Activity Cost Pool}& \text { Activity Measure}& \text { Estimated}\
 &&\text { Overhead cost}\
  \text {General service.  } & \text { \% of time devoted to branch } &£ 700,000 \
 \text {Research service.  } & \text { Computer time } &£ 140,000\
\end{array}$

Estimated branch data for next year is as follows:$\begin{array}{lcc}
& \text {\% of of tha devoted to branch }& \text { computer Time } &\
 \text { Portland } &30\%& \text {200,000 \text { minutes }  }\
 \text { Dallas } &60\%& \text {150,000 \text { minutes }  }\
 \text {  Miami} &10\%& \text { 50,000 \text { minutes } }\
\end{array}$

How much of the headquarters cost allocation should Dallas expect to receive next year

Accepted Answer

A) £280,000 
B) £409,500 
C) £472,500 
D) £504,000 
A) £280,000 
B) £409,500 
C) £472,500 
D) £504,000

Question 14

If a cost object such as a product or customer has a negative green margin, then

Accepted Answer

A) its yellow margin will be positive. 
B) its yellow margin may be either positive or negative. 
C) its yellow margin will be negative. 
D) its yellow margin will be zero. 
A) its yellow margin will be positive. 
B) its yellow margin may be either positive or negative. 
C) its yellow margin will be negative. 
D) its yellow margin will be zero.

Question 15

In activity-based costing, there are a number of activity cost pools, each of which is allocated to products and other costing objects using its own unique measure of activity

Accepted Answer

A) True 
 B)False

Question 16

A transaction driver is

Accepted Answer

A) An event that causes a transaction to begin. 
B) A measure of the amount of time required to perform an activity. 
C) An event that causes a transaction to end. 
D) A simple count of the number of times an activity occurs. 
A) An event that causes a transaction to begin. 
B) A measure of the amount of time required to perform an activity. 
C) An event that causes a transaction to end. 
D) A simple count of the number of times an activity occurs.

Question 17

Purchase order processing is an example of a

Accepted Answer

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

Question 18

Compare and contrast ABC and traditional Absorption Costing methods . Is ABC always the right answer? Explain.

Accepted Answer

ABC (Activity-Based Costing) and traditi

Question 19

Designing a new product is an example of a

Accepted Answer

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

Question 20

If a cost object such as a product or customer has a positive green margin, then

Accepted Answer

A) its yellow margin will be positive. 
B) its yellow margin may be either positive, negative, or zero. 
C) its yellow margin will be negative. 
D) its yellow margin will be zero. 
A) its yellow margin will be positive. 
B) its yellow margin may be either positive, negative, or zero. 
C) its yellow margin will be negative. 
D) its yellow margin will be zero.

Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports

Customer-level activities relate to specific customers and are not tied to any specific products

In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers

Transaction drivers usually take more effort to record than duration drivers

The practice of assigning the costs of idle capacity to products can result in unstable unit product costs

If a cost object such as a product or customer has a negative green margin, then

In activity-based costing, there are a number of activity cost pools, each of which is allocated to products and other costing objects using its own unique measure of activity

A transaction driver is

Purchase order processing is an example of a

Compare and contrast ABC and traditional Absorption Costing methods . Is ABC always the right answer? Explain.

Designing a new product is an example of a

If a cost object such as a product or customer has a positive green margin, then

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job Costing Systems

Absorption and Variable Costing

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Filters

Exam 8: Process Costing Systems

Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports

Customer-level activities relate to specific customers and are not tied to any specific products

In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers

Transaction drivers usually take more effort to record than duration drivers

The practice of assigning the costs of idle capacity to products can result in unstable unit product costs

If a cost object such as a product or customer has a negative green margin, then

In activity-based costing, there are a number of activity cost pools, each of which is allocated to products and other costing objects using its own unique measure of activity

A transaction driver is

Purchase order processing is an example of a

Compare and contrast ABC and traditional Absorption Costing methods . Is ABC always the right answer? Explain.

Designing a new product is an example of a

If a cost object such as a product or customer has a positive green margin, then

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job Costing Systems

Absorption and Variable Costing

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Filters