Question 1

The ABC model links resources to activities via resource drivers and activities to cost objects via activity drivers.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not a useful broad category of cost classification in activity-based costing?

Accepted Answer

A)  The unit level activity. 
B)  The batch level activity. 
C)  The facility level activity. 
D)  The differential level activity. 
A)  The unit level activity. 
B)  The batch level activity. 
C)  The facility level activity. 
D)  The differential level activity.

Question 3

Prime indicators of problems with a traditional costing system include company profits being eroded and production managers not being able to make sense of product costs.

Accepted Answer

A) True 
 B)False

Question 4

The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year-lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.  
The level of activity for the year is:  
Under an activity-based costing system, what is the activity cost per unit of activity driver for assembly?

Accepted Answer

A)  $4.80 per part 
B)  $24 per direct labour hour 
C)  $10 per part 
D)  $10 per direct labour hour 
A)  $4.80 per part 
B)  $24 per direct labour hour 
C)  $10 per part 
D)  $10 per direct labour hour

Question 5

When moving from a traditional costing system to an activity-based system, there is a significant improvement in the accuracy of the product costs because:

Accepted Answer

A)  simple activity costing assumes that all manufacturing overhead costs are driven by the volume of production. 
B)  simple activity-based costing allocates overheads based on the cost per activity driver. 
C)  improved identification of cost drivers results in more accurate allocation of manufacturing overheads to products. 
D)  simple activity-based costing allocates overheads based on the cost per activity driver, resulting in more accurate allocation of manufacturing overheads to products. 
A)  simple activity costing assumes that all manufacturing overhead costs are driven by the volume of production. 
B)  simple activity-based costing allocates overheads based on the cost per activity driver. 
C)  improved identification of cost drivers results in more accurate allocation of manufacturing overheads to products. 
D)  simple activity-based costing allocates overheads based on the cost per activity driver, resulting in more accurate allocation of manufacturing overheads to products.

Question 6

Calculate the activity cost per unit of activity driver if the activity cost is $3500, the activity driver is the number of batches and the total quantity of the activity driver is 1750 batches.

Accepted Answer

A)  $3.00 per batch. 
B)  $1.50 per batch. 
C)  $2.00 per batch. 
D)  $2.50 per batch. 
A)  $3.00 per batch. 
B)  $1.50 per batch. 
C)  $2.00 per batch. 
D)  $2.50 per batch.

Question 7

Prepare a list of 14 possible indications that a new product costing system is likely to be needed.

Accepted Answer

1. Sales are increasing, but profits are

Question 8

Underlying factors that cause activities to be performed and their costs to be incurred are known as root cause cost drivers.

Accepted Answer

A) True 
 B)False

Question 9

Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10 000); machine setup ($32 000), and quality inspection ($40 000). The operation starts with setting up the machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is important, an inspection is carried out for each batch of products.
The following information is also available:
Number of machine hours per year: 20 000 machine hours
Number of forklift moves per year: 500 moves
Number of batches per year: 4000 batches
Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X.
Which of the following are the correct activity rates for machining and quality inspection?

Accepted Answer

A)  $1 per machine hour and $2 per machine hour. 
B)  $5 per batch and $10 per batch. 
C)  $2400 and $5000. 
D)  $1 per machine hour, and $10 per batch. 
A)  $1 per machine hour and $2 per machine hour. 
B)  $5 per batch and $10 per batch. 
C)  $2400 and $5000. 
D)  $1 per machine hour, and $10 per batch.

Question 10

Activity based costing focuses on the cost of resources:

Accepted Answer

A)  budgeted. 
B)  used. 
C)  committed. 
D)  supplied. 
A)  budgeted. 
B)  used. 
C)  committed. 
D)  supplied.

Question 11

A cost driver:

Accepted Answer

A)  is a factor that causes a cost. 
B)  may also be a resource driver. 
C)  is a unit of work performed within the organisation. 
D)  is a factor that causes a cost AND may also be a resource driver. 
A)  is a factor that causes a cost. 
B)  may also be a resource driver. 
C)  is a unit of work performed within the organisation. 
D)  is a factor that causes a cost AND may also be a resource driver.

Question 12

Quality Carvings manufactures furniture. They have decided to develop an activity-based costing system. Shown below is each activity, its cost and the activity driver used to assign these costs to products.  
Under an activity-based costing system, what is the activity cost per unit of activity driver for making patterns?

Accepted Answer

A)  $4.73 
B)  $10.00 
C)  $17.50 
D)  $21.50 
A)  $4.73 
B)  $10.00 
C)  $17.50 
D)  $21.50

Question 13

Which of the following is not an indicator of a company whose costing system needs to be more accurate?

Accepted Answer

A)  Competitors' prices seem unrealistically low. 
B)  Products that are difficult to make have low profit margin. 
C)  At the end of the year, there is a significant amount of overapplied overhead. 
D)  Customers are not deterred by a significant increase in prices. 
A)  Competitors' prices seem unrealistically low. 
B)  Products that are difficult to make have low profit margin. 
C)  At the end of the year, there is a significant amount of overapplied overhead. 
D)  Customers are not deterred by a significant increase in prices.

Question 14

Which of the following can signal the need for a new product costing system?

Accepted Answer

A)  Line managers do not believe reported product costs. 
B)  Complex products have high reported profitability while more basic high-volume products show small margins or even losses. 
C)  Overhead rates are high and increasing. 
D)  All of the given answers. 
A)  Line managers do not believe reported product costs. 
B)  Complex products have high reported profitability while more basic high-volume products show small margins or even losses. 
C)  Overhead rates are high and increasing. 
D)  All of the given answers.

Question 15

Activity-based costing has most to offer where:

Accepted Answer

A)  overhead is high and volume driven. 
B)  overhead is high and non-volume driven. 
C)  overhead is low and non-volume driven. 
D)  direct labour is a major proportion of total costs. 
A)  overhead is high and volume driven. 
B)  overhead is high and non-volume driven. 
C)  overhead is low and non-volume driven. 
D)  direct labour is a major proportion of total costs.

Question 16

Consider the following statements regarding traditional costing systems.
i. All overhead costs are assumed to be driven by volume of production.
ii. All product costs are direct costs.
iii. Traditional costing systems tend to distort product costs when numerous products are made that vary in their production requirements.
Which statement/s is/are true?

Accepted Answer

A)  i 
B)  ii and iii 
C)  i and iii 
D)  ii 
A)  i 
B)  ii and iii 
C)  i and iii 
D)  ii

Question 17

Which of the following statements is/are true?
i. Activity management requires analysis of overhead activities only.
ii. Activity management requires analysis of all activities.
iii. Activity management requires identification of detailed activities, rather than broad activities.

Accepted Answer

A)  iii 
B)  ii 
C)  i and iii 
D)  ii and iii 
A)  iii 
B)  ii 
C)  i and iii 
D)  ii and iii

Question 18

Which of the following are examples of batch level activities?

Accepted Answer

A)  Machine setup. 
B)  Materials handling. 
C)  Machining. 
D)  Machine setup AND materials handling. 
A)  Machine setup. 
B)  Materials handling. 
C)  Machining. 
D)  Machine setup AND materials handling.

Question 19

Traditional product costing does not generally include non-manufacturing costs despite the fact that these costs are now a significant proportion of most organisations' total costs.

Accepted Answer

A) True 
 B)False

Question 20

Consider the following statements. Activity-based costing is more difficult in a service business because:
i. service businesses have a low proportion of overhead in their total costs.
ii. service businesses tend to have a higher level of facility costs than most manufacturers.
iii. it is often difficult to identify service activities because they are non-repetitive.
Which of the above statements is true?

Accepted Answer

A)  i 
B)  ii 
C)  ii and iii 
D)  i, ii and iii 
A)  i 
B)  ii 
C)  ii and iii 
D)  i, ii and iii

The ABC model links resources to activities via resource drivers and activities to cost objects via activity drivers.

Which of the following is not a useful broad category of cost classification in activity-based costing?

Prime indicators of problems with a traditional costing system include company profits being eroded and production managers not being able to make sense of product costs.

When moving from a traditional costing system to an activity-based system, there is a significant improvement in the accuracy of the product costs because:

Calculate the activity cost per unit of activity driver if the activity cost is $3500, the activity driver is the number of batches and the total quantity of the activity driver is 1750 batches.

Prepare a list of 14 possible indications that a new product costing system is likely to be needed.

Underlying factors that cause activities to be performed and their costs to be incurred are known as root cause cost drivers.

Activity based costing focuses on the cost of resources:

A cost driver:

Which of the following is not an indicator of a company whose costing system needs to be more accurate?

Which of the following can signal the need for a new product costing system?

Activity-based costing has most to offer where:

Which of the following statements is/are true? i. Activity management requires analysis of overhead activities only. ii. Activity management requires analysis of all activities. iii. Activity management requires identification of detailed activities, rather than broad activities.

Which of the following are examples of batch level activities?

Traditional product costing does not generally include non-manufacturing costs despite the fact that these costs are now a significant proportion of most organisations' total costs.

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters

Exam 8: Activity-Based Costing

The ABC model links resources to activities via resource drivers and activities to cost objects via activity drivers.

Which of the following is not a useful broad category of cost classification in activity-based costing?

Prime indicators of problems with a traditional costing system include company profits being eroded and production managers not being able to make sense of product costs.

When moving from a traditional costing system to an activity-based system, there is a significant improvement in the accuracy of the product costs because:

Calculate the activity cost per unit of activity driver if the activity cost is $3500, the activity driver is the number of batches and the total quantity of the activity driver is 1750 batches.

Prepare a list of 14 possible indications that a new product costing system is likely to be needed.

Underlying factors that cause activities to be performed and their costs to be incurred are known as root cause cost drivers.

Activity based costing focuses on the cost of resources:

A cost driver:

Which of the following is not an indicator of a company whose costing system needs to be more accurate?

Which of the following can signal the need for a new product costing system?

Activity-based costing has most to offer where:

Which of the following statements is/are true? i. Activity management requires analysis of overhead activities only. ii. Activity management requires analysis of all activities. iii. Activity management requires identification of detailed activities, rather than broad activities.

Which of the following are examples of batch level activities?

Traditional product costing does not generally include non-manufacturing costs despite the fact that these costs are now a significant proportion of most organisations' total costs.

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters