Exam 8: Activity-Based Costing

The benefits arising from the introduction of activity-based costing are likely to be greater where: i. overhead is a large proportion of total cost. ii. implementation costs are not high due to the support of advanced IT systems. iii. batches are of a similar size.

Consider the following statements. i. The optimal product costing system is the most accurate system. ii. The optimal product costing system is the one that minimises the cost of poor decisions from inferior information. iii. The optimal product costing system is the most expensive one. Which of the statements is true?

Which of the following are common production volume measures? i. Direct labour hours. ii. Machine hours. iii. Direct material cost.

Appropriate cost-driver identification depends on:

Plant, equipment and supervision that have been supplied in advance for use in production are known as:

The activity drivers used with ABC can include labour hours, machine parts, numbers of setups and kilograms of materials.

Puff Animal Hospital looks after the health of household pets such as dogs, cats, birds and rabbits. The hospital wants to use an activity based costing system to allocate costs to each animal case it handles. These cases tend to vary in their complexity: some pets are here for a regular check ups and immunisation; other pets have emergencies that require surgery. Some pets are very exotic and require the attention of the supervisor vet; others are common animals with common problems such that only the junior vets are needed. Puff Animal Hospital is quite large; on average there are five vets, a general assistant, and two receptionists on duty at one time. Which of the following is NOT a reason that supports the use of activity-based costing at Puff Animal Hospital?

There does not need to be a strong correlation between overhead costs and the cost driver to ensure accurate product costs.

Which of the following are usually included in traditional cost systems? i. Direct material is traced to products. ii. Non-manufacturing costs are assigned to products. iii. Manufacturing overhead is allocated using a production-volume-based cost driver.

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

Which of the following statements best completes this sentence: 'Activity-based costing...'

Volume-based measures may be used to apply overhead when:

One of the major benefits of ABC is that there are virtually no behavioural implications of introducing such a costing system, as there is no real change in the way data are collected and analysed.

When using average costs in activity-based costing, which of the following costs, are not divided by the number of units produced to estimate the cost per unit of product?

A resource driver is:

Which of the following statements is false?

Which of the following statements, as indicators of product cost systems, are out of date? i. Highly profitable products are difficult to make. ii. Competitors' prices appear to be very low. iii. The market easily absorbs price increases.

In which of the following may a traditional costing system result?

Cofission Electronics make small electronic parts. The management accountant at Cofission, Jasmine Vake, decides to implement an activity-based costing (ABC) system. She lists the following points to support her decision: i. The recent cost report shows that the ratio of prime costs to manufacturing overhead cost is approximately 1:3 ii. Cofission is a small company. iii. Cofission has three product lines: basic parts (parts that are common to many products and many suppliers), customized parts (electronic parts that are highly customized to very specialized electric motors), prototypes (where Cofission Electronics need to design as well as manufacture these specialized electronic parts). iv. Cofission Electronics has recently implemented a flexible manufacturing system; this practically eliminates any setup costs; with this system, product customization takes very little additional time. You are not convinced that all of the above points support Jasmine's decision. Which of the above points contradict Jasmine's decision?

Direct labour hours or direct labour dollars are suitable overhead allocation bases when: