Question 1

An activity cost pool:

Accepted Answer

A)  is a combination of a number of activities 
B)  must be made up of activities at the same level 
C)  can only be used at the product level 
D)  is a combination of a number of activities AND must be made up of activities at the same level 
A)  is a combination of a number of activities 
B)  must be made up of activities at the same level 
C)  can only be used at the product level 
D)  is a combination of a number of activities AND must be made up of activities at the same level D

Question 2

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 total cost of lounge chairs for the year?

Accepted Answer

A)  $1 710 000 
B)  $1 410 000 
C)  $890 000 
D)  $1 150 000 
A)  $1 710 000 
B)  $1 410 000 
C)  $890 000 
D)  $1 150 000 A

Question 3

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

Accepted Answer

A)  overhead costs are insignificant 
B)  direct labour details are readily available 
C)  direct material costs are highly correlated with direct labour hours 
D)  they have been used satisfactorily in the past 
A)  overhead costs are insignificant 
B)  direct labour details are readily available 
C)  direct material costs are highly correlated with direct labour hours 
D)  they have been used satisfactorily in the past A

Question 4

Summer Ice Pty Ltd is a manufacturer of a range of ice cream products.The following is a list of activities,costs and quantities of activity drivers for a number of activities that occur in the factory.Under an activity-based costing system,what is the activity cost per unit of activity driver for measuring ingredients?

Accepted Answer

A)  $12.90 
B)  $15.00 
C)  $13.80 
D)  $14.00 
A)  $12.90 
B)  $15.00 
C)  $13.80 
D)  $14.00

Question 5

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 processing orders?

Accepted Answer

A)  $93.33 
B)  $25.20 
C)  $25.40 
D)  $62.00 
A)  $93.33 
B)  $25.20 
C)  $25.40 
D)  $62.00

Question 6

At a recent professional meeting,two accountants discussed product-costing problems in their respective companies.Both accountants are familiar with ABC systems but neither of their firms utilise this method.Accountant A reported that part of the problem in product costing in his firm is that there are major differences between product lines as to volume of units,utilisation of various activities,quality assurance requirements established by customers and size of the products.Accountant B noted that in her firm,which produces consumer products,all products undergo the same basic production processes and in the same sequence,but in an increasing variety of colours and packaging modes.Both accountants are worried about the potential distortion of product costs under their conventional product costing systems.Which accountant should be more concerned about the potential distortion? Explain.

Accepted Answer

Accountant A should be more concerned.Th

Question 7

Consider the following statements.Which of the statements is true?

Accepted Answer

A)  As the activity-based system accuracy increases,the cost of inferior decisions based on distorted product costs decreases. 
B)  As the activity-based system accuracy increases,the costs of implementing and operating the system increase. 
C)  As the activity-based system accuracy increases,the total cost from inferior decisions and the cost to implement and operate the system decrease. 
D)  As the activity-based system accuracy increases,the cost of inferior decisions based on distorted product costs decreases AND as the activity-based system accuracy increases,the costs of implementing and operating the system increase. 
A)  As the activity-based system accuracy increases,the cost of inferior decisions based on distorted product costs decreases. 
B)  As the activity-based system accuracy increases,the costs of implementing and operating the system increase. 
C)  As the activity-based system accuracy increases,the total cost from inferior decisions and the cost to implement and operate the system decrease. 
D)  As the activity-based system accuracy increases,the cost of inferior decisions based on distorted product costs decreases AND as the activity-based system accuracy increases,the costs of implementing and operating the system increase.

Question 8

Despite the obvious advantages of ABC,many firms are still reluctant to implement it.What are the reasons for this reluctance?
i.Uncertainty about the benefits of ABC
ii.The opinion that the current system serves all the firm's needs
iii.Lack of resources to implement ABC

Accepted Answer

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

Question 9

Which of the following statements is false?

Accepted Answer

A)  Under conventional costing,product cost distortions will be relatively insignificant if overhead costs are a small proportion of product cost. 
B)  Activity-based costing will significantly improve the product cost accuracy where overhead costs are a small proportion of total costs. 
C)  Activity-based costing will significantly improve product cost accuracy where there is significant product diversity. 
D)  Upstream and downstream costs are often a significant part of a product's costs. 
A)  Under conventional costing,product cost distortions will be relatively insignificant if overhead costs are a small proportion of product cost. 
B)  Activity-based costing will significantly improve the product cost accuracy where overhead costs are a small proportion of total costs. 
C)  Activity-based costing will significantly improve product cost accuracy where there is significant product diversity. 
D)  Upstream and downstream costs are often a significant part of a product's costs.

Question 10

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 these points support Jasmine's decision.Which of the above points contradict Jasmine's decision?

Accepted Answer

A)  i and ii 
B)  ii 
C)  i.ii and iv 
D)  ii and iv 
A)  i and ii 
B)  ii 
C)  i.ii and iv 
D)  ii and iv

Question 11

Consider the following statements.i.Product diversity creates problems in product costing because diverse products tend to utilise productive activities in very different ways
Ii)Overhead costs that are not incurred at the unit level create product-costing problems because they do not vary with measures such as direct labour hours or machine hours.
Iii)Product diversity exists when a single product,such as pens,are made in different colours.Which of the above statement/s is/are true?

Accepted Answer

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

Question 12

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 13

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 total cost of patio chairs for the year?

Accepted Answer

A)  $1 150 000 
B)  $890 600 
C)  $1 710 000 
D)  $590 000 
A)  $1 150 000 
B)  $890 600 
C)  $1 710 000 
D)  $590 000

Question 14

Appropriate cost-driver identification depends on:

Accepted Answer

A)  a cause-and-effect relationship existing between the cost driver and costs of the activity 
B)  the number of cost pools used 
C)  homogeneity of cost pools 
D)  the number of products produced or services provided 
A)  a cause-and-effect relationship existing between the cost driver and costs of the activity 
B)  the number of cost pools used 
C)  homogeneity of cost pools 
D)  the number of products produced or services provided

Question 15

Companies are likely to benefit from activity-based costing systems if:

Accepted Answer

A)  they have wide variations in the volume of individual production runs and setups are costly 
B)  they have a narrow range of products with similar volumes and setups are costly 
C)  they have a narrow range of products and setups are not costly 
D)  None of the given answers 
A)  they have wide variations in the volume of individual production runs and setups are costly 
B)  they have a narrow range of products with similar volumes and setups are costly 
C)  they have a narrow range of products and setups are not costly 
D)  None of the given answers

Question 16

In an activity-based costing system,a bill of activities will include:

Accepted Answer

A)  a charge for allocated overhead 
B)  the activity cost per unit of activity driver 
C)  the quantity of activity consumed 
D)  the activity cost per unit of activity driver AND the quantity of activity consumed 
A)  a charge for allocated overhead 
B)  the activity cost per unit of activity driver 
C)  the quantity of activity consumed 
D)  the activity cost per unit of activity driver AND the quantity of activity consumed

Question 17

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 18

HiTech Products manufactures three types of CD players: Cheap,Econo and Deluxe.HiTech uses an activity-based product costing system.The company has identified five activities.Each activity,its cost and related activity driver are identified below:
The following information pertains to each product line of CD players:
Under an activity-based product costing system,what is the cost per unit of Cheap?

Accepted Answer

A)  $141.00 
B)  $272.00 
C)  $164.00 
D)  $228.24 
A)  $141.00 
B)  $272.00 
C)  $164.00 
D)  $228.24

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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 which 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?

Accepted Answer

A)  There are a variety of different activities involved for cases that vary in complexity 
B)  It is easy to trace the time each vet spent on different animals 
C)  The hospital is large and therefore likely to have a lot of indirect costs 
D)  Some cases require surgery which means using surgery facilities;other cases do not. 
A)  There are a variety of different activities involved for cases that vary in complexity 
B)  It is easy to trace the time each vet spent on different animals 
C)  The hospital is large and therefore likely to have a lot of indirect costs 
D)  Some cases require surgery which means using surgery facilities;other cases do not.

An activity cost pool:

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

Consider the following statements.Which of the statements is true?

Despite the obvious advantages of ABC,many firms are still reluctant to implement it.What are the reasons for this reluctance? i.Uncertainty about the benefits of ABC ii.The opinion that the current system serves all the firm's needs iii.Lack of resources to implement ABC

Which of the following statements is false?

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.

Appropriate cost-driver identification depends on:

Companies are likely to benefit from activity-based costing systems if:

In an activity-based costing system,a bill of activities will include:

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

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

An activity cost pool:

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

Consider the following statements.Which of the statements is true?

Despite the obvious advantages of ABC,many firms are still reluctant to implement it.What are the reasons for this reluctance? i.Uncertainty about the benefits of ABC ii.The opinion that the current system serves all the firm's needs iii.Lack of resources to implement ABC

Which of the following statements is false?

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.

Appropriate cost-driver identification depends on:

Companies are likely to benefit from activity-based costing systems if:

In an activity-based costing system,a bill of activities will include:

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

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