Deck 10: Activity-Based Costing and Management

Question 1

To obtain the activity rate for each cost pool, divide the total cost in each pool by the unallocated cost.

Answer 1

False

Question 2

Paulson Company has two products: Y and Z. The company uses activity-based costing. Estimated costs for the activity cost polls are as follows: The estimated cost for activity 1 per unit is closest to:

A) $120.00
B) $48.00
C) $315.20
D) $80.00

Answer 2

B

Question 3

Paulson Company has two products: Y and Z. The company uses activity-based costing. Estimated costs for the activity cost polls are as follows: The estimated cost for activity 3 per unit is closest to:

A) $98.82
B) $185.41
C) $78.80
D) $166.74

Answer 3

A

Question 4

Activity-based costing (ABC) is an approach to determining product costs.

Question 5

Which of the following is not a step in designing a product costing system?

A) Determine how to form cost pools.
B) Identify which cost pools to allocate.
C) Identify the cost driver to use for allocating each cost pool.
D) Determine the appropriate denominator volume of each cost driver to calculate allocation rates.
E) All of the above are steps in designing a product costing system.

Question 6

The costs associated with a company's security department would be considered what type of activity?

A) Unit level
B) Batch level
C) Customer level
D) Facility level

Question 7

For a bank, maintaining the ATM computer network would be a product-level activity.

Question 8

When allocating capacity costs to products, controllable and non-controllable cost pools need to be allocated to cost objects.

Question 9

Implementing a full-fledged activity-based costing system is often a costly, time-consuming, and tedious exercise.

Question 10

A curve that plots customer profitability, after ranking customers in order of their profitability is know as a whale curve.

Question 11

Which of the following would be considered a product-level activity?

A) The accounting department's development of a new payroll system
B) Human resource management's development of new company policies
C) Design work necessary to create a new product
D) Adjusting a piece of machinery to run a new batch

Question 12

Profit margin equals a product's gross margin less the cost of capacity resources needed to support its production.

Question 13

Profit margin is the appropriate measure for evaluating long-term profitability.

Question 14

Non-value adding activities cost money but do not provide commensurate benefits.

Question 15

Activity-based costing helps resource planning by isolating the cost of excess demand from particular customers.

Question 16

Because ABC is an allocation, it involves the two steps involved in any allocation - compute the allocation rate and multiply the rate by the number of cost driver units in a cost object.

Question 17

ABC provides useful information for product planning by providing accurate estimates of profit margins.

Question 18

An ABC system may be used to measure the profitability or profit potential of a market segment, but not an individual customer.

Question 19

A survey by the Institute of Management Accountants found that only 8% of responding firms in the U.S. use activity-based costing.

Question 20

Changing the allocation method never affects the reported profit margins for each product line.

Question 21

The greatest advantage associated with activity-based costing is that:

A) It is easy to design and implement
B) It allocates all overhead costs based on the same cost driver
C) It allows for multiple cost pools and multiple cost drivers
D) It allows for multiple cost pools but only a single cost driver

Question 22

Which of the following would probably be the most accurate cost driver to use for allocating the costs associated with a company's engineering department?

A) Number of customers
B) Number of designs developed
C) Machine hours
D) Direct labor dollars

Question 23

Perry Manufacturing Company produces two products: Standard and Deluxe. Perry uses the activity-based costing method. The estimated cost and activity for these products are as follows: What is the activity rate for activity 2?

A) $42.78
B) $17.78
C) $80.00
D) $160.00
E) $53.33

Question 24

Tabby Totes, a manufacturer of travel carriers for felines, uses an ABC system. Tabby produces two carriers, Comfort Carrier and Luxury Carrier. Production and sales for Comfort Carrier is 800 units and Luxury Carrier is 600 units. Tabby uses thee activity cost pools. Estimated costs and expected activities is as follows: The cost per unit of the Comfort Carrier is:

A) $40.00
B) $23.53
C) $42.00
D) $31.25
E) $28.57

Question 25

Which of the following would be an inappropriate cost driver in an activity-based costing system?

A) Number of customer orders
B) Number of units produced
C) Machine hours
D) Any of these are acceptable as long as they are reasonable given the specific cost pool

Question 26

Research Associates Corporation uses activity-based costing. They have two activity cost pools and three office locations. Administrative costs are allocated based on the percent of time used by the various locations. Research costs are allocated based on computer time used. Information is as follows: Estimated department data is as follows: The administrative and research costs that the Pikesville office should expect to receive total:

A) $142,000
B) $132,500
C) $166,500
D) $95,500

Question 27

Rosenbrook Corporation has provided the following data from its activity-based costing system: Data concerning one of the company's products appear below:
According to the activity-based costing system, the annual product margin for this product is:

A) $21,898
B) $30,716
C) $30,609
D) $24,155

Question 28

Kemper Consulting Company is headquartered in Little Rock with offices in Memphis and Tulsa. All administrative duties are centralized in the Little Rock office. Canterbury's administrative costs are assigned to two activity cost pools, Accounting and Computer, with the costs allocated to the three offices. Estimated data for year are as follows: How much of the administrative costs will be allocated to the Memphis office?

A) $40,500
B) $47,500
C) $38,000
D) $95,000
E) $70,000

Question 29

Which of the following is not a disadvantage of a full-fledged activity-based costing system?

A) Implementing a full-fledged ABC system is often very costly.
B) Implementing a full-fledged ABC system is time consuming.
C) The assignment of controllable costs of capacity resources is not as reliable using ABC as with traditional systems.
D) None of the above is a disadvantage of ABC.
E) All of the above are disadvantages of ABC.

Question 30

Which of the following is not a major decision when allocating capacity costs to products?

A) How to form cost pools?
B) Which costs (pools) to allocate?
C) What drivers to use?
D) How to measure denominator volume?
E) All of the above are major decisions when allocating capacity costs to products.

Question 31

Pizzeria Gallery specializes in pizza making and delivery. The company uses activity-based costing for all overhead costs using the following data: Overhead costs: Resources are consumed as follows: The total overhead cost per pizza made according to the activity-based costing system would be closest to:

A) $5.79
B) $1.64
C) $4.63
D) $2.29

Question 32

One member of the maintenance crew who earns a salary of $22,000 per year tells you that he spends 70% of his time in the plant, 20% in the administrative offices, and his remaining 10% he can't specify. Another member of the crew who earns a salary of $19,000 per year tells you that she spends 20% of her time in the plant, 60% in the administrative offices and her remaining 20% can't be specified. How much of these workers' salary expense will be charged to the administrative cost pool?

A) $15,800
B) $32,800
C) $17,000
D) $21,800

Question 33

Which of the following is not one of the defining elements that are common to all cost allocations?

A) Contribution margin.
B) Cost pools.
C) Cost drivers.
D) Denominator volume.
E) All of the above are defining elements that are common to all cost allocations.

Question 34

Pizzeria Gallery specializes in pizza making and delivery. The company uses activity-based costing for all overhead costs using the following data: Overhead costs: Resources are consumed as follows: The total overhead cost per delivery according to the activity-based costing system would be closest to?

A) $6.47
B) $.56
C) $1.66
D) $3.24

Question 35

Fargo Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs: The distribution of resource consumption across the three activity cost pools is given below:
If the company chooses machine hours as its cost driver for the fabrication cost pool, and there were 22,000 machine hours in the year, the cost per machine hour for fabrication is closest to?

A) $7.41
B) $7.32
C) $8.14
D) $7.53

Question 36

Which of the following is an example of a product- or customer-level activity

A) Activities performed by security personnel.
B) Setting up a machine for production.
C) First-part inspections.
D) The work of a product engineer.
E) Work of production employees.

Question 37

As to customer-level profit analysis, batch-level costs relate to: a. Customers' order volume.
B) Tailoring a product to customers' desires.
C) Customers' frequency of ordering or order size.
D) Warehousing of customers' desires.
E) All of the above are batch-level costs.

Question 38

Research Associates Corporation uses activity-based costing. They have two activity cost pools and three office locations. Administrative costs are allocated based on the percent of time used by the various locations. Research costs are allocated based on computer time used. Information is as follows: Estimated department data is as follows: The administrative and research costs that the Dayton office should expect to receive total:

A) $166,500
B) $132,500
C) $55,500
D) $114,167

Question 39

An advantage of using a practical capacity-based allocation rate is:

A) It does not change across products.
B) It spreads all capacity costs over budgeted, rather than actual, volume.
C) When there is idle capacity, capacity costs are spread over a smaller production volume.
D) It does not change across periods.
E) All of the above are advantages of using a practical capacity-based allocation rate.

Question 40

Vector Company manufactures a number of different products. In its traditional costing system, overhead costs are allocated based on a predetermined rate. The company recently switched to an activity-based costing system using different cost drivers for each of their two activities. Information is as follows: Job #16 required 22 labor hours and 3 designs. By how much would this job have been over or undercosted under the traditional costing system?

A) Undercosted by $96
B) Undercosted by $71.09
C) Overcosted by $96
D) Undercosted by $53.76

Question 41

Which of the following is the correct sequence of steps to improve efficiency once a process is selected? a. Identify value- and non-value adding activities; Develop a process map for each activity/process chosen; Seek ways to improve value-adding activities.
B) Develop a process map for each activity/process chosen; Identify value- and non-value adding activities; Seek ways to improve value-adding activities.
C) Identify value- and non-value adding activities; Seek ways to improve value-adding activities; Develop a process map for each activity/process.
D) Seek ways to improve value-adding activities; Identify value- and non-value adding activities; Develop a process map for each activity/process chosen.
E) Develop a process map for each activity/process chosen; Seek ways to improve value-adding activities; Identify value- and non-value adding activities.

Question 42

Which of the following is not a characteristic of low-profit customers? a. Small order size.
B) Demand immediate deliveries.
C) Predictable ordering patterns.
D) Frequent sales force contact.
E) All of the above are characteristics of low-profit customers.

Question 43

Which of the following is not a way in which activity-based costing helps resource planning? a. It pinpoints activities and business processes that are costly.
B) It isolates the cost of excess capacity from the productive use of capacity.
C) It allows firms to target specific areas for improving efficiencies.
D) It provides information that helps firms find profitable ways to deal with excess capacity.
E) All of the above are way activity-based costing help resource planning.