Deck 7: Activity-Based Costing and Management

Question 1

Product advertising for a new product is an example of a customer-sustaining cost in an ABC system.

Answer 1

False

Question 2

Generally speaking, activity-based costing traces direct costs more accurately than traditional costing.

Answer 2

False

Question 3

All organizations that use activity-based costing also use activity-based management.

Answer 3

False

Question 4

The terms "cost driver" and "allocation base" are interchangeable.

Question 5

An activity is a type of task or function performed in an organization.

Question 6

In an ABC system, a "cost object" could be a unit of product, a product line, or a customer.

Question 7

In an ABC system costs are first assigned to cost pools, then always to units of product.

Question 8

Accountants normally can determine cost drivers for all cost pools on their own, without consulting other employees in the organization.

Question 9

Information about potential cost drivers may be requested from employees directly involved in activities.

Question 10

When applying ABC concepts to the determination of product costs, the first step is to identify activities.

Question 11

Ideally, activity costs in an ABC system are allocated to cost objects using a driver that explains changes in activity costs.

Question 12

Activity-based costing increases the accuracy of cost measurement by using arbitrary cost allocation bases for overhead.

Question 13

Activity-based management and activity-based costing are two ways of describing the same thing.

Question 14

Both activity-based costing and traditional costing allocate overhead costs to cost objects.

Question 15

Each cost pool in an ABC system has at least one cost driver.

Question 16

Each cost pool in an ABC system has its own cost allocation rate.

Question 17

In an activity-based costing system, both organization-sustaining and facility-sustaining activities are assumed to be unaffected by the number of customers.

Question 18

Organizations interested in using activity-based management must first implement an activity-based costing system.

Question 19

Administrative salaries are an example of an organization-sustaining cost in an ABC system.

Question 20

Unlike activity-based costing, traditional costing systems never use multiple cost pools for overhead allocation.

Question 21

Which of the following statements about costing systems is true?

A) Both traditional and activity-based costing systems use a two-stage allocation process
B) Traditional costing systems use a two-stage allocation process, but ABC systems require three stages
C) ABC systems typically use a two-stage allocation process, whereas traditional systems use a single stage
D) Both traditional and activity-based costing systems use a three-stage allocation process

Question 22

APL Corporation allocates overhead to cost objects using a two-stage process. From this information, we can infer that APL:

A) Uses a traditional costing system
B) Uses an activity-based costing system
C) May be using either a traditional or an activity-based costing system
D) Is reporting its product costs accurately

Question 23

Activity-based management can be used to manage both quality and constrained resources.

Question 24

The costs of designing and implementing an ABC system include employee time and training.

Question 25

Under GPK a cost centre is a department or larger cost object.

Question 26

Compared to a traditional costing system, an activity-based costing system usually involves:

A) Fewer cost pools
B) More cost pools
C) The same number of cost pools
D) Bigger cost pools

Question 27

ABC systems differ from traditional systems in that ABC systems:

A) Trace direct costs to cost objects
B) Use multiple cost pools and cost drivers to allocate direct costs
C) Use multiple cost pools and cost drivers to allocate overhead costs
D) Assign costs only to units of product

Question 28

The costs of designing and implementing an ABC system include employee time and training.

Question 29

One of the uncertainties associated with ABC and ABM systems is employee response to design and implementation.

Question 30

ABC systems are similar to traditional costing systems in the way they:

A) Allocate direct costs to cost objects
B) Define cost allocation bases
C) Trace direct costs to cost objects
D) Trace indirect costs to activities

Question 31

Which method(s) do traditional accounting systems use to assign the following costs to cost objects (departments or units)?
$\begin{array}{lll}& \underline{\text {Direct Costs}}& \underline{\text {Overhead Costs}}\\\end{array}$
A) $\begin{array}{lll}& \text { Allocate } && \text { Trace } \\\end{array}$
B) $\begin{array}{lll}& \text { Trace } & &&\text { Allocate } \\\end{array}$
C) $\begin{array}{lll} & \text { Allocate } && \text { Allocate } \\\end{array}$
D) $\begin{array}{lll}& \text { Trace } &&& \text { Trace }\end{array}$

Question 32

Cost accounting systems were originally developed to:

A) Assign costs to products for financial reporting purposes
B) Assign costs to products for tax reporting purposes
C) Give managers better information for making decisions
D) Allocate direct costs to cost objects

Question 33

The availability of activity costs is inversely related to the cost of implementing an ABC system.

Question 34

The availability of activity costs is inversely related to the cost of implementing an ABC system.

Question 35

GPK uses proportional costs, not variable costs.

Question 36

Managers can use activity-based management to control environmental costs.

Question 37

One of the uncertainties associated with ABC and ABM systems is employee response to design and implementation.

Question 38

ABC systems measure resource flows in an organization.

Question 39

ABC systems allow managers to focus on measurement at the activity level.

Question 40

ABC systems differ from traditional costing systems because ABC systems use:

A) Multiple activity cost pools and cost drivers to allocate overhead costs
B) Multiple activity cost pools and cost drivers to allocate direct costs
C) More automation and information technology to allocate overhead costs
D) Less automation and information technology to allocate overhead costs

Question 41

Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs:
General manager's salary
Housekeeping supplies
Utility costs
Amortization on workout room equipment
Advertising
Food and beverage costs
Amortization on restaurant equipment
If Le Château Joyal is the cost object, which of the following best describes the general manager's salary?

A) Batch-level cost
B) Customer-sustaining cost
C) Facility-sustaining cost
D) Organization-sustaining cost

Question 42

In an ABC system, a cost driver must be chosen for each:

A) Activity
B) Cost pool
C) Cost object
D) Unit-level activity

Question 43

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: $\begin{array}{lr}\text { Harvest apples } & \$ 25,000 \\\text { Prepare apples for processing } & 20,000 \\\text { Extract juice from apples } & 18,000\\\text { Process juice into apple juice concentrate, }\\\text { apple juice or apple cider } & 30,000 \\\text { Package completed products } & 9,000\end{array}$ Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month.
During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively.
Which of the preceding costs would most likely have "number of setups" as its cost driver?

A) Harvest apples
B) Package completed products
C) Process juice
D) Extract juice

Question 44

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: $\begin{array}{lllll}&\text { Number of}&\text { Number of }&\text {Percent of}&\text { Direct }\\&\text { Tutors } &\text { Students } &\text { Faculty } & \text { Costs }\\\text { English } & 4 & 20 & 10 \% & \$ 6,000 \\\text { Mathematics } & 3 & 24 & 25 & 8,000 \\\text { Science } & 5 & 15 & 50 & 12,000\\\text { History }& 2&8&15&3,000\end{array}$ Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: $\begin{array}{lr}\text { Facility rent } & \$ 2,500 \\\text { Custodial services } & 1,800 \\\text { Utilities } & 600 \\\text { Computer equipment amortization } & 800 \\\text { Advertising } & 400\end{array}$
Which of the following is the most logical allocation base for facility rent if the relevant cost object is a subject area (product line)?

A) Number of tutors
B) Direct costs
C) Percentage of square feet occupied
D) Direct labour hours

Question 45

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: $\begin{array}{lllll}&\text { Number of}&\text { Number of }&\text {Percent of}&\text { Direct }\\&\text { Tutors } &\text { Students } &\text { Faculty } & \text { Costs }\\\text { English } & 4 & 20 & 10 \% & \$ 6,000 \\\text { Mathematics } & 3 & 24 & 25 & 8,000 \\\text { Science } & 5 & 15 & 50 & 12,000\\\text { History }& 2&8&15&3,000\end{array}$ Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: $\begin{array}{lr}\text { Facility rent } & \$ 2,500 \\\text { Custodial services } & 1,800 \\\text { Utilities } & 600 \\\text { Computer equipment amortization } & 800 \\\text { Advertising } & 400\end{array}$
Which of the following groups of costs are most likely to have a common cost driver?

A) Advertising & computer equipment amortization
B) Computer equipment amortization & utilities
C) Utilities & custodial services
D) Utilities & advertising

Question 46

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: $\begin{array}{lllll}&\text { Number of}&\text { Number of }&\text {Percent of}&\text { Direct }\\&\text { Tutors } &\text { Students } &\text { Faculty } & \text { Costs }\\\text { English } & 4 & 20 & 10 \% & \$ 6,000 \\\text { Mathematics } & 3 & 24 & 25 & 8,000 \\\text { Science } & 5 & 15 & 50 & 12,000\\\text { History }& 2&8&15&3,000\end{array}$ Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: $\begin{array}{lr}\text { Facility rent } & \$ 2,500 \\\text { Custodial services } & 1,800 \\\text { Utilities } & 600 \\\text { Computer equipment amortization } & 800 \\\text { Advertising } & 400\end{array}$
The number of students in each area is most likely to be a cost driver for:

A) Utility costs
B) Advertising costs
C) Cost for tutors
D) Price charged for tutoring

Question 47

Le Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs:
General manager's salary
Housekeeping supplies
Utility costs
Amortization on workout room equipment
Advertising
Food and beverage costs
Amortization on restaurant equipment
Advertising for the Riel Hotels chain is best described as a(n):

A) Facility-sustaining cost
B) Organization-sustaining cost
C) Product-sustaining cost
D) Batch-level cost

Question 48

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: $\begin{array}{lr}\text { Harvest apples } & \$ 25,000 \\\text { Prepare apples for processing } & 20,000 \\\text { Extract juice from apples } & 18,000\\\text { Process juice into apple juice concentrate, }\\\text { apple juice or apple cider } & 30,000 \\\text { Package completed products } & 9,000\end{array}$ Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month.
During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively.
Preparing apples for processing involves peeling and removing seeds. The best cost driver for the cost of preparing apples for processing would be:

A) Square metres occupied by the preparation equipment
B) Number of apples harvested for each product line
C) Direct labour hours
D) Total direct costs

Question 49

Le Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs:
General manager's salary
Housekeeping supplies
Utility costs
Amortization on workout room equipment
Advertising
Food and beverage costs
Amortization on restaurant equipment
Which cost listed above is most likely to be a customer-sustaining cost?

A) Amortization on workout room equipment
B) Utility costs
C) Housekeeping supplies
D) General manager's salary

Question 50

Managers are most likely to identify activities in an ABC system by:

A) Examining the financial statements
B) Forecasting market demand using the high-low method
C) Consulting employees
D) Tracking general ledger account balances

Question 51

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: $\begin{array}{lllll}&\text { Number of}&\text { Number of }&\text {Percent of}&\text { Direct }\\&\text { Tutors } &\text { Students } &\text { Faculty } & \text { Costs }\\\text { English } & 4 & 20 & 10 \% & \$ 6,000 \\\text { Mathematics } & 3 & 24 & 25 & 8,000 \\\text { Science } & 5 & 15 & 50 & 12,000\\\text { History }& 2&8&15&3,000\end{array}$ Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: $\begin{array}{lr}\text { Facility rent } & \$ 2,500 \\\text { Custodial services } & 1,800 \\\text { Utilities } & 600 \\\text { Computer equipment amortization } & 800 \\\text { Advertising } & 400\end{array}$
Which of the following could be a cost object for Life Lessons?
I. A student
II. A subject area
III. A cost pool

A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question 52

Le Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs:
General manager's salary
Housekeeping supplies
Utility costs
Amortization on workout room equipment
Advertising
Food and beverage costs
Amortization on restaurant equipment
From the perspective of Riel Hotels, advertising specifically for Le Château Joyal is best described as a(n):

A) Unit-level cost
B) Customer-sustaining cost
C) Product-sustaining cost
D) Batch-level cost

Question 53

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: $\begin{array}{lllll}&\text { Number of}&\text { Number of }&\text {Percent of}&\text { Direct }\\&\text { Tutors } &\text { Students } &\text { Faculty } & \text { Costs }\\\text { English } & 4 & 20 & 10 \% & \$ 6,000 \\\text { Mathematics } & 3 & 24 & 25 & 8,000 \\\text { Science } & 5 & 15 & 50 & 12,000\\\text { History }& 2&8&15&3,000\end{array}$ Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: $\begin{array}{lr}\text { Facility rent } & \$ 2,500 \\\text { Custodial services } & 1,800 \\\text { Utilities } & 600 \\\text { Computer equipment amortization } & 800 \\\text { Advertising } & 400\end{array}$
If the number of tutors in each area is the cost driver for custodial services, the total custodial services cost allocated to history would be:

A) $450
B) $270
C) $257
D) None of the above

Question 54

Le Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs:
General manager's salary
Housekeeping supplies
Utility costs
Amortization on workout room equipment
Advertising
Food and beverage costs
Amortization on restaurant equipment
Le Château Joyal could define its cost objects as:
I) Customers only
II) Departments only
III) Number of employees

A) I only
B) I and II only
C) II only
D) I, II, and III

Question 55

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: $\begin{array}{lllll}&\text { Number of}&\text { Number of }&\text {Percent of}&\text { Direct }\\&\text { Tutors } &\text { Students } &\text { Faculty } & \text { Costs }\\\text { English } & 4 & 20 & 10 \% & \$ 6,000 \\\text { Mathematics } & 3 & 24 & 25 & 8,000 \\\text { Science } & 5 & 15 & 50 & 12,000\\\text { History }& 2&8&15&3,000\end{array}$ Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: $\begin{array}{lr}\text { Facility rent } & \$ 2,500 \\\text { Custodial services } & 1,800 \\\text { Utilities } & 600 \\\text { Computer equipment amortization } & 800 \\\text { Advertising } & 400\end{array}$
Assume Life Lessons allocates facility rent, custodial services, and utilities on the basis of square metres occupied and computer equipment amortization on the basis of number of students. Advertising is not allocated. If students received 200 hours of mathematics tutoring in November 20x1, what will the total profit from mathematics tutoring be for the same period?

A) $10,000
B) $8,775
C) $8,488
D) $488

Question 56

Which of the steps listed below normally occurs first when assigning costs in an ABC system?

A) Assign costs to activity-based pools
B) Allocate activity costs to each cost object
C) Identify activities
D) Identify the relevant cost object

Question 57

In an ABC system, an activity is best defined as a:

A) Type of task performed in an organization
B) Collection of activities in a particular department
C) Collection of cost drivers associated with a particular cost pool
D) Group of cost pools associated with a particular department

Question 58

Which category of the ABC hierarchy has costs that are primarily fixed and activities with little or no cause-and-effect relationship with costs?

A) Unit-level
B) Batch-level
C) Organization-sustaining
D) Product-sustaining

Question 59

Which of the following is not part of the process used to assign costs in an ABC system?

A) Identify activities
B) Differentiate value-adding and non-value-adding activities
C) Identify the relevant cost object
D) Assign costs to activity-based pools

Question 60

Which of the following activities involves managing a plant, area, or location within an organization?

A) Organization-sustaining
B) Facility-sustaining
C) Customer-sustaining
D) Product-sustaining

Question 61

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: $\begin{array}{lr}\text { Harvest apples } & \$ 25,000 \\\text { Prepare apples for processing } & 20,000 \\\text { Extract juice from apples } & 18,000\\\text { Process juice into apple juice concentrate, }\\\text { apple juice or apple cider } & 30,000 \\\text { Package completed products } & 9,000\end{array}$ Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month.
During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively.
Which of the following activities is likely to be classified as product-level?

A) Packaging
B) Harvesting
C) Extracting
D) Prepare apples for processing

Question 62

A cost driver is:

A) A measure of activity that causes costs to fluctuate
B) Only used in ABC systems
C) Seldom related to cost changes in an ABC system
D) Usually related to cost changes in a traditional costing system

Question 63

Suppose the Burlington Donor Clinic of Canadian Blood Services has identified an individual blood drive as its cost object. It has established the following cost pools in developing an activity-based costing system:
Non-medical personnel costs. Salaries and wages of the office staff who organize blood drives and keep donor records.
Medical personnel costs. Salaries and wages of doctors and nurses who staff a blood drive.
Medical supplies. Cost of needles, bandages, and containers for donated blood.
Non-medical supplies. Costs of refreshments for blood donors and recordkeeping supplies.
Blood drives typically require 5 to 7 beds for blood donors. Each donation requires one container (in the medical supplies cost pool), one needle, and one set of bandages. Canadian Blood Services normally receives donated space from a community organization (such as a university or company) for each blood drive.
The most likely cost driver for non-medical supplies is:

A) Number of blood donors
B) Number of beds
C) Hours available for blood donations
D) Percentage of square metres occupied by the blood drive

Question 64

The process of using ABC information to evaluate the costs and benefits of production and internal support activities is called:

A) Activity-based management
B) Activity-based budgeting
C) Activity-based costing
D) Activity-based consulting

Question 65

MNK Corporation is a large public company that employs numerous accounts receivable clerks. Their jobs involve processing invoices and keeping the accounting records updated. Which of the following is the most likely cost driver for the accounts receivable activity cost pool?

A) Number of journal entries
B) Number of product lines produced by MNK
C) Number of invoices
D) Average dollar amount for each credit sale

Question 66

The best allocation base choice for an ABC cost pool is a(n):

A) Cost driver
B) Activity dictionary
C) Allocation rate
D) Financial measure

Question 67

Suppose the Burlington Donor Clinic of Canadian Blood Services has identified an individual blood drive as its cost object. It has established the following cost pools in developing an activity-based costing system:
Non-medical personnel costs. Salaries and wages of the office staff who organize blood drives and keep donor records.
Medical personnel costs. Salaries and wages of doctors and nurses who staff a blood drive.
Medical supplies. Cost of needles, bandages, and containers for donated blood.
Non-medical supplies. Costs of refreshments for blood donors and recordkeeping supplies.
Blood drives typically require 5 to 7 beds for blood donors. Each donation requires one container (in the medical supplies cost pool), one needle, and one set of bandages. Canadian Blood Services normally receives donated space from a community organization (such as a university or company) for each blood drive.
Non-medical personnel costs would be most appropriately allocated using:

A) Number of blood drives organized
B) Number of blood donors
C) Hours available for blood donations
D) Dollar value of blood donated

Question 68

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: $\begin{array}{lr}\text { Harvest apples } & \$ 25,000 \\\text { Prepare apples for processing } & 20,000 \\\text { Extract juice from apples } & 18,000\\\text { Process juice into apple juice concentrate, }\\\text { apple juice or apple cider } & 30,000 \\\text { Package completed products } & 9,000\end{array}$ Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month.
During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively.
Assume processing costs are allocated on the basis of number of machine setups. How much processing cost will be allocated to each product line?

A) $5,000 to each product line
B) $7,500 each to apple juice concentrate and apple cider, and $15,000 to apple juice
C) $10,000 to each product line
D) None of the above

Question 69

Activity-based management relies on:

A) Accurate ABC information
B) Objective financial reporting
C) Outside consultants
D) Participative management techniques

Question 70

FNG Corporation employs 4 purchasing agents. Rick processes purchase orders for vendors starting with the letters A through H, while Merrill does the same task for vendors from I through N. Esteban deals with vendors in the O through R range, and Kathy handles the rest of the alphabet. The most likely cost driver for the purchasing agents' salaries is the:

A) Number of vendors within each alphabetical segment
B) Number of purchase orders processed each month
C) Average dollar amount of each purchase order
D) Number of product lines FNG produces

Question 71

Which of the following statements is true?

A) Cost drivers are a special kind of allocation base
B) Allocation bases are a special kind of cost driver
C) Cost drivers and allocation bases are two names for the same thing
D) Allocation bases are seldom used in traditional costing systems

Question 72

The managers of HRY Corporation are analyzing some of their corporate costs to determine the costs of each department's use of administrative services. The accountant wants to allocate the costs of payroll processing using an activity-based costing system. The most appropriate cost driver for the payroll processing cost pool is the:

A) Number of pay periods per month
B) Number of employees
C) Average hourly wage for all employees
D) Maximum number of deductions from an individual employee's paycheque

Question 73

Suppose the Burlington Donor Clinic of Canadian Blood Services has identified an individual blood drive as its cost object. It has established the following cost pools in developing an activity-based costing system:
Non-medical personnel costs. Salaries and wages of the office staff who organize blood drives and keep donor records.
Medical personnel costs. Salaries and wages of doctors and nurses who staff a blood drive.
Medical supplies. Cost of needles, bandages, and containers for donated blood.
Non-medical supplies. Costs of refreshments for blood donors and recordkeeping supplies.
Blood drives typically require 5 to 7 beds for blood donors. Each donation requires one container (in the medical supplies cost pool), one needle, and one set of bandages. Canadian Blood Services normally receives donated space from a community organization (such as a university or company) for each blood drive.
The most likely cost driver for the medical personnel cost pool is:

A) Number of blood donors
B) Number of beds
C) Percentage of square metres occupied by the blood drive
D) Dollar value of blood donated

Question 74

Ideally, activity costs are allocated to cost objects using a ___ that explains changes in activity ___.

A) Pool, Cost
B) Pool, Driver
C) Driver, Cost
D) Driver, Pools

Question 75

An allocation base is:

A) Normally related to cost changes in a traditional costing system
B) A measure of activity that causes costs to fluctuate
C) Seldom related to cost changes in an ABC system
D) Often used incorrectly as a synonym for "cost driver"

Question 76

At least one cost driver is required for each ABC cost __________.

A) Activity
B) Pool
C) Object
D) Product line

Question 77

Cost drivers are most likely to be identified using information:

A) From the financial statements
B) Elicited from customers
C) Elicited from employees involved in related activities
D) From textbooks

Question 78

Suppose the Burlington Donor Clinic of Canadian Blood Services has identified an individual blood drive as its cost object. It has established the following cost pools in developing an activity-based costing system:
Non-medical personnel costs. Salaries and wages of the office staff who organize blood drives and keep donor records.
Medical personnel costs. Salaries and wages of doctors and nurses who staff a blood drive.
Medical supplies. Cost of needles, bandages, and containers for donated blood.
Non-medical supplies. Costs of refreshments for blood donors and recordkeeping supplies.
Blood drives typically require 5 to 7 beds for blood donors. Each donation requires one container (in the medical supplies cost pool), one needle, and one set of bandages. Canadian Blood Services normally receives donated space from a community organization (such as a university or company) for each blood drive.
The most likely cost driver for the medical supplies cost pool is:

A) Number of beds
B) Hours available for blood donations
C) Percentage of square metres occupied by the blood drive
D) Number of blood donors

Question 79

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: $\begin{array}{lr}\text { Harvest apples } & \$ 25,000 \\\text { Prepare apples for processing } & 20,000 \\\text { Extract juice from apples } & 18,000\\\text { Process juice into apple juice concentrate, }\\\text { apple juice or apple cider } & 30,000 \\\text { Package completed products } & 9,000\end{array}$ Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month.
During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively.
If juice extraction costs are allocated to product lines based on relative sales values, that is, each product line's portion of total sales, the amount allocated to apple cider will be:

A) $900
B) $5,400
C) $4,500
D) None of the above

Question 80

Lookin' for a Home is an animal shelter in Saskatoon, Saskatchewan. The shelter relies on government grants and private donations for funding. It takes in homeless dogs and cats and keeps them until they are adopted by qualified individuals. One of the shelter's cost pools is animal recordkeeping, which involves maintaining a database with details about each animal in the shelter. Which of the following is the most appropriate cost driver for the animal recordkeeping cost pool?

A) Number of government grants sought
B) Number of employees who work in the shelter
C) Number of animal intake and adoption transactions
D) Square metres allocated to the recordkeeping operation