Deck 7: Activity-Based Costing and Management

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

GPK uses proportional costs, not variable costs.

Question 22

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

Question 23

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

Question 24

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 25

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 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 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 28

ABC systems measure resource flows in an organization.

Question 29

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 30

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 31

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

Question 32

Le Pavilion 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 33

Which method(s) do traditional accounting systems use to assign the following costs to cost objects (departments or units)?

Question 34

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 35

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

Question 36

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

Question 37

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 38

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

Question 39

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 40

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

Question 41

Use the following information for the next 6 questions.
Tutors-R-Us 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:
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 labor hours

Question 42

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 43

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 44

Which of the following groups of costs are most likely to have a common cost driver?

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

Question 45

Assume Tutors-R-Us allocates facility rent, custodial services, and utilities on the basis of square feet occupied and computer equipment depreciation 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 46

Use the following information for the next 6 questions.
Tutors-R-Us 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:
Which of the following could be a cost object for Tutors-R-Us? 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 47

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 48

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 49

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 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

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 52

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 53

Use the following information for the next 6 questions.
Tutors-R-Us 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:
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 54

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 55

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 popsicles will be

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

Question 56

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 57

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 58

At least one cost driver is required for each ABC cost

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

Question 59

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 orange juice concentrate and orange popsicles, and $15,000 to orange juice
C) $10,000 to each product line
D) None of the above

Question 60

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 61

When implementing an ABC system, the accounting information system may require modifications to

A) Include fewer ledger accounts
B) Include only costs from the most recent periods
C) Gather and report activity and cost driver information
D) Include more ledger accounts

Question 62

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 63

Value-added activities

A) Increase revenues
B) Increase the worth of an organization's goods and services to customers
C) Increase the worth of an organization's goods and services to stockholders
D) Increase costs that are unrelated to customers

Question 64

Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage

A) Customer quality
B) Customer profitability
C) Inventory levels
D) Staffing levels in the marketing department.

Question 65

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 66

Phuong is a customer of PVL Corporation. She consistently orders low-margin products, but requires costly services from PVL. In employing ABM techniques to manage customer profitability, PVL's staff should

A) Make no changes in service to Phuong
B) Develop creative approaches to managing Phuong as a customer
C) Require Phuong to pay for all orders in cash
D) Classify Phuong as a value-added customer and increase the amount of services provided to her

Question 67

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 68

Lookin' for a Home is an animal shelter in Omaha, Nebraska. 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 feet allocated to the recordkeeping operation

Question 69

BVH Corporation manufactures and sells cellular phones. Which of the following activities is least likely to be considered a value-added activity for BVH?

A) Repairing phones
B) Offering phones for sale in designer colors
C) Making phones smaller
D) Creating several ring-tone options for cellular phones

Question 70

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 71

Product inspections are an example of

A) Appraisal activities
B) Production activities
C) Prevention activities
D) Post-sales activities

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 paycheck

Question 73

Activities performed to insure defect-free production are called

A) Post-sales activities
B) Production activities
C) Prevention activities
D) Appraisal activities

Question 74

NRL Corporation's accounting information system reported warranty repair and product replacement costs totaling $12,000 in a recent accounting period. These costs are an example of which of the following quality costs?

A) Period costs
B) Post-sales activity costs
C) Activity-based costs
D) Prevention activity costs

Question 75

Managers can use ABM information to manage customer profitability. The most valuable groups of customers are those having the following characteristics

Question 76

How can ABC information be used to manage constrained resources?

A) ABC information cannot be used to manage constrained resources
B) ABC information can help managers identify the best way to relax constraints
C) ABC information can help managers decrease the rate at which products get through the manufacturing process
D) ABC information can help managers justify price increases due to constrained resources

Question 77

Costs associated with developing an ABC system most likely include

A) Reduced profits
B) Loss of market share
C) Employee time and consulting fees
D) Increased overhead costs

Question 78

ABC can be used to determine the costs of quality and to help refine quality strategies. Quality activities are commonly classified as

A) Internal or external
B) Value-added or non-value-added
C) Prevention, appraisal, production, or post-sales
D) Process-oriented or job-oriented

Question 79

Activity-based management relies on

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

Question 80

Which of the following is not a benefit of an ABC system?

A) Helping managers focus on measurement at the activity level
B) Increasing profits
C) Improving accuracy in cost measurement
D) Motivating employees to find ways to improve performance