Deck 5: Activity-Based Costing and Customer Profitability Analysis

Question 1

The examination of the efficiency of each of a firm's activities is:

A)Activity analysis.
B)Pareto analysis.
C)Activity-based management.
D)Performance measurement.
E)Attribute-based management.

Answer 1

A

Question 2

When gathering activity data, which of the following would not be a question that ABC project team members typically ask employees or managers?

A)Time spent performing the activity
B)Resources required for the activity
C)Where the activity takes place
D)Value the activity has for the customer

Answer 2

C

Question 3

Effective implementation of activity-based costing (ABC) requires:

A)Normally the assistance of a consultant.
B)A sophisticated and expensive computer system.
C)Support of top management and key employees.
D)Capturing properly the complexity of the data.
E)ABC has no significant implementation issues.

Answer 3

C

Question 4

The major limitation of volume-based costing systems is the use of volume-based:

A)Criteria.
B)Standards.
C)Rates.
D)Variances.
E)Restrictions.

Question 5

A measure of the quantity of resources consumed by an activity is:

A)Quantity driver.
B)Resource consumption cost driver.
C)Not a cost driver.
D)Activity consumption cost driver.
E)Consumption cost driver.

Question 6

A measure of frequency and intensity of demands placed on activities by cost objects is:

A)Quantity driver.
B)Resource consumption cost driver.
C)Not a cost driver.
D)Activity consumption cost driver.
E)Consumption cost driver.

Question 7

Activity-based costing (ABC) differs from other costing approaches in that it more accurately measures the cost of activities:

A)Not proportional to the volume of outputs produced.
B)Directly proportional to the volume of outputs produced.
C)Inversely proportional to the volume of outputs produced.
D)That are non-value adding.
E)At a significantly lower cost in time and money.

Question 8

Volume-based rates produce inaccurate product cost when:

A)A large share of factory overhead cost is not volume-based.
B)Firms produce a diverse mix of products.
C)Large volumes of a product are manufactured.
D)Both answer A and answer B are correct.
E)None of the answers above is correct.

Question 9

Which one of the following is not a unit-level cost driver?

A)Direct labor hours.
B)Direct material dollars.
C)Machine hours.
D)Production orders.
E)None of the above.

Question 10

An activity that is performed to support the production of a new custom-order product is a(n):

A)Product-level activity.
B)Facility-level activity.
C)Unit-level activity.
D)Customer-support activity.
E)Batch-level activity.

Question 11

Which one of the following is not a recommendation for a successful implementation of ABC/M?

A)Obtain support of management and personnel.
B)Complete an activity analysis.
C)Start with a relatively simple system.
D)Use ABC/M on a job that will succeed.
E)All of the above are features of successful ABC/M implementations.

Question 12

Which one of the following is a high value-added activity?

A)Set-up.
B)Rework.
C)Repair.
D)Storage.
E)Processing.

Question 13

If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the:

A)Activity-based costing
B)Volume-based costing
C)Overhead costing
D)Process costing

Question 14

The management of activities to improve the value received by the customer and the competitiveness of the organization is:

A)Cost driver analysis.
B)Customer profitability analysis.
C)Activity-based management.
D)Performance measurement.
E)Activity analysis.

Question 15

Elimination of low-value-added activities in a firm should:

A)Be discouraged because of potential harmful effects.
B)Not affect customer value.
C)Not have priority because low-value-added activities have little effect on a firm's performance.
D)Have priority only when a firm is operating at a loss.
E)Happen naturally if the firm is well-managed.

Question 16

Volume-based overhead rates may cause undesirable strategic effects such as:

A)Incorrect decisions.
B)Unprofitable cross-subsidization of products.
C)Ineffective management of operations for process improvement.
D)Answers A, B and C are all correct.
E)None of the answers above is correct.

Question 17

In performing activity analysis during the design of an activity-based costing system (ABC), the management accountant studies:

A)The cost drivers and managers in the plant.
B)The advice of operation-level managers.
C)The resources, activities and cost drivers in the operation.
D)The cost allocation methods applicable to the firm
E)The implementation problems for an ABC system.

Question 18

An activity that is performed for each unit of production is a(n):

A)Product-level activity.
B)Facility-level activity.
C)Unit-level activity.
D)Performance-level activity.
E)Batch-level activity.

Question 19

In regard to selling activities, which one of the following would be a cost driver for selling expense?

A)Number of invoices.
B)Number of sales calls.
C)Number of production runs.
D)Number of shipments.
E)All of the above.

Question 20

Successful activity-based costing (ABC) implementation depends upon the firm:

A)Having support of consultants with needed expertise.
B)Having a thorough activity analysis.
C)Starting with a relatively simple system.
D)Having well-trained managers.
E)Having adequate computer resources.

Question 21

Which of the following is not normally associated with activity-based costing?

A)Activity cost pools.
B)Multiple cost drivers.
C)Reduction of non-value-adding costs.
D)High direct labor costs relative to manufacturing overhead costs.
E)Improved decision-making and pricing.

Question 22

Which of the following is an example of a high-value-added activity?

A)Shipping the customer's order.
B)Scheduling the customer order for production.
C)Inspecting goods to ensure the right quantity is being shipped.
D)E-mailing a customer to assure that a complaint will be resolved expeditiously.
E)More than one of the above activities is high-value-added.

Question 23

Which of the following is a batch-level cost driver?

A)Output units.
B)Number of employees.
C)Number of orders.
D)Number of parts.
E)Machine hours.

Question 24

Which of the following is a batch-level cost driver?

A)Output units.
B)Number of engineering change orders.
C)Number of materials handling transactions.
D)Square feet of plant area occupied.
E)Number of employees.

Question 25

Activity-based costing for manufacturing operations is used to assign:

A)Direct material and direct labor costs to products.
B)Direct labor and manufacturing overhead costs to products.
C)Manufacturing overhead costs to products.
D)Selling and general administrative overhead costs to products.
E)Selling and general administrative overhead and manufacturing overhead costs to products.

Question 26

Which of the following has the weakest linkage between activity and cost driver?

A)Option A
B)Option B
C)Option C
D)Option D
E)Option E

Question 27

In an activity-based costing system, overhead costs are divided into separate:

A)Cost objects.
B)Activity cost pools.
C)Resource consumption and activity consumption cost drivers.
D)Product-line cost pools.
E)Plantwide or departmental cost pools.

Question 28

Engineering change orders, equipment maintenance, and product development costs are examples of:

A)Unit costs.
B)Batch costs.
C)Product-level costs.
D)Facility-level costs.
E)Unit, batch, and customer-sustaining costs, respectively.

Question 29

In an organization that makes furniture, which of the following is a high value-added activity?

A)Using direct materials in production.
B)Inspecting production.
C)Storing finished goods inventory.
D)Moving work-in-process inventory between work stations.
E)Reworking the product to repair defects.

Question 30

Which of the following activities is a facility-level activity?

A)Plant management salaries.
B)Depreciation on a highly specialized piece of production equipment.
C)Direct labor.
D)Product design.
E)Materials handling.

Question 31

Overhead costs are allocated to cost objects in an activity-based costing system in the following manner:

A)Overhead costs are traced to departments, then costs are traced to products.
B)Overhead costs are traced to activities, then costs are traced to products.
C)Overhead costs are traced to activities, then costs are traced to departments and then allocated to products.
D)Overhead costs are traced from resources to cost objects.
E)None of the above.

Question 32

The use of activity-based costing is most appropriate for:

A)Firms that manufacture multiple product lines.
B)Firms that have very low manufacturing overhead costs relative to other costs of production.
C)Firms with high levels of production activity.
D)Firms that are labor intensive.
E)Firms that manufacture a small number of product lines.

Question 33

Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to:

A)Overapply overhead to the product line.
B)Underapply overhead to the product line.
C)Understate direct labor costs.
D)Overstate direct labor costs.
E)Either over- or under-apply overhead to the product line depending on many other factors.

Question 34

A firm has many products, some produced in an automated production process and some produced in a manual production process. Using direct labor hours to assign manufacturing overhead to a product manufactured with a highly automated process is likely to:

A)Overstate overhead of the product.
B)Understate overhead of the product.
C)Overapply overhead to the period.
D)Underapply overhead to the period.
E)Have no effect on overhead of the product.

Question 35

Which of the following would likely be the most appropriate cost driver of electric power used by machines?

A)Number of units.
B)Machine size.
C)Number of machine hours.
D)Number of production runs.
E)Purchase cost of machines.

Question 36

Which of the following is a benefit of activity-based costing?

A)Reduced overhead costs.
B)More accurate measures of production volume.
C)Facilitate better product pricing decisions.
D)Having fewer cost drivers than volume-based costing systems.
E)More streamlined manufacturing processes.

Question 37

A volume-based rate is an appropriate overhead application base when:

A)Several well-differentiated products are manufactured.
B)Direct labor costs are large.
C)Direct material costs are large relative to direct labor costs incurred.
D)Only one product is manufactured.
E)Manufacturing is process-based.

Question 38

Which of the following would likely be the most appropriate cost driver to allocate machine set-up costs to products?

A)Machine hours.
B)Direct labor hours.
C)Number of production runs.
D)Number of products.
E)Number of purchase orders.

Question 39

A company using a volume-based overhead assignment (allocation) method will tend to:

A)Overstate the cost of low volume products.
B)Understate the cost of low volume products.
C)Understate the cost of high volume products.
D)Understate the cost of all products.
E)Either understate or overstate the cost of high volume products depending on the specific manufacturing factors involved.

Question 40

Which of the following activities is a facility-level activity?

A)Materials handling.
B)Plant maintenance.
C)Product inspection.
D)Design engineering.
E)Purchase orders.

Question 41

Activity-based costing systems:

A)Accumulate overhead costs by departments.
B)Are less complex and therefore less costly than volume-based systems.
C)Can be used in manufacturing firms only.
D)Have separate overhead rates for each activity.
E)Eliminate multiple-stage cost allocation.

Question 42

The cost of sales visits is a:

A)Customer unit-level cost.
B)Customer batch-level cost.
C)Customer-sustaining cost.
D)Distribution-channel cost.
E)Sales-sustaining cost.

Question 43

Procurement costs such as costs of placing orders for materials and paying suppliers are usually classified as:

A)Output-unit-level costs.
B)Batch-level costs.
C)Product-level costs.
D)Facility-level costs.
E)Vendor costs.

Question 44

General corporate sales expenditures are:

A)Customer unit-level costs.
B)Customer batch-level costs.
C)Customer-sustaining costs.
D)Distribution-channel costs.
E)Sales-sustaining costs.

Question 45

The costs of operating a regional warehouse is an example of a:

A)Customer unit-level cost.
B)Customer batch-level cost.
C)Customer-sustaining cost.
D)Distribution-channel cost.
E)Sales-level cost.

Question 46

All of the following statements regarding activity-based costing systems are true except they:

A)Can provide more accurate product costs.
B)Identify more costs as indirect costs than do traditional volume-based systems.
C)Are likely to be more time-consuming than volume-based systems.
D)Are used in both manufacturing and non-manufacturing companies.
E)Are likely to have more overhead rates than volume-based systems.

Question 47

Which of the following activity cost pools would most likely be allocated based on the number of production runs?

A)Machinery set-up costs.
B)Raw materials warehousing costs.
C)Factory heating costs.
D)Factory janitorial costs.
E)Indirect labor costs.

Question 48

Which of the following would be the most appropriate cost driver to allocate factory electricity costs to products?

A)Machinery depreciation expense.
B)Machinery maintenance work orders.
C)Machinery down-time.
D)Machine hours.
E)Machine productivity.

Question 49

Which of the following would not be considered a facility-level activity?

A)Providing security for the plant.
B)Factory property taxes and insurance.
C)Closing the books each month.
D)Placing purchase orders.

Question 50

Which of the following is not considered a benefit of activity-based costing?

A)Decreased production activity levels.
B)Improved product pricing decisions.
C)A better understanding of manufacturing overhead.
D)More accurate unit cost information.
E)Improved strategic decisions.

Question 51

Costs at the unit-level of activity should be allocated to products using cost drivers that are:

A)Customer-oriented.
B)Design-related.
C)Volume-related.
D)Product-related.
E)Order-related.

Question 52

Cost to process monthly statements is an example of a:

A)Customer unit-level cost.
B)Customer batch-level cost.
C)Customer-sustaining cost.
D)Distribution-channel cost.
E)Sales-level cost.

Question 53

Which of the following cost pools are used to classify costs under activity-based costing?

A)Option A
B)Option B
C)Option C
D)Option D
E)Option E

Question 54

If a costing system uses a single base to allocate overhead costs that are results of several production activities:

A)Products that use relatively more of this base tend to be undercosted.
B)Products that use relatively less of this base tend to be overcosted.
C)Products that use relatively more of this base tend to be overcosted.
D)Products may be over- or under-costed, depending on the activity level.
E)Products may be over- or under-costed, depending on the overhead rate.

Question 55

Processing sales returns and allowances is usually classified as a:

A)Customer unit-level cost.
B)Customer batch-level cost.
C)Customer-sustaining cost.
D)Distribution-channel cost.
E)Sales-level cost.

Question 56

All of the following are low-value-added activities except:

A)Processing.
B)Reworking.
C)Moving.
D)Inspection.
E)Warranty service.

Question 57

Which of the following is most likely to be the cost driver for the packaging and shipping activity?

A)Number of setups.
B)Number of components.
C)Number of orders.
D)Hours of testing.
E)Number of production runs.

Question 58

Invoicing cost is an example of a:

A)Customer unit-level cost.
B)Customer batch-level cost.
C)Customer-sustaining cost.
D)Distribution-channel cost.
E)Sales-level cost.

Question 59

Freight charges based on number of units shipped to customers is a:

A)Customer unit-level cost.
B)Customer batch-level cost.
C)Customer-sustaining cost.
D)Distribution-channel cost.
E)Sales-level cost.

Question 60

Purchase order, set-up, and inspection costs are examples of:

A)Unit-level costs.
B)Batch-level costs.
C)Product-level costs.
D)Facility-level costs.
E)Department-level costs.

Question 61

Using activity-based costing, applied miscellaneous overhead for the Great P model per unit is (rounded to the nearest cent):

A)$4.60.
B)$9.45.
C)$13.44.
D)$15.12.
E)$42.61.

Question 62

The general sales manager's salary is an example of a:

A)Customer unit-level cost.
B)Customer batch-level cost.
C)Customer-sustaining cost.
D)Distribution-channel cost.
E)Sales-level cost.

Question 63

Using ABC, the materials handling overhead cost assigned to Job #971 is:

A)$2,300.
B)$990.
C)$6,500.
D)$690.
E)$1,020.

Question 64

Using activity-based costing, applied quality control factory overhead for the Great P model per unit is (rounded to the nearest cent):

A)$4.60.
B)$9.45.
C)$13.44.
D)$15.12.
E)$42.61.

Question 65

The total overhead of Job #971 under the ABC costing is:

A)$95.
B)$380.
C)$1,520.
D)$2,300.
E)$9,200.

Question 66

Using the firm's volume-based costing, applied factory overhead per unit for the High F model is (rounded to the nearest cent):

A)$61.32.
B)$65.43.
C)$43.42.
D)$45.99.
E)$54.04.

Question 67

Using activity-based costing, applied quality control factory overhead for the High F model per unit is (rounded to the nearest cent):

A)$6.13.
B)$11.86.
C)$16.28.
D)$32.46.
E)$66.73.

Question 68

Using activity-based costing, applied machinery overhead for the Great P model per unit is (rounded to the nearest cent):

A)$4.60.
B)$9.45.
C)$13.44.
D)$15.12.
E)$42.61.

Question 69

Using activity-based costing, applied engineering and design factory overhead for the Great P model per unit is (rounded to the nearest cent):

A)$4.60.
B)$9.45.
C)$13.44.
D)$15.12.
E)$42.61.

Question 70

What is the overhead application rate using the firm's volume-based costing system (rounded to the nearest percent or cents)?

A)350 percent of direct labor cost.
B)$51.89 per direct labor-hour.
C)68 per cent of direct labor cost.
D)5,189 percent of direct labor cost.
E)5,110 percent of direct labor cost.

Question 71

Using activity-based costing, applied miscellaneous overhead for the HighF model per unit is (rounded to the nearest cent):

A)$6.13.
B)$11.86.
C)$16.28.
D)$32.36.
E)$66.73.

Question 72

Using activity-based costing, applied engineering and design factory overhead for the High F model per unit is (rounded to the nearest cent):

A)$6.13.
B)$11.86.
C)$16.28.
D)$32.46.
E)$66.73.

Question 73

Using the firm's volume- based costing, applied factory overhead per unit for the Great P model is (rounded to the nearest cent):

A)$61.32.
B)$65.43.
C)$43.42.
D)$45.99.
E)$54.04.

Question 74

Using ABC, overhead cost assigned to Job #971 for inspections is:

A)$2,300.
B)$990.
C)$6,500.
D)$690.
E)$1,020.

Question 75

Using ABC, overhead cost assigned to Job #971 for machine setup is:

A)$2,300.
B)$990.
C)$6,500.
D)$690.
E)$1,020.

Question 76

If Wings uses a volume-based overhead rate based on direct labor hours, the manufacturing overhead for Job #971 is:

A)$990.
B)$1,020.
C)$1,600.
D)$3,460.
E)$6,400.

Question 77

Which of the following is a description of categorizing related customer costs into cost pools on the basis of cost drivers?

A)Customer revenue analysis.
B)Customer cost analysis.
C)Customer profitability analysis.
D)Customer value assessment.
E)Customer equity analysis.

Question 78

Using activity-based costing, total overhead per unit of the High F model is (rounded to the nearest cent):

A)$42.61.
B)$45.99.
C)$61.32.
D)$66.73.
E)$168.00.

Question 79

Using ABC, overhead cost assigned to Job #971 for machine repair is:

A)$2,300.
B)$990.
C)$6,500.
D)$690.
E)$1,020.

Question 80

Using activity-based costing, applied machinery overhead for the High F model per unit is (rounded to the nearest cent):

A)$6.13.
B)$11.86.
C)$16.28.
D)$32.46.
E)$66.73.