Deck 5: Activity-Based Costing and Customer Profitability Analysis

Question 1

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.

Answer 1

D

Question 2

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

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

Answer 2

E

Question 3

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.

Answer 3

B

Question 4

The examination of the efficiency and value 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.

Question 5

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.

Question 6

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

A)Having support of consultants with appropriate 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 7

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.

Question 8

Volume-based rates produce inaccurate product cost when:

A)A large share of factory overhead cost is volume-based.
B)Firms produce a diverse mix of products.
C)Large volumes of a product are manufactured.
D)Firms have a small number of homogeneous products.

Question 9

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 10

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 11

Activity-based costing (ABC)differs from other costing approaches in its:

A)Incorporating customer needs.
B)Complexity in implementation.
C)Focus on operational excellence.
D)Use of cost objects.
E)Recognition of the causal relationship.

Question 12

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 13

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 14

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 15

The relationship between activity-based costing (ABC)and strategic cost management could be described as:

A)Inconsistent.
B)Proportional.
C)Insignificant.
D)Linked.
E)Minimal.

Question 16

An activity that is performed to support the production of a new customer's order is a(n):

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

Question 17

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.

Question 18

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 mangers.
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 19

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

A)Management by objectives.
B)Cross-subsidization of products.
C)Ineffective management of operations for process improvement.
D)Proration of variances.

Question 20

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.

Question 21

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

A)Plant management salaries.
B)Production scheduling.
C)Direct labor.
D)Product design.
E)Materials handling.

Question 22

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 23

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 24

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 pools.
D)Product-line cost pools.
E)Plantwide or departmental cost pools.

Question 25

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 26

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 27

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.

Question 28

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 29

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 30

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.

Question 31

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 32

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 33

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 34

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 35

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 different products.

Question 36

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 37

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 38

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

A)A
B)B
C)C
D)D

Question 39

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 40

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 41

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 42

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

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

Question 43

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 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

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 46

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 47

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 48

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 49

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 50

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 51

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 52

Purchase order,setup,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 53

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 54

Engineering change orders,equipment maintenance,and product development 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 55

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 56

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 57

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

A)A
B)B
C)C
D)D

Question 58

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 59

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 60

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 61

Wings Co.budgeted $555,600 manufacturing direct wages,2,315 direct labor hours,and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
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 62

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 63

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 64

Wings Co.budgeted $555,600 manufacturing direct wages,2,315 direct labor hours and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
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 65

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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.

Question 66

Wings Co.budgeted $555,600 manufacturing direct wages,2,315 direct labor hours and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
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 67

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 68

Wings Co.budgeted $555,600 manufacturing direct wages,2,315 direct labor hours,and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
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 69

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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

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 71

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
Using activity-based costing,applied miscellaneous overhead for the High F model per unit is (rounded to the nearest cent):

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

Question 72

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 73

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 74

Wings Co.budgeted $555,600 manufacturing direct wages,2,315 direct labor hours and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
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 75

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 76

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 77

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 78

Wings Co.budgeted $555,600 manufacturing direct wages,2,315 direct labor hours and had the following manufacturing overhead:
Requirements for Job #971 which manufactured 4 units of product:
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 79

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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 80

National Inc.manufactures two models of CMD that can be used as cell phones,MPX,and digital camcorders.
National uses a volume-based costing system to apply factory overhead based on direct labor dollars.The unit prime costs of each product were as follows:
National's controller had been researching activity-based costing and decided to switch to it.A special study determined National's two products have the following budgeted activities:
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.