Question 1

Activity-based costing:

Accepted Answer

A)  Uses a plant-wide overhead rate to assign overhead
B)  Is not expensive to implement
C)  Typically applies overhead costs using direct labor-hours
D)  Uses multiple activity rates D

Question 2

For decision making purpose, which is more suitable to the management

Accepted Answer

A)  Standard costing
B)  Marginal costing
C)  Absorption costing
D)  Traditional costing B

Question 3

Margin of safety may be improved by

Accepted Answer

A)  Increasing sales volume
B)  Lowering variable cost
C)  Lowering fixed cost
D)  All of the above D

Question 4

Marginal costing technique helps the management in deciding

Accepted Answer

A)  Price of the product
B)  Make or buy decision
C)  To accepts fresh orders at low price
D)  All of the above

Question 5

When traditional production volume based overhead allocations are made, rather than activity based allocations,

Accepted Answer

A)  The unit costs of high volume and large size products tend to be overstated, while the unit cost of low volume and small products tend to be understated.
B)  The unit costs of high volume and large size products tend to be understated, while the unit cost of low volume and small products tend to be overstated.
C)  The unit costs of high volume and small products tend to be overstated, while the unit costs of low volume and large products is understat

Question 6

Which of the following is not an argument for using a separate stand alone system for activity based costing, i.e., rather than integrating ABC with the general ledger system used for GAAP?

Accepted Answer

A)  GAAP product costs may be incorrect relative to ABC product costs
B)  It is faster to develop.
C)  It is less costly to develop.
D)  Subjective information can be used that auditors might question.

Question 7

Cooper and Kaplan recommend using which of the following as the basis, or denominator, when developing activity cost pool rates for activity based costing.

Accepted Answer

A)  The maximum capacity for each activity.
B)  The practical capacity for each activity.
C)  The planned or budgeted for each activity.
D)  The normal capacity for each activity.

Question 8

Increase in variable cost

Accepted Answer

A)  Increases in PV ratio
B)  Decreases breakeven point
C)  Increases margin of safety
D)  None the above

Question 9

Which of the following types of characteristics tend to cause too little overhead costs to be charged to the product using traditional cost allocations?

Accepted Answer

A)  a relatively small product.
B)  a relatively low volume product.
C)  a relatively simple product.
D)  a and b.

Question 10

The Cooper/Kaplan "Rule of One" refers to the following:

Accepted Answer

A)  Only one overhead rate should be used to allocate fixed costs.
B)  If only one item is represented by an activity cost pool, then the cost can be classified as fixed.
C)  If there is more than one activity cost pool, then one of the cost pools must be variable.
D)  Traditional cost allocation systems will distort the allocations for at least one cost pool.

Question 11

Increasing in selling price

Accepted Answer

A)  Increase PV ratio
B)  Decrease break even point
C)  Increase margin of safety
D)  None of the above

Question 12

Assigning overhead using ABC often:

Accepted Answer

A)  Shifts overhead costs from high-volume products to low-volume products
B)  Shifts overhead costs from low-volume products to high-volume products
C)  Provides the same results as traditional costing
D)  Requires one predetermined overhead rate

Question 13

The main difference (or differences) between how traditional costing and activity based costing treat indirect manufacturing costs is (are) that

Accepted Answer

A)  Traditional costing uses only production volume based drivers while activity based costing uses only non production volume based drivers.
B)  Traditional costing treats only unit level costs as variable, while abc systems treat unit level, batch level and product level costs as variable.
C)  Traditional cost allocations are usually based on a plant wide overhead rate, while abc systems use departmental overhead rates.
D)  A and b.

Question 14

Which of the following is true at breakeven point

Accepted Answer

A)  Contribution = fixed cost
B)  Sales = total cost
C)  Sales curve cuts total cost line
D)  All of the above

Question 15

Painting the product would be an example of which activity level groups

Accepted Answer

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

Question 16

In the situation stated in the question above, the company's net income based on a production volume based system will tend to be ________ relative to net income based on an activity based costing system.

Accepted Answer

A)  Overstated.
B)  Understated.
C)  Overstated for the low volume product and understated for the high volume product.
D)  b and d.

Question 17

Which audience was activity based costing originally designed to serve?

Accepted Answer

A)  Users of external financial statements.
B)  Front line managers who plan & control activities or processes on a daily basis.
C)  Managers who make short term strategic decisions such as outsourcing.
D)  Managers who make long term strategic decisions concerning investments.

Question 18

Contribution is known as ………..

Accepted Answer

A)  Marginal income
B)  Marginal cost
C)  Gross profit
D)  Net income

Question 19

Which of the following arguments support integrating ABC with the general ledger system used for GAAP, rather than using a separate stand alone ABC system?

Accepted Answer

A)  Managers tend to prefer a single accounting system for product costing.
B)  Two separate systems tend to be confusing for management.
C)  Two separate systems tend to create redundant information and staff.
D)  all of the above.

Question 20

A company that uses a traditional two stage cost allocation approach is likely to do the following.

Accepted Answer

A)  Overhead allocations to high volume products will tend to be overstated while overhead allocations to low volume products will tend to be understated.
B)  Overhead allocations to high volume products will tend to be understated, while allocations to low volume products will tend to be overstated.
C)  Overhead allocations to large products will tend to be understat

Exam 1: Marginal Costing, Contribution, and Activity-Based Costing Techniques