Question 1

Worker recreational facilities is an example of a cost that would ordinarily be considered to be:
A) Unit-level.
B) Batch-level.
C) Product-level.
D) Organization-sustaining.

Accepted Answer

Worker recreational facilities are not directly related to any particular product or batch, and they support the organization as a whole. Therefore, it is an example of organization-sustaining cost.

Question 2

An activity-based costing system is generally easier to set up and run than a traditional cost system.

Accepted Answer

Setting up and running an activity-based costing system typically requires more resources and effort than a traditional cost system, as it involves identifying and analyzing various activities within an organization and determining the costs associated with each activity. However, activity-based costing can provide more accurate and relevant cost information for decision-making purposes.

Question 3

When combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should not be combined with unit-level activities.

Accepted Answer

This statement is true. Grouping activities at the same level ensures that costs are accurately assigned to each cost pool and ultimately to each product or service. Combining activities at different levels can result in distorted cost information and inaccurate decisions.

Question 4

Purchase order processing is an example of a:
A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Accepted Answer

Purchase order processing is a batch-level activity as it involves processing multiple orders at once, rather than on a unit-by-unit basis.

Question 5

If a company switches from a traditional costing system to an activity-based costing system in which some activities are batch-level and product-level, costs ordinarily shift from high-volume to low-volume products.

Accepted Answer

Activity-based costing more accurately assigns costs to products based on the activities required to produce them. This means that high-volume products which require fewer unique activities will see a reduction in their assigned costs, while low-volume products which require more unique activities will see an increase in their assigned costs. As a result, costs may shift from high-volume to low-volume products when switching from a traditional costing system to an activity-based costing system.

Question 6

Testing a prototype of a new product is an example of a:
A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Accepted Answer

Testing a prototype of a new product is considered a product-level activity because it is directly related to the development and support of a specific product, rather than being associated with the production of individual units, batches of products, or the overall organization's operations.

Question 7

Changing a cost accounting system is likely to meet with little resistance in an organization since it is a technical matter of little interest to individuals outside of the accounting department.

Accepted Answer

Changing a cost accounting system can have significant impacts on other departments and individuals in an organization, such as in the allocation of costs and setting prices for products/services. They may also have concerns about the potential impact on their performance evaluations and incentives. Therefore, it is important to communicate and involve stakeholders from different departments in the decision-making process.

Question 8

In activity-based costing, as in traditional costing systems, nonmanufacturing costs are not assigned to products.

Accepted Answer

In activity-based costing, nonmanufacturing costs may be assigned to products if they are driven by the same activities that drive manufacturing costs. This allows for a more accurate allocation of all costs to products.

Question 9

Overhead allocation based solely on a measure of volume such as direct labor-hours:
A) is a key aspect of the activity-based costing model.
B) will systematically overcost high-volume products and undercost low-volume products.
C) will systematically overcost low-volume products and undercost high-volume products.
D) must be used for external financial reporting.

Accepted Answer

Overhead allocation based solely on a measure of volume such as direct labor-hours will systematically overcost high-volume products and undercost low-volume products. This is because high-volume products will use more direct labor-hours and therefore be allocated more overhead, even if they do not necessarily consume more resources. On the other hand, low-volume products may use fewer direct labor-hours but may still consume a significant amount of resources, leading to undercosting.

Question 10

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers.

Accepted Answer

The first-stage allocation in activity-based costing assigns overhead costs to activity cost pools, not directly to products or customers.

Question 11

An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labor.

Accepted Answer

The answer of An action analysis report reconciles activity-based costing...

Question 12

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a:
A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Accepted Answer

Processing purchase orders for standard products is typically done in batches, rather than individual units or as a product-level activity. It also does not fall under organization-sustaining activities, which are more general overhead costs.

Question 13

Unit-level production activities are performed each time a unit is made.

Accepted Answer

Unit-level production activities are performed for each individual unit produced, such as designing, assembling, and testing.

Question 14

Setting up equipment is an example of a:
A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity.

Accepted Answer

Setting up equipment is an example of batch-level activity as it is performed for each batch or group of products produced, rather than for each individual unit or for the entire organization.

Question 15

Rank the following methods of assigning overhead costs from least accurate to most accurate.
A) departmental rates, plantwide rate, activity-based costing
B) plantwide rate, departmental rates, activity-based costing
C) plantwide rate, activity-based costing, departmental rates
D) activity-based costing, departmental rates, plantwide rate
E) activity-based costing, plantwide rate, departmental rates

Accepted Answer

The plantwide rate is the least accurate as it applies a single overhead rate across the entire plant. Departmental rates are more accurate as they apply different rates for different departments. Activity-based costing is the most accurate as it assigns costs based on actual activities and resource usage.

Question 16

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?
A) Unit-level activity.
B) Batch-level activity.
C) Customer-level activity.
D) Organization-sustaining activity.

Accepted Answer

Arranging for a shipment of a number of different products to a customer involves grouping the products together and preparing them for transportation. This is an example of a batch-level activity, which involves activities that are performed each time a batch of products is produced or a batch of customers is served.

Question 17

In activity-based costing, a plantwide overhead rate is used to apply overhead to products.

Accepted Answer

In activity-based costing, overhead rates are not plantwide, but are instead calculated for each activity category. This allows for a more accurate allocation of overhead costs based on the specific activities that drive those costs.

Question 18

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours.

Accepted Answer

Activity-based costing uses multiple cost drivers such as machine hours, number of setups, or number of orders, instead of just direct labor-hours, to allocate costs to products.

Question 19

In activity-based costing, organization-sustaining costs should not be included in product costs for internal management reports that are used for decision-making. However, companies frequently include organization-sustaining costs in product costs to satisfy external reporting requirements.

Accepted Answer

Organization-sustaining costs are costs that are required to sustain the overall business, but are not directly tied to a specific product or service. These costs should not be included in product costs for internal decision-making purposes because they can distort the true cost of producing a product. However, companies may include these costs in product costs for external reporting purposes, such as meeting GAAP requirements.

Question 20

Duration drivers ordinarily require more effort to record than transaction drivers.

Accepted Answer

Duration drivers are related to the length of time taken to perform an activity, which requires more effort to record accurately compared to transaction drivers, which are based on the number of transactions. Therefore, it is true that duration drivers require more effort to record.

Quiz 8: Activity Based Costing: a Tool to Aid Decision-Making

Worker recreational facilities is an example of a cost that would ordinarily be considered to be:

An activity-based costing system is generally easier to set up and run than a traditional cost system.

When combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should not be combined with unit-level activities.

Purchase order processing is an example of a:

If a company switches from a traditional costing system to an activity-based costing system in which some activities are batch-level and product-level, costs ordinarily shift from high-volume to low-volume products.

Testing a prototype of a new product is an example of a:

Changing a cost accounting system is likely to meet with little resistance in an organization since it is a technical matter of little interest to individuals outside of the accounting department.

In activity-based costing, as in traditional costing systems, nonmanufacturing costs are not assigned to products.

Overhead allocation based solely on a measure of volume such as direct labor-hours:

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers.

An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labor.

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a:

Unit-level production activities are performed each time a unit is made.

Setting up equipment is an example of a:

Rank the following methods of assigning overhead costs from least accurate to most accurate.

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?

In activity-based costing, a plantwide overhead rate is used to apply overhead to products.

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours.

In activity-based costing, organization-sustaining costs should not be included in product costs for internal management reports that are used for decision-making. However, companies frequently include organization-sustaining costs in product costs to satisfy external reporting requirements.

Duration drivers ordinarily require more effort to record than transaction drivers.