Deck 6: Activity-Based Costing and Activity-Based Management

Question 1

Broad averaging often results to the undercosting or overcosting of products or services.

Answer 1

True

Question 2

Product undercosting occurs when a product consumes a high level of resources per unit but is reported to have a low cost per unit.

Answer 2

True

Question 3

The costing system that broadly averages or spreads the cost of resources uniformly to cost objects when individual products or services use those resources in nonuniform ways is ________.

A)direct costing
B)service costing
C)indirect costing
D)variable-rate costing
E)peanut-butter costing

Answer 3

E

Question 4

The Heartmore Organization uses a single cost allocation base.The management accountants group all budgeted indirect costs of $4,000,000 into a single overhead cost pool.They also reported a budget of 40,000 direct manufacturing labor-hours during the same period.
Required:
What is the rate per direct manufacturing labor-hour?

A)$50 per direct manufacturing labor-hour.
B)$75 per direct manufacturing labor-hour.
C)$100 per direct manufacturing labor-hour.
D)$125 per direct manufacturing labor-hour.
E)$150 per direct manufacturing labor-hour.

Question 5

To compute the rate per unit of each cost-allocation base,managers ________.

A)add
B)subtract
C)multiply
D)divide
E)None of these are correct

Question 6

A product consumes a high level of resources per unit,but is reported to have a low cost per unit is known as ________.

A)product overcosting
B)product undercosting
C)strategic consequences
D)accurate product costs
E)accurate service costs

Question 7

Zell Company produces a special hammer for carpenters.The budgeted total cost in the indirect-cost pool is $75,000.The budgeted total quantity of cost allocation base is 30,000.What is the budgeted indirect cost rate?

A)$10.00
B)$15.00
C)$20.00
D)$25.00
E)$30.00

Question 8

Rachel and Joey went to dinner and incurred the following costs:

Required:
Compute the average cost of dinner.If they each pay the average cost of dinner,calculate the amount of Rachel's cross-subsidization to Joey.

Question 9

Peanut-butter costing ________.

A)is not used to spread the cost of resources to cost objects
B)spreads the cost of resources uniformly to cost objects
C)spreads the revenues of resources to a single cost object
D)failed to spread the cost of resources uniformly to cost objects
E)does not average the cost of resources uniformly to cost objects

Question 10

A group of coworkers went to lunch at the mall.Listed below is the total cost of each individual meal.

Required:
Compute the average cost per dinner.When the costs are averaged across all six dinners,is Marla overcosted or undercosted?

A)$30.10;undercosted.
B)$42.16;undercosted.
C)$45.25;overcosted.
D)$58.19;undercosted.
E)$62.19;overcosted.

Question 11

The Lighting Factory produces two types of light fixtures to sell to consumers.Product A illuminates high-density lighting and Product B illuminates low-density lighting.The manager at the Lighting Factory reported the following information:

Required:
Compute the profit margin percentage for each product.

A)5.47%;6.42%
B)5.95%;6.66%
C)6.05%;6.75%
D)6.42%;6.85%
E)6.80%;6.92%

Question 12

Product-cost cross-subsidization means that if a company undercosts one of its products,it will overcost at least one of its other products.

Question 13

The Monroe Company manufactures a special saddle.The budgeted indirect total cost associated with the production of the saddle is $100,000.The budgeted number of saddles is 55,000.What is the budgeted indirect cost allocation rate?

A)$1.00
B)$1.05
C)$1.18
D)$1.82
E)$1.90

Question 14

Broad averaging lead to ________.

A)service product cost
B)variable product costs
C)accurate product costs
D)accurate service costs
E)inaccurate product costs

Question 15

As product diversity and direct costs increase,it is usually best to switch away from a ________ cost system and move to a ________ cost system.

A)low;high-based
B)job;activity-based
C)broad;job-based
D)activity;broad-based
E)broad;activity-based

Question 16

As product diversity and indirect costs increased,broad averaging led to inaccurate product costs.

Question 17

Simple costing systems that allocate indirect costs are most likely to use which of the following steps first?

A)Identify the products that are the chosen cost objects.
B)Identify the direct costs of the products.
C)Select the cost-allocation bases to use for allocating indirect (or overhead)costs to the products to identify the direct costs of the products.
D)Identify the indirect costs associated with each cost-allocation base.
E)Compute the rate per unit of each cost allocation base.

Question 18

Managers can use steps as a tool in simple costing systems when they have a single indirect cost pool because it helps them to allocate indirect costs using a single indirect-cost rate.Which of the following is not one of the steps to guide them in this process?

A)Identify the Products that are the Chosen Cost Objects.
B)Identify the Direct Costs of the Products.
C)Select the Cost-Allocation Bases to use for Allocating Indirect (or Overhead)Costs to the Products.
D)Identify the Indirect Costs Associated with Each Cost-Allocation Base.
E)Application of the Five-Step Decision Making Platform.

Question 19

Simple peanut-butter costing broadly averages or spreads the cost of resources uniformly to cost objects.

Question 20

It takes less work for a manager to compute the amount of costs in cost cross-subsidization since the manager considers indirect costs.

Question 21

Determining costs of activity pools requires assigning costs accumulated in various account classifications to each of the activity cost pools.This is referred to as ________.

A)first-stage allocation
B)second-stage allocation
C)third-stage allocation
D)forth stage allocation
E)fifth stage allocation

Question 22

Refined costing systems reduce the use of broad averages for assigning the cost of resources to cost objects.

Question 23

Which of the following is not a reason why managers see an accelerated need for refinement?

A)The growing demand of products and competition in product markets.
B)The increases in direct costs.
C)Decreases in indirect costs.
D)Increases in product diversity with both international and domestic banking facilities.
E)Use of broad averages fails to capture differences in demand and leads to distorted and inaccurate cost information.

Question 24

The three main guidelines that managers use to refine costing systems are direct-cost tracing,indirect-cost pools,and cost-allocation bases.

Question 25

What are the strategic consequences of product undercosting and overcosting?

Question 26

The costing system that reduces the use of broad averages for assigning the cost of resources to cost objects is the ________.

A)job-costing system
B)process-costing system
C)product-costing system
D)market-costing system
E)refined-costing system

Question 27

Setup costs never depreciation and maintenance costs of setup equipment,wages of setup workers,and allocated salaries of design engineers,process engineers,and supervisors.

Question 28

The growing demand for customized products,which has led managers to ________ the variety of products and services their companies offer.

A)vary
B)reduce
C)decrease
D)increase
E)eliminate

Question 29

Mug King reported the following information:

Required:
Compute the number of batches for small and large mugs,the total setup-hours,and the total setup-hours for both mugs.

A)Batches: Small = 208.33;Large = 333.33
Total Setup-hours: Small = 624.99;Large = 1,666.65
Total: 2,291.64
B)Batches: Small = 225.35;Large = 350.50
Total Setup-hours: Small = 650.50;Large = 1,750.25
Total: 2,500.50
C)Batches: Small = 230.61;Large = 385.64
Total Setup-hours: Small = 695.25;Large = 1,895.62
Total: 3,500
D)Batches: Small = 260.52;Large = 1,950.62
Total Setup-hours: Small = 685.24;Large = 1,962.35
Total: 4,200
E)Batches: Small = 275.62;Large = 2,062.25
Total Setup-hours: Small = 285.63;Large = 2,650.36
Total: 4,695

Question 30

What are the three main guidelines that managers use when the refine their costing system?

Question 31

What should managerial accountants understand when prices of their products and services are determined by the market based on competition among companies in the marketplace?

Question 32

The costing system that refines a costing system by identifying individual activities as the fundamental cost object is ________.

A)cost hierarchy
B)cost-allocation base
C)refined-costing system
D)activity-based costing system
E)manager-based costing system

Question 33

Advances in information technology have no impact on the implementation of refined costing systems.

Question 34

When managers structure activity cost pools more finely with cost drivers for each activity cost pool as the cost-allocation base,it leads to more accurate costing of activities.

Question 35

Manufacturing Mates produces special-order tiles for organizations.The company reported that they produced 250 batches of tile and the setup time per batch was 2 hours.Compute the total setup hours.

A)300 setup hours
B)400 setup hours
C)500 setup hours
D)600 setup hours
E)700 setup hours

Question 36

Beaver's Molding Corporation produces a quantity of 50,000 molds for contractors.The workers produce 220 molds per batch.Compute the total number of batches produced.

A)200.01 batches
B)210.95 batches
C)217.03 batches
D)227.27 batches
E)237.13 batches

Question 37

Costing-system refinements require more data gathering and more analysis,and improvements in information technology have drastically reduced the costs to gather,validate,store,and analyze vast quantities of data.

Question 38

We define second-stage allocation as ________.

A)the allocation of costs of activity cost pools to products
B)the allocation of revenues from earning earned to losses
C)the allocation of costs of losses to employee expenses
D)the allocation of costs to earnings in the current quarter
E)the allocation of costs to corporate profits

Question 39

How do managers refine costing systems? What is their goal when they chose to refine costing systems?

Question 40

Why do managers refine costing systems?

Question 41

A cost hierarchy is useful to managerial accountants because it categorizes various activity cost pools on the basis of the different types of cost drivers,cost-allocation bases,or different degrees of difficulty in determining cause-and-effect relationships.

Question 42

Companies deduct facility-sustaining costs as a separate lump-sum amount from operating income rather

Question 43

How do managerial accountants differentiate between the design of a simple-costing system and an activity-based costing system?

Question 44

Which of the following are costs of activities performed on each individual unit of a product or service?

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

Question 45

The costs of activities that cannot be traced to individual products or services but that support the organization as a whole are ________.

A)batch-level costs
B)input unit-level costs
C)output unit-level costs
D)product-sustaining costs
E)facility-sustaining costs

Question 46

The costs of activities related to a group of units of a product or service rather than each individual unit of product or service are ________.

A)batch-level costs
B)input unit-level costs
C)output unit-level costs
D)product-sustaining costs
E)facility-sustaining costs

Question 47

Which of the following is not a level in the cost hierarchy?

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

Question 48

In indirect cost pools,distribution costs are ________.

A)direct costs
B)batch-level costs
C)output unit-level costs
D)product-sustaining costs
E)facility-sustaining costs

Question 49

Which of the following are costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced?

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

Question 50

Activity-based costing attempts to identify the most relevant cause-and-effect relationships for each activity pool without restricting the cost driver to only units of output.

Question 51

Why is it important for managers to allocate all costs of products or services?

Question 52

In indirect cost pools,administrative costs are ________.

A)direct costs
B)batch-level costs
C)output unit-level costs
D)product-sustaining costs
E)facility-sustaining costs

Question 53

Why do managers use cost hierarchies? What are the four levels of the cost hierarchy in activity-based costing systems?

Question 54

Allocating costs to products by measuring the cost-allocation bases of different activities used by different products leads to more accurate production costs.

Question 55

Why do some managers in organizations deduct facility-sustaining costs as a separate lump-sum amount from operating income rather than allocate them to products?

Question 56

Examples of product-sustaining costs at companies such as Volvo,Samsung,or General Electric are product research and develop costs,costs of making engineering changes,and marketing costs to launch new products.

Question 57

Machine operations costs that are related to the activity of running the automated molding machines are output unit-level costs.

Question 58

In indirect cost pools,machine operations costs are ________.

A)direct costs
B)batch-level costs
C)output unit-level costs
D)product-sustaining costs
E)facility-sustaining costs

Question 59

In indirect cost pools,design costs are ________.

A)batch-level costs
B)output unit-level costs
C)product-sustaining costs
D)direct costs
E)facility-sustaining costs

Question 60

In indirect cost pools,shipment setup costs are ________.

A)direct costs
B)batch-level costs
C)output unit-level costs
D)product-sustaining costs
E)facility-sustaining costs

Question 61

The manager at the Atlantic Organization reported $225,000 in Administration Activity.The manager reported that the cost-allocation base was 32,000 in direct manufacturing-labor hours.
Required:
Compute the direct manufacturing labor-hours.

A)$7.00
B)$7.03
C)$7.10
D)$7.15
E)$7.25

Question 62

The Ready Corporation reported the following information:

Compute the budgeted indirect cost rate for each activity.

A)$4,001;$45.10;$308;$5
B)$4,010;$50.25;$310;$6
C)$4,110;$51.50;$325;$7
D)$4,250;$52.50;$350;$8
E)$4,375;$58.50;$400;$9

Question 63

Homogeneous cost pools and the choice of cost-allocation bases,when tied to the cost hierarchy,provide managers with less confidence when they assign the activity and product cost numbers from the activity-based costing system.

Question 64

In the cause-and-effect relationship between allocation base and activity cost in indirect costing systems,the indirect costs of operating modeling machines ________ with molding machine-hours.

A)decrease
B)increase
C)simplify
D)subtract
E)deteriorate

Question 65

The auditor at the Yarn Shoppe needs to determine whether it is beneficial to implement a simple costing system using a single indirect-cost pool,or an ABC system.Review and compare the following information:

Required:
The goal of the accountant is to trace more costs as direct costs,create a homogeneous cost pool,and to implement a cost-allocation base that has a cause-and-effect relationship with costs in the cost pool.Which system should the auditor at the Yarn Shoppe implement? Why?

Question 66

The more cost pools that managers develop the less allocations are necessary to calculate activity costs for each cost pool.

Question 67

The strength of the cause-and-effect relationship between the cost-allocation base and the cost pools are the same across cost pools.

Question 68

Identifying the cost-allocation bases defines the number of activity pools into which costs must be grouped into the ABC system.

Question 69

When incorrect cost-allocation bases are used ________.

A)activity-cost information is accurate and available
B)activity-cost information can be misleading
C)activity-cost information is most useful
D)activity-cost information is more practical
E)activity-cost information is the optimal solution

Question 70

Management accountants use the cost hierarchy to first calculate the total costs of each product and then they derive per-unit costs by dividing total costs by the number of units produced.

Question 71

The manager at the Petersburg Organization reported $380,000 in distribution activity.The cost-allocation base is 52,000 cubic feet of material delivered to the New Jersey plant.
Required:
Compute the amount per cubic foot of product delivered.

A)$7.30
B)$192.60
C)$328,000
D)$432,000
E)$450,000

Question 72

The main costs and limitations of activity-based systems are ________.

A)measurements necessary to implement it
B)cost associated with the new technology
C)employees and manpower to implement it
D)time associated with implementing the system
E)measurements of managerial opinions and time

Question 73

Which of the following is not a sign of when an activity-based costing system would likely provide the manager with the most benefits?

A)Significant amounts of indirect costs are allocated using only one or two cost pools.
B)All or most indirect costs are identified as output unit-level costs.
C)Products make diverse demands on resources because of differences in volume,process steps,batch size,or complexity.
D)Products that a company is will suite to make and sell show small profits,whereas products that a company is less suited to produce and sell show large profits.
E)Operations staff that agrees with all of the reported costs of manufacturing and marketing products and services.

Question 74

Which of the following is not true about the benefits and costs of activity-based costing systems?

A)It requires managers to estimate the cost of activity pools.
B)It requires few calculations to determine costs of products and services.
C)It requires many calculations to determine costs of products and services.
D)The activity cost rates need to be updated frequently.
E)The managers can misidentify the time spent implementing the system.

Question 75

Managers can choose the level of detail they choose to use in a costing system when they evaluate the expected costs of the system against the expected benefits that result from better decisions.

Question 76

Why is it important for managerial accountants to identify the cost-allocation bases?

Question 77

All costs can be directly identified with a particular activity.

Question 78

The Chesapeake Organization reported $400,000 of indirect-cost pool in design activity.The manager reported a cost-allocation base of 110 parts per square feet.
Required:
Compute the amount of design activity per part-square foot.

A)$3,000.22
B)$3,025.25
C)$3,636.36
D)$399,890
E)$400,110

Question 79

Which of the following is not a behavioral issue that managers consider when they implement activity-based costing systems?

A)Gaining support of top management and creating a sense of urgency for the ABC effort.
B)Creating a guiding coalition of managers throughout the value chain for the ABC effort.
C)Education and training employees in ABC as a basis for employee empowerment.
D)Seeking only small short-run success as proof that the ABC implementation is yielding results.
E)Seeking only large long-run success as proof that the ABC implementation is yielding results.

Question 80

In the cause-and-effect relationship between allocation base and activity cost,the distribution costs ________ with cubic feet of packages delivered.

A)decrease
B)increase
C)simplify
D)subtract
E)deteriorate