Deck 7: Activity-Based Costing and Activity Based Management

Question 1

Under activity-based costing,selling and administrative costs should be allocated to products if they are incurred to provide resources that are consumed by

Answer 1

True

Question 2

With activity-based costing,the goal is to develop a product cost that captures the amount of each resource consumed by the activities performed to produce a specific product.

Answer 2

True

Question 3

In an activity-based costing system,the benefits of defining more detailed activities will always outweigh the effort needed to monitor activity performance,and the resulting potential for error.

Answer 3

False

Question 4

For unit-level activities, the total level of activity performed varies proportionately with the number of units produced.

Question 5

Product-level activities are also referred to as product-sustaining activities.

Question 6

Calculating the direct materials and direct labor cost that have been incurred to produce a product or deliver a service is a relatively complex process.

Question 7

Customer-level activities are also referred to as customer-sustaining activities.

Question 8

The first step in developing activity-based product costs is to develop activity cost pools.

Question 9

Identifying the activities performed in the organization is the most time consuming part of implementing an activity-based costing system.

Question 10

Organizational-level activities provide identifiable benefits to specific products or services.

Question 11

Customer-level activities and the resources consumed to perform them do not affect product costs.

Question 12

First-stage allocation is the process of assigning manufacturing overhead costs to activity pools.

Question 13

Even when direct materials and direct labor comprise the majority of product costs,manufacturing overhead allocation is still a major issue.

Question 14

In an activity-based costing system,the greater the level of detail the company wants to collect,the greater the chance of misclassifying some costs and activities.

Question 15

In an activity-based costing system,after all the activities have been identified and the appropriate level of detail selected,the activities are combined into activity cost pools based on their cost drivers.

Question 16

An activity-based analysis that focuses only on manufacturing overhead improves GAAP-based financial statements.

Question 17

In an activity-based costing system,after the manufacturing overhead costs have been assigned to activity cost pools,the next step is to calculate the

Question 18

A simple ABC model can have fewer than 20 activities; a complex model may include up to 100 activities,but no more.

Question 19

In an activity-based costing system,a critical question to ask during activity identification is,"How important is this activity to the overall strategy of the organization?"

Question 20

Activity-based costing is a costing technique that assigns costs to cost objects such as products or customers,based on the activities those cost objects require.

Question 21

The two categories - valued-added and non-value added - are defined from the organization's management perspective.

Question 22

A costing technique that assigns costs to cost objects such as products or customers,based on the activities those cost objects require is referred to as

A)activity-job costing.
B)activity-based costing.
C)activity-pool costing.
D)activity-trace costing.

Question 23

In an activity-based costing system,which of the following is not a category in which activities are classified?

A)Unit-level
B)Batch-level
C)Product-level
D)Factory-level

Question 24

The calculation to allocate cost to products or services is to divide the activity driver consumption by the activity rate.

Question 25

An activity-based analysis that focused only on manufacturing overhead would

A)not improve GAAP-based financial statements.
B)improve GAAP-based financial statements.
C)improve statement sent to the SEC by publicly-traded companies.
D)both improve GAAP-based financial statements and statement sent to the SEC by publicly-traded companies.

Question 26

With activity-based costing,the goal is to

A)develop a product cost that captures the amount of each resource consumed by the activities performed to produce a specific product.
B)develop a product cost that allocates manufacturing overhead to each resource consumed by the activities performed to a group of similar products.
C)develop a product cost that eliminates all waste such as machine down time and defective products.
D)develop a product cost by revenue allocations.

Question 27

Activity-based costing did not gain widespread popularity until

A)1887.
B)1907.
C)1957.
D)1987.

Question 28

Frederick Taylor was the first to understand the importance of a business's activities.He examined workers' jobs as a set of tasks,each of which had a standard completion time in the

A)early 1800s.
B)late 1800s.
C)early 1900s.
D)late 1900s.

Question 29

Although the total amount of allocated overhead differs between a traditional overhead allocation method and activity-based overhead allocations,we can still compare the percentage of overhead allocated to each product.

Question 30

Process improvement is the examination of business processes to identify incremental changes that may reduce operating costs.

Question 31

Activity-based costing information can be used to make decisions regarding pricing,customer profitability,distribution channel profitability,and process improvement.

Question 32

In an activity-based costing system,which of the following is not a category in which activities are classified?

A)Product-level
B)Operations-level
C)Customer-level
D)Organization-level

Question 33

Indicators that an activity-based costing analysis may be appropriate include all the following except

A)bids for complex products are accepted,while bids for simple products are rejected.
B)products are similar and consume resources in the same way.
C)high-volume jobs show losses or minimal profits,while low-volume jobs show healthy profits.
D)bids for jobs that require "special" processing are always accepted.

Question 34

Non-value added costs cannot be eliminated without affecting the quality of products.

Question 35

The main reason for generating new information provided by activity-based costing is to

A)help managers make better decisions.
B)provide employees in the accounting department with work to do.
C)calculate variances.
D)help human resources hire new staff.

Question 36

The greatest use of activity-based costing information is for product costing and cost control.

Question 37

Activity-based management focuses on using the cost of performing the activities required to produce and sell products to identify activities that are non-value added.

Question 38

The total amount of manufacturing overhead allocated to a particular product will always be the same for both the traditional overhead allocation method based on direct labor hours and the activity-based costing overhead allocation.

Question 39

The process of using activity-based costing information to manage a business's activities,and thus its costs,is called total quality management.

Question 40

In an activity-based costing system,which of the following is not a category in which activities are classified?

A)Unit-level
B)Product-level
C)Industry-level
D)Customer-level

Question 41

Which of the following would be considered a

A)Preparing purchase orders
B)Machine set-up
C)Quality tests
D)Direct labor

Question 42

Activities that are performed for specific customers are classified as an

A)delivery-level activity.
B)customer-level activity.
C)accounts receivable-level activity.
D)organization-level activity.

Question 43

Product-level activities are also referred to as

A)product-sustaining activities.
B)product resource activities.
C)batch-level activities.
D)group-level activities.

Question 44

Since a batch-level activity is based on the existence of the batch,a batch consumes resources

A)proportionately with the number of units in the batch.
B)inversely with the number of units in the batch
C)the same amount whether it contains 20 units or 2,000 units.
D)a different amount whether it contains 20

Question 45

Processing a sales order is an example of a

A)product-level activity.
B)unit-level activity.
C)customer-level activity.
D)group-level activity.

Question 46

Which of the following would be considered a batch-level activity?

A)Machine set-up
B)Preparing the annual budget
C)Direct labor
D)Warehouse costs

Question 47

Activities that are performed all at once on groups of products is classified as an

A)unit-level activity.
B)group-level activity.
C)batch-level activity.
D)operations-level activity.

Question 48

Which of the following would be considered a batch-level activity?

A)Engineering changes made on the assembly line
B)Quality tests
C)Warehouse costs
D)Preparing the annual budget

Question 49

An example of an organization-level activity is

A)providing electricity to the factory to run the sewing machines.
B)creating a pattern for a new line of dresses.
C)renting factory space.
D)processing a sales order.

Question 50

A difference in GAAP-based product costing and activity-based costing is that under activity-based costing

A)all costs are classified as product and period costs whereas under GAAP they are classified by behavior.
B)sales less cost of goods sold is classified as gross profit whereas under GAAP this subtotal is titled contribution margin.
C)selling and administrative costs are allocated to products if they are incurred to provide resources that are consumed by unit-level,batch-level or product-level activities.
D)all costs are traceable whereas in GAAP-based costing all costs are not traceable.

Question 51

In an activity-based costing system,which of the following is not a category in which activities are classified?

A)Unit-level
B)Batch-level
C)Product-level
D)Delivery-level

Question 52

Which of the following would be considered a

A)Ordering direct materials
B)Direct labor
C)Preparing the annual budget
D)Performing quality tests

Question 53

Which of the following is a product- or service-related activity?

A)Batch-level
B)Customer-level
C)Organization-level
D)Group-level

Question 54

For a

A)proportionately with the number of units produced.
B)inversely with the number of units produced.
C)inversely with the number of units produced and does not change with a change in activity.
D)It does not change with a change in activity.

Question 55

In an activity-based costing system,which of the following is not a category in which activities are classified?

A)Variable-level
B)Batch-level
C)Product-level
D)Organization-level

Question 56

Which of the following would be considered a product-level activity?

A)Product design changes
B)Quality tests
C)Preparing purchase orders
D)Direct labor

Question 57

Activities that support the products or services a company provides is classified as an

A)unit-level activity.
B)batch-level activity.
C)product-level activity.
D)organization-level activity.

Question 58

Which of the following is not a product- or service-related activity?

A)Unit-level
B)Product-level
C)Batch-level
D)Customer-level

Question 59

An activity that is performed for each individual

A)variable cost-level activity.
B)unit-level activity.
C)batch-level activity.
D)operations-level activity.

Question 60

Activities that are required to provide productive capacity and to keep the business in operation are

A)batch-level activities.
B)product-level activities.
C)customer-level activities.
D)organization-level activities.

Question 61

Which of the following is not a step in implementing an activity-based costing system?

A)Developing activity cost pools
B)Identifying activities
C)Calculating predetermined overhead rates
D)Calculate the

Question 62

Which of the following is the most time consuming part of implementing an activity-based costing system?

A)Identifying activities
B)Developing activity cost pools
C)Calculating activity cost pool rates
D)Calculate the

Question 63

Which of the following would be considered a customer-level activity?

A)Ordering direct materials used in all products
B)Engineering changes made that will affect all products
C)Cleaning the machines before beginning production
D)Processing a sales order

Question 64

Which of the following is a reason that employees must estimate how much time employees spend performing each activity?

A)So that the budget committee will know how to allocate direct material
B)So that the resources consumed by the activities can be calculated
C)So that the level of detail will not become too burdensome
D)So that the budget committee will know how to allocate direct material and the level of detail will not become too burdensome

Question 65

Calculating the activity rate is similar to the calculation of the

A)activity pools.
B)predetermined overhead rate.
C)overhead leverage rate.
D)contribution margin rate.

Question 66

Identifying activities performed in the organization is the first step in developing activity-based product costs.Which of the following is a way to identify these activities?

A)Asking employees what they do
B)Analyzing industry averages
C)Both asking employees what they do and analyzing industry averages
D)Neither asking employees what they do nor analyzing industry averages

Question 67

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

A)Making a sales call
B)Processing a sales order
C)Delivery costs
D)Preparing purchase orders

Question 68

In the activity identification stage of implementing an activity-based costing system,the greater the level of detail

A)the less likely the company will be to have a net loss.
B)the greater the chance of misclassifying some costs and activities
C)the less likely to misclassify some costs and activities
D)the less likely the company will be to break-even.

Question 69

In implementing an activity-based costing system,after all the activities have been identified and the appropriate level of detail selected,the activities are combined into activity cost pools based on their

A)behavior.
B)function.
C)cost drivers.
D)cost levels.

Question 70

Which of the following would be a likely activity driver for product design?

A)Number of product lines
B)Number of direct labor hours
C)Number of machine hours
D)Number of batches

Question 71

In implementing an activity-based costing system,once the activity pools have been determined,manufacturing overhead costs can be assigned to them.This is referred to as

A)predetermined overhead allocation.
B)overhead application.
C)first-stage allocation.
D)activity allocation.

Question 72

Which of the following would be considered a product-level activity?

A)Quality tests
B)Engineering changes made in the assembly line
C)Machine set-up
D)Preparing purchase orders

Question 73

In the activity identification stage of implementing an activity-based costing system,defining activities in greater detail will

A)require more monitoring.
B)lessen the change of misclassifying some costs and activities.
C)both require more monitoring and lessen the change of misclassifying some costs and activities.
D)neither require more monitoring nor lessen the change of misclassifying some costs and activities.

Question 74

Which of the following is the step in implementing an activity-based costing system that can generate the greatest error?

A)Identifying activities
B)Developing activity cost pools
C)Calculating activity cost pool rates
D)Calculate the

Question 75

Estimated costs for activity cost pools and other items are as follows: Machining $800,000
Assembling 200,000
Advertising 450,000
Inspecting and testing 175,000
Total estimated overhead is

A)$1,000,000.
B)$1,175,000.
C)$1,450,000.
D)$1,625,000.

Question 76

Which of the following would be a likely activity driver for warehousing/packaging?

A)Direct labor hours
B)Number of machine set-ups
C)Number of product lines
D)Number of batches

Question 77

Assigning manufacturing overhead cost to activity pools is referred to as first-stage allocation because

A)costs are assigned first to the activity pools before being assigned to cost objects.
B)costs are assigned first to the activity pools before being assigned to cost drivers.
C)costs are assigned first to the activity pools before being assigned to activity drivers.
D)costs are assigned first to the activity pools before being assigned to activity objects.

Question 78

Which of the following is formula for calculating the activity rate in an activity-based costing system?

A)Activity cost pool resources divided by activity driver
B)Activity driver divided by activity cost pool resources
C)Activity cost pool resources divided by estimated total cost pool
D)Estimated cost pool divided by activity cost pool resources

Question 79

Identifying activities performed in the organization is the first step in developing activity-based product costs.Which of the following is a way to identify these activities?

A)Asking employees what they do
B)Observe what employees do
C)Both asking employees what they do and observing what employees do
D)Neither asking employees what they do nor observing what employees do

Question 80

The first step in implementing an activity-based costing system begins with

A)developing activity cost pools.
B)identifying activities.
C)calculating activity cost pool rates.
D)calculate the