Deck 8: Activity-Based Management and Activity-Based Costing

Question 1

Managers do not use costing systems to inform them when making a variety of decisions.

Answer 1

False

Question 2

An electronics manufacturer is trying to encourage its engineers to design simpler products so that overall costs are reduced.
Required:
Which of the value-chain function costs (R&D,design,production,marketing,distribution and customer service)should be included in product-cost estimates to achieve the above purpose? Why?
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Answer 2

All costs that are affected by the design should be included in the product cost estimate.These costs include the cost of design,production,distribution and customer service.

Question 3

One department indirect-cost rate is sufficient when:

A)the same allocation base is appropriate for all departmental activities.
B)product costs are significantly cross-subsidised.
C)it is a service department.
D)activities relate to more than one level of the cost hierarchy.

Answer 3

A

Question 4

Indirect costs are costs that cannot be traced to cost objects in an economically feasible way.

Question 5

Management accountants might initially have developed costing systems primarily or entirely to estimate the cost of inventory for ________ purposes.

A)management
B)forecasting
C)financial reporting
D)internal reporting

Question 6

The costs of all six value-chain functions should be included when determining:

A)the selling price of a service.
B)whether to make or buy a component part from another manufacturer.
C)whether to add a new product line.
D)All of these answers are correct.

Question 7

In the early days of costing systems,financial reporting imperatives set the priorities for the design of costing systems.

Question 8

An individual cost item can be simultaneously a direct cost of one cost object and an indirect cost of another cost object.

Question 9

Different indirect costs may be allocated if the purpose of the allocation is long run pricing than if the purpose is considering whether to make or buy a product.

Question 10

How can the need for a more refined costing system be identified?
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Question 11

Direct costs plus indirect costs equal total costs.

Question 12

Which of the following illustrates a purpose for allocating costs to cost objects?

A)To provide information to customers
B)To measure liabilities
C)To determine a selling price the market will bear
D)To motivate managers and employees

Question 13

What factors are causing many companies to refine their costing systems to obtain more accurate measures of the costs of their products?
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Question 14

Today,companies are simplifying their cost systems and moving toward less-detailed and less-complex cost-allocation bases.

Question 15

Managers need to track activity costs across the value chain to estimate the cost of producing each output.

Question 16

In earlier times,when organisations produced a limited variety of products and indirect costs were a relatively small percentage of total costs,managers found that traditional costing systems were reasonably accurate and both easy and inexpensive to use.

Question 17

Why is there an accelerated need for refined cost systems?

A)A shift toward increased direct costs
B)Global monopolies
C)Rising prices
D)Intense competition

Question 18

Where outputs consume resources ________,the management accountant traces these to the cost objects.

A)gradually
B)indirectly
C)spontaneously
D)directly

Question 19

What are three criteria necessary for an ABC system to emerge?
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Question 20

All of the following illustrate purposes for allocating costs to cost objects EXCEPT to:

A)provide information for economic decisions.
B)determine a selling price the market will bear.
C)motivate managers and employees.
D)measure income and assets for reporting to external parties.

Question 21

A well-designed,activity-based cost system helps managers make better decisions because information derived from an ABC analysis:

A)is easy to analyse and interpret.
B)emphasises how managers can achieve higher sales.
C)can be used to eliminate non-value-added activities.
D)takes the choices and judgement challenges away from the managers.

Question 22

Managers and workers acquire outputs in the form of materials,labour,power,equipment and other resources and transform them into inputs through processes comprising activities.

Question 23

It is important to assess and simplify organisational design before introducing ABC so that fewer costs need to be tracked.

Question 24

ABC systems:

A)help control non-financial items such as number of set-up hours.
B)help identify new designs to reduce costs.
C)reveal activities that can be eliminated.
D)All of these answers are correct.

Question 25

Activity-based costing information:

A)may assist in improving product design and efficiency.
B)should be used when services place similar demands on resources.
C)will yield inaccurate cost numbers when products are similar.
D)does not support activity-based management.

Question 26

Managers are able to achieve a great deal through ________ without resorting to sophisticated costing systems.

A)traditional costing
B)management accounting
C)ABM
D)financial accounting

Question 27

Products make diverse demands on resources because of differences in all of the following EXCEPT:

A)complexity.
B)selling price.
C)batch size.
D)volume.

Question 28

________ focuses on observing and analysing activities as a basis for making a range of decisions,including pricing outputs,deciding on output mix,how to reduce costs,how to improve processes,product design,profitability and customer satisfaction.

A)Activity-based costing
B)Traditional costing
C)Activity-based management
D)Financial costing

Question 29

Activities are at the heart of both ABM and ABC.

Question 30

Managers and workers do not use activity analysis,value engineering and activity-based costing information to achieve target costs.

Question 31

The UNIQUE feature of an ABC system is the emphasis on:

A)individual activities.
B)department indirect-cost rates.
C)multiple-cost pools.
D)costing individual jobs.

Question 32

A PRIMARY reason for assigning selling and distribution costs to products for analytical purposes is:

A)that all indirect costs must be assigned.
B)that different processes,products and customers require different quantities of selling and distribution activities.
C)that controllers are required to assign all costs when valuing inventories.
D)to justify a varied product mix.

Question 33

Managers are able to apply ABC not only within the organisation but also beyond
Organisational boundaries to the:

A)government.
B)supply chain.
C)customers.
D)competition.

Question 34

Even by analysing activities,managers cannot uncover information that helps them to make the decisions.

Question 35

Although managers are able to achieve a great deal through ABM without resorting to sophisticated costing systems,there is a point at which they might need more fine-grained information to progress further,information that ABC is capable of providing.

Question 36

Activity-based management focuses on observing and analysing activities as a basis for making a range of decisions,including pricing outputs,deciding on output mix,how to reduce costs,how to improve processes,product design,profitability and customer satisfaction.

Question 37

________ are at the heart of both ABM and ABC.

A)Costs
B)Activities
C)Processes
D)Conventions

Question 38

Information derived from an ABC analysis might be used to eliminate non-value-added activities.

Question 39

Activity-based management (ABM)includes decisions about all of the following EXCEPT:

A)improving processes.
B)smoothing costs.
C)reducing costs.
D)pricing and product mix.

Question 40

What is 'activity-based management' and how can it be used to improve the profitability of a company?
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Question 41

Put the following ABC implementation steps in order:
A.Compute the allocation rates.
B.Compute the total cost of the products.
C.Identify the products that are the cost objects.
D.Select the cost allocation bases.

A)DACB
B)BADC
C)CDAB
D)DBCA

Question 42

Put the following steps in a simple costing system for a single indirect-cost pool into correct order:
A.Select the cost-allocation bases to use for allocating indirect (or overhead)costs to the products.
B.Calculate the indirect costs allocated to the products.
C.Identify the direct costs of the products.
D.Identify the products that are the chosen cost objects.

A)DCAB
B)BCAD
C)ABCD
D)BADC

Question 43

What is the first step in the seven-step guideline for ABC systems?

A)Identify and trace the direct costs to the cost objects (outputs).
B)Identify the outputs that are represented by cost objects.
C)Identify and select the activities,associated activity-cost drivers and activity-cost pools to allocate the costs to outputs.
D)Identify the indirect costs for each resource-cost pool and associated resource-cost drivers to allocate the costs to activity-cost pools.

Question 44

Managers set cost reduction targets in terms of reducing the cost per unit of the activity:

A)cost pools.
B)cost analysis.
C)cost savings.
D)cost drivers.

Question 45

What is the last step in the seven-step guideline for ABC systems?

A)Calculate the total costs of the cost objects (outputs)by adding the direct costs traced to them and the activity-based costs allocated to them.
B)Identify the outputs that are represented by cost objects.
C)Identify and select the activities,associated activity-cost drivers and activity-cost pools to allocate the costs to outputs.
D)Identify the indirect costs for each resource-cost pool and associated resource-cost drivers to allocate the costs to activity-cost pools.

Question 46

________ gives managers information about the costs of making and selling diverse outputs,rooted in activities.

A)Financial accounting
B)Activity-based costing
C)Management accounting
D)Inventory control

Question 47

ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.

A)committed
B)fixed
C)variable
D)non-discretionary

Question 48

Which of the following is a challenge to using cost-benefit criteria for allocating costs?

A)Cost systems are being simplified and fewer multiple cost-allocation bases are being used
B)The costs of collecting and processing information keep spiralling upward
C)The costs of designing and implementing complex cost allocations are not readily apparent
D)The benefits of making better-informed pricing decisions are difficult to measure

Question 49

What is the second step in the seven-step guideline for ABC systems?

A)Identify and trace the direct costs to the cost objects (outputs).
B)Identify the outputs that are represented by cost objects.
C)Identify and select the activities,associated activity-cost drivers and activity-cost pools to allocate the costs to outputs.
D)Identify the indirect costs for each resource-cost pool and associated resource-cost drivers to allocate the costs to activity-cost pools.

Question 50

Corporate administrative costs allocated to a division cost pool are MOST likely to be:

A)output unit-level costs.
B)product-sustaining costs.
C)organisation-sustaining costs.
D)batch-level costs.

Question 51

What should a corporation focus on to manage set-up costs?

A)Batch-level costs incurred per set-up-hour
B)Number of units included in each production run
C)Number of set-up-hours
D)Both A and C are correct.

Question 52

ABC systems include all resources consumed by cost ________,irrespective of whether the costs are variable or fixed in the short run.

A)objects
B)controls
C)accounting
D)systems

Question 53

Put the following steps in a simple costing system for a single indirect-cost pool into correct order:
A.Identify the indirect costs associated with each cost-allocation base.
B.Calculate the total cost of the products by adding all direct and indirect costs assigned to the products.
C.Calculate the rate per unit of each cost-allocation base.
D.Identify the direct costs of the products.

A)ACBD
B)ADBC
C)CBDA
D)DACB

Question 54

What can under-costing a particular product result in?

A)Lower profits
B)Understating total product costs
C)Operating inefficiencies
D)Loss of market share

Question 55

What is the focus of ABC systems?

A)Long-term decisions
B)Short-term decisions
C)Special-pricing decisions
D)Make-or-buy decisions

Question 56

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process as possible so that:

A)product costs will reflect their relative consumption of resources.
B)there is less likelihood of cross subsidising of product costs.
C)non-value-added costs can be eliminated.
D)All of these answers are correct.

Question 57

________ cause resources to be consumed and so have an effect on costs.

A)Accounting systems
B)Inventory controls
C)Management systems
D)Activities

Question 58

ABC systems identify ________ costs used by products.

A)short-term variable
B)long-term fixed
C)all
D)short-term fixed

Question 59

ABC systems do not include all resources consumed by cost objects.

Question 60

Companies use ABC system information to:

A)prepare budgets.
B)analyse costs.
C)evaluate performance.
D)All of these answers are correct.

Question 61

Management accountants express the acquired resources in dollar terms and identify the cost objects that consume these resources,either direct cost objects or the activities that are required to produce the outputs.

Question 62

Managers use ABC systems for information when they focus on long-run decisions and are able to manage activities that affect a broader range of costs.

Question 63

Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

Question 64

ABC costing systems are primarily for use in manufacturing and marketing and not for design engineering.

Question 65

If companies increase market share in a given product line because their reported costs are less than their actual costs,they will become more profitable in the long run.

Question 66

ABC systems include all resources consumed by cost objects,irrespective of whether the costs are variable or fixed in the short run.

Question 67

Once a cost pool has been established,it should not need to be revisited or revised.

Question 68

When refining a costing system,a company should classify as many costs as possible as 'indirect costs'.

Question 69

Department-costing systems are a further refinement of ABC systems.

Question 70

Misleading cost numbers are exacerbated when unit-level assignments and the alternative activity-cost-driver assignments are proportionately similar to each other.

Question 71

When there is a lesser degree of homogeneity,fewer cost pools are required to accurately explain the use of company resources.

Question 72

ABC brings out the cause-and-effect relationships between activities and costs;activities cause resources to be consumed and so have an effect on costs.

Question 73

Output unit-level costs cannot be determined unless you know how many units are in a given batch.

Question 74

ABC systems include all resources consumed by cost objects,irrespective of whether the costs are variable or fixed in the short run.

Question 75

If a company makes several types of a single product (e.g.televisions)a simple costing system will provide the information needed for decision-making purposes.

Question 76

Some well-known companies have achieved significant benefits from ABC systems with relatively few cost drivers.

Question 77

Costing systems with multiple cost pools are considered ABC systems.

Question 78

Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

Question 79

Production and distribution personnel use ABC systems to focus on how and where both to improve activities (and hence processes)and to reduce costs.

Question 80

If managers were interested in long-run decisions,they would focus on the variable costs only.