Question 1

Product advertising for a new product is an example of a customer-sustaining cost in an ABC system.

Accepted Answer

Product advertising for a new product is considered a customer-acquisition cost, not a customer-sustaining cost, in Activity-Based Costing (ABC) systems. Customer-sustaining costs are those incurred to support existing customers.

Question 2

Generally speaking, activity-based costing traces direct costs more accurately than traditional costing.

Accepted Answer

False

Question 3

All organizations that use activity-based costing also use activity-based management.

Accepted Answer

Activity-based costing (ABC) is a method for determining the cost of products or services, and while it can inform activity-based management (ABM), an organization might use ABC for costing purposes without necessarily implementing ABM, which involves using ABC data for strategic decision-making and performance improvement.

Question 4

The terms "cost driver" and "allocation base" are interchangeable.

Accepted Answer

While both terms are related to cost accounting, they have slightly different meanings. A cost driver is a factor that directly affects the cost of an activity, while an allocation base is a measure used to assign overhead costs to products or services. While there may be some overlap between the two concepts, they are not interchangeable.

Question 5

An activity is a type of task or function performed in an organization.

Accepted Answer

An activity is a task or function performed in an organization.

Question 6

In an ABC system, a "cost object" could be a unit of product, a product line, or a customer.

Accepted Answer

In an ABC system, a cost object can be any unit of product, product line, or customer.

Question 7

In an ABC system costs are first assigned to cost pools, then always to units of product.

Accepted Answer

In an Activity-Based Costing (ABC) system, costs are first assigned to activities (cost pools) and then traced to products, services, or customers based on their use of those activities, not always directly to units of product.

Question 8

Accountants normally can determine cost drivers for all cost pools on their own, without consulting other employees in the organization.

Accepted Answer

While accountants may have a good understanding of cost drivers, it is important to involve other employees in the organization who have firsthand knowledge of the processes and activities that drive costs in order to obtain a more accurate and comprehensive analysis.

Question 9

Information about potential cost drivers may be requested from employees directly involved in activities.

Accepted Answer

Employees directly involved in activities are likely to have direct knowledge about the costs associated with those activities and can provide valuable insight into potential cost drivers.

Question 10

When applying ABC concepts to the determination of product costs, the first step is to identify activities.

Accepted Answer

The answer of When applying ABC concepts to the determination...

Question 11

Ideally, activity costs in an ABC system are allocated to cost objects using a driver that explains changes in activity costs.

Accepted Answer

This is the core principle of Activity-Based Costing (ABC) system where activity costs are allocated to cost objects using a driver that shows the relationship between the cost driver and the cost of the activity. The driver should explain changes in activity costs, making it easier to determine the true cost of a product or service.

Question 12

Activity-based costing increases the accuracy of cost measurement by using arbitrary cost allocation bases for overhead.

Accepted Answer

Activity-based costing (ABC) increases the accuracy of cost measurement by using multiple cost drivers that are more closely related to the activities causing the overhead costs, rather than using arbitrary or overly simplified allocation bases.

Question 13

Activity-based management and activity-based costing are two ways of describing the same thing.

Accepted Answer

Activity-based management (ABM) is a method of management that uses activity-based costing (ABC) information to improve business processes and decision-making, whereas activity-based costing is an accounting method that assigns costs to products or services based on the activities and resources that go into producing them. ABM uses the insights provided by ABC for strategic decision-making, making them related but distinct concepts.

Question 14

Both activity-based costing and traditional costing allocate overhead costs to cost objects.

Accepted Answer

Both activity-based costing and traditional costing allocate overhead costs to cost objects, but they differ in the way that overhead costs are assigned to cost objects. Traditional costing uses a single predetermined overhead rate based on a volume metric such as direct labor hours or machine hours, while activity-based costing uses multiple activity cost pools and cost drivers to allocate overhead costs based on the activities that consume them.

Question 15

Each cost pool in an ABC system has at least one cost driver.

Accepted Answer

In an ABC system, each cost pool is associated with one or more cost drivers that cause the cost pool to increase or decrease. This helps to allocate costs more accurately to the products or services being produced.

Question 16

Each cost pool in an ABC system has its own cost allocation rate.

Accepted Answer

In an ABC system, cost pools are identified based on the activities and each pool has its own cost allocation rate. This helps to allocate costs more accurately to products or services based on the activities that drive those costs.

Question 17

In an activity-based costing system, both organization-sustaining and facility-sustaining activities are assumed to be unaffected by the number of customers.

Accepted Answer

Both organization-sustaining and facility-sustaining activities are considered as fixed costs and are not affected by the number of customers. Activity-based costing system assigns these costs to products or services based on other cost drivers like machine hours, direct labor hours, or number of setups.

Question 18

Organizations interested in using activity-based management must first implement an activity-based costing system.

Accepted Answer

Activity-based management relies on accurate and detailed information about the costs and activities that go into producing goods or services. Activity-based costing provides this information, making it a necessary precursor to activity-based management.

Question 19

Administrative salaries are an example of an organization-sustaining cost in an ABC system.

Accepted Answer

In an ABC system, administrative salaries are considered an organization-sustaining cost because they are not directly related to producing or delivering products/services, but instead support the overall operation of the organization.

Question 20

Unlike activity-based costing, traditional costing systems never use multiple cost pools for overhead allocation.

Accepted Answer

Traditional costing systems typically use only one overhead cost pool for allocation, whereas activity-based costing uses multiple cost pools to provide a more accurate allocation of overhead costs to products or services.

Quiz 7: Activity-Based Costing and Management