Question 1

When implementing an ABC system, the accounting information system may require modifications to
A) Include fewer ledger accounts
B) Include only costs from the most recent periods
C) Gather and report activity and cost driver information
D) Include more ledger accounts

Accepted Answer

Implementing an ABC system requires gathering and reporting activity and cost driver information, which may require modifications to the accounting information system. Including fewer or more ledger accounts or only using costs from the most recent periods is not directly related to implementing an ABC system.

Question 2

The process of using ABC information to evaluate the costs and benefits of production and internal support activities is called
A) Activity-based management
B) Activity-based budgeting
C) Activity-based costing
D) Activity-based consulting

Accepted Answer

Activity-based management involves using ABC information to make decisions about production and support activities in order to improve the efficiency and effectiveness of the organization. Activity-based budgeting involves using ABC information to create budgets for activities and resources. Activity-based costing is the process of assigning costs to activities based on their use of resources. Activity-based consulting is not a commonly used term in relation to ABC.

Question 3

Value-added activities
A) Increase revenues
B) Increase the worth of an organization's goods and services to customers
C) Increase the worth of an organization's goods and services to stockholders
D) Increase costs that are unrelated to customers

Accepted Answer

Value-added activities are those that increase the worth of an organization's goods and services to customers. This results in customer satisfaction and loyalty, which can ultimately lead to increased revenues and profits. Activities that increase costs unrelated to customers would not be considered value-added. While increasing the worth of an organization's goods and services to stockholders may be a desirable outcome, it is not the primary aim of value-added activities.

Question 4

Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage
A) Customer quality
B) Customer profitability
C) Inventory levels
D) Staffing levels in the marketing department.

Accepted Answer

Activity-based costing provides more accurate cost information related to a company's different customers. By using activity-based management techniques, managers can focus on the costs incurred by serving individual customers and improve the profitability of those customers. Therefore, choice B is the best option as it directly relates to the customer profitability aspect. The other options, customer quality, inventory levels, and staffing levels in the marketing department, can be managed using other techniques.

Question 5

FNG Corporation employs 4 purchasing agents. Rick processes purchase orders for vendors starting with the letters A through H, while Merrill does the same task for vendors from I through N. Esteban deals with vendors in the O through R range, and Kathy handles the rest of the alphabet. The most likely cost driver for the purchasing agents' salaries is the
A) Number of vendors within each alphabetical segment
B) Number of purchase orders processed each month
C) Average dollar amount of each purchase order
D) Number of product lines FNG produces

Accepted Answer

The number of purchase orders processed each month is the most likely cost driver for the purchasing agents' salaries as it directly measures the workload for each agent. While the number of vendors within each alphabetical segment may vary, it does not necessarily correspond to the amount of work each agent has to do. Similarly, the average dollar amount of each purchase order and the number of product lines FNG produces are not directly related to the workload for the purchasing agents.

Question 6

Phuong is a customer of PVL Corporation. She consistently orders low-margin products, but requires costly services from PVL. In employing ABM techniques to manage customer profitability, PVL's staff should
A) Make no changes in service to Phuong
B) Develop creative approaches to managing Phuong as a customer
C) Require Phuong to pay for all orders in cash
D) Classify Phuong as a value-added customer and increase the amount of services provided to her

Accepted Answer

PVL Corporation should develop creative approaches to managing Phuong as a customer. While Phuong consistently orders low-margin products, she requires costly services from PVL. By utilizing ABM techniques to manage customer profitability, PVL can identify the true costs of servicing Phuong and develop tailored approaches to manage her as a customer. This could include finding ways to reduce the costs of servicing Phuong, increasing the price of the low-margin products she orders, or upselling her to higher-margin products. Treating every customer the same is not always the most effective approach to managing profitability, and in this case, PVL should use ABM techniques to manage Phuong as a unique customer. Requiring Phuong to pay for all orders in cash or classifying her as a value-added customer and increasing services provided are not the best choices in managing Phuong's profitability.

Question 7

MNK Corporation is a large public company that employs numerous accounts receivable clerks. Their jobs involve processing invoices and keeping the accounting records updated. Which of the following is the most likely cost driver for the accounts receivable activity cost pool?
A) Number of journal entries
B) Number of product lines produced by MNK
C) Number of invoices
D) Average dollar amount for each credit sale

Accepted Answer

The number of invoices is the most likely cost driver for the accounts receivable activity cost pool as it directly represents the level of activity for the accounts receivable clerks. The more invoices the company processes, the more work the clerks will have to do. Option A, the number of journal entries, may be a cost driver for the general accounting activity cost pool, but not specifically for accounts receivable. Option B, the number of product lines produced by MNK, is not directly related to accounts receivable activity. Option D, the average dollar amount for each credit sale, may indirectly impact accounts receivable activity, but not as directly as the number of invoices.

Question 8

Lookin' for a Home is an animal shelter in Omaha, Nebraska. The shelter relies on government grants and private donations for funding. It takes in homeless dogs and cats and keeps them until they are adopted by qualified individuals. One of the shelter's cost pools is animal recordkeeping, which involves maintaining a database with details about each animal in the shelter. Which of the following is the most appropriate cost driver for the animal recordkeeping cost pool?
A) Number of government grants sought
B) Number of employees who work in the shelter
C) Number of animal intake and adoption transactions
D) Square feet allocated to the recordkeeping operation

Accepted Answer

The number of animal intake and adoption transactions is the most appropriate cost driver for the animal recordkeeping cost pool, as it directly relates to the activity of maintaining records for each animal.

Question 9

BVH Corporation manufactures and sells cellular phones. Which of the following activities is least likely to be considered a value-added activity for BVH?
A) Repairing phones
B) Offering phones for sale in designer colors
C) Making phones smaller
D) Creating several ring-tone options for cellular phones

Accepted Answer

Repairing phones is typically considered a non-value-added activity because it does not enhance the product's value from the customer's perspective; it merely restores the product to its intended function.

Question 10

Cost drivers are most likely to be identified using information
A) From the financial statements
B) Elicited from customers
C) Elicited from employees involved in related activities
D) From textbooks

Accepted Answer

Cost drivers are most likely to be identified by talking to employees involved in the related activities, as they have direct knowledge of the processes and resources involved.

Question 11

Product inspections are an example of
A) Appraisal activities
B) Production activities
C) Prevention activities
D) Post-sales activities

Accepted Answer

Product inspections are a type of appraisal activity, where a product is evaluated to determine if it meets certain standards or specifications. This occurs after production but before the product is sold to customers.

Question 12

The managers of HRY Corporation are analyzing some of their corporate costs to determine the costs of each department's use of administrative services. The accountant wants to allocate the costs of payroll processing using an activity-based costing system. The most appropriate cost driver for the payroll processing cost pool is the
A) Number of pay periods per month
B) Number of employees
C) Average hourly wage for all employees
D) Maximum number of deductions from an individual employee's paycheck

Accepted Answer

The number of employees is the most appropriate cost driver for payroll processing, as the cost is likely to vary with the number of employees being processed.

Question 13

Activities performed to insure defect-free production are called
A) Post-sales activities
B) Production activities
C) Prevention activities
D) Appraisal activities

Accepted Answer

Prevention activities are those activities performed to prevent defects in production processes. These activities aim to identify potential issues and address them before they occur, thus ensuring defect-free production. Unlike appraisal activities, which are performed after production to identify defects, prevention activities are proactive and focus on preventing issues from occurring in the first place. Post-sales activities are focused on addressing defects that have already occurred, and production activities are the actual manufacturing processes involved in creating a product.

Question 14

NRL Corporation's accounting information system reported warranty repair and product replacement costs totaling $12,000 in a recent accounting period. These costs are an example of which of the following quality costs?
A) Period costs
B) Post-sales activity costs
C) Activity-based costs
D) Prevention activity costs

Accepted Answer

Warranty repair and product replacement costs are incurred after the sale of a product, making them post-sales activity costs.

Question 15

Managers can use ABM information to manage customer profitability. The most valuable groups of customers are those having the following characteristics

Accepted Answer

The answer of Managers can use ABM information to manage...

Question 16

How can ABC information be used to manage constrained resources?
A) ABC information cannot be used to manage constrained resources
B) ABC information can help managers identify the best way to relax constraints
C) ABC information can help managers decrease the rate at which products get through the manufacturing process
D) ABC information can help managers justify price increases due to constrained resources

Accepted Answer

ABC information can help managers identify the activities or products that are consuming the most constrained resources and focus on ways to optimize them. By understanding which products or activities are most profitable and which ones are consuming too many resources, managers can make informed decisions about how to relax constraints and allocate resources effectively. This can help reduce production costs and increase profitability.

Question 17

Costs associated with developing an ABC system most likely include
A) Reduced profits
B) Loss of market share
C) Employee time and consulting fees
D) Increased overhead costs

Accepted Answer

The costs associated with developing an ABC system typically include employee time and consulting fees. While implementing an ABC system may ultimately lead to increased overhead costs, reduced profits, or loss of market share are not direct costs associated with the development of an ABC system.

Question 18

ABC can be used to determine the costs of quality and to help refine quality strategies. Quality activities are commonly classified as
A) Internal or external
B) Value-added or non-value-added
C) Prevention, appraisal, production, or post-sales
D) Process-oriented or job-oriented

Accepted Answer

The quality activities are commonly classified as prevention, appraisal, production, or post-sales. This classification helps in determining the costs associated with quality and to refine quality strategies. Option A is not a complete classification of quality activities, and option B is a classification based on the value addition rather than the type of quality activities. Option D is not a common classification used in quality management.

Question 19

Activity-based management relies on
A) Accurate ABC information
B) Objective financial reporting
C) Outside consultants
D) Participative management techniques

Accepted Answer

Activity-based management (ABM) relies on accurate ABC (activity-based costing) information as it helps in identifying the activities that add value to the product or service and those that don't. This information is crucial in ABM as it assists managers in making informed decisions on how to allocate resources effectively and efficiently. Objective financial reporting, outside consultants, and participative management techniques might also be helpful in certain situations, but they are not essential to the success of ABM.

Question 20

Which of the following is not a benefit of an ABC system?
A) Helping managers focus on measurement at the activity level
B) Increasing profits
C) Improving accuracy in cost measurement
D) Motivating employees to find ways to improve performance

Accepted Answer

While ABC systems can help increase profits indirectly by identifying inefficiencies and potential cost savings, it is not a direct benefit of the system itself. The direct benefits include helping managers focus on measuring at the activity level, improving accuracy in cost measurement, and motivating employees to find ways to improve performance.

Quiz 7: Activity-Based Costing and Management

When implementing an ABC system, the accounting information system may require modifications to

The process of using ABC information to evaluate the costs and benefits of production and internal support activities is called

Value-added activities

Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage

Phuong is a customer of PVL Corporation. She consistently orders low-margin products, but requires costly services from PVL. In employing ABM techniques to manage customer profitability, PVL's staff should

MNK Corporation is a large public company that employs numerous accounts receivable clerks. Their jobs involve processing invoices and keeping the accounting records updated. Which of the following is the most likely cost driver for the accounts receivable activity cost pool?

BVH Corporation manufactures and sells cellular phones. Which of the following activities is least likely to be considered a value-added activity for BVH?

Cost drivers are most likely to be identified using information

Product inspections are an example of

Activities performed to insure defect-free production are called

NRL Corporation's accounting information system reported warranty repair and product replacement costs totaling $12,000 in a recent accounting period. These costs are an example of which of the following quality costs?

Managers can use ABM information to manage customer profitability. The most valuable groups of customers are those having the following characteristics

How can ABC information be used to manage constrained resources?

Costs associated with developing an ABC system most likely include

ABC can be used to determine the costs of quality and to help refine quality strategies. Quality activities are commonly classified as

Activity-based management relies on

Which of the following is not a benefit of an ABC system?