Question 1

Activity-based management involves focusing on activities to eliminate waste, decrease processing time, and reduce defects.

Accepted Answer

Activity-based management involves analyzing and improving individual activities within a process to increase efficiency and effectiveness. This involves identifying and eliminating any non-value-added activities, reducing processing time, and minimizing defects in order to improve overall performance.

Question 2

Unit-level activities are performed each time a new departmental unit such as a regional sales office is created.

Accepted Answer

Unit-level activities are tasks or actions that are performed each time a unit of product or service is produced, not specifically related to the creation of new departmental units like a regional sales office.

Question 3

A department's overhead costs are generally caused by a variety of factors including the range of products processed in the department, the number of batch set-ups that are required, and the complexity of the products.

Accepted Answer

Overhead costs can be caused by a variety of factors including the range of products processed in the department, the number of batch set-ups required, and the complexity of the products. These factors can increase the amount of time and resources needed to produce the products, resulting in higher overhead costs.

Question 4

Companies use three common approaches to assign overhead costs to products-plantwide overhead rate, departmental overhead rates, and activity-based costing.The most accurate of these three approaches is the plantwide overhead rate.

Accepted Answer

The most accurate approach is actually activity-based costing, as it assigns overhead costs to products based on the actual activities that drive those costs. Plantwide and departmental overhead rates rely on assumptions and averages that may not accurately reflect the specific costs of each product.

Question 5

Product-level activities relate to specific products and typically must be carried out whenever a batch is run or a unit of the product is made.

Accepted Answer

Product-level activities are related to specific products but are not dependent on the number of batches or units produced; they support the product as a whole, such as product design or advertising.

Question 6

Departmental overhead rates applied on the basis of a single activity measure will eliminate any distortions in unit costs due to product diversity.

Accepted Answer

Departmental overhead rates applied on the basis of a single activity measure may still result in distortions in unit costs due to product diversity. For example, if two products use the same activity measure to allocate overhead costs but one product requires significantly more setup time or machine usage than the other, the unit cost for the product with higher usage will be overstated while the unit cost for the product with lower usage will be understated. To avoid such distortions, multiple activity measures or other allocation methods may be used.

Question 7

A plantwide predetermined overhead rate based on direct labor-hours results in low overhead costs for products with a high direct labor-hour content and high overhead costs for products with a low direct labor-hour content.

Accepted Answer

A plantwide predetermined overhead rate based on direct labor-hours actually results in the opposite effect: products with a high direct labor-hour content will absorb more overhead costs, making their overhead allocation higher, not lower.

Question 8

An activity measure in activity-based costing expresses how much of an activity is carried out and it is used as the allocation base for assigning overhead costs to products and services.

Accepted Answer

An activity measure is a unit of measurement that is used to assign costs to cost objects, such as products or services, in activity-based costing. It represents the amount of a particular activity that is consumed by a cost object, and is used as the basis for allocating overhead costs. Examples of activity measures include machine hours, number of setups, and number of orders processed.

Question 9

Rather than using a single allocation base such as direct labor-hours or machine-hours, in activity-based costing a company uses a number of allocation bases for assigning costs to products.

Accepted Answer

Activity-based costing (ABC) uses multiple allocation bases, also known as cost drivers, to assign costs to products or services based on the activities involved in producing them. This approach is considered more accurate and reflective of actual costs than traditional methods that rely on a single allocation base.

Question 10

Activity-based costing involves a two-stage allocation process in which overhead costs are first assigned to activity cost pools and then allocated to products using activity measures.

Accepted Answer

This statement accurately describes activity-based costing.

Question 11

The challenge in designing an activity-based costing system is to identify all of the activities that explain the variation in overhead costs.

Accepted Answer

The answer of The challenge in designing an activity-based costing...

Question 12

Batch-level activities are performed each time a batch of goods is processed.The cost of a batch-level activity does not depend on the number of units in the batch.

Accepted Answer

Batch-level activities, such as setting up equipment, scheduling production runs, or ordering materials, are performed for each batch of goods regardless of the number of units in the batch. Therefore, the cost of a batch-level activity remains the same regardless of the size of the batch.

Question 13

In activity-based costing, departmental overhead rates are used to apply overhead to products.

Accepted Answer

In activity-based costing (ABC), overhead costs are applied to products based on the activities that drive those costs, rather than using departmental overhead rates.

Question 14

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours.

Accepted Answer

Activity-based costing uses a number of activity cost pools, but these are allocated to products on the basis of various cost drivers such as machine-hours or number of setups, not just direct labor-hours.

Question 15

When designing an activity-based costing system, related activities are frequently combined to reduce the amount of detail and record-keeping cost.

Accepted Answer

Combining related activities can reduce the amount of detail and record-keeping cost, which is one of the advantages of activity-based costing (ABC) systems. However, it is important to ensure that the combined activities are still meaningful for accurate cost allocation.

Question 16

In activity-based costing, each major activity has its own overhead cost pool, its own activity measure, and its own overhead rate.

Accepted Answer

This statement is true in activity-based costing. The purpose of assigning overhead costs to specific activities is to obtain a more accurate cost of producing products or services. Each major activity is assigned its own overhead cost pool, typically based on the resources consumed or the cost drivers used. An appropriate activity measure is also selected for each activity pool and used to allocate overhead costs to the products or services that use or benefit from the activities. This approach allows for more precise cost information and better decision-making.

Question 17

In general, activities and costs on different levels in the cost hierarchy-such as unit-level and batch-level costs and activities--should be combined in an activity-based costing system if doing so simplifies the costing system.

Accepted Answer

Activities and costs on different levels in the cost hierarchy should be separated and analyzed separately in an activity-based costing system in order to provide more accurate and detailed insights into the cost drivers and cost structure of the organization. Combining them would not simplify the costing system but rather make it less precise and informative.

Question 18

Direct labor is an appropriate allocation base for overhead when overhead costs and direct labor are not highly correlated.

Accepted Answer

Direct labor is a commonly used allocation base for overhead because the assumption is that overhead costs are related to the amount of labor required to produce a product or service. If overhead costs and direct labor costs are not highly correlated, then using direct labor as an allocation base may result in inaccurate or distorted cost information. In this case, an alternative allocation base should be used to allocate overhead costs more accurately.

Question 19

An activity cost pool in activity-based costing is a "cost bucket" in which costs related to a particular activity measure are accumulated.

Accepted Answer

An activity cost pool is a grouping of individual costs associated with a particular activity, such as setup costs or material handling costs. These costs are accumulated and then allocated to products or services based on the activity's usage.

Question 20

An activity-based costing system is generally more difficult to set up and run than a traditional cost system.

Accepted Answer

Activity-based costing requires more detailed data collection and analysis, as well as identifying and tracking numerous activities that contribute to costs, making it more complex than a traditional cost system.

Quiz 4: Activity-Based Costing