Question 1

A cost hierarchy is useful to managerial accountants because it categorizes various activity cost pools on the basis of the different types of cost drivers,cost-allocation bases,or different degrees of difficulty in determining cause-and-effect relationships.

Accepted Answer

A cost hierarchy is a tool used by managerial accountants to categorize different activity costs based on the various types of cost drivers, allocation bases, and difficulty in determining cause-and-effect relationships. It helps in better analysis and decision making by providing a clear understanding of the various cost components and their impact on the overall cost structure.

Question 2

Companies deduct facility-sustaining costs as a separate lump-sum amount from operating income rather

Accepted Answer

Companies typically deduct facility-sustaining costs such as rent, utilities, and maintenance as a separate lump-sum amount from their operating income.

Question 3

How do managerial accountants differentiate between the design of a simple-costing system and an activity-based costing system?

Accepted Answer

The answer of How do managerial accountants differentiate between the...

Question 4

Which of the following are costs of activities performed on each individual unit of a product or service?

Accepted Answer

Output unit-level costs are costs incurred for activities performed on each individual unit of a product or service.

Question 5

The costs of activities that cannot be traced to individual products or services but that support the organization as a whole are ________.

Accepted Answer

Facility-sustaining costs are costs that cannot be traced to individual products or services but that support the organization as a whole, such as rent, utilities, and property taxes. Batch-level costs are costs incurred for each batch of products, input unit-level costs are costs incurred for each unit of input, output unit-level costs are costs incurred for each unit of output, and product-sustaining costs are costs incurred to support a particular product or service.

Question 6

The costs of activities related to a group of units of a product or service rather than each individual unit of product or service are ________.

Accepted Answer

Batch-level costs are incurred for a group of units of a product or service rather than each individual unit. These costs are associated with activities that are performed each time a batch of products or services is produced, regardless of the number of units in the batch. Examples of batch-level costs include setup costs, quality control costs, and ordering costs. Input unit-level costs and output unit-level costs are associated with each individual unit produced, while product-sustaining costs and facility-sustaining costs are associated with the overall product or service and the facility where it is produced, respectively.

Question 7

Which of the following is not a level in the cost hierarchy?

Accepted Answer

The cost hierarchy includes four levels: unit-level costs, batch-level costs, product-sustaining costs, and facility-sustaining costs. Input-level unit costs are not a recognized level in the cost hierarchy.

Question 8

In indirect cost pools,distribution costs are ________.

Accepted Answer

The answer of In indirect cost pools,distribution costs are ________.
...

Question 9

Which of the following are costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced?

Accepted Answer

Product-sustaining costs are costs incurred to support individual products regardless of the number of units or batches produced. Examples of such costs include product engineering and design, research and development, and product testing.

Question 10

Activity-based costing attempts to identify the most relevant cause-and-effect relationships for each activity pool without restricting the cost driver to only units of output.

Accepted Answer

Activity-based costing aims to identify the most significant cause-and-effect connections for each activity pool, meaning that it does not limit the cost driver to just units of output.

Question 11

Why is it important for managers to allocate all costs of products or services?

Accepted Answer

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Question 12

In indirect cost pools,administrative costs are ________.

Accepted Answer

Administrative costs typically support the overall operation of the facility, and therefore they fall into the category of facility-sustaining costs, which are a type of indirect cost.

Question 13

Why do managers use cost hierarchies? What are the four levels of the cost hierarchy in activity-based costing systems?

Accepted Answer

The answer of Why do managers use cost hierarchies? What...

Question 14

Allocating costs to products by measuring the cost-allocation bases of different activities used by different products leads to more accurate production costs.

Accepted Answer

Allocating costs based on the specific activities and processes involved in the production of different products allows for a more precise distribution of costs. This method takes into account the resources used by each product and allows for a more accurate calculation of production costs, leading to better decision-making and profitability analysis.

Question 15

Why do some managers in organizations deduct facility-sustaining costs as a separate lump-sum amount from operating income rather than allocate them to products?

Accepted Answer

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Question 16

Examples of product-sustaining costs at companies such as Volvo,Samsung,or General Electric are product research and develop costs,costs of making engineering changes,and marketing costs to launch new products.

Accepted Answer

Product-sustaining costs refer to the ongoing costs incurred by a company to maintain and update its existing products. Examples of such costs include product research and development, costs of making engineering changes, and marketing costs to launch new products. Companies like Volvo, Samsung, and General Electric incur these types of costs to sustain their existing product lines.

Question 17

Machine operations costs that are related to the activity of running the automated molding machines are output unit-level costs.

Accepted Answer

Output unit-level costs are those costs that are directly related to the production of a unit or batch of products, such as the costs of materials, labor, and machine operations. Machine operations costs that are related to the activity of running the automated molding machines are one example of output unit-level costs.

Question 18

In indirect cost pools,machine operations costs are ________.

Accepted Answer

Machine operations costs are considered output unit-level costs because they vary with the number of units produced.

Question 19

In indirect cost pools,design costs are ________.

Accepted Answer

Design costs are more closely associated with sustaining a product rather than producing a single unit or batch. As such, they would fall under product-sustaining costs in an indirect cost pool.

Question 20

In indirect cost pools,shipment setup costs are ________.

Accepted Answer

Shipment setup costs are incurred every time a batch of products is shipped, therefore they are batch-level costs. Indirect cost pools are categorized based on the different cost drivers that incur them.

Quiz 6: Activity-Based Costing and Activity-Based Management