Question 1

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 the information provided by activity-based costing to make decisions about which activities to optimize, reduce, or eliminate. This includes evaluating the costs and benefits of production and internal support activities. Activity-based budgeting involves using ABC information to create budgets for different activities, while activity-based consulting involves helping companies implement ABC systems and improve their operations based on the insights gained from ABC data. Therefore, while B, C, and D are related to ABC, they do not specifically refer to the process of using ABC information for cost and benefit evaluation as described in the question.

Question 2

Lookin' for a Home is an animal shelter in Parramatta, New South Wales. 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 because it directly correlates with the amount of recordkeeping required. Each time an animal is taken in or adopted out, the shelter must update its records accordingly. The other options are not as directly related to the amount of animal recordkeeping required.

Question 3

BVH manufactures and sells mobile 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 mobile 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 4

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 5

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 information to identify and improve upon processes and activities that add value to the organization. Objective financial reporting, outside consultants, and participative management techniques may be utilized in conjunction with ABM, but they are not the sole focus or requirement of the approach.

Question 6

Which of these is not a benefit of Activity Based Costing?
A) Increased awareness of cause and effect relationships
B) Identification of non-value-added activities
C) Modifications to the accounting system
D) All of the above are benefits. i.e. none of the items is not a benefit

Accepted Answer

Modifications to the accounting system are not a direct benefit of Activity Based Costing; they are often a necessary step to implement the system.

Question 7

Value-added activities
A) Increase revenues
B) Increase the worth of an organisation's goods and services to customers
C) Increase the worth of an organisation's goods and services to shareholders
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 by enhancing their quality, functionality, or appeal.

Question 8

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

Costs associated with developing an ABC system typically include the employee time spent on implementation and the fees of consultants hired to assist with the process.

Question 9

Phuong is a customer of PVL Ltd. 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

It is important for PVL's staff to develop creative approaches to managing Phuong as a customer. This could include finding ways to reduce the cost of services provided to her or offering her alternative services that are less costly to provide. It may also be possible to renegotiate pricing with Phuong or explore opportunities to cross-sell higher margin products to her. Simply ignoring Phuong or requiring her to pay for all orders in cash may ultimately result in the loss of her business, which could have negative implications for PVL's overall profitability. Classifying Phuong as a value-added customer and increasing the amount of services provided to her may not be appropriate given the low-margin nature of her orders.

Question 10

The managers of HRY are analysing 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 pay-cheque

Accepted Answer

The most appropriate cost driver for the payroll processing cost pool is the number of employees as it reflects the actual volume of work and effort required to process and manage payroll for a certain number of employees. The number of pay periods per month could also be considered as relevant, but it may not accurately capture differences in workload between departments. Average hourly wage and maximum number of deductions are unlikely to have a significant impact on the cost of payroll processing.

Question 11

A cost driver is
A) A measure of activity that causes costs to fluctuate
B) Only used in ABC systems
C) Seldom related to cost changes in an ABC system
D) Usually related to cost changes in a traditional costing system

Accepted Answer

A cost driver is a measure of activity that causes costs to fluctuate in both traditional and ABC costing systems. It is not only used in ABC systems, and is usually related to cost changes in a traditional costing system as well.

Question 12

MNK 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 processed is the most likely cost driver for the accounts receivable activity cost pool, as the activity of processing invoices is directly proportional to the number of invoices processed. The other options, such as number of journal entries or average dollar amount for each credit sale, may not have a direct correlation to the amount of work done by accounts receivable clerks. Number of product lines produced by MNK is also not directly related to accounts receivable activity.

Question 13

The best allocation base choice for an ABC cost pool is a(n)
A) Cost driver
B) Activity dictionary
C) Allocation rate
D) Financial measure

Accepted Answer

The best allocation base choice for an ABC cost pool is a cost driver because cost drivers are the activities or factors that drive the incurrence of costs in a particular cost pool. Allocating costs based on cost drivers makes the allocation process more accurate and reflective of the underlying activities that generate costs. Activity dictionary and allocation rate are methods used in ABC costing, but they are not the best allocation base choices. Financial measures may not necessarily be related to the underlying activities that generate costs, so they may not be the best allocation base choice.

Question 14

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 insight into the relative costs of maintaining different customers. Based on this information, managers can use activity-based management techniques to improve customer profitability by identifying and focusing on the most profitable customers while reducing costs associated with less profitable customers.

Question 15

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 provide managers with a more accurate understanding of the costs and profitability of individual products or product lines, which can help them identify the best way to relax constraints. For example, if a particular product is consuming a large portion of a constrained resource, such as machine time, but is not generating a correspondingly high level of profitability, it may make sense to decrease production of that product or discontinue it altogether, freeing up the constrained resource for more profitable products.

Question 16

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) Do all of the above

Accepted Answer

Implementing an activity-based costing (ABC) system requires gathering and reporting activity and cost driver information, as this is the basis of the system. The accounting information system may require modifications to include this information, but it would not require including fewer ledger accounts or only using costs from the most recent periods. Therefore, the best choice is C.

Question 17

An allocation base is
A) Normally related to cost changes in a traditional costing system
B) A measure of activity that causes costs to fluctuate
C) Seldom related to cost changes in an ABC system
D) Often used incorrectly as a synonym for "cost driver"

Accepted Answer

The answer of An allocation base is
A) Normally related to...

Question 18

FNG 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. Phillip 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 most likely cost driver for the purchasing agents' salaries is the number of purchase orders processed each month, since their primary responsibility is to process purchase orders for vendors. The other options are not as directly related to the job duties of the purchasing agents.

Question 19

Which of the following statements is true?
A) Cost drivers are a special kind of allocation base
B) Allocation bases are a special kind of cost driver
C) Cost drivers and allocation bases are two names for the same thing
D) Allocation bases are seldom used in traditional costing systems

Accepted Answer

Cost drivers are a special kind of allocation base, as cost drivers are used to assign costs to cost objects, while allocation bases are used to allocate overhead costs to cost objects. Cost drivers are a more specific type of allocation base, as they are chosen based on the factor that most directly causes the overhead cost to be incurred.

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 bonuses for managers
C) Improving accuracy in cost measurement
D) Motivating employees to find ways to improve performance

Accepted Answer

Increasing bonuses for managers is not a benefit of an ABC system. ABC systems provide benefits such as helping managers focus on measurement at the activity level, improving accuracy in cost measurement, and motivating employees to find ways to improve performance. However, increasing bonuses is not a direct benefit of implementing an ABC system.

Quiz 8: Activity Analysis: Costing and Management

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

BVH manufactures and sells mobile 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

Activity-based management relies on

Which of these is not a benefit of Activity Based Costing?

Value-added activities

Costs associated with developing an ABC system most likely include

Phuong is a customer of PVL Ltd. 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 cost driver is

MNK 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?

The best allocation base choice for an ABC cost pool is a(n)

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

How can ABC information be used to manage constrained resources?

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

An allocation base is

Which of the following statements is true?

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