Question 1

Activity cost pools are cost accumulations associated with a given activity.

Accepted Answer

Activity cost pools refer to the accumulation of costs associated with a specific activity within a business process. These costs are then allocated to specific products, services, or customers based on the resources consumed by each activity.

Question 2

Use of a plantwide factory overhead rate does not distort product costs when there are differences in the factory overhead rates across different production departments.

Accepted Answer

Use of a plantwide factory overhead rate can distort product costs when there are differences in the factory overhead rates across different production departments. This is because a plantwide rate applies the same overhead rate to all products, regardless of the differences in the overhead costs incurred by different departments. As a result, products that consume more overhead costs in a department with a high overhead rate may appear less profitable than products that consume less overhead costs in a department with a low overhead rate. A more accurate approach to assigning overhead costs is to use departmental overhead rates that reflect the differences in the overhead costs incurred by different production departments.

Question 3

Service organizations can use activity-based costing to allocate selling and administrative costs to services provided.

Accepted Answer

Activity-based costing (ABC) can be used to allocate all types of costs, including selling and administrative costs, to the services provided by a service organization. This allows for a more accurate understanding of the true cost of providing each service, which can inform pricing decisions and resource allocation.

Question 4

Service companies can effectively use multiple department overhead rate costing to compute product service costs.

Accepted Answer

The answer of Service companies can effectively use multiple department...

Question 5

Direct labor hours is not a cost pool that is regularly used in the activity-based costing method.

Accepted Answer

Direct labor hours is often used as a cost driver in activity-based costing to allocate labor-related costs to specific activities or products.

Question 6

Use of a plantwide factory overhead rate does not distort product costs when products require different ratios of allocation-base usage in each production department.

Accepted Answer

Use of a plantwide factory overhead rate can distort product costs because it assumes that all products use overhead at the same rate, even though products may require different ratios of allocation-base usage in each production department.

Question 7

Estimated activity-base usage quantities are the total activity-base quantities related to each product.

Accepted Answer

This statement is true. Estimated activity-base usage quantities refer to the total quantities of each activity base (such as machine hours or direct labor hours) that are estimated to be used by each product.

Question 8

In a service organization, the multiple department overhead rate method is the most effective in providing information about the cost of services.

Accepted Answer

The multiple department overhead rate method is not the most effective in providing information about the cost of services in a service organization. This method may be more suitable for a manufacturing organization where products go through different departments, but in service organizations, the activity-based costing (ABC) method is typically used for assigning costs to services. ABC takes into account multiple factors that drive service costs such as the number of customers, transactions, or hours of service provided.

Question 9

Activity cost pools are assigned to products, using factory overhead rates for each activity.

Accepted Answer

Activity cost pools are assigned to products using factory overhead rates for each activity. This is a widely accepted method of assigning overhead costs to products in cost accounting.

Question 10

Use of a plantwide factory overhead rate distorts product costs when there are differences in the factory overhead rates across different production departments and when products require different ratios of allocation-base usage in each production department.

Accepted Answer

A plantwide factory overhead rate assumes that all products consume factory overhead resources in the same proportion, but this is often not the case. Different departments may have different overhead rates, and some products may require more or less allocation-base usage in certain departments. This can lead to inaccurate allocation of overhead costs to products and distorted product costs.

Question 11

Service companies can effectively use activity-based costing to compute product service costs.

Accepted Answer

Activity-based costing can be used by service companies to determine the cost of their services by identifying and allocating costs based on the specific activities that drive those costs.

Question 12

Which of the following does not rely on managerial decisions involving accurate product costing?
A)product constraints
B)emphasis of a product line
C)product mix
D)product price

Accepted Answer

Product constraints are factors that limit the production of a product such as the availability of resources or the capacity of equipment. While managers may take these constraints into account when making decisions, accurate product costing is not necessary for identifying or addressing constraints. However, accurate product costing is necessary for determining product price, emphasis of a product line, and product mix.

Question 13

Service companies can effectively use single facility-wide overhead costing to compute product service costs.

Accepted Answer

Service companies typically offer a variety of different services, each with their own unique costs and resource requirements. Using a single facility-wide overhead costing method would not accurately allocate costs to different services and could result in inaccurate product (service) costs. Service companies would benefit from using activity-based costing methods to allocate costs to different services based on the specific resources consumed by each service.

Question 14

Activity-based costing can be used to allocate period costs to various products that the company sells.

Accepted Answer

Activity-based costing is a method of assigning costs to products or services based on the activities required to produce or provide them. Period costs, such as selling and administrative expenses, can be allocated to products using activity-based costing.

Question 15

Activity-based costing is much easier to apply than single plantwide factory overhead allocation.

Accepted Answer

Activity-based costing can be much more complex than traditional plantwide factory overhead allocation, as it requires identifying and tracking costs for each individual activity involved in the production process. However, it is often more accurate in assigning costs to products because it recognizes that not all products use the same amount or type of resources.

Question 16

ABC is used to allocate selling and administrative expenses to each product based on the product's individual differences in consuming these activities.

Accepted Answer

ABC stands for activity-based costing and it is a method used to allocate costs more accurately by considering the individual differences of each product in consuming selling and administrative activities. Therefore, the statement is true.

Question 17

Activity rates are computed by dividing the cost budgeted for each activity pool by the estimated activity base for that pool.

Accepted Answer

This is the correct definition of activity rates according to cost accounting principles.

Question 18

In an effort to simplify the multiple production department factory overhead rate method, the same rate can be used for all departments.

Accepted Answer

The multiple production department factory overhead rate method involves calculating different rates for each department because overhead costs and bases for allocation (like machine hours or labor hours) can significantly vary across departments. Using the same rate for all departments would not accurately allocate overhead costs.

Question 19

Activity-based costing can only be used to allocate manufacturing factory overhead.

Accepted Answer

Activity-based costing can be used to allocate both manufacturing and non-manufacturing overhead costs.

Question 20

When production departments differ significantly in their manufacturing process, it is recommended that the single plantwide factory overhead rate be used for allocating factory overhead.

Accepted Answer

When production departments differ significantly in their manufacturing process, it is recommended that multiple predetermined factory overhead rates be used for allocating factory overhead. This is because using a single plantwide factory overhead rate may result in inaccuracies and unfair allocations, as different departments have different levels of factory overhead costs.

Quiz 11: Cost Allocation and Activity-Based Costing