Question 1

The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.Cost pools are used in both first-stage and second-stage cost allocations.

Accepted Answer

Cost pools are used in both first-stage and second-stage cost allocations. In first-stage cost allocation, direct costs are assigned to cost objects, while indirect costs are accumulated in cost pools. In second-stage cost allocation, these cost pools are then allocated to cost objects using an allocation base.

Question 2

The department cost allocation method provides more accurate product cost information for managerial decision-making than the plantwide cost allocation method.The information is more accurate because some of the variations in the product can be captured.

Accepted Answer

The department cost allocation method is more precise and accurate as it assigns costs to specific departments, which allows for a more detailed analysis of product costs. This method helps capture variations in the products and provides more accurate information for managerial decision-making compared to the plantwide cost allocation method, which allocates all costs to one cost pool and then divides them by a single allocation base, such as direct labor hours or machine hours.

Question 3

Traditional product costing systems (e.g. ,job and process costing)are designed primarily to accumulate cost information for financial reporting.This is the primary purpose of accumulating cost information.

Accepted Answer

Traditional product costing systems, such as job and process costing, are designed to accumulate cost information primarily for financial reporting purposes. They are not designed to facilitate decision-making or improve operational efficiencies.

Question 4

Direct labor cost (DLC)and direct labor hours (DLH)are examples of volume-related cost drivers in the cost hierarchy.Both DLC and DLH change as volume changes.

Accepted Answer

Both DLC and DLH are examples of volume-related cost drivers and change as volume changes, making statement A true.

Question 5

The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.The death spiral is continually increasing the prices to match the increased reported costs.

Accepted Answer

The statement is incorrect as the death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition, not increasing the prices.

Question 6

The basic difference between the department cost allocation method and activity-based costing (ABC)is the number of stages involved in allocating costs to products.It is not the number of stages,it is the use of activity cost pools and different cost drivers.

Accepted Answer

The basic difference between department cost allocation and ABC is indeed the number of stages and the use of activity cost pools and different cost drivers. Department cost allocation typically involves fewer stages and uses departmental rates, while ABC involves multiple stages with activity cost pools and specific cost drivers for each activity.

Question 7

Predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.Predetermined overhead rates are used in both first-stage and second-stage cost allocations.

Accepted Answer

Predetermined overhead rates are typically used in the first-stage cost allocation to assign overhead costs to departments or cost pools, not in the second-stage where costs are allocated to products or services.

Question 8

The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant.In the plantwide allocation method,the cost pool is the entire plant.

Accepted Answer

The statement is correct. The plantwide allocation method uses a single predetermined rate to allocate overhead costs to products or services based on the entire cost pool of the plant.

Question 9

Using direct labor costs to allocate overhead costs in an activity-based costing (ABC)system will encourage management to reduce labor costs.Allocating overhead on the basis of direct labor sends signals that direct labor is more expensive than it really is.This also creates tremendous incentives to reduce the labor content of products.

Accepted Answer

Allocating overhead costs based solely on direct labor costs can inaccurately represent the true cost of products or services, leading management to focus on reducing labor costs instead of addressing other factors that may contribute to overhead costs. This can result in a reduction of the labor content of products or outsourcing of labor-intensive tasks, but may not necessarily lead to overall cost savings in the long run.

Question 10

Before using activity-based costing (ABC),managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.Applying cost-benefit principles is fundamental to choosing any costing system.

Accepted Answer

The cost-benefit principle should always be considered when choosing any costing system, including activity-based costing. This principle helps ensure that the benefits of using ABC outweigh the additional costs of record keeping, which can be significant.

Question 11

The number of products produced is an example of a facility-related cost driver in the cost hierarchy.Number of products is a product-related cost driver.

Accepted Answer

The statement is incorrect. The number of products produced is a product-related cost driver, not a facility-related cost driver, in the cost hierarchy.

Question 12

In general,variable costs are allocated using a first-stage cost allocation system and fixed costs are allocated using a second-stage cost allocation system.Variable and fixed costs are both involved in the first-stage cost allocation.

Accepted Answer

Variable and fixed costs are typically allocated in the second-stage cost allocation system, not the first-stage. The first-stage allocation usually involves assigning costs to cost pools, not distinguishing between variable and fixed costs.

Question 13

Activity-based costing (ABC)can be applied to administrative activities (e.g. ,purchasing)but not to marketing activities.ABC can be used in marketing as well as administrative activities.

Accepted Answer

This statement is false. ABC can be applied to both administrative and marketing activities to provide a more accurate analysis of costs and profitability.

Question 14

It is possible to apply activity-based costing (ABC)to segments of an organization without applying it to the entire organization.ABC can be applied in a single portion or segment of an organization as well as the entire organization.

Accepted Answer

Yes, ABC can be applied to specific segments of an organization rather than the entire organization as a whole. This is often useful when certain segments have high costs or when a more accurate picture of costs is needed for specific products or services in those segments.

Question 15

The plantwide cost allocation method should be used by companies that manufacture products that are similar and use the same resources.Since the products are similar and use the same resources,all of the products should cost roughly the same.

Accepted Answer

The answer of The plantwide cost allocation method should be...

Question 16

In general,traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).Low volume products get less cost under traditional costing since they use less of the volume cost drivers.

Accepted Answer

Traditional product costing methods allocate overhead costs based on a predetermined rate per unit of production, which can result in low-volume products being allocated less cost. ABC, on the other hand, identifies and allocates costs based on the activities and resources required to produce each product, resulting in a more accurate allocation of costs to each product regardless of volume.

Question 17

In general,low-volume products (and services)have a lower degree of complexity associated with them.Low-volume products may have just as much complexity as higher-volume products.Complexity is a function of the product and its design,not its volume.

Accepted Answer

While volume may not be a direct indicator of complexity, low-volume products may still have unique specifications or customization requirements that increase their complexity. Additionally, high-volume products may have been designed to specifically minimize complexity and reduce production costs. Therefore, complexity is not solely determined by the design of the product, but also by the volume and other factors.

Question 18

Activity-based costing (ABC)provides more detailed measures of costs than do plantwide or department allocation methods.This is due to ABC using more causal relationships that are not limited to the production floor.

Accepted Answer

ABC uses causal relationships beyond just production and can provide more detailed cost measures.

Question 19

Activity-based costing (ABC)is a two-stage cost allocation system that (1)allocates costs to activities and (2)then to products based on their use of the activities.This is a fundamental concept of ABC.

Accepted Answer

This statement accurately describes the two stages of cost allocation in activity-based costing.

Question 20

When overhead is applied based on the volume of output,high-volume products tend to "subsidize" low-volume products.When overhead is applied based on the volume of output,high-volume products are allocated relatively more overhead than are low-volume products.High-volume products "subsidize" low-volume products.

Accepted Answer

When overhead is applied based on the volume of output, high-volume products tend to subsidize low-volume products as they are allocated relatively more overhead. This is because the overhead costs are spread out over a larger volume of output for high-volume products, reducing the overhead cost per unit. In contrast, low-volume products have less output to spread the overhead costs over, resulting in a higher overhead cost per unit. So, the high-volume products end up subsidizing the low-volume products by absorbing a larger proportion of the overhead costs.

Quiz 9: Activity-Based Costing