319259808 Activity Based Costing PDF

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Cost Accounting Systems (B. Activity-Based Cost System)

ACTIVITY-BASED COST SYSTEM THEORIES: Outdated cost system 1. Symptoms of an outdated cost system include all of the following EXCEP A. product costs change because of changes in financial reporting. B. products that are difficult to produce show little profit. C. competitors' prices appear unrealistically low. D. the company has a highly profitable niche all to itself. 2. Which of the following is NOT a sign of poor cost data? A. Competitors' prices for high-volume products appear much too high. B. The company seems to have a highly profitable niche all to itself. C. Customers don't balk at price increases for low-volume products. D. Competitors' prices for low-volume products appear much too high. Activity-based management 3. Which system focuses on the management of activities with the objective of improving the value received by the customer and the profit received by providing this value? A. activity-based management C. contemporary cost control B. traditional cost management system D. standard cost system 4. Activity-based management (ABM) is A. a costing system in which multiple overhead cost pools are allocated using bases that include one or more nonvolume related factors B. a base used to allocate the cost of a resource to the different activities using it C. the use of information obtained from ABC to make improvements in the firm D. a base used to allocate the cost of an activity to products and customers 5. An objective of activity-based management is to A. eliminate the majority of centralized activities in an organization. B. reduce or eliminate non-value-added activities incurred to make a product or provide a service. C. institute responsibility accounting systems in decentralized organizations. D. all of the above 6. Primary concepts under activity-based management include all of the following except: A. activity analysis C. activity-based costing B. total quality management D. cost driver analysis 7. Which of the following falls under the Activity-Based Management umbrella? Continuous Business process Activity-based improvement reengineering costing A. NO NO YES B. YES NO NO C. YES YES YES D. NO YES NO 8. All of the following are ways that activities can be managed to achieve improvements in a process, except A. activity induction C. activity elimination B. activity selection D. activity sharing Traditional Costing vs. ABC system 9. Which of the following is not a distinction between the traditional and ABC costing systems A. the number of overhead cost pools tends to be higher in ABC systems B. the number allocation bases tend to be higher in ABC system C. costs within an ABC cost pool tend to be more homogeneous than the costs within a traditional system’s cost pool D. all ABC systems are one-stage costing systems, while traditional systems may be one- or two-stage 10. In contrast to a company that uses a single overhead rate, one that uses activity-based costing A. will have higher product costs than one using a single overhead rate. B. cannot compute budget variances. C. will incur additional costs for recordkeeping. D. must have a preponderance of fixed overhead costs.

Activity-based costing Reason 11. Of the following, which is the best reason for using activity-based costing? A. to keep better track of overhead costs B. to more accurately assign overhead costs to cost pools so that these costs are better controlled 769

Cost Accounting Systems (B. Activity-Based Cost System)

C. to better assign overhead costs to products D. to assign indirect service overhead costs to direct overhead cost pools Benefits 12. The primary benefit of using ABC is that it provides A. better management decisions. B. enhanced control over overhead costs. C. more cost pools. D. more accurate product costing. 13. Which of the following is not a benefit of activity-based costing? A. More accurate product costing. B. Enhanced control over overhead costs. C. Less costly to use. D. Better management decisions. Factors suggesting need to switch to ABC 14. Which of the following factors would suggest a need to switch to activity-based costing? A. Product lines similar in volume and manufacturing complexity. B. Overhead costs constitute a significant portion of total costs. C. The manufacturing process has been stable. D. Production managers use data provided by the existing system. 15. A least likely reason to use activity-based overhead rates is that A. some departments are labor-intensive, some are machine-intensive. B. significant amounts of overhead are driven by different factors. C. rates calculated for some departments are much higher than for other departments. D. all jobs require about the same amounts of cost-driving activities. 16. The presence of any of the following factors would suggest a switch to ABC except when A. product line differ greatly in volume. B. overhead costs constitute a minor portion of total costs. C. the manufacturing process has changed significantly. D. production managers are ignoring data provided by the existing system. Characteristics 17. Which of the following is typical of activity-based costing systems? A. Use of a single predetermined overhead rate. B. Use of direct labor hours or direct labor cost to assign overhead. C. Assumption of correlation between direct labor and incurrence of overhead cost. D. Use of multiple cost drivers to allocate overhead. 18. All of the following statements are correct except that A. activity-based costing has been widely adopted in service industries. B. the objective of installing ABC in service firms is different than it is in a manufacturing firm. C. a larger proportion of overhead costs are company-wide costs in service industries. D. the general approach to identifying activities and activity cost pools is the same in a service company as in a manufacturing company. Application 19. ABC should be used in which of the following situations? A. single-product firms with multiple steps B. multiple-product firms with only a single process C. multiple-product firms with multiple processing steps D. in all manufacturing firms Limitation 20. Which of the following is a limitation of activity-based costing? A. More cost pools C. Poorer management decisions D. Some arbitrary allocations continue B. Less control over overhead costs 21. Each of the following is a limitation of activity-based costing system except that: A. it can be expensive to use. B. it is more complex than the traditional costing.

C. more cost pools are used. D. some arbitrary allocations still continue. Cost behavior of high-volume & low-volume product 22. As compared to a high-volume product, a low-volume product 770

Cost Accounting Systems (B. Activity-Based Cost System)

A. B. C. D.

usually requires less special handling. is usually responsible for more overhead costs per unit. requires relatively fewer machine setups. requires use of direct labor hours as the primary cost driver to ensure proper allocation of overhead.

Cost assignment 23. Which of the following lists the most to least accurate method of cost assignment? A. direct tracing, driver tracing, allocation C. driver tracing, direct tracing, allocation B. allocation, direct tracing, driver tracing D. allocation, driver tracing, direct tracing 24. An activity-based costing system uses which of the following procedures? A. Overhead costs are traced to departments, then costs are traced to products. B. Overhead costs are traced to activities, then costs are traced to products. C. Overhead costs are traced directly to products. D. All overhead costs are expensed as incurred. Steps 25. A well-designed activity-based costing system starts with A. identifying the activity-cost pools. B. computing the activity-based overhead rate. C. assigning manufacturing overhead costs for each activity cost pool to products. D. analyzing the activities performed to manufacture a product. 26. The first step in activity-based costing is to A. assign manufacturing overhead costs for each activity cost pool to products. B. compute the activity-based overhead rate per cost driver. C. identify and classify the major activities involved in the manufacture of specific products. D. identify the cost driver that has a strong correlation to the activity cost pool. 27. The last step in activity-based costing is to A. identify the major activities that pertain to the manufacture of specific products. B. allocate manufacturing overhead costs to activity cost pools. C. identify the cost drivers that accurately measure each activity’s contribution to the finished product. D. assign manufacturing overhead costs for each activity cost pool to products. 28. Successful activity-based costing (ABC) implementation depends upon the firm having: A. top management support B. ABC linked to its competitive strategy C. adequate resources D. all of the above Cost driver, activity driver & resource driver 29. Any activity that causes resources to be consumed is called a A. just-in-time activity C. facility-level activity B. cost driver D. nonvalue-added activity 30. A base used to allocate the cost of a resource to the different activities using that resource is A. resource driver C. activity driver B. final cost object D. driver 31. A base used to allocate the cost of products, customers, or other final cost objects is a(n) C. activity driver A. resource driver B. final cost object D. driver 32. Activity drivers differ from resource drivers in that activity drivers A. are used to assign indirect costs while resource drivers are used to assign direct costs B. assign the cost of activities to cost objects while resource drivers assign the cost of resources to activities C. assign the cost of activities to resources and resource drivers assign the cost of resources to cost objects D. are used to assign direct costs while resource drivers are used to assign indirect costs 33. An appropriate cost driver base should A. have a cause-and-effect relationship with the activity and the use of resources B. predict or explain activities' use of resources with reasonable accuracy C. be based on the practical capacity of the resource to support activities

D. all of the above Cost pool 34. A cost pool is A. all of the costs of a particular department. 771

Cost Accounting Systems (B. Activity-Based Cost System)

B. all costs in a group such as variable costs or discretionary fixed costs. C. all costs related to a product or product line. D. all costs that have the same driver. Cost pool rate 35. More accurate product costing information is produced by assigning costs using A. a volume-based, plant-wide rate. B. volume-based, departmental rates. C. activity-based pool rates. D. all of the above Cost allocation 36. Activity-based overhead rates are more useful than a single plant-wide rate if A. overhead costs are driven by several activities. B. direct labor cost varies significantly from department to department. C. all products require about the same amounts of all activities. D. manufacturing overhead costs are nearly all fixed. 37. In activity-based costing, preliminary cost allocations assign costs to A. departments. C. products. B. processes. D. activities. 38. In activity-based costing, final cost allocations assign costs to A. departments. C. products. B. processes. D. activities. 39. Which of the following best describes the flow of overhead costs in an activity-based costing system? A. Overhead costs => direct labor cost or hours => products B. Overhead costs => products C. Overhead costs => activity cost pools => cost drivers => products D. Overhead costs => machine hours => products 40. Finding a single cost driver that changes in the same proportion as all the variable factory overhead costs is: A. simplified by breaking out the fixed portion of overhead cost B. the first step in variable overhead cost management C. difficult, but manageable D. impossible 41. Total activity cost is the sum of A. resource driver assigned costs and activity driver assigned costs B. direct and indirect costs C. directly traceable resource costs and resource driver assigned costs D. opportunity costs and realized costs Activity levels Unit level 42. Unit-level costs are costs that A. inevitably increase whenever a unit is produced B. are caused by the number of batches produced and sold C. are incurred to support the number of different products produced D. are incurred to sustain capacity at a production site 43. Examples of unit-level costs are A. portions of electricity and indirect materials B. salaries of schedulers and setup personnel C. salaries of designers and programmers D. depreciation and insurance of building 44. Examples of unit level activities are A. scheduling, setting up, and receiving B. designing, changing, and advertising

C. heating, lighting, and security D. cutting, painting, and packaging

45. All of the following are unit-based cost drivers except A. machine hours C. number of setups

B. number of units

D. direct labor hours

46. An example of a nonvolume-related overhead base would be: A. Direct materials cost C. Direct Labor cost B. Machine hours D. Number of setups 772

Cost Accounting Systems (B. Activity-Based Cost System)

Batch level 47. Batch-level resources are acquired A. for individual units of product or service B. for making a group of similar products C. to produce and sell a specific product D. to provide a general capacity to produce products and services. 48. Examples of batch-level activity drivers include A. units of output and direct labor hours B. number of batches and material moves C. number of products and design changes D. square footage occupied 49. Which of the following is not a batch-level activity? A. Engineering changes. C. Inspection. B. Equipment setups. D. Material handling. Product-sustaining level 50. Examples of activities at the product level of costs include A. cutting, painting, and packaging B. scheduling, setting up, and moving C. designing, changing, and advertising D. heating, lighting and security 51. Which of the following activities is directly traceable to a product? A. batch-level activities C. facility-level activities D. product-sustaining activities B. unit-level activities 52. Designing and redesigning are activities that are classified as A. Facility level C. Unit level D. Product level B. Batch level 53. Which of the following is the best way to consider a product-level cost?. A. A product-level cost can be avoided when a product line is discontinued. B. A product-level cost can be avoided when a there is change in the production schedule so the product is not produced this week. C. A product level cost can be avoided when a business segment is discontinued. D. A product level cost can be avoided when the corporation is dissolved. 54. Examples of activities at the batch level of costs include A. scheduling, setting up, and moving B. designing, changing, and advertising C. heating, lighting, and security D. cutting, painting, and packaging Facilities sustaining level 55. Which of the following activities may support all the organization's processes and are the highest level of activities? A. batch-level activities C. facility-level activities B. product-sustaining activities D. unit-level activities 56. In a pure activity-based cost system which of the following might be treated as period costs? A. facility-level costs C. batch-level costs B. product-level costs D. unit-level costs 57. Plant-level costs are costs that A. inevitably increase whenever a unit is produced B. are caused by the number of batches produced and sold C. are incurred to support the number of different products produced D. are incurred to sustain capacity at a production site 58. Which of the following is not considered to be a facility-level cost? A. Cost of Property Insurance. B. Cost of personnel administration.

C. Cost of Liability Insurance for only one of the product lines. D. Cost of building security. Value adding & Non-value adding activity 59. The following activity is value-added: 773

Cost Accounting Systems (B. Activity-Based Cost System)

A. Storage of raw materials B. Turning a piece of metal on a lathe

C. Moving parts from machine to machine D. All of these

60. An activity that adds cost to the product but does not increase it market value is a A. value-added activity C. cost driver D. nonvalue-added activity B. cost-benefit activity 61. When a firm redesigns a product to reduce the number of component parts, the firm is A. increasing consumer value. B. increasing the value added to the product. C. decreasing product variety. D. decreasing non-value-added costs. 62. Under activity-based costing, benchmarks for product cost should contain an allowance for A. idle time. C. spoilage. B. idle time and scrap materials. D. none of the above. 63. Elimination of non-value-added activities in a firm should: A. be discouraged because of potential harmful effects B. not affect customer value C. not have priority because non-value-added activities do not affect a firm's performance D. have priority only when a firm is operating at a loss 64. Page Company’s cost allocation and product costing procedures follow activity -based costing principles. The following activities have been identified and classified as being either value-adding or non-value adding as to each product. 1. Raw materials storage activity 2. Design engineering activity 3. Drill press activity 4. Heat treatment activity 5. Quality control inspection activity 6. Issuance of purchase order activity How are the foregoing activities classified? Value-adding Non-value adding A. 1, 2, 5, 6 3, 4 B. 1, 2, 4 3, 5, 6 C. 2, 4, 5 1, 3, 6 D. 2, 3, 4 1, 5, 6 Productivity Measures 65. Manufacturing cycle efficiency is a measure of A. bottlenecks. C. efficiency. B. effectiveness. D. quality. 66. The amount of time between the development and the production of a product is A. the product life cycle. C. production time. B. lead time. D. value-added time.

PROBLEMS: Breakeven Analysis i. Peal Company had the following information: Activity Driver Unit Variable Cost Level of Activity Driver Units sold P40 Setups 1,000 80 Engineering hours 60 2,000 Other data: Total fixed costs (traditional) P400,000 Total fixed costs (ABC) P150,000 Units selling price P80 What is the breakeven point in units using ABC? A. 10,000 unit C. 5,000 units B. 5,000 units D. 8,750 units Traditional Costing

Overhead cost per unit ii. Mary Manufacturing Company manufactures two products (X and Y). The overhead costs of P29,000 have been divided into three cost pools that use the following activity drivers: Product No. of Orders No. of Labor Transactions No. of Labor Hours

774

Cost Accounting Systems (B. Activity-Based Cost System)

X 30 100 1,000 Y 20 300 4,000 Cost per pool P5,000 P4,000 P20,000 Using traditional costing, what is the amount of overhead cost to be assigned to Product Y using labor hours as the allocation base? A. P21,750 C. P16,000 B. P 5,800 D. P23,200 Unit cost iii. Arid Company produces products BH and XP. The direct cost of BH is P250 per unit and XP is P350 per unit. Fifty units of BH and 150 units of XP were produced. Overhead amounting to P130,000 is allocated to products using direct costs as the relevant cost driver. The cost of XP per unit amounts to A. P750 C. P1,050 B. P1,000 D. P1,250 Activity-based Costing Batch-level costs Allocated overhead iv. One of Alien Company’s activity cost pools is machine setups, with estimated overhead of P300,000. Alien produces slacks (400 setups) and shirts (600 setups). How much of the machine setup cost pool should be assigned to slacks? A. P 0 C. P150,000 B. P120,000 D. P180,000 v. The overhead rate for Machine Setups is P100 per setup. Products A and B have 80 and 60 setups, respectively. The overhead assigned to each product is C. Product A P8,000, Product B P6,000 A. Product A P8,000, Product B P8,000 B. Product A, P6,000, Product B P6,000 D. Product A, P6,000, Product B P8,000 vi. Sylvia Company has ide...