Chapter 08 Testbank PDF

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Chapter 08 Testbank Student: ___________________________________________________________________________

1.

Which of the following statements is false?

A. Conventional costing systems tend to over cost high-volume product lines. B. Conventional costing systems tend to create a product cost distortion problem. C. In conventional costing, the high-volume products are often subsidising the lowvolume products. D. Conventional product costing systems recognise a range of non-volume-based cost drivers. 2.

Which of the following statements is false?

A. Under conventional costing, product cost distortions will be relatively insignificant if overhead costs are a small proportion of product cost. B. Activity-based costing will significantly improve the product cost accuracy where overhead costs are a small proportion of total costs. C. Activity-based costing will significantly improve product cost accuracy where there is significant product diversity. D. Upstream and downstream costs are often a significant part of a product's costs. 3.

Which of the following statements regarding activity-based costing (ABC) is false?

A. ABC can be used to measure the cost of cost objects. B. ABC can be used to analyse the profitability of customers. C. ABC is not an appropriate tool for analysing nonmanufacturing costs. D. ABC evolved as a response to problems with conventional costing systems.

4.

Which of the following can signal the need for a new product costing system?

A. Line managers do not believe reported product costs. B. Complex products have high reported profitability while more basic high-volume products show small margins or even losses. C. Overhead rates are high and increasing. D. All of the given answers 5.

Which of the following can signal the need for a new product costing system?

A. Bids won and lost are difficult to explain. B. Competitors' high-volume products are priced unreasonably low. C. Our low-volume products are priced low compared to competitors. D. All of the given answers 6.

A resource driver is:

A. a factor that causes a cost B. a unit of work performed within the organisation C. used to estimate the cost of resources consumed by an activity D. a factor that causes a cost AND is used to estimate the cost of resources consumed by an activity 7.

A cost driver:

A. is a factor that causes a cost B. may also be a resource driver C. is a unit of work performed within the organisation D. is a factor that causes a cost AND may also be a resource driver

8.

Activity management:

A. is another name for activity-based costing B. is the same as the comprehensive activity-based product costing system C. uses activity information to monitor and control what is happening in a business D. None of the given answers 9.

Which of the following statements is/are true? i. Activity management requires analysis of overhead activities only. ii. Activity management requires analysis of all activities. iii. Activity management requires identification of detailed activities, rather than broad activities.

A. ii i B. i i C. i and iii D. ii and iii 10. Characteristics of activity-based costing include:

A. a greater number of overhead cost application bases compared to conventional costing systems B. the overhead cost application bases are likely to be more accurate cost drivers than would be the case in conventional costing systems C. the simplicity of the system makes it easy to implement D. a greater number of overhead cost application bases compared to conventional costing systems AND the overhead cost application bases are likely to be more accurate cost drivers than would be the case in conventional costing systems 11. Companies are likely to benefit from activity-based costing systems if:

A. they have wide variations in the volume of individual production runs and setups are costly B. they have a narrow range of products with similar volumes and setups are costly C. they have a narrow range of products and setups are not costly D. None of the given answers

12. Consider the following statements. Which of the statements is true?

A. As the activity-based system accuracy increases, the cost of inferior decisions based on distorted product costs decreases. B. As the activity-based system accuracy increases, the costs of implementing and operating the system increase. C. As the activity-based system accuracy increases, the total cost from inferior decisions and the cost to implement and operate the system decrease. D. As the activity-based system accuracy increases, the cost of inferior decisions based on distorted product costs decreases AND as the activity-based system accuracy increases, the costs of implementing and operating the system increase. 13. Activity-based costing has most to offer where:

A. overhead is high and volume driven B. overhead is high and non-volume driven C. overhead is low and non-volume driven D. direct labour is a major proportion of total costs 14. Consider the following statements. Conventional costing systems can produce distorted product costs if: i. overheads are driven by non-volume factors ii. overheads are a minor part of the product cost iii. it fails to recognise non-manufacturing costs as product costs Which of the statements is true?

A. i B. i i C. ii i D. i and iii

15. Consider the following statements. Activity-based costing is more difficult in a service business because: i. service businesses have a low proportion of overhead in their total costs ii. service businesses tend to have a higher level of facility costs than most manufacturers iii. it is often difficult to identify service activities because they are non-repetitive Which of the above statements is true?

A. i B. i i C. ii and iii D. i, ii and iii 16. Consider the following statements. i. The optimal product costing system is the most accurate system. ii. The optimal product costing system is the one that minimises the cost of poor decisions from inferior information. iii. The optimal product costing system is the most expensive one. Which of the statements is true?

A. i B. i i C. ii i D. None of the given answers 17. In a simple activity-based product costing system:

A. direct material, direct labour, manufacturing overhead and non-manufacturing overhead are assigned to products on an activity basis B. direct material is traced using a conventional approach, while direct labour, manufacturing overhead and non-manufacturing overhead are assigned to products on an activity basis C. direct material and direct labour are traced using a conventional approach, manufacturing overhead is assigned on an activity basis and non-manufacturing overhead is expensed as it is incurred D. direct material, direct labour and manufacturing overhead are traced using a conventional approach, and non-manufacturing overhead is assigned on an activity basis

18. Calculate the cost per unit for setup for one run of 10 000 units if setup labour is $20 per hour and 10 hours are required to set up.

A. $0.04 per unit B. $0.06 per unit C. $2.00 per unit D. $0.02 per unit 19. Calculate the activity cost per unit of activity driver if the activity cost is $3500, the activity driver is the number of batches and the total quantity of the activity driver is 1750 batches.

A. $3.00 per batch B. $1.50 per batch C. $2.00 per batch D. $2.50 per batch 20. Calculate the cost of processing one sales order if the total activity cost is $1 720 000 p.a., the activity driver is the number of orders received and the annual quantity of the activity driver is 43 000 orders.

A. $20 per order B. $25 per order C. $40 per order D. $50 per order 21. An activity cost pool:

A. is a combination of a number of activities B. must be made up of activities at the same level C. can only be used at the product level D. is a combination of a number of activities AND must be made up of activities at the same level

22 Quality Carvings manufactures furniture. They have decided to develop an activity-based costing . system. Shown below is each activity, its cost and the activity driver used to assign these costs to products.

Under an activity-based costing system, what is the activity cost per unit of activity driver for processing orders?

A. $93.3 3 B. $25.2 0 C. $25.4 0 D. $62.0 0

23 Quality Carvings manufactures furniture. They have decided to develop an activity-based costing . system. Shown below is each activity, its cost and the activity driver used to assign these costs to products.

Under an activity-based costing system, what is the activity cost per unit of activity driver for making patterns?

A. $4.7 3 B. $10.0 0 C. $17.5 0 D. $21.5 0

24 Summer Ice Pty Ltd is a manufacturer of a range of ice cream products. The following is a list of . activities, costs and quantities of activity drivers for a number of activities that occur in the factory.

Under an activity-based costing system, what is the activity cost per unit of activity driver for measuring ingredients?

A. $12.9 0 B. $15.0 0 C. $13.8 0 D. $14.0 0

25. Summer Ice Pty Ltd is a manufacturer of a range of ice cream products. The following is a list of activities, costs and quantities of activity drivers for a number of activities that occur in the factory.

Under an activity-based system, what is the activity cost per unit of activity division for packing into containers?

A. $0.0 6 B. $0.0 5 C. $0.0 2 D. $0.0 4 26. In an activity-based costing system, a bill of activities will include:

A. a charge for allocated overhead B. the activity cost per unit of activity driver C. the quantity of activity consumed D. the activity cost per unit of activity driver AND the quantity of activity consumed 27. Which of the following is not a useful broad category of cost classification in activity-based costing?

A. The unit level activity B. The batch level activity C. The facility level activity D. The differential level activity

28. Which of the following are examples of batch level activities?

A. Machine setup B. Materials handling C. Machinin g D. Machine setup AND materials handling 29. Consider the following statements regarding conventional costing systems. i. All overhead costs are assumed to be driven by volume of production. ii. All product costs are direct costs. iii. Conventional costing systems tend to distort product costs when numerous products are made that vary in their production requirements. Which statement/s is/are true?

A. i B. ii and iii C. i and iii D. i i 30. Consider the following statements. i. Product diversity creates problems in product costing because diverse products tend to utilise productive activities in very different ways. ii. Overhead costs that are not incurred at the unit level create product-costing problems because they do not vary with measures such as direct labour hours or machine hours. iii. Product diversity exists when a single product, such as pens, are made in different colours. Which of the above statement/s is/are true?

A. i B. i i C. i and ii D. i and iii

31. HiTech Products manufactures three types of CD players: Cheap, Econo and Deluxe. HiTech uses an activity-based product costing system. The company has identified five activities. Each activity, its cost and related activity driver are identified below:

The following information pertains to each product line of CD players:

Under an activity-based product costing system, what is the cost per unit of Cheap?

A. $141.0 0 B. $272.0 0 C. $164.0 0 D. $228.2 4

32. HiTech Products manufactures three types of CD players: Cheap, Econo and Deluxe. HiTech uses an activity-based product costing system. The company has identified five activities. Each activity, its cost and related activity driver are identified below:

The following information pertains to each product line of CD players:

Under an activity-based product costing system, what is the cost per unit of Econo (to the nearest dollar)?

A. $27 2 B. $28 2 C. $22 8 D. $32 0

33. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year— lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the activity cost per unit of activity driver for machine setups?

A. $5000 per setup B. $2500 per setup C. $1200 per setup D. $1667 per setup

34. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year— lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the activity cost per unit of activity driver for material handling?

A. $2.00 per part B. $16.67 per part C. $2.50 per part D. $5.00 per part

35. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year— lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the activity cost per unit of activity driver for assembly?

A. $4.80 per part B. $24 per direct labour hour C. $10 per part D. $10 per direct labour hour

36. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year— lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the activity cost per unit of activity driver for finishing?

A. $7.50 per direct labour hour B. $30.00 per direct labour hour C. $25.00 per unit D. $30.00 per unit

37. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year— lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the total cost of lounge chairs for the year?

A. $1 710 000 B. $1 410 000 C. $890 000 D. $1 150 000

38. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year— lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the total cost of patio chairs for the year?

A. $1 150 000 B. $890 600 C. $1 710 000 D. $590 000 39. Conventional product costing systems result in inaccurate product costs when:

A. direct labour increases B. the proportion of direct labour and raw material increases C. product diversity increases D. the proportion of direct labour and raw material increases AND product diversity increases

40. Which of the following statements is true? Indicators of problems with product cost systems are: i. non-manufacturing costs that are product related become insignificant ii. the proportion of manufacturing overhead not driven by production volume increases iii. there is an increase in product diversity

A. i B. i i C. ii i D. ii and iii 41. Which of the following statements, as indicators of product cost systems, are out of date? i. Highly profitable products are difficult to make. ii. Competitors' prices appear to be very low. iii. The market easily absorbs price increases.

A. i B. i and iii C. ii and iii D. i, ii and iii 42. The benefits arising from the introduction of activity-based costing are likely to be greater where: i. overhead is a large proportion of total cost ii. implementation costs are not high due to the support of advanced IT systems iii. batches are of a similar size

A. i and ii B. i and iii C. ii and iii D. None of the given answers

43. Which of the following are usually included in conventional cost systems? i. Direct material is traced to products. ii. Non-manufacturing costs are assigned to products. iii. Manufacturing overhead is allocated using a production-volume-based cost driver.

A. i B. i i C. ii i D. i and iii 44. Which of the following are common production volume measures? i. Direct labour hours ii. Machine hours iii. Direct material cost

A. i and ii B. ii and iii C. i and iii D. iii only 45. Recent developments in manufacturing and marketing have resulted in significant changes to cost manufacturing structures. Which of the following statements is/are false? i. The proportion of direct labour increases ii. The proportion of manufacturing overhead increases iii. Product diversity decreases iv. The proportion of non-volume-related manufacturing overheads increases

A. i and ii B. i and iii C. ii and iii D. iii and iv

46. Recent increases in downstream costs have occurred because of: i. increased advertising and product promotion ii. increased customer servicing iii. increased competition iv. increases in product design

A. i and ii B. ii and iii C. iii and iv D. i, ii and iii 47. Which of the following are indicators of an outdated costing system? i. Products that are difficult to make have high profit margins. ii. Competitors prices appear unrealistically low. iii. Customers are not deterred by price increases. iv. A lot of time is spent on special product cost projects.

A. i, ii and iii B. ii, iii and iv C. i, iii and iv D. i, ii, iii and iv 48. In which of the following may a traditional costing system result in?

A. The product costs are distorted B. Complex products are under costed C. Simple products are over costed D. All the given answers

49. One of the results of the inaccuracies arising from traditional costing systems may be:

A. overhead costs are overapplied B. overhead costs are underapplied C. actual overheads exceed overhead applied D. overhead costs are underapplied AND actual overheads exceed overhead applied 50. Despite the obvious advantages of ABC, many firms are still reluctant to implement it. What are the reasons for this reluctance? i. Uncertainty about the benefits of ABC ii. The opinion that the current system serves all the firm's needs iii. Lack of resources to implement ABC

A. i and ii B. ii and iii C. i and iii D. i, ii and iii 51. Which of the following statements is/are true? i. Both conventional cost systems and ABC focus on resources supplied. ii. Plant and equipment is an example of a committed resource under an ABC system. iii. Committed resources always equal resources used.

A. i B. i i C. ii i D. ii and iii

52. Behavioural issues may be important in implementing an ABC system. Which of the following are some of the methods employed to minimise adverse outcomes? i. Use a top down approach. ii. Use a bottom up approach. iii. Ensure all employees have a sense of ownership in the system.

A. i and ii B. ii and iii C. ii i D. i an...