Chapter 4 - test bank of managerial accounting book PDF

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CHAPTER 4 ACTIVITY-BASED COSTING SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S

TAXONOMY I t e m

L O

BT

I t e m

L O

BT

I t e m

L O

BT

I t e m

L O

BT

I t e m

L O

BT

6 6 6 8 8 8

K K C K K K

25. 26. a 27. a 28. a 29. a 30.

7 7 9 9 9 9

K K K C K K

112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138.

6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 8

K K K K K C C C C K K C C C C C K K K K K K K K K K K

139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. a 152. a 153. a 154. a 155. a 156. a 157. a 158. a 159. a 160. a 161. a 162.

8 8 8 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 9

K K K AP AP AP AP AP AP K K K C K K K K K K K K C K K

AP 169. K 170.

4 6

AP C

171.

6

C

True-False Statements 1. 2. 3. 4. 5. 6.

1 1 1 1 1 2

K K K C C K

7. 8. 9. 10. 11. 12.

4 4 4 5 5 5

C K C K K K

13. 14. 15. 16. 17. 18.

5 5 5 6 6 6

K C K K K K

19. 20. 21. 22. 23. 24.

Multiple Choice Questions 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 3 3 3 3 3 4 4

K K K C K K K C K K K K AP AP AP AP AP AP K K K K K AP K AP K

58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84.

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

K K K K K K K K K AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP C K AP

85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111.

4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 6 6

AP AP AP AP AP AP AP AP AP AP AP AP K C K C K K C K K K K K C K K

Brief Exercises 163. 164.

1 4

AP AP

165. 166.

4 4

AP AP

167. 168.

4 4

4-2

Test Bank for Managerial Accounting, Sixth Edition

Exercises 172. 173. 174. 175.

1,4 1,4 4 3

AP AP AP K

176. 177. 178.

4 4 4

C C AP

179. 180. 181

4 4 4

E AP C

182. 183. 184.

4,5 6 6

AP C C

9 9

K K

185. 186. 187.

7 7 8

C C AP

Completion Statements 188. 189. 190. a

1 1 2

K K K

191. 192. 193.

4 5 5

K K K

194. 195. 196.

6 7 7

K K K

a

197. 198.

a

This question covers a topic in an Appendix to the chapter.

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE I t e m

T y p e

I t e m

T y p e

I t e m

1. 2. 3. 4.

TF TF TF TF

5. 31. 32. 33.

TF MC MC MC

34. 35. 36. 37.

6.

TF

48.

MC

49.

T y pe

I t e m

T y p e

I t e m

Learning Objective 1 MC 38. MC 42. MC 39. MC 43. MC 40. MC 44. MC 41. MC 45. Learning Objective 2 MC 50. MC 190.

T y p e

I t e m

T y p e

I t e m

T y pe

MC MC MC MC

46. 47. 163. 172.

MC MC BE Ex

173. 188. 189.

Ex C C

MC

175.

Ex

MC MC MC MC MC MC MC MC BE

165. 166. 167. 168. 169. 172. 173. 174. 176.

BE BE BE BE BE Ex Ex Ex Ex

177. 178. 179. 180. 181. 182. 191.

Ex Ex Ex Ex Ex Ex C

C

51.

MC

52.

MC

53.

7. 8. 9. 56. 57. 58. 59. 60. 61.

TF TF TF MC MC MC MC MC MC

62. 63. 64. 65. 66. 67. 68. 69. 70.

MC MC MC MC MC MC MC MC MC

71. 72. 73. 74. 75. 76. 77. 78. 79.

Learning Objective 3 MC 54. MC 55. Learning Objective 4 MC 80. MC 89. MC 81. MC 90. MC 82. MC 91. MC 83. MC 92. MC 84. MC 93. MC 85. MC 94. MC 86. MC 95. MC 87. MC 96. MC 88. MC 164.

99. 100. 101. 102.

Learning Objective 5 MC 103. MC 107. MC 104. MC 108. MC 105. MC 109. MC 106. MC 182.

MC MC MC Ex

192. 193.

C C

112. 113. 114. 115.

Learning Objective 6 MC 116. MC 120. MC 117. MC 121. MC 118. MC 122. MC 119. MC 170.

MC MC MC BE

171. 183. 184. 194.

BE Ex Ex C

10. 11. 12. 13. 16. 17. 18. 19.

TF TF TF TF TF TF TF TF

14. 15. 97. 98. 20. 21. 110. 111.

TF TF MC MC TF TF MC MC

FOR INSTUCTOR USE ONLY

Activity-Based Costing

25. 26. 123. 22. 23. 24. 27. 28. 29.

TF TF MC TF TF TF TF TF TF

124. 125. 126. 138. 139. 140. 30. 152. 153.

MC MC MC MC MC MC TF MC MC

127. 128. 129.

Learning Objective 7 MC 130. MC 133. MC 131. MC 134. MC 132. MC 135.

MC MC MC

136. 137. 185.

MC MC Ex

141. 142. 143.

Learning Objective 8 MC 144. MC 147. MC 145. MC 148. MC 146. MC 149.

MC MC MC

150. 151. 187.

MC MC Ex

154. 155. 156.

Learning Objective a9 MC 157. MC 160. MC 158. MC 161. MC 159. MC 162.

MC MC MC

197. 198.

C C

Note: TF = True-False MC = Multiple Choice

BE = Brief Exercise Ex = Exercise

186. 195. 196.

4-3

Ex C C

C = Completion

The chapter also contains one set of ten Matching questions and three Short-Answer Essay questions.

CHAPTER LEARNING OBJECTIVES 1.

Recognize the difference between traditional costing and activity-based costing. A traditional costing system allocates overhead to products on the basis of predetermined plantwide or departmentwide rates such as direct labor or machine hours. An ABC system allocates overhead to identified activity cost pools, and then assigns costs to products using related cost drivers that measure the activities (resources) consumed.

2.

Identify the steps in the development of an activity-based costing system. The development of an activity-based costing system involves four steps: (1) Identify and classify the major activities involved in the manufacture of specific products, and allocate manufacturing overhead costs to the appropriate cost pools. (2) Identify the cost driver that has a strong correlation to the costs accumulated in the cost pool. (3) Compute the overhead rate per cost driver. (4) Assign manufacturing overhead costs for each cost pool to products or services using the overhead rates.

3.

Know how companies identify the activity cost pools used in activity-based costing. To identify activity cost pools, a company must perform an analysis of each operation or process, documenting and timing every task, action, or transaction.

4.

Know how companies identify and use cost drivers in activity-based costing. Cost drivers identified for assigning activity cost pools must (a) accurately measure the actual consumption of the activity by the various products and (b) have related data easily available.

FOR INSTRUCTOR USE ONLY

4-4

Test Bank for Managerial Accounting, Sixth Edition

5.

Understand the benefits and limitations of activity-based costing. Features of ABC that make it a more accurate product costing system include: (1) the increased number of cost pools used to assign overhead, (2) the enhanced control over overhead costs, and (3) the better management decisions it makes possible. The limitations of ABC are: (1) the higher analysis and measurement costs that accompany multiple activity centers and cost drivers, and (2) the necessity still to allocate some costs arbitrarily.

6.

Differentiate between value-added and non-value-added activities. Value-added activities increase the worth of a product or service. Non-value-added activities simply add cost to or increase the time spent on a product or service without increasing its market value. Awareness of these classifications encourages managers to reduce or eliminate the time spent on the non-value-added activities.

7.

Understand the value of using activity levels to activity-based costing. Activities may be classified as unit-level, batch-level, product-level, and facility-level. Companies control overhead costs at unit-, batch-, product-, and facility-levels by modifying unit-, batch-, product-, and facility-level activities, respectively. Failure to recognize this classification of levels can result in distorted product costing.

8.

Apply activity-based costing to service industries. The overall objective of using ABC in service industries is no different than for manufacturing industries—that is, improved costing of services provided (by job, service, contract, or customer). The general approach to costing is the same: analyze operations, identify activities, accumulate overhead costs by activity cost pools, and identify and use cost drivers to assign the cost pools to the services.

9.

Explain just-in-time (JIT) processing. JIT is a processing system dedicated to having on hand the right materials and products just at the time they are needed, thereby reducing the amount of inventory and the time inventory is held. One of the principal accounting effects is that one account, Raw and In-Process Inventory, replaces both the raw materials and workin-process inventory accounts.

a

FOR INSTUCTOR USE ONLY

Activity-Based Costing

4-5

TRUE-FALSE STATEMENTS 1.

Traditional costing systems use multiple predetermined overhead rates.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

2.

Traditionally, overhead is allocated based on direct labor cost or direct labor hours.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

3.

Current trends in manufacturing include less direct labor and more overhead.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

4.

Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using cost drivers.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

5.

A cost driver does not generally have a direct cause-effect relationship with the resources consumed.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

6.

The first step in activity-based costing is to assign overhead costs to products, using cost drivers.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

7.

To achieve accurate costing, a high degree of correlation must exist between the cost driver and the actual consumption of the activity cost pool.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

8.

Low-volume products often require more special handling than high-volume products.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

9.

When overhead is properly assigned in ABC, it will usually decrease the unit cost of highvolume products.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

10.

ABC leads to enhanced control over overhead costs.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

11.

ABC usually results in less appropriate management decisions.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

12.

ABC is generally more costly to implement than traditional costing.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

13.

ABC eliminates all arbitrary cost allocations.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

FOR INSTRUCTOR USE ONLY

4-6 14.

Test Bank for Managerial Accounting, Sixth Edition ABC is particularly useful when product lines differ greatly in volume and manufacturing complexity.

Ans: T, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

15.

ABC is particularly useful when overhead costs are an insignificant portion of total costs.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

16.

Activity-based management focuses on reducing costs and improving processes.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

17.

Any activity that increases the cost of producing a product is a value-added activity.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

18.

Engineering design is a value-added activity.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

19.

Non-value-added activities increase the cost of a product but not its perceived value.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

20.

Machining is a non-value-added activity.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

21.

Not all activities labeled non-value-added are totally wasteful, nor can they be totally eliminated.

Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

22.

The overall objective of installing ABC in service firms is no different than it is in a manufacturing company.

Ans: T, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

23.

What sometimes makes implementation of activity-based costing difficult in service industries is that a smaller proportion of overhead costs are company-wide costs.

Ans: F, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

24.

The general approach to identifying activities, activity cost pools, and cost drivers is used by a service company in the same manner as a manufacturing company.

Ans: T, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

25.

Plant management is a batch-level activity.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

26.

Painting is a product-level activity.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

FOR INSTUCTOR USE ONLY

Activity-Based Costing a

27.

4-7

Just-in-time strives to eliminate inventories by using a pull approach.

Ans: T, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt a

28.

Quality control is less important in just-in-time than in traditional manufacturing philosophies.

Ans: F, LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt a

29.

Inventory storage costs are reduced in just-in-time processing.

Ans: T, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt a

30.

Rework costs typically increase in just-in-time processing.

Ans: F, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt

Answers to True-False Statements I t e m

1. 2. 3. 4. 5.

An s . I t e m

F T T T F

6. 7. 8. 9. 10.

An s . I t e m

F T T T T

11. 12. 13. 14. 15.

Ans . I t e m

F T F T F

16. 17. 18. 19. 20.

An s . I t e m

T F...