Chapter 4: Process Costing

True or False Inspection of incoming raw materials and production loss caused by downtime are examples of prevention costs.

Which of the following is a sign that a product cost system is not working​ properly? A. The cost system is fully depreciated. B. The cost system was installed five years ago. C. The cost system has multiple allocation bases. D. Managers​ don't understand costs and profits.

True or False Cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system.

True or False There will be little benefit to using an activityminusbased costing system when products are vastly different from each other and consume different amounts of resources.

True or False With increased​ competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products.

True or False Activity-based management refers to using activity-based cost information to make decisions that may increase profits while satisfying​ customers' needs.

Which of the following is true about lean​ thinking? A. Inventory levels are maintained at high levels. B. Raw materials are purchased in large quantities. C. Customer orders drive the production process. D. Finished goods are produced ahead of​ customers' orders to protect against running out of finished goods inventory.

True or False? One condition that favors using a departmental overhead​ rate, rather than plantwide overhead​ rates, is that different departments incur different amounts and types of manufacturing overhead.

Non-value added activities are A. Activities that could be reduced or removed from the process with no ill effect on the end product or service. B. Activities that neither enhance the​ customer's image of the product or service nor provide a competitive advantage. C. Also called waste activities. D. All of the above.

True or False A lean company typically strives to lengthen the manufacturing cycle time.

Most companies adopt ABC in order to A. cut costs. B. help make product mix decisions. C. get a more accurate price of products. D. all of the above are correct.

Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers.​ Cooper's Bags Company sells the bags in cases of 1 comma 500 bags. The bags come in three​ sizes: Large,​ Medium, and Small.​ Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,114,000 of annual manufacturing overhead. Of this​ amount, $2,260,000 is associated with the Large Bag​ line, $3,415,000 is associated with the Medium Bag​ line, and $2,439,000 is associated with the Small Bag line.​ Cooper's Bags Company is currently running a total of 35,000 machine​ hours: 12,400 in the Large Bag​ line, 14,700 in the Medium Bag​ line, and 7,900 in the Small Bag line.​ Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. Which product​ line(s) have been overcosted or undercosted by using the plantwide manufacturing overhead​ rate?

All of the following describe an ABC system except A. ABC systems can create more accurate product costs. B. ABC systems are used in both manufacturing and nonmanufacturing companies. C. ABC systems are more complex and costly than traditional costing systems. D. ABC systems may only be used by service companies

True or False Two main benefits of ABC are​ (1) more accurate product cost information and​ (2) more detailed information on the costs of activities and the drivers of those costs.

The first step in developing an ABC system is A. identify the primary activities and estimate a total cost pool for each. B. allocate the costs to the cost object using the activity cost allocation rates. C. calculate an activity cost allocation rate for each activity. D. select an allocation base for each activity.

If a company were to decrease its prevention costs by eliminating employee​ training, the​ company's external failure costs would most likely A. decrease. B. increase. C. remain the same. D. Unable to predict

Which of the following is a result of cost​ distortion? A. Accurate costing of all products B. Undercosting of all products C. Overcosting of all products D. Overcosting of some products and undercosting of other products

Which of the following is an example of a cost item that should be classified as an external failure​ cost? A. Warranty claims B. Tooling changes C. Cost to redesign product D. Cost of a lost unit

True or False? Appraisal costs are incurred to detect poor-quality goods or services.

If a company were to increase its appraisal costs by inspecting more units as the units are​ completed, the​ company's external failure costs would most likely A. increase. B. decrease. C. remain the same. D. Unable to predict

Why are large amounts of inventory considered​ wasteful? A. Storing inventory is very expensive. B. It ties up cash that could be used for​ other, more useful purposes. C. Inventory could​ spoil, get broken or​ stolen, or become obsolete. D. All of the above are reasons large amounts of inventory are considered wasteful.

Research and development would most likely be classified as a​ ________ cost. A. batch-level B. facility-level C. product-level D. unit-level

True or False External failure costs occur when the company detects and corrects poor-quality goods or services before delivery to customers.

Machine set-up would most likely be classified as a​ ________ cost. A. product-level B. facility-level C. batch-level D. unit-level