Cost Accounting: Chapter 5

Which of the following statements is true of a peanut-butter costing system? A) A peanut-butter costing system typically has more-homogeneous indirect cost pools. B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects. C) A peanut-butter costing system assumes that all costs are variable. D) In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume.

Overcosting a particular product may result in ________. A) loss of market share B) pricing the product too low C) operating efficiencies D) understating total product costs

For a company with diverse products, undercosting overhead of a product will lead to ________. A) misallocating direct labor costs of the product. B) misallocating direct material costs of the product C) misallocating indirect costs of another product D) misallocating direct costs of another product

Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua? A) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs. B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs. C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs. D) Aqua will overcost Beta's indirect costs because beta has high indirect costs

Product-cost cross-subsidization ________. A) exists when one overcosted product results in more than one other product being overcosted B) means that if a company undercosts more than one of its products, it will overcost more than one of its other products C) means that if a company undercosts one of its products, it will overcost at least one of its other products D) exists only when one overcosted product results in all other products being overcosted

An accelerated need for refined cost systems is due to ________. A) global monopolies B) rising prices C) intense competition D) a shift toward increased direct costs

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called ________. A) activity-based costing B) uniform costing C) peanut-butter costing D) department costing

Refining a cost system includes ________. A) classifying as many costs as indirect costs as is feasible B) creating as many cost pools as possible C) identifying the activities involved in a process D) seeking a lesser level of detail

Which of the following is true of refinement of a costing system? A) While refining a costing system, companies should identify as many indirect costs as is economically feasible. B) A homogeneous cost pool will use multiple cost drivers to allocate costs. C) It reduces the use of broad averages for assigning the cost of resources to cost objects. D) It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs.

Which of the following is a reason that has accelerated the demand for refinements to the costing system? A) The declining demand for customized products has led managers to decrease the variety of products and services their companies offer. B) The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs. C) The increased of automated processes has led to the increase in direct manufacturing cost leading to a decrease in breakeven point. D) The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of breakeven point.

Demand for refinements to the costing system has accelerated due to ________. A) increase in direct costs B) decrease in product diversity C) decrease in indirect costs D) competition in product markets

Collin Inc. produces hospital equipment and the setup requirements vary from product to product. Collin produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution costs are pooled together. Costs in this pool are allocated using number of customer orders for the easiness of costing operations. Based on the information provided, which of the following arguments is valid? A) Collin has clearly failed to identify as many direct costs as is economically feasible. B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect relationship with the single cost driver that is used as the cost-allocation base for Collin. C) Collin has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as direct costs. D) Collin has failed to use the correct cost driver as the cost-allocation base for setup costs

ABC systems create ________. A) one large cost pool B) homogenous activity-related cost pools C) activity-cost pools with a broad focus D) activity-cost pools containing many direct costs

Activity based costing system differs from traditional costing systems in the treatment of ________. A) direct labor costs B) direct material costs C) prime costs D) indirect costs

ABC systems ________. A) highlight the different levels of activities B) limit cost drivers to units of output C) allocate costs based on the overall level of activity D) generally undercost complex products

Which of the following statements is true of activity-based costing? A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs. B) Activity based costing is more suited to companies with high product diversity than companies with single product line. C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services. D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.

A single indirect-cost rate distort product costs because ________. A) there is an assumption that all support activities affect all products B) it recognizes specific activities that are required to produce a product C) competitive pricing is ignored D) it assumes all costs are product costs

Which of the following statements is true of activity-based costing? A) Activity-based costing ignores the allocation of marketing and distribution costs. B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. C) Activity-based costing classifies some of the indirect costs as direct costs. D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________. A) establish a cause-and-effect relationship with the activities performed B) use single cost pool for all overhead costs, thereby enabling simplicity C) use a broad average to allocate all overhead costs D) never consider interactions between different departments in assigning support costs

Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into ________. A) fewer indirect costs for each product line B) decisions to drop product variations C) a greater number of direct manufacturing labor cost allocation rates D) greater overhead costs for each product line

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $80,000. The budgeted number of nozzles to be inserted is 40,000. What is the budgeted indirect cost allocation rate for this activity? A) $0.50 B) $1.00 C) $1.50 D) $2.00

Activity-based costing is most likely to yield benefits for companies ________. A) with complex product design processes B) with operations that remain fairly consistent C) in a monopolistic market D) having nominal percentage of indirect costs

Which of the following statements is true of ABC systems? A) ABC systems are time-driven cost systems. B) ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs. C) ABC systems provide valuable information to managers beyond accurate product costs. D) ABC systems assume all costs are variable costs.

________ is an example of an output unit-level cost in the cost hierarchy. A) Factory rent expense B) Building security costs C) Top management compensation costs D) Machine depreciation

For a company which produce its products in batches, the CEO's salary is a(n) ________ cost. A) batch-level B) output unit-level C) facility-sustaining D) product-sustaining

Top management compensation cost is an example of ________ in the cost hierarchy. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

________ costs support the organization as a whole. A) Unit-level B) Batch-level C) Product-sustaining D) Facility-sustaining

It is usually difficult to find good cause-and-effect relationships between ________ and a cost allocation base. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs

Facility-sustaining costs are the costs of activities ________. A) undertaken to support individual products or services regardless of the number of units or batches in which the units are produced B) related to a group of units of a product or service rather than each individual unit of product or service C) that managers cannot trace to individual products or services but that support the organization as a whole D) performed on each individual unit of a product or service such as the cost of energy, machine depreciation, and repair

________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced. A) Unit-level costs B) Batch-level costs C) Product-sustaining costs D) Facility-sustaining costs

Unit-level cost drivers are most appropriate as an overhead assignment base when ________. A) several complex products are manufactured B) only one product is manufactured C) direct material costs are low D) prime costs are low

With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers. A) overcosted B) fairly costed C) undercosted D) ignored

Put the following ABC implementation steps in order ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases. A) DACB B) DBCA C) BADC D) CDAB

________ is considered while choosing a cost allocation base for activity costs in ABC costing. A) Marketing strategy and material price level B) Availability of reliable data and measures C) Product price level D) Market share of a product

Which of the following cost and cost allocation base have a strong cause and effect relationship? A) administration costs and cubic feet B) setup costs and square feet C) machine depreciation and output units D) machine maintenance and setup hours

Management accountants use the cost hierarchy to first calculate the ________. A) labor costs of each product and then they compute material costs B) overhead costs of each product and then they compute prime costs C) factory costs of each product and then they compute labor costs D) total costs of each product and then they compute per-unit costs

ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed. A) fixed B) variable C) committed D) nondiscretionary

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is ________. A) direct labor hours B) number of units produced C) number of parts used D) number of suppliers involved

It only makes sense to implement an ABC system when ________. A) a single product is produced in bulk B) its benefits exceed its implementation costs C) it traces more costs as direct costs D) production process is labor-intensive

Which of the following is a sign that an ABC system may be useful for an organization? A) Significant amounts of indirect costs are allocated using multiple cost pools. B) Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity. C) Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs. D) Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.

Smaller cost distortions occur when the traditional systems' single indirect-cost rate and the activity-cost-driver rates ________. A) use the same total costs for computations B) are similar in proportion to each other C) are more different than alike D) use the same cost driver units

Which of the following statements is true of ABC systems? A) ABC system will always result in higher product costs. B) ABC system employs multiple activity-cost drivers. C) ABC system is least suited for service companies. D) ABC system is simpler compared to traditional systems.

Recognizing ABC information is not always perfect because ________. A) it mostly uses far too many indirect cost pools than what is actually required B) it balances the need for better information against the costs of creating a complex system C) it lacks the simplicity that traditional systems used to have to allocate overhead costs D) it never measures how the resources of an organization are used

Which of the following is a sign that a "smoothing out" costing system exists? A) Very few indirect costs are identified as output unit-level costs. B) Products that a company is well suited to make and sell show large profits. C) Operations staff has no substantial disagreements with the reported costs of manufacturing and marketing products and services. D) The company loses bids they believe were priced competitively.

Activity-based costing information can be used for ________. A) product-mix decisions B) pricing decisions C) advertisement decisions D) inventory valuation

Which of the following statements is true of costing systems? A) Single-indirect cost pool systems always result in overcosting of products. B) Single-indirect cost pool systems classify some direct costs as indirect costs. C) ABC systems always result in overcosting of products. D) ABC systems classify some indirect costs as direct costs helping to improve processes

Lavender Company is a logistics company and has recently implemented ABC system. Using activity-based information, it decides to reduce the bulkiness of the packages delivered, thereby reducing costs. This suggests that ABC system helps managers in ________ decisions. A) pricing B) product-mix C) process-improvement D) product-design

ABC and traditional systems are quite similar in ________. A) the treatment of direct costs B) the allocation of overheads C) evaluating performance D) the identification of cost pools

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________. A) total costs reflect market price B) value-added costs can be eliminated C) there is high likelihood of cross-subsidizing of product costs D) product-pricing errors are minimal

A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________. A) can be used to eliminate nonvalue-added activities B) is easy to analyze and interpret C) takes the choices and judgment challenges away from the managers D) emphasizes how managers can achieve higher sales

One reason for assigning selling and distribution costs to products for analytical purposes is ________. A) to justify a varied product-mix B) that these costs should be included in the cost of goods sold in the income statement C) to ensure that all costs are considered D) that all direct costs must be assigned

ABC systems help managers to ________. A) value ending inventory more accurately B) identify new designs to reduce costs C) evaluate direct material costs more efficiently D) improve the inventory turnaround time

Which of the following statements is true of ABC systems? A) ABC systems provide less insight than traditional systems into the management of the indirect costs. B) ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies. C) Service companies find great value from ABC because a vast majority of their cost structure is composed of direct costs. D) ABC systems is valuable for pricing decisions but not for understanding, managing, and reducing costs in government institutions.

The unique feature of an ABC system is the emphasis on ________. A) costing individual jobs B) department indirect-cost rates C) multiple-cost pools D) individual activities

Which of the following is a disadvantage of an activity-based costing system? A) It classifies some indirect costs as direct costs. B) It assumes all costs as direct costs. C) It needs activity-cost rates to be updated regularly. D) It ignores direct costs of a product.

Using activity-cost rates rather than department indirect-cost rates to allocate costs results in different product costs when ________. A) a single activity accounts for a sizable portion of department costs B) there are several homogeneous cost pools C) different activities have the same cost-allocation base D) different products use different resources in the same proportion

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs. A) prime B) factory C) indirect D) committed