ACTIVITYBASED COSTING AND ACTIVITYBASED MANAGEMENT.docx

ACTIVITYBASED COSTING AND ACTIVITYBASED MANAGEMENT.docx

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ACTIVITYBASEDCOSTINGANDACTIVITYBASEDMANAGEMENT

CHAPTER5

ACTIVITY-BASEDCOSTINGANDACTIVITY-BASEDMANAGEMENT

TRUE/FALSE

1.Companiesthatundercostproductswillmostlikelylosemarketshare.

2.Whenrefiningacostingsystem,acompanyshouldclassifyasmanycostsaspossibleasindirectcosts.

3.Indirectlaboranddistributioncostswouldmostlikelybeinthesameactivity-costpool.

4.Activity-basedcostinghelpsidentifyvariousactivitiesthatexplainwhycostsareincurred.

5.Traditionalsystemsarelikelytoundercostcomplexproductswithlowerproductionvolume.

6.Foractivity-basedcostsystems,activitycostsareassignedtoproductsintheproportionofthedemandtheyplaceonactivityresources.

7.Misleadingcostnumbersarelargerwhenunit-levelassignmentsandthealternativeactivity-cost-driverassignmentsareproportionatelysimilartoeachother.

8.InformationderivedfromanABCanalysismightbeusedtoeliminatenonvalue-addedactivities.

9.Department-costingsystemsareafurtherrefinementofABCsystems.

10.Simplybecauseactivity-basedcostingsystemsemploymoreactivity-costdrivers,theyprovidemoreaccurateproductcoststhantraditionalsystems.

MULTIPLECHOICE

11.OvercostingofaproductisMOSTlikelytoresultfrom:

a.misallocatingdirectlaborcosts

b.overpricingtheproduct

c.undercostinganotherproduct

d.understatingtotalproductcosts

12.Theuseofasingleindirect-costrateismorelikelyto:

a.undercosthigh-volumesimpleproducts

b.undercostlow-volumecomplexproducts

c.undercostlower-pricedproducts

d.Bothbandcarecorrect.

13.Uniformlyassigningthecostsofresourcestocostobjectswhenthoseresourcesareactuallyusedinanonuniformwayiscalled:

a.overcosting

b.undercosting

c.peanut-buttercosting

d.departmentcosting

14.Refiningacostsystemincludes:

a.classifyingasmanycostsasindirectcostsasisfeasible

b.creatingasmanycostpoolsaspossible

c.identifyingtheactivitiesinvolvedinaprocess

d.seekingalesserlevelofdetail

15.Traditionalcostsystemsdistortproductcostsbecause:

a.theydonotknowhowtoidentifytheappropriateunits

b.competitivepricingisignored

c.theyemphasizefinancialaccountingrequirements

d.theyapplyaveragesupportcoststoeachunitofproduct

16.Whichofthefollowingstatementsaboutactivity-basedcostingisNOTtrue?

a.Activity-basedcostingisusefulforallocatingmarketinganddistributioncosts.

b.Activity-basedcostingismorelikelytoresultinmajordifferencesfromtraditionalcostingsystemsifthefirmmanufacturesonlyoneproductratherthanmultipleproducts.

c.Activity-basedcostingseekstodistinguishbatch-level,product-sustaining,andfacility-sustainingcosts,especiallywhentheyarenotproportionatetooneanother.

d.Activity-basedcostingdiffersfromtraditionalcostingsystemsinthatproductsarenotcross-subsidized.

MerrimanCompanyprovidesthefollowingABCcostinginformation:

ActivitiesTotalCostsActivity-costdrivers

Accountinquiryhours$400,00010,000hours

Accountbillinglines$280,0004,000,000lines

Accountverificationaccounts$150,00040,000accounts

Correspondenceletters$50,0004,000letters

Totalcosts$880,000

TheaboveactivitiesareusedbyDepartmentsAandBasfollows:

DepartmentADepartmentB

Accountinquiryhours2,000hours4,000hours

Accountbillinglines400,000lines200,000lines

Accountverificationaccounts10,000accounts8,000accounts

Correspondenceletters1,000letters1,600letters

17.HowmuchoftheaccountinquirycostwillbeassignedtoDepartmentA?

a.$80,000

b.$400,000

c.$160,000

d.Noneoftheseanswersarecorrect.

18.HowmuchofcorrespondencecostswillbeassignedtoDepartmentB?

a.$1,600

b.$12,500

c.$50,000

d.$20,000

19.HowmuchofthetotalcostswillbeassignedtoDepartmentA?

a.$158,000

b.$80,000

c.$224,000

d.$880,000

20.DalrympleCompanyproducesaspecialspraynozzle.Thebudgetedindirecttotalcostofinsertingthespraynozzleis$80,000.Thebudgetednumberofnozzlestobeinsertedis40,000.Whatisthebudgetedindirectcostallocationrateforthisactivity?

a.$0.50

b.$1.00

c.$1.50

d.$2.00

21.Designcostsareanexampleof:

a.unit-levelcosts

b.batch-levelcosts

c.product-sustainingcosts

d.facility-sustainingcosts

22.Itisusuallydifficulttofindgoodcause-and-effectrelationshipsbetween__________andacostallocationbase.

a.unit-levelcosts

b.batch-levelcosts

c.product-sustainingcosts

d.facility-sustainingcosts

23.Unit-levelcostdriversaremostappropriateasanoverheadassignmentbasewhen:

a.severalcomplexproductsaremanufactured

b.onlyoneproductismanufactured

c.directlaborcostsarelow

d.factoriesproduceavariedmixo