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Multiple Choice Questions 16. Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _________ percentage of total product cost and where there is ___________ diversity among the various products that they produce. A)low, little B)low, considerable C)high, little D)high, considerable 17. Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-sustaining? | |Security |Assembly | A) |Product |Unit | |B) |Batch |Batch | |C) |Organization |Unit | |D) |Organization |Product | 18. Which of the following would be an acceptable measure of activity for a material handling activity cost pool? | |Number of |Weight of | | |material moves |material moved | |A) |Yes |Yes | |B) |No |Yes | |C) |Yes |No | D) |No |No | 19. An activity-based costing system that is designed for internal decision-making generally will not conform to generally accepted accounting principles. Which of the following is NOT a reason for this happening? A)Some manufacturing costs (i. e. , the costs of idle capacity and organization-sustaining costs) will not be assigned to products. B)Some nonmanufacturing costs are assigned to products. C)Allocation bases other than direct labor-hours, direct labor cost, and machine-hours are used. D)First-stage allocations may be based on subjective interview data. 0. Providing the power required to run production equipment is an example of a: A)Unit-level activity. B)Batch-level activity. C)Product-level activity. D)Organization-sustaining activity. 21. Parts administration is an example of a: A)Unit-level activity. B)Batch-level activity. C)Product-level activity. D)Organization-sustaining. 22. If a cost object such as a product or customer has a negative green margin, then: A)its red margin will be positive. B)its red margin may be either positive or negative. C)its red margin will be negative. D)its red margin will be zero. 31.

If products are alike, then for costing purposes: A)a simple costing system will yield accurate cost numbers B)an activity-based costing system should be used C)multiple indirect-cost rates should be used D)varying demands will be placed on resources 32. Undercosting a particular product may result in: A)loss of market share B)lower profits C)operating inefficiencies D)understating total product costs 33. Overcosting of a product is MOST likely to result from: A)misallocating direct labor costs B)overpricing the product C)undercosting another product D)understating total product costs 4. A company produces three products; if one product is overcosted then A)one product is undercosted. B)one or two products are undercosted. C)two products are undercosted. D)no products are undercosted. 36. 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 37. The use of a single indirect-cost rate is more likely to: A)undercost high-volume simple products B)undercost low-volume complex products C)undercost lower-priced products D)Both b and c are correct. 39.

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 42. 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 44. 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 5. A single indirect-cost rate may 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)costs are not consistently recorded D)it fails to measure the correct amount of total costs 46. Traditional cost systems distort product costs because: A)they do not know how to identify the appropriate units B)competitive pricing is ignored C)they emphasize financial accounting requirements D)they apply average support costs to each unit of product 47.

Which of the following statements about activity-based costing is NOT true? A)Activity-based costing is useful for allocating 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 seeks to distinguish batch-level, product-sustaining, and facility-sustaining costs, especially when they are not proportionate to one another. D)Activity-based costing differs from traditional costing systems in that products are not cross-subsidized. 8. Activity-based costing (ABC) can eliminate cost distortions because ABC: A)develops cost drivers that have a cause-and-effect relationship with the activities performed B)establishes multiple cost pools C)eliminates product variations D)recognizes interactions between different departments in assigning support costs 49. 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 57. Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT: A)numerous products that consume different amounts of resources B)operations that remain fairly consistent C)a highly competitive environment, where cost control is critical D)accessible accounting and information systems expertise to maintain the system 58. Each of the following statements is true EXCEPT:

A)traditional product costing systems seek to assign all manufacturing costs to products B)ABC product costing systems seek to assign all manufacturing costs to products C)traditional product costing systems are more refined than an ABC system D)cost distortions occur when a mismatch (incorrect association) occurs between the way indirect costs are incurred and the basis for their assignment to individual products 59. The MOST likely example of an output unit-level cost is: A)general administrative costs B)paying suppliers for orders received C)engineering costs D)machine depreciation 60.

The MOST likely example of a batch-level cost is: A)utility costs B)machine repairs C)product-designing costs D)setup costs 61. Design costs are an example of: A)unit-level costs B)batch-level costs C)product-sustaining costs D)facility-sustaining costs 62. __________ costs support the organization as a whole. A)Unit-level B)Batch-level C)Product-sustaining D)Facility-sustaining 63. 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 64. To set realistic selling prices:

A)all costs should be allocated to products B)costs should only be allocated when there is a strong cause-and-effect relationship C)only unit-level costs and batch-level costs should be allocated D)only unit-level costs should be allocated 65. Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT: A)selling prices B)customers’ customization specifications C)setup times D)product design 66. 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 labor costs are low D)factories produce a varied mix of products 67. 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 71. ABC systems identify __________ costs used by products. A)all B)short-term fixed C)short-term variable D)long-term fixed 72. The focus of ABC systems is on: A)long-term decisions B)short-term decisions

C)make-or-buy decisions D)special-pricing decisions 74. 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 75. 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 108. ABC systems:

A)reveal activities that can be eliminated B)help control nonfinancial items such as number of setup hours C)help identify new designs to reduce costs D)All of these answers are correct 109. Companies use ABC system information to: A)analyze costs B)prepare budgets C)evaluate performance D)All of these answers are correct. 110. It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that: A)product costs will reflect their relative consumption of resources B)nonvalue-added costs can be eliminated

C)there is less likelihood of cross subsidizing of product costs D)All of these answers are correct. 111. 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 112. A PRIMARY reason for assigning selling and distribution costs to products for analytical purposes is: C A)to justify a varied product mix

B)that controllers are required to assign all costs when valuing inventories C)that different processes, products, and customers require different quantities of selling and distribution activities D)that all indirect costs must be assigned 113. For service organizations that bill customers at a predetermined average rate, activity-based cost systems can help to: A)clarify appropriate cost assignments for various service activities. B)identify the profitability of various service activities. C)Both a and b are correct. D)None of these answers are correct. 114.

Products make diverse demands on resources because of differences in all of the following EXCEPT: A)volume B)selling price C)batch size D)complexity 115. 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 116. One department indirect-cost rate is sufficient when: A)activities relate to more than one level of the cost hierarchy B)product costs are significantly cross-subsidized C)the same allocation base is appropriate for all departmental activities D)it is a service department 23. 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 124. A key reason for using an ABC system rather than a department-costing system is because ABC assigns indirect costs: A)using broader averages B)more simply than a department-costing system C)in a less costly manner

D)to reflect differences required by different processes as well as customers 125. It ONLY makes sense to implement an ABC system when: A)ABC provides information to make better decisions B)its benefits exceed implementation costs C)ABC traces more costs as direct costs D)there is a strong cause-and-effect relationship between costs in the cost pools and their cost-allocation bases 126. Which of the following is a sign that an ABC system may be useful? A)There are small amounts of indirect costs. B)Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.

C)Products a company is less suited to produce and sell show small profits. D)Operations staff agrees with accountants about the costs of manufacturing and marketing products and services. 127. 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 128. Activity-based costing systems provide better product costs when they: A)employ more activity-cost drivers

B)employ fewer activity-cost drivers C)identify and cost more indirect cost differences among products D)always yield more accurate product costs than traditional systems 129. Factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products because: A)more variations and complexities require more activities B)they require more engineers C)they require more direct laborers D)they buy more robotics 130. Which of the following is NOT a sign that a “smoothing out” costing system exists?

A)Operations managers don’t use the data originated by the cost system. B)Products that a company is well suited to make and sell show large profits. C)New product variations have been added, but the cost system has not been upgraded. D)The company loses bids they believe were priced competitively. 133. The goal of a properly constructed ABC system is to: A)have the most accurate cost system B)identify more indirect costs C)develop the best cost system for an economically reasonable cost D)have separate allocation rates for each department



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