Activity-based Costing And Activity-based Management

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Question 1
Free
Multiple Choice

Which of the following statements is true of a peanut-butter costing system?

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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.

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Question 2
Free
Multiple Choice

Overcosting a particular product may result in:

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A

pricing the product too high

B

pricing the product too low

C

operating efficiencies

D

understating total product costs

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Question 3
Free
Multiple Choice

For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that:

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A

direct labor costs of the product are misallocated

B

direct material costs of the product are misallocated

C

indirect costs of another product are misallocated

D

direct costs of another product are misallocated

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Question 4
Free
Multiple Choice

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?

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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.

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Question 5
Free
Multiple Choice

Product-cost cross-subsidization means that:

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A

when one product is overcosted, it results in more than one other product being overcosted

B

when a company undercosts more than one of its products, it will overcost more than one of its other products

C

when a company undercosts one of its products, it will overcost at least one of its other products

D

when one product is overcosted it results in all other products being overcosted

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Question 6
Multiple Choice

Which of the following has accelerated need for refined cost systems?

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A
global monopolies
B
rising prices
C
intense competition
D
a shift toward increased direct costs
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Question 7
True/False

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called activity based costing.

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True
False
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Question 8
True/False

Product-cost cross-subsidization is very common when costs are uniformly spread across various products.

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True
False
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Question 9
True/False

Companies that overcost products risk becoming less effective on pricing and losing market share when competition utilizes more accurate cost systems.

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True
False
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Question 10
True/False

If companies increase market share in a given product line because their reported costs are less than their actual costs, they will become more profitable in the long run.

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True
False
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Question 11
True/False

As product diversity and indirect costs increase, it is usually best to switch away from a broad averaging system to an activity-based cost system.

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True
False
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Question 12
True/False

The risk of peanut-butter costing rises when broad averages are used across multiple products without managers considering the true amounts of resources consumed in the making of each product.

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True
False
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Question 13
Essay

Explain how a top-selling product may actually result in losses for the company.

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Question 14
Multiple Choice

Refining a cost system involves which of the following?

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A
classifying as many costs as indirect costs as is feasible
B
creating as many cost pools as possible to capture all costs
C
identifying the activities involved in a process and understanding how those activities consume resources
D
Seeking an easier and more cost effective way to calculate average costs
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Question 15
Multiple Choice

Which of the following is true of refinement of a costing system?

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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.
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Question 16
Multiple Choice

Which of the following is a reason that has accelerated the demand for refinements to the costing system?

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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 break even point.
D
The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of break even point.
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Question 17
Multiple Choice

Demand for refinements to the costing system has accelerated due to ________ .

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A
increase in direct costs
B
decrease in product diversity
C
decrease in indirect costs
D
competition in product markets
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Question 18
Multiple Choice

Johnson Superior Products Inc. produces hospital equipment and the setup requirements vary from product to product. Johnson 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?

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A
Johnson 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 Johnson.
C
Johnson has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as direct costs.
D
Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.
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Question 19
True/False

Increased used of automation, computer integrated manufacturing, and utilization of robots have lead to an increase in indirect costs relative to direct costs.

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True
False
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Question 20
True/False

Modern manufacturing practices have helped reduce overhead costs relative to direct costs as the reliance on support resources such as scheduling, design, and engineering has diminished.

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True
False
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