Deck 7: Activity-Based Costing and Activity-Based Management

Question 1

The first step in developing activity-based product costs is to develop activity cost pools.

Answer 1

False
The first step in developing activity-based product costs is to identify the activities performed in the organization,

Question 2

In an activity-based costing system, the benefits of defining more detailed activities will always outweigh the effort needed to monitor activity performance, and the resulting potential for error.

Answer 2

False
The benefits of defining more detailed activities will not always outweigh the effort needed to monitor activity performance, and the resulting potential for error,

Question 3

For unit-level activities, the total level of activity performed varies proportionately with the number of units produced.

Answer 3

True

Question 4

In an activity-based costing system, after all the activities have been identified and the appropriate level of detail selected, the activities are combined into activity cost pools based on their cost drivers.

Question 5

Activity-based costing is a costing technique that assigns costs to cost objects such as products or customers, based on the activities those cost objects require.

Question 6

A simple ABC model can have fewer than 20 activities; a complex model may include up to 100 activities, but no more.

Question 7

Product-level activities are also referred to as product-sustaining activities.

Question 8

First-stage allocation is the process of assigning manufacturing overhead costs to activity pools.

Question 9

Organizational-level activities provide identifiable benefits to specific products or services.

Question 10

With activity-based costing, the goal is to develop a product cost that captures the amount of each resource consumed by the activities performed to produce a specific product.

Question 11

Under activity-based costing, selling and administrative costs should be allocated to products if they are incurred to provide resources that are consumed by unit-level, batch-level, or product-level activities.

Question 12

In an activity-based costing system, the greater the level of detail the company wants to collect, the greater the chance of misclassifying some costs and activities.

Question 13

Customer-level activities are also referred to as customer-sustaining activities.

Question 14

In an activity-based costing system, a critical question to ask during activity identification is, "How important is this activity to the overall strategy of the organization?"

Question 15

Calculating the direct materials and direct labor cost that have been incurred to produce a product or deliver a service is a relatively complex process.

Question 16

An activity-based analysis that focuses only on manufacturing overhead improves GAAP-based financial statements.

Question 17

In an activity-based costing system, after the manufacturing overhead costs have been assigned to activity cost pools, the next step is to calculate the unit product cost.

Question 18

Even when direct materials and direct labor comprise the majority of product costs, manufacturing overhead allocation is still a major issue.

Question 19

Identifying the activities performed in the organization is the most time-consuming part of implementing an activity-based costing system.

Question 20

Customer-level activities and the resources consumed to perform them do not affect product costs.

Question 21

In an activity-based costing system, which of the following is not a category in which activities are classified?

A)Unit-level
B)Product-level
C)Industry-level
D)Customer-level

Question 22

In an activity-based costing system, which of the following is not a category in which activities are classified?

A)Product-level
B)Operations-level
C)Customer-level
D)Organization-level

Question 23

The calculation to allocate costs to products or services is to divide the activity driver consumption by the activity rate.

Question 24

In an activity-based costing system, which of the following is not a category in which activities are classified?

A)Unit-level
B)Batch-level
C)Product-level
D)Factory-level

Question 25

Activity-based costing did not gain widespread popularity until

A)1882.
B)1907.
C)2000.
D)1987.

Question 26

The main reason for generating new information provided by activity-based costing is to

A)help managers make better decisions.
B)reduce product costs.
C)calculate variances.
D)reduce total overhead costs.

Question 27

Activity-based costing information can be used to make decisions regarding pricing, customer profitability, distribution channel profitability, and process improvement.

Question 28

Frederick Taylor was the first to understand the importance of a business's activities.He examined workers' jobs as a set of tasks, each of which had a standard completion time in the

A)early 1800s.
B)late 1800s.
C)early 1900s.
D)late 1900s.

Question 29

The total amount of manufacturing overhead allocated to a particular product will always be the same for both the traditional overhead allocation method based on direct labor hours and the activity-based costing overhead allocation.

Question 30

Process improvement is the examination of business processes to identify incremental changes that may reduce operating costs.

Question 31

With activity-based costing, the goal is to

A)develop a product cost that captures the amount of each resource consumed by the activities performed to produce a specific product.
B)develop a product cost that allocates manufacturing overhead to each resource consumed by the activities performed to a group of similar products.
C)develop a product cost that eliminates all waste such as machine down time and defective products.
D)develop a product cost that maximizes the number of units sold.

Question 32

Which of the following is not an indicator that an activity-based costing analysis may be appropriate?

A)Bids for complex products are accepted, while bids for simple products are rejected.
B)Products are similar and consume resources in the same way.
C)High-volume jobs show losses or minimal profits, while low-volume jobs show healthy profits.
D)Bids for jobs that require "special" processing are always accepted.

Question 33

Activity-based management focuses on using the costs of performing the activities required to produce and sell products to identify activities that are non-value added.

Question 34

Non-value-added costs cannot be eliminated without affecting the quality of products.

Question 35

A costing technique that assigns costs to cost objects such as products or customers, based on the activities those cost objects require is referred to as

A)activity-job costing.
B)activity-based costing.
C)activity-pool costing.
D)activity-trace costing.

Question 36

The greatest use of activity-based costing information is for product costing and cost control.

Question 37

The process of using activity-based costing information to manage a business's activities, and thus its costs, is called total quality management.

Question 38

An activity-based analysis that focused only on manufacturing overhead will

A)not improve GAAP-based financial statements.
B)improve GAAP-based financial statements.
C)improve statement sent to the SEC by publicly traded companies.
D)both improve GAAP-based financial statements and statement sent to the SEC by publicly traded companies.

Question 39

The two categories - valued-added and non-value added - are defined from the organization's management perspective.

Question 40

Although the total amount of allocated overhead differs between a traditional overhead allocation method and activity-based overhead allocations, we can still compare the percentage of overhead allocated to each product.

Question 41

Activities that are performed for specific customers are classified as a(n)

A)delivery-level activity.
B)customer-level activity.
C)accounts receivable-level activity.
D)organization-level activity.

Question 42

Processing a sales order is an example of a

A)product-level activity.
B)unit-level activity.
C)customer-level activity.
D)group-level activity.

Question 43

Which of the following is considered a unit-level activity?

A)Ordering direct materials
B)Direct labor
C)Preparing the annual budget
D)Performing quality tests

Question 44

Which of the following is considered a product-level activity?

A)Product design changes
B)Quality tests
C)Preparing purchase orders
D)Direct labor

Question 45

Since a batch-level activity is based on the existence of the batch, a batch consumes resources

A)proportionately with the number of units in the batch.
B)inversely with the number of units in the batch.
C)that cause total overhead costs to decrease.
D)as a fixed amount whether it contains 20 units or 2,000 units.

Question 46

Activities that support the products or services a company provides are classified as a(n)

A)unit-level activity.
B)batch-level activity.
C)product-level activity.
D)organization-level activity.

Question 47

An example of an organization-level activity is

A)providing electricity to the factory to run the sewing machines.
B)creating a pattern for a new line of dresses.
C)renting factory space.
D)processing a sales order.

Question 48

Which of the following is not a product- or service-related activity?

A)Unit-level
B)Product-level
C)Batch-level
D)Customer-level

Question 49

A difference in GAAP-based product costing and activity-based costing is that under activity-based costing

A)all costs are classified as product and period costs, whereas under GAAP they are classified by behavior.
B)sales less cost of goods sold is classified as gross profit, whereas under GAAP this subtotal is titled contribution margin.
C)selling and administrative costs are allocated to products if they are incurred to provide resources that are consumed by unit-level, batch-level, or product-level activities.
D)all costs are traceable, whereas in GAAP-based costing some costs are allocated.

Question 50

In an activity-based costing system, which of the following is not a category in which activities are classified?

A)Variable-level
B)Batch-level
C)Product-level
D)Organization-level

Question 51

Which of the following is considered a batch-level activity?

A)Engineering changes made on the assembly line
B)Quality tests
C)Warehouse costs
D)Preparing the annual budget

Question 52

Activities that are performed all at once on groups of products are classified as a(n)

A)unit-level activity.
B)group-level activity.
C)batch-level activity.
D)operations-level activity.

Question 53

In an activity-based costing system, which of the following is not a category in which activities are classified?

A)Unit-level
B)Batch-level
C)Product-level
D)Delivery-level

Question 54

Product-level activities are also referred to as

A)product-sustaining activities.
B)product resource activities.
C)batch-level activities.
D)group-level activities.

Question 55

Which of the following is a product- or service-related activity?

A)Making sales calls
B)Performing machine maintenance
C)Running a production machine
D)Moving materials

Question 56

Which of the following is considered a unit-level activity?

A)Preparing purchase orders
B)Machine set-up
C)Quality tests
D)Running a production machine

Question 57

For a unit-level activity, the total level of activity performed varies

A)proportionately with the number of units produced.
B)inversely with the number of units produced.
C)like a step-function.
D)It does not change with a change in activity.

Question 58

Which of the following is considered a batch-level activity?

A)Machine set-up
B)Preparing the annual budget
C)Direct labor
D)Warehouse costs

Question 59

Activities that are required to provide productive capacity and to keep the business in operation are

A)batch-level activities.
B)product-level activities.
C)customer-level activities.
D)organization-level activities.

Question 60

An activity that is performed for each individual unit of product is classified as a

A)variable cost-level activity.
B)unit-level activity.
C)batch-level activity.
D)operations-level activity.

Question 61

Which of the following is a likely activity driver for warehousing/packaging?

A)Direct labor hours
B)Number of machine set-ups
C)Number of product lines
D)Number of batches

Question 62

Estimated costs for activity cost pools and other item(s) are as follows: Total estimated overhead is

A)$1,000,000.
B)$1,175,000.
C)$1,450,000.
D)$1,625,000.

Question 63

Calculating the activity rate is similar to the calculation of the

A)activity pools.
B)predetermined overhead rate.
C)overhead leverage rate.
D)contribution margin rate.

Question 64

Which of the following is the formula for calculating the activity rate in an activity-based costing system?

A)Activity cost pool resources divided by total activity driver volume
B)Activity driver divided by activity cost pool resources
C)Activity cost pool resources divided by estimated total cost pool volume
D)Estimated cost pool driver volume divided by activity cost pool resources

Question 65

Which of the following is the step in implementing an activity-based costing system that can generate the greatest error?

A)Identifying activities
B)Developing activity cost pools
C)Calculating activity cost pool rates
D)Calculate the unit product cost

Question 66

Which of the following is not considered a customer-level activity?

A)Making a sales call
B)Processing a sales order
C)Delivery costs
D)Preparing purchase orders

Question 67

Which of the following is considered a customer-level activity?

A)Ordering direct materials used in all products
B)Engineering changes made that will affect all products
C)Cleaning the machines before beginning production
D)Processing a sales order

Question 68

Which of the following is considered a product-level activity?

A)Quality tests
B)Engineering changes made in the assembly line
C)Machine set-up
D)Preparing purchase orders

Question 69

Which of the following is the most time-consuming part of implementing an activity-based costing system?

A)Identifying activities
B)Developing activity cost pools
C)Calculating activity cost pool rates
D)Calculate the unit product cost

Question 70

Which of the following is a reason that employees must estimate how much time they spend performing each activity?

A)So that the budget committee can estimate labor costs
B)So that the resources consumed by the activities can be calculated
C)So that the cost pools can be identified
D)So that the activity rates are used correctly

Question 71

In the activity identification stage of implementing an activity-based costing system, defining activities in greater detail will

A)require more monitoring.
B)increase the effect of misclassifying some costs and activities.
C)cause fewer variances.
D)enable all costs to be unit-costs.

Question 72

In the activity identification stage of implementing an activity-based costing system, the greater the level of detail

A)the less likely the company will be to have a net loss.
B)the greater chance of misclassifying some costs and activities.
C)the less likely to misclassify some costs and activities.
D)the more likely the company will identify cost pools.

Question 73

The first step in implementing an activity-based costing system begins with

A)developing activity cost pools.
B)identifying activities.
C)calculating activity cost pool rates.
D)calculate the unit product cost.

Question 74

Identifying activities performed in the organization is the first step in developing activity-based product costs.Which of the following is a way to identify these activities?

A)Asking employees what they do
B)Analyzing industry averages
C)Investigating variances
D)Determining cost pools

Question 75

Which of the following is a likely activity driver for product design?

A)Number of product lines
B)Number of direct labor hours
C)Number of machine hours
D)Number of batches

Question 76

Assume that activity cost is $93,000, predetermined total overhead is $120,000, actual overhead is $98,000, and the company has three product lines, the activity rate is

A)$32,667 per product line.
B)$31,000 per product line.
C)$40,000 per product line.
D)$50,000 per product line.

Question 77

Assigning manufacturing overhead cost to activity pools is referred to as first-stage allocation because costs are assigned first to the activity pools before being assigned to

A)cost objects.
B)cost drivers.
C)activity drivers.
D)activity objects.

Question 78

Identifying activities performed in the organization is the first step in developing activity-based product costs.Which of the following is a way to identify these activities?

A)Asking managers about product profitability
B)Observe what employees do
C)Separate costs into cost pools
D)Perform first-stage allocation

Question 79

In implementing an activity-based costing system, once the activity pools have been determined, manufacturing overhead costs can be assigned to them.This is referred to as

A)predetermined overhead allocation.
B)overhead application.
C)first-stage allocation.
D)activity allocation.

Question 80

Which of the following is not a step in implementing an activity-based costing system?

A)Developing activity cost pools
B)Identifying activities
C)Calculating predetermined overhead rates
D)Calculate the unit product cost