Deck 1: Marginal Costing, Contribution, and Activity-Based Costing Techniques

Question 1

Marginal costing is a …………….

A)Method of costing
B)Technique of costing
C)Process of costing
D)None of the above

Answer 1

Technique of costing

Question 2

Contribution is known as ………..

A)Marginal income
B)Marginal cost
C)Gross profit
D)Net income

Answer 2

Marginal income

Question 3

Margin of safety may be improved by

A)Increasing sales volume
B)Lowering variable cost
C)Lowering fixed cost
D)All of the above

Answer 3

All of the above

Question 4

PV ratio may be improved by

A)Increasing the sales price
B)Lowering variable cost
C)Lowering fixed cost
D)None of the above

Question 5

For decision making purpose, which is more suitable to the management

A)Standard costing
B)Marginal costing
C)Absorption costing
D)Traditional costing

Question 6

Increasing in selling price

A)Increase PV ratio
B)Decrease break even point
C)Increase margin of safety
D)None of the above

Question 7

Increase in variable cost

A)Increases in PV ratio
B)Decreases breakeven point
C)Increases margin of safety
D)None the above

Question 8

Marginal costing technique helps the management in deciding

A)Price of the product
B)Make or buy decision
C)To accepts fresh orders at low price
D)All of the above

Question 9

Which of the following is true at breakeven point

A)Contribution = fixed cost
B)Sales = total cost
C)Sales curve cuts total cost line
D)All of the above

Question 10

Activity-based costing:

A)Uses a plant-wide overhead rate to assign overhead
B)Is not expensive to implement
C)Typically applies overhead costs using direct labor-hours
D)Uses multiple activity rates

Question 11

Assigning overhead using ABC often:

A)Shifts overhead costs from high-volume products to low-volume products
B)Shifts overhead costs from low-volume products to high-volume products
C)Provides the same results as traditional costing
D)Requires one predetermined overhead rate

Question 12

Painting the product would be an example of which activity level groups

A)Facility-level activity
B)Product-level activity
C)Unit-level activity
D)Batch-level activity

Question 13

Plant depreciation is an example of which activity-level group?

A)Unit-level activity
B)Facility-level activity
C)Batch-level activity
D)Product-level activity

Question 14

Assume that a company produces two products in a manufacturing plant. One is a low volume specialty product that is produced on a demand pull basis, while the other is a high volume product that is produced on a push basis for inventory. A production volume based cost allocation system would tend to

A)Accurately reflect the product cost of the two products.
B)Overstate the product cost of the low volume product.
C)Understate the product cost of the low volume product.
D)Overstate the product cost of both products.

Question 15

In the situation stated in the question above, the company's net income based on a production volume based system will tend to be ________ relative to net income based on an activity based costing system.

A)Overstated.
B)Understated.
C)Overstated for the low volume product and understated for the high volume product.
D)b and d.

Question 16

Cooper and Kaplan recommend using which of the following as the basis, or denominator, when developing activity cost pool rates for activity based costing.

A)The maximum capacity for each activity.
B)The practical capacity for each activity.
C)The planned or budgeted for each activity.
D)The normal capacity for each activity.

Question 17

Which of the following is not an argument for using a separate stand alone system for activity based costing, i.e., rather than integrating ABC with the general ledger system used for GAAP?

A)GAAP product costs may be incorrect relative to ABC product costs
B)It is faster to develop.
C)It is less costly to develop.
D)Subjective information can be used that auditors might question.

Question 18

Which of the following arguments support integrating ABC with the general ledger system used for GAAP, rather than using a separate stand alone ABC system?

A)Managers tend to prefer a single accounting system for product costing.
B)Two separate systems tend to be confusing for management.
C)Two separate systems tend to create redundant information and staff.
D)all of the above.

Question 19

Which of the following types of characteristics tend to cause too little overhead costs to be charged to the product using traditional cost allocations?

A)a relatively small product.
B)a relatively low volume product.
C)a relatively simple product.
D)a and b.

Question 20

Which audience was activity based costing originally designed to serve?

A)Users of external financial statements.
B)Front line managers who plan & control activities or processes on a daily basis.
C)Managers who make short term strategic decisions such as outsourcing.
D)Managers who make long term strategic decisions concerning investments.

Question 21

A company that uses a traditional two stage cost allocation approach is likely to do the following.

A)Overhead allocations to high volume products will tend to be overstated while overhead allocations to low volume products will tend to be understated.
B)Overhead allocations to high volume products will tend to be understated, while allocations to low volume products will tend to be overstated.
C)Overhead allocations to large products will tend to be understat

Question 22

The main difference (or differences) between how traditional costing and activity based costing treat indirect manufacturing costs is (are) that

A)Traditional costing uses only production volume based drivers while activity based costing uses only non production volume based drivers.
B)Traditional costing treats only unit level costs as variable, while abc systems treat unit level, batch level and product level costs as variable.
C)Traditional cost allocations are usually based on a plant wide overhead rate, while abc systems use departmental overhead rates.
D)A and b.

Question 23

The Cooper/Kaplan "Rule of One" refers to the following:

A)Only one overhead rate should be used to allocate fixed costs.
B)If only one item is represented by an activity cost pool, then the cost can be classified as fixed.
C)If there is more than one activity cost pool, then one of the cost pools must be variable.
D)Traditional cost allocation systems will distort the allocations for at least one cost pool.

Question 24

Activity based cost systems would probably provide the greatest benefits for organizations that use

A)Job order costing.
B)Process costing.
C)Historical costing
D)Standard costing.

Question 25

When traditional production volume based overhead allocations are made, rather than activity based allocations,

A)The unit costs of high volume and large size products tend to be overstated, while the unit cost of low volume and small products tend to be understated.
B)The unit costs of high volume and large size products tend to be understated, while the unit cost of low volume and small products tend to be overstated.
C)The unit costs of high volume and small products tend to be overstated, while the unit costs of low volume and large products is understat