Deck 8: Activity Analysis: Costing and Management

Question 1

In an ABC system costs are first assigned to cost pools, then always to units of product.

Answer 1

False

Question 2

Product advertising for a new product is an example of a customer-sustaining cost in an ABC system.

Answer 2

False

Question 3

Accountants, on their own, normally can determine cost drivers for all cost pools without consulting other employees in the organisation.

Answer 3

False

Question 4

Organisations interested in using activity-based management must first implement an activity-based costing system.

Question 5

When applying ABC concepts to the determination of product costs, the first step is to identify activities.

Question 6

Activity-based costing, compared to traditional costing, decreases the accuracy of cost measurement by using arbitrary cost allocation bases for overhead.

Question 7

Each cost pool in an ABC system has at least one cost driver.

Question 8

In an activity-based costing system, both organisation-sustaining and facility-sustaining activities are assumed to be unaffected by the number of customers.

Question 9

Activity-based management and activity-based costing are two ways of describing the same thing.

Question 10

In an ABC system, a "cost object" could be a unit of product, a product line, or a customer.

Question 11

Generally speaking, activity-based costing traces direct costs more accurately than traditional costing.

Question 12

Unlike activity-based costing, traditional costing systems never use multiple cost pools for overhead allocation.

Question 13

The terms "cost driver" and "allocation base" are interchangeable.

Question 14

Administrative salaries are an example of an organisation-sustaining cost in an ABC system.

Question 15

An activity is a type of task or function performed in an organisation.

Question 16

Both activity-based costing and traditional costing allocate overhead costs to cost objects.

Question 17

All organisations that use activity-based costing also use activity-based management.

Question 18

Ideally, activity costs in an ABC system are allocated to cost objects using a driver that explains changes in those costs.

Question 19

Each cost pool in an ABC system has its own cost allocation rate.

Question 20

Information about potential cost drivers may be requested from employees directly involved in activities.

Question 21

The costs of designing and implementing an ABC system include employee time and training.

Question 22

Le Pavilion is an historic hotel just outside of Melbourne. It is owned by Refined Hotels, which operates additional properties in Sydney, Brisbane and Perth. Le Pavilion has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organised in 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Pavilion regularly incurs the following costs: General manager's salary
Housekeeping supplies
Utility costs
Depreciation on workout room equipment
Advertising
Food and beverage costs
Depreciation on restaurant equipment
If Le Pavilion is the cost object, which of the following best describes the general manager's salary?

A) Batch-level cost
B) Customer-sustaining cost
C) Facility-sustaining cost
D) Organisation-sustaining cost

Question 23

ABC systems are similar to traditional costing systems in the way they

A) Allocate direct costs to cost objects
B) Define cost allocation bases
C) Trace direct costs to cost objects
D) Trace indirect costs to activities

Question 24

Cost accounting systems were originally developed to

A) Assign costs to products for financial reporting purposes
B) Assign costs to products for tax reporting purposes
C) Give managers better information for making decisions
D) Allocate direct costs to cost objects

Question 25

ABC systems differ from traditional systems in that ABC systems

A) Trace direct costs to cost objects
B) Use multiple cost pools and cost drivers to allocate direct costs
C) Use multiple cost pools and cost drivers to allocate overhead costs
D) Assign costs only to units of product

Question 26

Activity-based management can be used to manage both quality and constrained resources.

Question 27

ABC systems differ from traditional costing systems because ABC systems use

A) Multiple activity cost pools and cost drivers to allocate overhead costs
B) More automation and information technology to allocate overhead costs
C) Less automation and information technology to allocate overhead costs
D) a and b

Question 28

Le Pavilion is a historic hotel just outside of Melbourne. It is owned by Refined Hotels, which operates additional properties in Sydney, Brisbane and Perth. Le Pavilion has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organised in 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Pavilion regularly incurs the following costs: General manager's salary
Housekeeping supplies
Utility costs
Depreciation on workout room equipment
Advertising
Food and beverage costs
Depreciation on restaurant equipment
From the perspective of Refined Hotels, advertising specifically for Le Pavilion is best described as a(n)

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

Question 29

ABC systems measure resource flows in an organisation.

Question 30

The availability of activity costs is inversely related to the cost of implementing an ABC system.

Question 31

How are direct and overhead costs assigned to cost objects under traditional accounting systems?

A) A
B) B
C) C
D) D

Question 32

ABC systems allow managers to focus on measurement at the activity level.

Question 33

Le Pavilion is a historic hotel just outside of Melbourne. It is owned by Refined Hotels, which operates additional properties in Sydney, Brisbane and Perth. Le Pavilion has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organised in 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Pavilion regularly incurs the following costs: General manager's salary
Housekeeping supplies
Utility costs
Depreciation on workout room equipment
Advertising
Food and beverage costs
Depreciation on restaurant equipment
Which cost listed above is most likely to be a customer-sustaining cost?

A) Depreciation on workout room equipment
B) Utility costs
C) Housekeeping supplies
D) General manager's salary

Question 34

Managers can use activity-based management to control environmental costs.

Question 35

Which statement about costing systems is true?

A) Both traditional and activity-based costing systems use a two-stage allocation process
B) Traditional costing systems use a two-stage allocation process, but ABC systems require three stages
C) ABC systems typically use a two-stage allocation process, whereas traditional systems use a single stage
D) Both traditional and activity-based costing systems use a three-stage allocation process

Question 36

Compared to a traditional costing system, an activity-based costing system usually involves

A) Fewer cost pools
B) More cost pools
C) bigger cost pools
D) b and c

Question 37

Le Pavilion is a historic hotel just outside of Melbourne. It is owned by Refined Hotels, which operates additional properties in Sydney, Brisbane and Perth. Le Pavilion has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organised in 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Pavilion regularly incurs the following costs: General manager's salary
Housekeeping supplies
Utility costs
Depreciation on workout room equipment
Advertising
Food and beverage costs
Depreciation on restaurant equipment
Le Pavilion could define its cost objects as
I Customers only
II Departments only
III Number of employees

A) I only
B) I and II only
C) II only
D) I, II, and III

Question 38

Le Pavilion is a historic hotel just outside of Melbourne. It is owned by Refined Hotels, which operates additional properties in Sydney, Brisbane and Perth. Le Pavilion has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organised in 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Pavilion regularly incurs the following costs: General manager's salary
Housekeeping supplies
Utility costs
Depreciation on workout room equipment
Advertising
Food and beverage costs
Depreciation on restaurant equipment
Advertising for the Refined Hotels chain is best described as a(n)

A) Facility-sustaining cost
B) Organisation-sustaining cost
C) Product-sustaining cost
D) Batch-level cost

Question 39

APL Ltd allocates overhead to cost objects using a two-stage process. From this information, we can infer that APL

A) Uses a traditional costing system
B) Uses an activity-based costing system
C) May be using either a traditional or an activity-based costing system
D) Is reporting its product costs accurately

Question 40

One of the uncertainties associated with ABC and ABM systems is employee response to design and implementation of the system.

Question 41

The salary of the manager of a plant producing a number of products, within a multinational organisation is

A) an organisational-sustaining cost
B) a facility-sustaining cost
C) a customer-sustaining cost
D) a product-sustaining cost

Question 42

Tutors-R-Us provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 2010, the firm's information system produced the following data: Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Tutors-R-Us operations for November 2010 included:
Which of the following is the most logical allocation base for facility rent if the relevant cost object is a subject area (product line)?

A) Number of tutors
B) Direct costs
C) Percentage of square metres occupied
D) Direct labor hours

Question 43

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 2010: Processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $15,000 for the first half of 2010. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce orange juice for the next 2 weeks. Finally, workers set up the same machines to produce orange icey-poles during the last week of each month.
During the first half of 2010, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange icey-poles. The relative sales values of each product were: 75% for orange juice, 20% for orange juice concentrate, and 5% for icey-poles. The orange juice concentrate operation takes up 40% of FSOJ's total factory space. Regular orange juice and orange icey-poles occupy 35% and 25%, respectively.
Which of the following activities is likely to be classified as product-level?

A) Packaging
B) Harvesting
C) Extracting
D) Prepare oranges for processing

Question 44

Which of the steps listed below normally occurs first when assigning costs in an ABC system?

A) Assign costs to activity-based pools
B) Allocate activity costs to each cost object
C) Identify activities
D) Identify the relevant cost object

Question 45

Which of the following is not part of the process used to assign costs in an ABC system?

A) Identify activities
B) Differentiate value-adding and non-value-adding activities
C) Identify the relevant cost object
D) Assign costs to activity-based pools

Question 46

In an ABC system, a cost driver must be chosen for each

A) Activity
B) Cost pool
C) Cost object
D) Unit-level activity

Question 47

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 2010: Processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $15,000 for the first half of 2010. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce orange juice for the next 2 weeks. Finally, workers set up the same machines to produce orange icey-poles during the last week of each month.
During the first half of 2010, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange icey-poles. The relative sales values of each product were: 75% for orange juice, 20% for orange juice concentrate, and 5% for icey-poles. The orange juice concentrate operation takes up 40% of FSOJ's total factory space. Regular orange juice and orange icey-poles occupy 35% and 25%, respectively.
Preparing oranges for processing involves peeling and removing seeds. The best cost driver for the cost of preparing oranges for processing would be

A) Square metres occupied by the preparation equipment
B) Percent of oranges harvested for each product line
C) Direct labor hours
D) Total direct costs

Question 48

Which category of the ABC hierarchy has costs that are primarily fixed and activities with little or no cause-and-effect relationship with costs?

A) Unit-level
B) Batch-level
C) Organisation-sustaining
D) Product-sustaining

Question 49

Tutors-R-Us provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 2010, the firm's information system produced the following data: Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Tutors-R-Us operations for November 2010 included:
If the number of tutors in each area is the cost driver for custodial services, the total custodial services cost allocated to history would be:

A) $450
B) $270
C) $257
D) None of the above

Question 50

Tutors-R-Us provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 2010, the firm's information system produced the following data: Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Tutors-R-Us operations for November 2010 included:
Which of these groups of costs are most likely to have a common cost driver?

A) Advertising & computer equipment depreciation
B) Computer equipment depreciation & utilities
C) Utilities & custodial services
D) Utilities & advertising

Question 51

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 2010: Processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $15,000 for the first half of 2010. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce orange juice for the next 2 weeks. Finally, workers set up the same machines to produce orange icey-poles during the last week of each month. During the first half of 2010, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange icey-poles. The relative sales values of each product were: 75% for orange juice, 20% for orange juice concentrate, and 5% for icey-poles. The orange juice concentrate operation takes up 40% of FSOJ's total factory space. Regular orange juice and orange icey-poles occupy 35% and 25%, respectively.
Which of the preceding costs would most likely have "number of setups" as its cost driver?

A) Harvest oranges
B) Package completed products
C) Process juice
D) Extract juice

Question 52

Tutors-R-Us provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 2010, the firm's information system produced the following data Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Tutors-R-Us operations for November 2010 included: Facility rent $2,500
Custodial services 1,800
Utilities 600
Computer equipment depreciation 800
Advertising 400
Which of the following could be a cost object for Tutors-R-Us?
I A student
II A subject area
III A cost pool

A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question 53

Managers are most likely to identify activities in an ABC system by

A) Examining the financial statements
B) Forecasting market demand using the high-low method
C) Consulting employees
D) Tracking general ledger account balances

Question 54

Tutors-R-Us provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 2010, the firm's information system produced the following data: Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Tutors-R-Us operations for November 2010 included:
The number of students in each area is most likely to be a cost driver for

A) Utility costs
B) Advertising costs
C) Cost for tutors
D) Price charged for tutoring

Question 55

In an ABC system, an activity is best defined as a

A) Type of task performed in an organisation
B) Collection of activities in a particular department
C) Collection of cost drivers associated with a particular cost pool
D) Group of cost pools associated with a particular department

Question 56

At least one cost driver is required for each ABC cost

A) Activity
B) Pool
C) Object
D) Product line

Question 57

Ideally, activity costs are allocated to cost objects using a ______ that explains changes in activity ______.

A) Pool, Cost
B) Pool, Driver
C) Driver, Cost
D) Driver, Pools

Question 58

Tutors-R-Us provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 2010, the firm's information system produced the following data: Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Tutors-R-Us operations for November 2010 included:
Assume Tutors-R-Us allocates facility rent, custodial services, and utilities on the basis of square metres occupied and computer equipment depreciation on the basis of number of students. Advertising is not allocated. If students received 200 hours of mathematics tutoring in November 2010, what will the total profit from mathematics tutoring be for the same period?

A) $10,000
B) $8,775
C) $8,488
D) $488

Question 59

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 2010: Processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $15,000 for the first half of 2010. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce orange juice for the next 2 weeks. Finally, workers set up the same machines to produce orange icey-poles during the last week of each month.
During the first half of 2010, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange icey-poles. The relative sales values of each product were: 75% for orange juice, 20% for orange juice concentrate, and 5% for icey-poles. The orange juice concentrate operation takes up 40% of FSOJ's total factory space. Regular orange juice and orange icey-poles occupy 35% and 25%, respectively.
Assume processing costs are allocated on the basis of number of machine setups. How much processing cost will be allocated to each product line?

A) $5,000 to each product line
B) $7,500 each to orange juice concentrate and orange icey-poles, and $15,000 to orange juice
C) $10,000 to each product line
D) None of the above

Question 60

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 2010: Processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $15,000 for the first half of 2010. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce orange juice for the next 2 weeks. Finally, workers set up the same machines to produce orange icey-poles during the last week of each month.
During the first half of 2010, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange icey-poles. The relative sales values of each product were: 75% for orange juice, 20% for orange juice concentrate, and 5% for icey-poles. The orange juice concentrate operation takes up 40% of FSOJ's total factory space. Regular orange juice and orange icey-poles occupy 35% and 25%, respectively.If juice extraction costs are allocated to product lines based on relative sales values, that is, each product line's portion of total sales, the amount allocated to icey-poles will be

A) $900
B) $5,400
C) $4,500
D) None of the above

Question 61

The process of using ABC information to evaluate the costs and benefits of production and internal support activities is called

A) Activity-based management
B) Activity-based budgeting
C) Activity-based costing
D) Activity-based consulting

Question 62

Lookin' for a Home is an animal shelter in Parramatta, New South Wales. The shelter relies on government grants and private donations for funding. It takes in homeless dogs and cats and keeps them until they are adopted by qualified individuals. One of the shelter's cost pools is animal recordkeeping, which involves maintaining a database with details about each animal in the shelter. Which of the following is the most appropriate cost driver for the animal recordkeeping cost pool?

A) Number of government grants sought
B) Number of employees who work in the shelter
C) Number of animal intake and adoption transactions
D) Square feet allocated to the recordkeeping operation

Question 63

BVH manufactures and sells mobile phones. Which of the following activities is least likely to be considered a value-added activity for BVH?

A) Repairing phones
B) Offering phones for sale in designer colors
C) Making phones smaller
D) Creating several ring-tone options for mobile phones

Question 64

Cost drivers are most likely to be identified using information

A) From the financial statements
B) Elicited from customers
C) Elicited from employees involved in related activities
D) From textbooks

Question 65

Activity-based management relies on

A) Accurate ABC information
B) Objective financial reporting
C) Outside consultants
D) Participative management techniques

Question 66

Which of these is not a benefit of Activity Based Costing?

A) Increased awareness of cause and effect relationships
B) Identification of non-value-added activities
C) Modifications to the accounting system
D) All of the above are benefits. i.e. none of the items is not a benefit

Question 67

Value-added activities

A) Increase revenues
B) Increase the worth of an organisation's goods and services to customers
C) Increase the worth of an organisation's goods and services to shareholders
D) Increase costs that are unrelated to customers

Question 68

Costs associated with developing an ABC system most likely include

A) Reduced profits
B) Loss of market share
C) Employee time and consulting fees
D) Increased overhead costs

Question 69

Phuong is a customer of PVL Ltd. She consistently orders low-margin products, but requires costly services from PVL. In employing ABM techniques to manage customer profitability, PVL's staff should

A) Make no changes in service to Phuong
B) Develop creative approaches to managing Phuong as a customer
C) Require Phuong to pay for all orders in cash
D) Classify Phuong as a value-added customer and increase the amount of services provided to her

Question 70

The managers of HRY are analysing some of their corporate costs to determine the costs of each department's use of administrative services. The accountant wants to allocate the costs of payroll processing using an activity-based costing system. The most appropriate cost driver for the payroll processing cost pool is the

A) Number of pay periods per month
B) Number of employees
C) Average hourly wage for all employees
D) Maximum number of deductions from an individual employee's pay-cheque

Question 71

A cost driver is

A) A measure of activity that causes costs to fluctuate
B) Only used in ABC systems
C) Seldom related to cost changes in an ABC system
D) Usually related to cost changes in a traditional costing system

Question 72

MNK is a large public company that employs numerous accounts receivable clerks. Their jobs involve processing invoices and keeping the accounting records updated. Which of the following is the most likely cost driver for the accounts receivable activity cost pool?

A) Number of journal entries
B) Number of product lines produced by MNK
C) Number of invoices
D) Average dollar amount for each credit sale

Question 73

The best allocation base choice for an ABC cost pool is a(n)

A) Cost driver
B) Activity dictionary
C) Allocation rate
D) Financial measure

Question 74

Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage

A) Customer quality
B) Customer profitability
C) Inventory levels
D) Staffing levels in the marketing department.

Question 75

How can ABC information be used to manage constrained resources?

A) ABC information cannot be used to manage constrained resources
B) ABC information can help managers identify the best way to relax constraints
C) ABC information can help managers decrease the rate at which products get through the manufacturing process
D) ABC information can help managers justify price increases due to constrained resources

Question 76

When implementing an ABC system, the accounting information system may require modifications to

A) Include fewer ledger accounts
B) Include only costs from the most recent periods
C) Gather and report activity and cost driver information
D) Do all of the above

Question 77

An allocation base is

A) Normally related to cost changes in a traditional costing system
B) A measure of activity that causes costs to fluctuate
C) Seldom related to cost changes in an ABC system
D) Often used incorrectly as a synonym for "cost driver"

Question 78

FNG employs 4 purchasing agents. Rick processes purchase orders for vendors starting with the letters A through H, while Merrill does the same task for vendors from I through N. Phillip deals with vendors in the O through R range, and Kathy handles the rest of the alphabet. The most likely cost driver for the purchasing agents' salaries is the

A) Number of vendors within each alphabetical segment
B) Number of purchase orders processed each month
C) Average dollar amount of each purchase order
D) Number of product lines FNG produces

Question 79

Which of the following statements is true?

A) Cost drivers are a special kind of allocation base
B) Allocation bases are a special kind of cost driver
C) Cost drivers and allocation bases are two names for the same thing
D) Allocation bases are seldom used in traditional costing systems

Question 80

Which of the following is not a benefit of an ABC system?

A) Helping managers focus on measurement at the activity level
B) Increasing bonuses for managers
C) Improving accuracy in cost measurement
D) Motivating employees to find ways to improve performance