Deck 10: Fundamentals of Cost Management

Question 1

Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions.Theoretical is based on ideal or perfect conditions.

Answer 1

False

Question 2

Activity-based costing (ABC)techniques used to evaluate customer profitability can also be applied to evaluating suppliers.ABC can be used for both suppliers and customers.

Answer 2

True

Question 3

In general,the unit-level costs in an activity-based costing (ABC)system are variable costs.Unit-level (or volume-related)increase as volume increases-this is the definition of variable cost.

Answer 3

True

Question 4

Managerial decisions based on activity-based costing (ABC)information affect only volume-level,batch-level,and product-level costs.Capacity-level costs are also affected.

Question 5

In general,decreasing (or eliminating)the resources committed to nonvalue-added activities will decrease customer response time.The "extra" work is being removed,so the time to complete is shorter.

Question 6

A cost of quality system is based on the trade-off between incurring costs to meet product (or service)specifications and the costs of failing to meet those specifications.There is a tension between the two that must be considered.

Question 7

The cost driver rate is computed by dividing the total cost per activity by the estimated number of units produced.Divided by the estimated cost driver level.

Question 8

Activity-based costing (ABC)can be used to provide information for managerial decision-making in service,merchandising,and manufacturing companies.ABC is not limited to just manufacturing companies.

Question 9

Theoretical capacity is the amount of production possible assuming expected downtime for scheduled maintenance and normal breaks and vacations.Theoretical capacity does not allow for any downtime,whether planned or unplanned.

Question 10

In general,the capacity-level costs in an activity-based costing (ABC)system are variable costs.Capacity-level costs are normally fixed costs.

Question 11

The basic concepts involved in activity-based costing (ABC)can be used to determine customer profitability as well as product costs.The definition of the cost object is the only thing that is different.

Question 12

Storing materials,work-in-process items,and finished goods in inventory are essential,value-added activities in most companies.These are all nonvalue-added activities.

Question 13

Internal failure costs include materials wasted in the production process and correcting products before they are sold.Internal failures occur before the products leave the firm;external failures occur after the product leaves.

Question 14

Quality can be defined as the degree to which a product or service performs as it was designed to.This is the most general definition of quality.

Question 15

Activity-based cost management (ABM)uses the information provided by activity-based costing (ABC)to identify ways to improve operations.ABM is the managerial use of ABC information.

Question 16

In general,managerial decisions affecting capacity-level costs and activities also affect volume-level,batch-level,and product-level cost and activities.All levels may be affected by managerial decisions.

Question 17

Unused resource capacity plus the amount of the resources used is equal to the amount of resources supplied.Unused + Used = total available

Question 18

Tangible customer expectations include how the product's salespeople treat customers and the time required to deliver the product to the customer.These are intangible expectations.

Question 19

The difference between the resources used and the resources supplied is called unused resource capacity in a typical activity-based cost management (ABM)system.This is the definition of unused resource capacity.

Question 20

Unused capacity costs incurred for the benefit of a company's customers (e.g. ,meet seasonal demands)should be assigned to the customers that require (use)the excess capacity.This is the concept of matching costs with the object that benefits from it.

Question 21

Activity-based cost management (ABM)can best be defined as:

A)a cost system using multiple departmental overhead rates.
B)the use of cost information gathered using activity-based costing (ABC).
C)a quality-control system focusing on eliminating errors and mistakes.
D)an incentive system for a company's key decision-makers.

Question 22

Which of the following statement is(are)true? (A)Unused capacity costs incurred for the benefit of a company's customers (e.g. ,meet seasonal demands)should be assigned to the customers that require (use)the excess capacity.(B)In general,managerial decisions affecting capacity-level costs and activities also affect volume-level,batch-level,and product-level cost and activities.

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 23

Green Lumber Supply noticed a recent decline in the amount of purchases from a key customer.Worried that other customers might also reduce their purchases,Green's management decided to evaluate the cost of its delivery service.Which of the following cost drivers is more appropriate for general administrative costs of the Delivery Department?

A)Number of different items ordered.
B)Value of each order.
C)Total number of items in each order.
D)Number of deliveries made.

Question 24

The amount of production possible under normal working conditions,including planned downtime and scheduled vacations,is called:

A)actual capacity.
B)normal capacity.
C)practical capacity.
D)theoretical capacity.

Question 25

Which of the following activities is most likely to be classified as value-added for a merchandise company?

A)Purchasing.
B)Waiting.
C)Receiving.
D)Setting up.

Question 26

Activity analysis is an important approach to operations control and the successful implementation of an activity-based costing (ABC)system.Which of the following procedures is not part of activity analysis?

A)Chart,from start to finish,the activities used to complete the product or service.
B)Classify all activities as either value-added or nonvalue-added activities.
C)Identify the process objectives as defined by what the customer desires from the process.
D)Compute the predetermined rate per activity by dividing the total cost pool by the total cost drivers.

Question 27

Which of the following statements is(are)true? (A)Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions.(B)The cost of excess capacity is allocated to individual cost objects using the cost driver rate.

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 28

The unused resource capacity is the difference between the resources supplied and the resources:

A)purchased.
B)wasted.
C)used.
D)on hanD.This is the definition of unused resource capacity.

Question 29

Which of the following items would be classified as a volume-level cost in an activity-based cost management (ABM)system?

A)Indirect materials.
B)Production supervisor's salary.
C)Depreciation on factory building.
D)Research and development.

Question 30

Which of the following items would not be used as the cost driver for a volume-level cost in an activity-based cost management (ABM)system?

A)Direct labor hours.
B)Machine hours.
C)Units produced.
D)Square footage.

Question 31

Activity-based costing (ABC)information cannot be used by managerial decision-makers to evaluate the:

A)profitability of a customer.
B)market potential of a product.
C)cost of using a particular supplier.
D)whether to continue providing a service.

Question 32

Activity analysis is one of the first stages in implementing an activity-based costing system.Which of the following steps in "activity analysis" is usually performed first?

A)Classify all activities as value-added or nonvalue-added.
B)Chart,from start to finish,the activities used to complete the product or service.
C)Identify the process objectives that are defined by what the customer wants or expects from the process.
D)Continuously improve the efficiency of all value-added activities and develop plans to eliminate or reduce nonvalue-added ones.

Question 33

The amount of resources used in an activity-based costing (ABC)system for a specific activity is computed by multiplying the:

A)cost driver rate and the actual cost driver volume.
B)cost driver rate and the planned cost driver volume.
C)overhead rate and the actual cost driver volume.
D)overhead rate and the planned cost driver volume.

Question 34

In an activity-based cost management (ABM)system,facility-level costs are those that are incurred to:

A)sustain the company's marketing program.
B)maintain the plant's production capacity.
C)support the research and development process.
D)caused by a change in the engineering plans for a product.

Question 35

Which of the following items would be classified as a product-level cost in an activity-based cost management (ABM)system?

A)Change order to meet a new customer's specification.
B)Movement of materials for products in production.
C)Long-term lease payments for factory equipment.
D)Insurance and property taxes on faculty building.

Question 36

Which of the following activities is most likely to be classified as value-added for a manufacturing company?

A)Storing.
B)Ordering.
C)Inspecting.
D)Assembling.

Question 37

Which of the following items would be classified as a batch-level cost in an activity-based cost management (ABM)system?

A)Indirect labor.
B)Production supervisor's salary.
C)Depreciation on factory building.
D)Machinery set-up costs.

Question 38

A company has high winter demand and low summer demand for its services.The cost of the unused summer capacity should be allocated:

A)to an account called Idle Capacity.
B)evenly to all customers.
C)only to the winter customers.
D)only to the summer customers.

Question 39

Which of the following statements regarding quality costs is(are)false? (A)In a cost of quality system,internal and external failure costs are called conformance costs.(B)Prevention costs are costs incurred to detect individual units of product that do not conform to its specifications.

A)Only A is false.
B)Only B is false.
C)Both A and B are false.
D)Neither A nor B is false.

Question 40

The degree to which a good or service meets specifications is called:

A)conformance to specifications.
B)customer quality demands.
C)a conformance cost.
D)a compliance cost.

Question 41

BC Enterprises' quality control report for August contains the following items. What would be the total of the internal failure costs on the August quality control report for BC Enterprises?

A)$8,000.
B)$13,000.
C)$14,000.
D)$16,000.

Question 42

Beta Company is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: What is the amount of the sales support costs that should be allocated to Customer B,assuming Beta uses units purchased to compute activity-based costs?

A)$2,400.
B)$4,000.
C)$8,000.
D)$9,600.

Question 43

Which of the following is an example of a prevention cost?

A)Machine inspection.
B)Warranty repairs.
C)Field testing.
D)Marketing costs.

Question 44

Which of the following items is included in almost all quality control systems?

A)Quality-related waiting time.
B)Quality planning and analysis.
C)Excess or obsolete inventory.
D)Quality-related overtime.

Question 45

BC Enterprises' quality control report for August contains the following items. What would be the total of the conformance costs on the August quality control report for BC Enterprises?

A)$22,000.
B)$20,000.
C)$15,000.
D)$13,000.

Question 46

Beta Company is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: What is the amount of the sales support costs that should be allocated to Customer B,assuming Beta uses purchases orders to compute activity-based costs?

A)$2,400.
B)$4,000.
C)$8,000.
D)$9,600.

Question 47

BC Enterprises' quality control report for August contains the following items. What would be the total of the prevention costs on the August quality control report for BC Enterprises?

A)$5,000.
B)$7,000.
C)$11,000.
D)$15,000.

Question 48

Gundy Press reports the following information about resources.At the beginning of the year,Gundy estimated it would spend $42,000 for setups and $21,000 for clerical. Compute unused resource capacity for clerical for Gundy Press.

A)$5,000.
B)$1,000.
C)$6,000.
D)$1,260.

Question 49

BC Enterprises' quality control report for August contains the following items. What would be the total of the nonconformance costs on the August quality control report for BC Enterprises?

A)$22,000.
B)$21,000.
C)$14,000.
D)$13,000.

Question 50

Which of the following statements regarding the trade-off between conformance and nonconformance costs is(are)false? (A)The optimal level for a company's quality control program occurs when its conformance costs equal its nonconformance costs.(B)There is an inverse relationship between the costs spent on nonconformance costs and the level of quality achieved.

A)Only A is false.
B)Only B is false.
C)Both A and B are false.
D)Neither A nor B is false.

Question 51

Yellow Industries decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Yellow should charge $8 per order,2% of the order's value for general delivery costs,$1.25 per item,and $30 for delivery.A year later,Yellow collected the following information for two of its best customers: What are the total delivery costs charged to Customer C during the year?

A)$5,344.
B)$5,364.
C)$6,900.
D)$6,964.

Question 52

Gundy Press reports the following information about resources.At the beginning of the year,Gundy estimated it would spend $42,000 for setups and $21,000 for clerical. Compute unused resource capacity for setups for Gundy Press.

A)$1,250.
B)$3,000.
C)$1,750.
D)$5,000.

Question 53

Which of the following is an example of an internal failure cost?

A)Training employees to improve quality.
B)Designing products to reduce production problems.
C)Correcting product defects before they are sold.
D)Inspecting the production process as it occurs.

Question 54

BC Enterprises' quality control report for August contains the following items. What would be the total of the appraisal costs on the August quality control report for BC Enterprises?

A)$7,000.
B)$11,000.
C)$12,000.
D)$15,000.

Question 55

Which of the following is not an example of an external failure cost?

A)Accepting company liability resulting from product failure.
B)Experiencing decreasing sales as a result of poor-quality products.
C)Repairing or replacing defective products after they've been sold.
D)Testing products in use at the customer's site.

Question 56

Beta Company is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: What is the amount of the sales support costs that should be allocated to Customer A,assuming Beta uses purchases orders to compute activity-based costs?

A)$2,400.
B)$4,000.
C)$8,000.
D)$9,600.

Question 57

Which of the following is not an example of a prevention cost?

A)Training employees to improve quality.
B)Designing products to reduce production problems.
C)Correcting product defects before they are sold.
D)Inspecting the production process as it occurs.

Question 58

Beta Company is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: What is the amount of the sales support costs that should be allocated to Customer A assuming Beta uses units purchased to compute activity-based costs?

A)$2,400.
B)$4,000.
C)$8,000.
D)$9,600.

Question 59

Yellow Industries decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Yellow should charge $8 per order,2% of the order's value for general delivery costs,$1.25 per item,and $30 for delivery.A year later,Yellow collected the following information for two of its best customers: What are the total delivery costs charged to Customer D during the year?

A)$5,344.
B)$5,364.
C)$6,900.
D)$6,964.

Question 60

BC Enterprises' quality control report for August contains the following items. What would be the total of the external failure costs on the August quality control report for BC Enterprises?

A)$4,000.
B)$6,000.
C)$7,000.
D)$14,000.

Question 61

Black Company's cost management and product costing procedures follow activity-based costing (ABC)principles.Activities have been identified and classified as being either value-added or nonvalue-added for each product.Which of the following activities,used in Black's production process,is nonvalue-added? (CPA adapted)

A)Drill press activity.
B)Heat treatment activity.
C)Design engineering activity.
D)Raw materials storage activity.

Question 62

QC Enterprises quality control report for August contains the following items. What would be the total of the appraisal costs on the August quality control report for QC Enterprises?

A)$30,000.
B)$70,000.
C)$80,000.
D)$90,000.

Question 63

Rogers Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: What is the amount of the purchasing costs that should be allocated to Vendor B,assuming Rogers uses number of shipments received to compute activity-based costs?

A)$9,000.
B)$16,000.
C)$32,000.
D)$39,000.

Question 64

QC Enterprises quality control report for August contains the following items. What would be the total of the external failure costs on the August quality control report for QC Enterprises?

A)$70,000.
B)$110,000.
C)$120,000.
D)$140,000.

Question 65

Rogers Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: What is the amount of the purchasing costs that should be allocated to Vendor B,assuming Rogers uses units purchased to compute activity-based costs?

A)$9,600.
B)$16,000.
C)$32,000.
D)$38,400.

Question 66

Lemaire Products reports the following information about resources.At the beginning of the year,Lemaire estimated it would spend $8,000 for energy and $12,000 for repairs. Compute unused resource capacity for energy for Lemaire Products.

A)$8,000.
B)$1,080.
C)$1,420.
D)$2,500.

Question 67

QC Enterprises quality control report for August contains the following items. What would be the total of the conformance costs on the August quality control report for QC Enterprises?

A)$200,000.
B)$170,000.
C)$150,000.
D)$90,000.

Question 68

Demers Products reports the following information about resources.At the beginning of the year,Demers estimated it would spend $84,000 for setups and $41,000 for quality testing. Compute unused resource capacity for setups for Demers Products.

A)$6,000.
B)$2,500.
C)$1,000.
D)$3,500.

Question 69

QC Enterprises quality control report for August contains the following items. What would be the total of the nonconformance costs on the August quality control report for QC Enterprises?

A)$120,000.
B)$150,000.
C)$180,000.
D)$210,000.

Question 70

QC Enterprises quality control report for August contains the following items. What would be the total of the internal failure costs on the August quality control report for QC Enterprises?

A)$60,000.
B)$90,000.
C)$100,000.
D)$120,000.

Question 71

Rogers Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: What is the amount of the purchasing costs that should be allocated to Vendor A,assuming Rogers uses number of shipments received to compute activity-based costs?

A)$9,000.
B)$16,000.
C)$32,000.
D)$39,000.

Question 72

Demers Products reports the following information about resources.At the beginning of the year,Demers estimated it would spend $84,000 for setups and $41,000 for quality testing. Compute unused resource capacity for quality testing for Demers Products.

A)$4,000.
B)$2,000.
C)$1,000.
D)$5,000.

Question 73

Rogers Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: What is the amount of the purchasing costs that should be allocated to Vendor A,assuming Rogers uses purchases orders to compute activity-based costs?

A)$9,600.
B)$16,000.
C)$32,000.
D)$38,400.

Question 74

QC Enterprises quality control report for August contains the following items. What would be the total of the prevention costs on the August quality control report for QC Enterprises?

A)$180,000.
B)$120,000.
C)$90,000.
D)$70,000.

Question 75

Rogers Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: What is the amount of the purchasing costs that should be allocated to Vendor A,assuming Rogers uses units purchased to compute activity-based costs?

A)$9,600.
B)$16,000.
C)$32,000.
D)$38,400.

Question 76

Folly Beach Industries decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Folly Beach should charge $16 per order,1% of the order's value for general delivery costs,$2.50 per item,and $45 for delivery.A year later,Folly Beach collected the following information for three of its customers: What are the total delivery costs charged to Customer A during the year?

A)$5,738.
B)$6,650.
C)$6,938.
D)$20,235.

Question 77

Lemaire Products reports the following information about resources.At the beginning of the year,Lemaire estimated it would spend $8,000 for energy and $12,000 for repairs. Compute unused resource capacity for repairs for Lemaire Products.

A)$2,400.
B)$12,000.
C)$6,000.
D)$3,600.

Question 78

Rogers Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows: What is the amount of the purchasing costs that should be allocated to Vendor B,assuming Rogers uses purchases orders to compute activity-based costs?

A)$9,600.
B)$16,000.
C)$32,000.
D)$38,400.

Question 79

In an activity-based costing (ABC)system,cost reduction is accomplished by identifying and eliminating: (CPA adapted)

A)Option a
B)Option b
C)Option c
D)Option d

Question 80

Which of the following statements about activity-based costing (ABC)is not true? (CIA adapted)

A)In ABC,cost drivers are what cause costs to be linked to products.
B)ABC is useful for assigning marketing and distribution costs.
C)ABC differs from traditional costing systems in that products are not cross-subsidized.
D)ABC is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.