Question 1

Fence Industries 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:
$$\begin{array} { | l | r | r | } 
\hline &  { \text { Customer A } } & { \text { Customer B } } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
-
What is the amount of the sales support costs that should be allocated to Customer B, assuming Fence uses purchases orders to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

The total purchase orders are 25 (5 for Customer A and 20 for Customer B). The cost per purchase order is $12,000 / 25 = $480. Customer B has 20 purchase orders, so the cost allocated to Customer B is 20 * $480 = $9,600.

Question 2

In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and eliminating: (CPA adapted)
$\begin{array} {cc} 
 { \text { All Cost Drivers } } & \text { Non value-added Activities } \\end{array}$
A.$\begin{array} {cc} & & \text { No } &&&&&&&&& \text { No } \\end{array}$
B.$\begin{array} {cc}  && \text { Yes } &&&&&&&&& \text { Yes } \\end{array}$
C.$\begin{array} {cc} && \text { No } &&&&&&&&& \text { Yes } \\end{array}$
D.$\begin{array} {cc} && \text { Yes } &&&&&&&&& \text { No } \
\end{array}$

A) Option A.
B) Option B.
C) Option C.
D) Option D.

Accepted Answer

In an ABC system, cost reduction is achieved by identifying and eliminating non value-added activities, not all cost drivers.

Question 3

Which of the following is a value-added activity?
A) Storing items.
B) Moving items.
C) Waiting for work.
D) Assembling items.

Accepted Answer

Assembling items is a value-added activity because it directly contributes to the final product and enhances its value to the customer.

Question 4

Which of the following is not true of process reengineering?
A) It is the changing of operational processes to improve performance.
B) It often takes place after examining ABC data to determine opportunities for improvement.
C) It involves identifying what the customer wants or expects from the firm's products or services.
D) It is the sixth, and final, step of ABCM activity analysis.

Accepted Answer

The answer of Which of the following is not true...

Question 5

Which of the following items would be classified as a batch-related cost in an activity-based cost management (ABCM) system?
A) Indirect labor.
B) Production supervisor's salary.
C) Depreciation on factory building.
D) Machinery set-up costs.

Accepted Answer

Batch-related costs are incurred whenever a batch of products is produced, regardless of the number of units in the batch. Machinery set-up costs are incurred each time a new batch is set up for production, making them batch-related costs.

Question 6

Activity-based cost management (ABCM) 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.

Accepted Answer

Activity-based cost management (ABCM) involves using the cost information gathered through activity-based costing (ABC) to manage and improve business processes and decision-making.

Question 7

Barter 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 Barter'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.

Accepted Answer

Raw materials storage activity is considered nonvalue-added because it does not directly contribute to the transformation of materials into a finished product and is often seen as a necessary but non-value-adding step in the production process.

Question 8

Activity analysis is one of the first stages in implementing activity-based cost management (ABCM). 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.

Accepted Answer

The answer of Activity analysis is one of the first...

Question 9

McArthur Company has gathered the following data related to its production process of two of its products for the week ended April 30:
$\begin{array}{lrrrr}
\text { Model } & \text { Item \#B200 } & \text { Item \#C440 }\
\text { Quantity produced } &  60 &  100 \
\text { Unit-related material costs } & \$  42,000 & \$ 100,000 \
\text { Variable conversion costs } &  72,000 &  300,000\
\text { Total direct costs } & \$ 114,000 & \$ 400,000 \
\text { Indirect costs: } & & & \
\text { Indirect manufacturing costs } & 163,200 &  272,000 \
\text { Indirect operating costs } & 255,000 & 425,000\
\text { Total indirect costs } & 418,200 &  697,000 \
\text { Total cost}& \$ 532,200 &  \$ 1,097,000
\end{array}$
The costs above that appear to be allocated rather than traced are:
A) Unit-related material costs.
B) Variable conversion costs.
C) Indirect manufacturing costs only.
D) All indirect costs.

Accepted Answer

Indirect costs are typically allocated rather than directly traced to specific products, as they are not directly attributable to a single product.

Question 10

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.

Accepted Answer

Purchasing is a value-added activity as it directly contributes to acquiring inventory for resale, which is essential for generating revenue in a merchandise company.

Question 11

Which of the following statements about activity-based costing (ABC) is not true? (CIA adapted)
A) In ABC, cost drivers are used to link costs 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.

Accepted Answer

ABC is more likely to result in major differences from traditional costing systems when a firm manufactures multiple products, not just one, due to the allocation of overhead costs based on activities rather than volume.

Question 12

Which of the following items would not be used as the cost driver for a volume-related cost in an activity-based cost management (ABCM) system?
A) Direct labor hours.
B) Machine hours.
C) Units produced.
D) Square footage.

Accepted Answer

Square footage is typically used as a cost driver for facility-related costs, not volume-related costs. Volume-related costs are more directly associated with production activities, which are better represented by direct labor hours, machine hours, or units produced.

Question 13

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.

Accepted Answer

Assembling is a direct part of the production process that adds value to the product by transforming raw materials into finished goods.

Question 14

Activity analysis is an important approach to operations control and the successful implementation of activity-based cost management (ABCM). 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.

Accepted Answer

Computing the predetermined rate per activity is part of cost allocation, not activity analysis. Activity analysis focuses on understanding and classifying activities, not on cost calculations.

Question 15

Fence Industries 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:
$$\begin{array} { | l | r | r | } 
\hline & { \text { Customer A } } & { \text { Customer B } } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
-
What is the amount of the sales support costs that should be allocated to Customer A, assuming Fence uses purchases orders to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

The sales support costs should be allocated based on the number of purchase orders. Customer A has 5 purchase orders out of a total of 25 (5 for A and 20 for B). Therefore, the allocation for Customer A is $ \frac{5}{25} \times 12,000 = 2,400 $.

Question 16

In an activity-based cost management (ABCM) system, facility-related 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) cause a change in the engineering plans for a product.

Accepted Answer

Facility-related costs in an ABCM system are those incurred to maintain the plant's production capacity, as they are necessary for the overall operation and upkeep of the facility.

Question 17

Fence Industries 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:
$$\begin{array} { | l | r | r | } 
\hline &  { \text { Customer A } } & { \text { Customer B } } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
-
What is the amount of the sales support costs that should be allocated to Customer B, assuming Fence uses units purchased to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

The answer of Fence Industries is preparing its annual profit...

Question 18

Which of the following items would be classified as a volume-related cost in an activity-based cost management (ABCM) system?
A) Indirect materials.
B) Production supervisor's salary.
C) Depreciation on factory building.
D) Research and development.

Accepted Answer

Volume-related costs in an ABCM system are costs that vary with the level of production or sales volume. Indirect materials are typically consumed in proportion to the volume of production, making them a volume-related cost.

Question 19

Which of the following items would be classified as a product-related cost in an activity-based cost management (ABCM) 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 factory building.

Accepted Answer

Change orders to meet a new customer's specification are directly related to the product and are considered product-related costs in an ABCM system.

Question 20

Fence Industries 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:
$$\begin{array} { | l | r | r | } 
\hline & { \text { Customer A } } &  { \text { Customer B } } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
-
What is the amount of the sales support costs that should be allocated to Customer A assuming Fence uses units purchased to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

The answer of Fence Industries is preparing its annual profit...

Quiz 10: Fundamentals of Cost Management

Which of the following is a value-added activity?

Which of the following is not true of process reengineering?

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

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

Activity analysis is one of the first stages in implementing activity-based cost management (ABCM) . Which of the following steps in activity analysis is usually performed first?

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

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

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

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

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

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

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

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