Question 1

Different products consume different proportions of overhead costs because of differences in all of the following EXCEPT:

Accepted Answer

Sales prices do not directly impact the proportion of overhead costs. The other options listed can all affect the proportion of overhead costs consumed by a given product.

Question 2

Product lines that produce different variations (models,styles,or colors)often require specialized activities that translate into lower overhead costs for each product line.

Accepted Answer

Product lines that produce different variations (models, styles, or colors)often require specialized activities that translate into higher costs for each product line.

Question 3

Traditional cost systems distort product costs because:

Accepted Answer

Traditional cost systems use only unit-level cost drivers to allocate overhead costs to products, which can distort the product costs as such systems fail to consider the different activities undertaken to produce a product. As a result, some products may be overcosted while others may be undercosted. Hence, choice D is the best answer.

Question 4

The first step in designing an activity-based cost system is to develop an activity dictionary.

Accepted Answer

Developing an activity dictionary is the first step in designing an activity-based cost system. The activity dictionary identifies and defines the specific activities that are performed within an organization and provides a framework for assigning costs to those activities.

Question 5

Explain how traditional cost systems,using only unit level cost drivers,distort customer costs.

Accepted Answer

The answer of Explain how traditional cost systems,using only unit...

Question 6

Explain how traditional cost systems,using only unit level cost drivers,distort product costs.

Accepted Answer

The answer of Explain how traditional cost systems,using only unit...

Question 7

Traditional cost systems are likely to overcost complex products with lower production volume.

Accepted Answer

Traditional costing systems are likely to undercost complex products with lower production volume.

Question 8

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that:

Accepted Answer

The answer of It is important that the product costs...

Question 9

Specialized engineering drawings of products,product quality specifications and quality control testing,inventoried raw materials,and material control systems are examples of activities that equate to greater overhead costs.

Accepted Answer

These activities require additional resources, such as specialized personnel, equipment, and software, which adds to the overhead costs of a manufacturing company. Quality control and material management are essential for producing high-quality products but can increase expenses.

Question 10

Misleading product cost numbers are MOST likely the result of misallocating:

Accepted Answer

Misallocating overhead costs can result in misleading product cost numbers because overhead costs are indirect costs that are allocated to different products using estimates or arbitrary allocation methods. If these estimates or allocation methods are inaccurate, the resulting product costs will be misleading. Direct material and direct manufacturing labor costs are relatively easier to track and allocate accurately.

Question 11

Traditional cost systems are likely to overcost simple products with higher production volume.

Accepted Answer

Traditional cost systems often allocate overhead costs based on volume-related measures (like labor hours or machine hours), which can result in simple, high-volume products being allocated more overhead than they actually consume, leading to overcosting.

Question 12

Smaller cost distortions occur when the traditional cost systems' unit-level assignments and the alternative activity cost driver assignments:

Accepted Answer

Smaller cost distortions occur when the traditional cost systems' unit-level assignments and the alternative activity cost driver assignments are similar in proportion to each other. This means that the two methods of assigning costs are not drastically different from each other, resulting in smaller distortions in the cost calculations.

Question 13

Overcosting a particular product may result in:

Accepted Answer

Overcosting a particular product may result in higher profits per unit for the product. However, it could also lead to pricing the product above market value and losing market share, depending on the competitiveness of the market. Overstating total costs of all products and operating efficiencies are not directly related to overcosting a particular product.

Question 14

Traditional cost systems use actual departments or cost centers for defining cost pools to accumulate and redistribute costs.

Accepted Answer

Traditional cost systems often use actual departments or cost centers as the basis for defining cost pools, and allocate costs based on predetermined cost drivers, such as direct labor hours or machine hours.

Question 15

Activity-based cost systems use cost centers to accumulate costs.

Accepted Answer

Activity-based cost systems use cost pools to accumulate costs.

Question 16

________ and ________ are typically the measures of volume of activity in traditional volume-based cost systems.

Accepted Answer

Direct labor hours and machine hours are commonly used as measures of activity in traditional volume-based cost systems. These measures are used to allocate overhead costs to products or services based on the amount of time they use for production tasks. Practical capacity and products sold are not typically used as direct measures of activity in cost accounting. Square footage may be used in some industries, but it is less common than direct labor hours or machine hours.

Question 17

Unit-level cost drivers in traditional cost systems distort product costs because they:

Accepted Answer

Unit-level cost drivers in traditional cost systems assume that all overhead activities affect all products, which can distort product costs. This can result in overcosting some products and undercosting others, leading to inaccurate decisions about pricing, production, and profitability. Recognizing specific activities that are required to produce a product (option B) can help to improve the accuracy of cost allocations, but it does not address the issue of unit-level cost drivers. Options C and D are not accurate descriptions of unit-level cost drivers in traditional cost systems.

Question 18

Activity-based costing (ABC)can eliminate cost distortions because ABC:

Accepted Answer

Activity-based costing (ABC) develops cost drivers that directly link the activities performed to the products manufactured. This eliminates cost distortions by identifying the specific activities that consume resources and assigning costs to them based on their usage. This provides a more accurate picture of the true cost of producing a product or providing a service. Establishing multiple cost pools, employing capacity-related cost drivers, and recognizing interactions between different departments in assigning overhead costs are all components of ABC, but A is the most direct way in which ABC eliminates cost distortions.

Question 19

Undercosting of a product is MOST likely to result from:

Accepted Answer

Undercosting a product often occurs when another product is overcosted, leading to an imbalance in cost allocation.

Question 20

The use of unit-related measures to assign overhead costs is more likely to:

Accepted Answer

Unit-related measures, such as direct labor hours or machine hours, are typically better suited for assigning overhead costs to high-volume products with similar production processes. This approach may not accurately reflect the actual overhead costs incurred for specialty low-volume or complex products, resulting in undercosting. Therefore, the use of unit-related measures is more likely to undercost specialty low-volume and complex products.

Quiz 5: Activity-Based Cost Systems