Question 1

Purchase order processing is an example of a:
A)Unit-level activity.
B)Batch-level activity.
C)Product-level activity.
D)Facility-level activity.

Accepted Answer

Purchase order processing involves processing a batch of purchase orders at once rather than individual units, making it a batch-level activity.

Question 2

Departmental overhead rates may not correctly assign overhead costs due to:
A)the use of direct labor hours in allocating overhead costs to products rather than machine time or quantity of materials used.
B)the high correlation between direct labor-hours and the incurrence of overhead costs.
C)overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.
D)difficulties associated with identifying cost pools for the first stage of the allocation process.

Accepted Answer

Departmental overhead rates that allocate overhead based solely on volume can be inaccurate if products differ in terms of units produced, lot size, or complexity of production. For example, a product that requires more machine time but produces fewer units may have a lower overhead rate assigned under a volume-based allocation method, even though it may consume more overhead resources. Therefore, a more accurate allocation method would be to use machine time or quantity of materials used to assign overhead costs to products.

Question 3

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a:
A)Unit-level activity.
B)Batch-level activity.
C)Product-level activity.
D)Facility-level activity.

Accepted Answer

Processing purchase orders involves grouping and processing similar orders, which is a batch-level activity. It is not a unit-level activity as it involves several orders, nor a product or facility-level activity.

Question 4

Property taxes are an example of a cost that would be considered to be:
A)Unit-level.
B)Batch-level.
C)Product-level.
D)Facility-level.

Accepted Answer

Property taxes are considered to be a facility-level cost, as they are incurred regardless of the units produced or batches processed. These costs are associated with maintaining the facility and are not directly tied to the production of goods or services.

Question 5

Assembling a product is an example of a:
A)Unit-level activity.
B)Batch-level activity.
C)Product-level activity.
D)Facility-level activity.

Accepted Answer

Assembling a product is considered a unit-level activity because it is performed on each individual unit produced, varying directly with the number of units produced.

Question 6

In activity-based costing, unit product costs computed for external financial reports include direct materials, direct labor, and manufacturing overhead costs.

Accepted Answer

In activity-based costing, unit product costs for external financial reports include direct materials, direct labor, and manufacturing overhead costs, which are then allocated based on activity drivers.

Question 7

Production order processing is an example of a:
A)Unit-level activity.
B)Batch-level activity.
C)Product-level activity.
D)Facility-level activity.

Accepted Answer

Production order processing involves activities such as setting up the production order, scheduling the production run, and coordinating with various departments. These activities are typically performed in batches, as multiple orders may need to be processed at the same time. Therefore, production order processing is a batch-level activity.

Question 8

In activity-based costing, a separate activity rate (i.e., predetermined overhead rate)is computed for each activity cost pool by dividing the estimated overhead cost in the activity cost pool by the total expected activity for the activity cost pool.

Accepted Answer

This statement is correct. An activity rate is calculated for each activity cost pool by dividing the total estimated overhead cost in the pool by the total expected activity in that cost pool. This helps to assign overhead costs more accurately to products or services based on the activities they require.

Question 9

Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department?
A)Machine-hours
B)Direct labor-hours
C)Number of orders processed
D)Cost of materials purchased

Accepted Answer

The number of orders processed would be the most accurate measure of activity for allocating costs in the purchasing department, as the department is responsible for processing orders and placing orders with suppliers. Machine-hours and direct labor-hours would be more appropriate measures of activity for allocating costs in a manufacturing or production department. Cost of materials purchased would be more appropriate for allocation in the materials management or inventory control department.

Question 10

Which of the following activities would be classified as a batch-level activity?
A)Setting up equipment.
B)Designing a new product.
C)Training employees.
D)Milling a part required for the final product.

Accepted Answer

Setting up equipment is considered a batch-level activity because it is a task that is performed each time a batch of products is prepared for production, regardless of the size of the batch. This contrasts with activities that are performed per unit, per product line, or are organization-sustaining.

Question 11

The activity rates in activity-based costing are used to determine how quickly a particular task should be done.

Accepted Answer

The activity rates in activity-based costing are used to assign costs to products or services based on the specific activities that are required to produce them, not to determine how quickly a task should be done.

Question 12

The activity rates in activity-based costing are computed by dividing the direct labor-hours for an activity cost pool by the measure of activity for the activity cost pool.

Accepted Answer

The activity rate in activity-based costing is computed by dividing the total cost for an activity cost pool by the measure of activity for the activity cost pool, not by the direct labor-hours.

Question 13

In activity-based costing, unit product costs computed for external financial reports include manufacturing overhead costs that are computed by multiplying activity rates by the activities required to produce a product.

Accepted Answer

In activity-based costing, unit product costs are computed by assigning overhead costs to individual products based on the activities required to produce them. Activity rates are multiplied by the number of units of each activity used to produce a product, and this results in the overhead cost to be assigned to the product. These costs are included in the unit product cost for external financial reports.

Question 14

When a company changes from a traditional costing system to an activity-based costing system, costs will ordinarily shift from high-volume products to low-volume products when the activity-based costing system includes batch-level or product-level costs.

Accepted Answer

Under activity-based costing, costs are allocated based on the activities that drive them. This means that high-volume products that require few activities (such as machine setup or inspection) may have lower costs under activity-based costing, while low-volume products that require more complex activities may have higher costs. If the activity-based costing system includes batch-level or product-level costs, it is likely that these costs will be allocated to the products that cause them, leading to a shift in costs from high-volume to low-volume products.

Question 15

When a company changes from a traditional costing system to an activity-based costing system, the unit product costs of high-volume products typically change more than the unit product costs of low-volume products.

Accepted Answer

Activity-based costing (ABC) allocates overhead costs more accurately to products by using multiple cost drivers, which often results in high-volume products showing lower unit cost changes compared to low-volume products, as the overheads are spread over more units.

Question 16

Facility-level costs cannot be traced on a cause-and-effect basis to individual products.

Accepted Answer

Facility-level costs, such as rent or utilities, are incurred to support the overall operations of a facility and cannot be directly linked to individual products. Therefore, they cannot be traced on a cause-and-effect basis to specific products.

Question 17

When a company implements activity-based costing, overhead cost often shifts from high-volume products to low-volume products, with a higher unit cost resulting for the low-volume products.

Accepted Answer

Activity-based costing allocates overhead costs based on the activities that drive those costs. Low-volume products typically require more unique activities and resources to produce, leading to higher cost allocations and unit costs. High-volume products, on the other hand, may have more standardized processes and economies of scale that reduce their cost allocations and unit costs. Therefore, implementing activity-based costing can shift overhead costs from high-volume products to low-volume products, resulting in higher unit costs for the latter.

Question 18

An activity rated is computed for each product.

Accepted Answer

An activity rate is computed for each activity, not for each product. It is used in activity-based costing to allocate costs to products based on the activities required to produce them.

Question 19

When a company changes from a traditional costing system to an activity-based costing system, the unit product costs of low-volume products typically increase more than the unit product costs of high-volume products decrease.

Accepted Answer

This is because low-volume products require more activities and resources to produce, and therefore, the cost of those activities is spread over a smaller number of units, resulting in a higher unit product cost. On the other hand, high-volume products require fewer activities and resources to produce, and the cost of those activities can be spread over a larger number of units, resulting in a lower unit product cost.

Question 20

Parts administration is an example of a:
A)Unit-level activity.
B)Batch-level activity.
C)Product-level activity.
D)Facility-level activity.

Accepted Answer

Parts administration is a product-level activity as it involves managing and tracking the parts used in a particular product or product line. It is not directly related to individual units or batches, nor is it a facility-level activity that involves the management of the entire production facility.

Quiz 4: Activity-Based Costing

Purchase order processing is an example of a:

Departmental overhead rates may not correctly assign overhead costs due to:

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a:

Property taxes are an example of a cost that would be considered to be:

Assembling a product is an example of a: