Question 1

Which of the following statements is TRUE regarding activity-based costing systems?
A)ABC systems accumulate overhead costs by departments.
B)ABC costing systems are less complex and, therefore, less costly than traditional systems.
C)ABC costing systems can be used in manufacturing firms only.
D)ABC costing systems have multiple indirect cost allocation rates for each activity.
E)ABC systems provide a greater level of detail to understand how an organization uses its common inputs differently for distinct products.

Accepted Answer

Activity-based costing systems provide a greater level of detail to understand how an organization uses its common inputs differently for distinct products. This allows for more accurate cost allocation and better decision making. ABC systems do not necessarily accumulate overhead costs by departments (A). While ABC systems may initially be more complex to implement, they can ultimately lead to cost savings (B). ABC systems can be used in a variety of settings, not just manufacturing firms (C). Finally, ABC systems do have multiple indirect cost allocation rates for each activity (D).

Question 2

A four-part cost hierarchy includes
A)market-sustaining costs.
B)research and development costs.
C)manufacturing-level costs.
D)output unit-level costs.
E)period costs.

Accepted Answer

The four-part cost hierarchy includes output unit-level costs, batch-level costs, product-sustaining costs, and facility-sustaining costs.

Question 3

Activity-based costing is a technique to improve the reliability of cost assignment
A)to work-in-process inventory.
B)from direct cost pools to distinct types of outputs.
C)from both direct and indirect cost pools to distinct types of outputs.
D)to all types of inventory.
E)from indirect cost pools to distinct types of outputs.

Accepted Answer

Activity-based costing improves the reliability of cost assignment by allocating costs from indirect cost pools to distinct types of outputs, providing a more accurate reflection of the resources consumed by each output.

Question 4

Which of the following statements about activity-based costing is TRUE?
A)It does not affect cost control.
B)Indirect cost allocation bases are unlikely to be cost drivers.
C)It provides less information than traditional cost systems.
D)It provides similar results to traditional costing when one activity creates a substantial amount of total cost.
E)It provides similar results to traditional costing when different products use resources from different activities in different proportions.

Accepted Answer

Activity-based costing (ABC) provides similar results to traditional costing when one activity creates a substantial amount of total cost because the allocation of costs will be similar under both methods.

Question 5

A costing system which focuses on individual event or tasks as the cost pool to be allocated is called
A)activity-based costing.
B)direct costing.
C)job costing.
D)process costing.
E)normal costing.

Accepted Answer

Activity-based costing is a costing system that focuses on activities as the fundamental cost objects, and costs are assigned to products based on the activities they require.

Question 6

Which of the following statements does not represent the logic of an ABC system?
A)Activity cost allocation bases are the activity cost drivers of costs in the activity cost pools.
B)A strong cause-and-effect relationship between overhead costs and the cost allocation base is essential.
C)The requirement to measure cost allocation bases of different activities used by different products is essential.
D)The overhead used by different products is not important, as it is a fixed cost.
E)A greater level of detailed information concerning costs will help organizations be more efficient.

Accepted Answer

This statement is incorrect because ABC system recognizes that overhead costs are not necessarily fixed and allocates them based on usage by different products or activities.

Question 7

Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

Accepted Answer

The answer of Using multiple unit-level cost drivers generally constitutes...

Question 8

If the cost of an activity increases with the number of purchase orders placed, rather than to the quantity of items purchased, it is which of the following?
A)market-sustaining cost
B)output unit-level cost
C)facility-sustaining cost
D)product-sustaining (service-sustaining)costs
E)batch-level cost

Accepted Answer

The cost that increases as the number of purchase orders is placed is a batch-level cost, which is incurred each time a batch of orders is processed. The other options do not match the scenario described in the question.

Question 9

Which of the following is NOT an activity under an ABC system?
A)designing products
B)engineering
C)setting up equipment
D)distributing products
E)customers

Accepted Answer

"Customers" is not an activity under an ABC (Activity-Based Costing) system. ABC systems focus on identifying and assigning costs to specific activities, such as designing products, engineering, setting up equipment, and distributing products. Customers are not an activity within the organization, but rather the external parties who purchase and use the products or services produced by the organization.

Question 10

If the cost of an activity increases with the quantity of items used, it is which of the following?
A)market-sustaining cost
B)output unit-level cost
C)batch-level cost
D)product-sustaining (service-sustaining)costs
E)facility-sustaining cost

Accepted Answer

An output unit-level cost is a cost that varies with the quantity of items produced or services rendered. As the activity cost increases with the quantity of items used, it fits the definition of an output unit-level cost.

Question 11

When using activity-based costing in a manufacturing setting, its distinctive feature is the focus on
A)activities as the fundamental cost objects.
B)minimizing the number of journal entries related to the manufacturing process.
C)minimizing manufacturing costs.
D)materials handling.
E)materials sorting.

Accepted Answer

Activity-based costing focuses on activities as the primary cost object, rather than just the products being produced. This allows for a more accurate allocation of indirect costs to specific products based on the activities that are required to produce them. The other answer choices are not specific features of activity-based costing.

Question 12

A cost accounting system should be revised when
A)the existing cost accounting system provides information that is representative of operations.
B)the existing cost accounting system could be updated, just to keep ahead.
C)the existing cost accounting system does not produce information that reflects the way various products use scarce resources.
D)management wants to change the system, even though the information is relevant and correct.
E)a new system would be easier to understand but would not be reliable.

Accepted Answer

The best time to revise a cost accounting system is when it does not produce information that accurately reflects how various products use scarce resources. This can result in incorrect costing information and misinformed management decisions. It is not necessary to update the system just to keep ahead, or to change the system solely based on management preference, as long as the existing system is producing relevant and correct information. A new system that is easier to understand but unreliable would not be beneficial.

Question 13

If the cost of an activity increases with each hour of machine time, it is which of the following?
A)market-sustaining cost
B)output unit-level cost
C)batch-level cost
D)product-sustaining (service-sustaining)costs
E)facility-sustaining cost

Accepted Answer

The cost increasing with each hour of machine time indicates that it is a variable cost and is directly related to the output produced, making it an output unit-level cost.

Question 14

Which of the following is NOT an activity under an ABC system?
A)an event
B)a task
C)a unit of work
D)a process
E)indirect cost

Accepted Answer

Indirect cost is not an activity under an ABC (Activity-Based Costing) system, but rather a cost category that includes all costs that cannot be directly traced to a specific activity or product. The other options, event, task, unit of work, and process, are all activities that can be identified and allocated costs using an ABC system.

Question 15

In an activity-cost pool
A)a measure of the activity performed serves as the cost allocation base.
B)the costs have a cause-and-effect relationship with the cost-allocation base for that activity.
C)the cost pools are homogeneous over time.
D)costs in a cost pool can always be traced directly to products.
E)each pool pertains to a narrow and focused set of costs.

Accepted Answer

The answer of In an activity-cost pool
A)a measure of the...

Question 16

In a cost system that doe not consider the cost hierarchy unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

Accepted Answer

When a cost system does not consider the cost hierarchy, it can lead to misleading product costing because the overhead costs can be driven by activities other than unit-level activities. This can result in products appearing more or less expensive than they actually are, which can impact decision-making and profitability. Therefore, it is important to consider the cost hierarchy and allocate costs accordingly.

Question 17

Output unit-level costs cannot be determined unless you know how many units are in a given batch.

Accepted Answer

Unit-level costs can be determined even without knowing the batch size, as long as the total cost and total number of units produced are known.

Question 18

Resources sacrificed on activities undertaken to support product lines are which of the following?
A)market-sustaining costs
B)output unit-level costs
C)batch-level costs
D)facility-sustaining costs
E)product-sustaining (service-sustaining)costs

Accepted Answer

Resources sacrificed on activities undertaken to support product lines are known as product-sustaining (or service-sustaining) costs. These costs are specific to the particular product or service and are necessary for the product or service to be produced and delivered. Examples of product-sustaining costs include product development, advertising, and customer service.

Question 19

Engineering costs incurred to change product designs are which of the following?
A)market-sustaining costs
B)output unit-level costs
C)batch-level costs
D)product-sustaining (service-sustaining)costs
E)facility-sustaining costs

Accepted Answer

Engineering costs incurred to change product designs are examples of product-sustaining costs, as they are necessary to support the production or delivery of a specific product or service.

Question 20

Which of the following is relevant concerning cost hierarchies?
A)activity levels
B)determining whether costs are variable or fixed
C)costing on the value chain
D)separating inventoriable costs from period costs
E)minimum cost required for a particular process

Accepted Answer

Cost hierarchies are used to categorize costs based on different activity levels, such as unit-level, batch-level, product-level, and facility-level activities.

Quiz 5: Activity-Based Costing and Management

Which of the following statements is TRUE regarding activity-based costing systems?

A four-part cost hierarchy includes

Activity-based costing is a technique to improve the reliability of cost assignment

Which of the following statements about activity-based costing is TRUE?

A costing system which focuses on individual event or tasks as the cost pool to be allocated is called

Which of the following statements does not represent the logic of an ABC system?

Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

If the cost of an activity increases with the number of purchase orders placed, rather than to the quantity of items purchased, it is which of the following?

Which of the following is NOT an activity under an ABC system?

If the cost of an activity increases with the quantity of items used, it is which of the following?

When using activity-based costing in a manufacturing setting, its distinctive feature is the focus on

A cost accounting system should be revised when

If the cost of an activity increases with each hour of machine time, it is which of the following?

Which of the following is NOT an activity under an ABC system?

In an activity-cost pool

In a cost system that doe not consider the cost hierarchy unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

Output unit-level costs cannot be determined unless you know how many units are in a given batch.

Resources sacrificed on activities undertaken to support product lines are which of the following?

Engineering costs incurred to change product designs are which of the following?

Which of the following is relevant concerning cost hierarchies?