Question 1

Corporate-sustaining costs ________.

Accepted Answer

Corporate-sustaining costs are common to all individual customers as they are incurred to support the overall operations of the company and are not directly attributable to any specific customer.

Question 2

Under the cause and effect criterion,reasonableness is a matter of judgment rather than an operational
criterion.

Accepted Answer

Under the fairness or equity criterion, reasonableness is a matter of judgment rather than an operational criterion.

Question 3

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees,the best criteria are ________.

Accepted Answer

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, the best criteria are the cause-and-effect and the benefits-received criteria. The cause-and-effect criterion links the cost directly to the activity causing the cost, providing useful information for economic decisions related to cost reduction or process improvement. The benefits-received criterion links the cost to the individual or department receiving the benefits, motivating managers and employees to be more efficient and use resources effectively. Therefore, option B (the cause-and-effect and the benefits-received criteria) is the best choice.

Question 4

To guide cost allocation decisions,the cause-and-effect criterion ________.

Accepted Answer

The cause-and-effect criterion is the primary criterion used in activity-based costing. It considers the cause-and-effect relationship between activities and costs and allocates costs to activities based on their contribution to the production of goods or services. This criterion helps to ensure that costs are allocated to the cost objects that are most responsible for incurring them, resulting in more accurate cost allocation decisions.

Question 5

To guide cost allocation decisions,the ability to bear criterion ________.

Accepted Answer

The ability to bear criterion often results in subsidizing products that are not profitable because it allocates costs based on the assumption that products with higher sales or margins can "bear" more of the overhead, rather than allocating costs based on actual cause-and-effect relationships.

Question 6

The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.

Accepted Answer

The cause-and-effect or benefits-received criteria is considered superior when the purpose of cost allocation is motivation.

Question 7

To guide cost allocation decisions,the fairness or equity criterion ________.

Accepted Answer

The answer of To guide cost allocation decisions,the fairness or...

Question 8

When using the cause-and-effect criterion,cost drivers are selected as the cost allocation bases.

Accepted Answer

The cause-and-effect criterion for cost allocation is based on identifying the cost driver that has the strongest cause-and-effect relationship with the cost being allocated. Cost drivers can be any factor that causes a change in the cost. Therefore, cost drivers are selected as the cost allocation bases in the cause-and-effect criterion.

Question 9

To guide cost allocation decisions,the benefits-received criterion ________.

Accepted Answer

The benefits-received criterion may use an allocation base of division revenues to allocate advertising costs. Choice A is incorrect because the cost driver may not always be used as the cost allocation base under the benefits-received criterion. Choice B is incorrect because the ability to bear costs is not the primary consideration under the benefits-received criterion. Choice C is incorrect because although the benefits-received criterion may be used in activity-based costing, it is not the primary criterion used.

Question 10

Today,companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases.

Accepted Answer

Companies are moving toward more-detailed and more-complex cost allocations because today technology can capture these costs in a relatively inexpensive manner.

Question 11

Costs in the cost pool having the same or a similar cause-and-effect or benefits-receiving relationship with the cost-allocation base can be achieved in adopting ________.

Accepted Answer

Homogeneous cost pools group costs that have a similar cause-and-effect or benefits-receiving relationship with the cost-allocation base, making cost allocation more accurate and meaningful.

Question 12

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different ________.

Accepted Answer

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different levels of cause-and-effect relationships. This helps in identifying the activities that generate costs and the customers who cause these activities, which ultimately helps in better management of costs and profitability. Options A, B, and D are not relevant to customer cost hierarchy.

Question 13

Why do managers prepare cost-hierarchy-based operating incomes statements?

Accepted Answer

The answer of Why do managers prepare cost-hierarchy-based operating incomes...

Question 14

ABC systems use the concept of a ________ to identify the cost drivers that best demonstrate the cause-and-effect relationship between each activity and the costs in the related cost pool.

Accepted Answer

ABC systems use a cost hierarchy to identify the cost drivers that best demonstrate the cause-and-effect relationship between each activity and the costs in the related cost pool. The cost hierarchy includes four categories: unit-level activities, batch-level activities, product-level activities, and facility-level activities.

Question 15

Using the fairness criterion,the costs are allocated among the beneficiaries in proportion to the benefits each receives.

Accepted Answer

Using the benefits received criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives.

Question 16

Which cost-allocation criterion is most likely to subsidize poor performers at the expense of the best performers?

Accepted Answer

The ability to bear criterion allocates costs based on the ability of a department or division to absorb those costs, rather than on their actual use or cause of the costs. This can lead to situations where more profitable or efficient departments end up subsidizing less profitable or efficient ones, as they are deemed to have a greater ability to bear the costs.

Question 17

A challenge to using cost-benefit criteria for allocating costs is that ________.

Accepted Answer

The benefits of making better-informed pricing decisions are difficult to measure, making it challenging to use cost-benefit criteria for allocating costs.

Question 18

Which of the following criteria has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs?

Accepted Answer

The ability to bear criterion refers to the ability of a division to absorb corporate administration costs, and it is usually presumed that the more profitable divisions have a greater ability to do so.

Question 19

The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach.

Accepted Answer

The benefits of implementing a more-complex cost allocation system may include more accurate cost information and better decision-making, but they may also include additional costs in terms of time, resources, and complexity. Thus, quantifying the benefits and costs of a more-complex cost allocation system can be challenging, and the decision to implement such a system should consider both quantitative and qualitative factors.

Question 20

Briefly describe the four criteria used to guide cost-allocation decisions.

Accepted Answer

The answer of Briefly describe the four criteria used to...

Quiz 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis