Question 1

Which of the following do managers use in choosing activities and cost drivers to include in an ABC system?
A)Linear programming
B)Simple regression
C)Judgment
D)Activity-based management

Accepted Answer

Managers use judgment to choose activities and cost drivers to include in an ABC system. Linear programming and simple regression may be used in other aspects of managerial accounting, but they are not typically used in this specific context. Activity-based management may be used once the ABC system is in place, but it is not directly related to the initial selection of activities and cost drivers.

Question 2

Product inspections are an example of:
A)Appraisal activities
B)Production activities
C)Prevention activities
D)Post-sales activities

Accepted Answer

Product inspections are a method of appraising the quality of a product and identifying any defects or non-conformities. This activity occurs during the production process and is aimed at preventing defective products from reaching the customer.

Question 3

ABC systems are typically associated with:
A)Higher quality and improved cycle time
B)Manufacturing firms, but not service firms
C)Service firms, but not manufacturing firms
D)Higher profitability for all firms that implement them

Accepted Answer

ABC systems are typically associated with higher quality and improved cycle time because they provide more accurate costing information, which can lead to better decision-making and process improvements. While ABC systems were originally developed for manufacturing firms, they have since been adapted for use in service firms as well. The implementation of ABC systems does not guarantee higher profitability for all firms, but it can help identify areas for cost reduction and increase overall efficiency.

Question 4

Which of the following is not a benefit of an ABC system?
A)Helping managers focus on measurement at the activity level
B)Increasing profits
C)Improving accuracy in cost measurement
D)Motivating employees to find ways to improve performance

Accepted Answer

Though an ABC system has the potential to increase profits indirectly by identifying cost-saving opportunities, it is not a direct benefit of an ABC system. The other options listed are direct benefits of an ABC system.

Question 5

Managers can use ABM information to manage customer profitability. The most valuable groups of customers are those having the following characteristics: Types of Service
Products Ordered Requirements
A)High-margin Extensive
B)High-priced Low
C)Low-margin Low
D)High-margin Low

Accepted Answer

High-margin and low service requirements customers are most valuable as they contribute more profit with less cost.

Question 6

Costs associated with developing an ABC system most likely include:
A)Reduced profits
B)Loss of market share
C)Employee time and consulting fees
D)Increased overhead costs

Accepted Answer

Developing an ABC system requires significant employee time to gather data and implement the system, as well as consulting fees for experts to design and customize the system for the company's specific needs. However, it does not necessarily lead to reduced profits, loss of market share, or increased overhead costs. In fact, implementing an ABC system can potentially reduce overhead costs by identifying areas where resources can be better allocated.

Question 7

As the number of activities in an ABC system increases, measurement error tends to:
A)Increase
B)Decrease
C)Stay the same
D)Focus more on top management

Accepted Answer

As the number of activities in an ABC system increases, measurement error tends to increase. This is because more complex ABC systems require more data input and calculations, which increases the likelihood of data entry errors and other types of measurement error.

Question 8

Phuong is a customer of PVL Corporation. She consistently orders low-margin products, but requires costly services from PVL. In employing ABM techniques to manage customer profitability, PVL's staff should:
A)Make no changes in service to Phuong
B)Develop creative approaches to managing Phuong as a customer
C)Require Phuong to pay for all orders in cash
D)Classify Phuong as a value-added customer and increase the amount of services provided to her

Accepted Answer

In employing ABM techniques to manage customer profitability, PVL's staff should develop creative approaches to managing Phuong as a customer. This may include finding ways to reduce costs associated with providing services to her or trying to educate her on the importance of ordering higher-margin products. The goal should be to maintain a positive relationship with Phuong while also improving the profitability of the company. Simply making no changes in service to Phuong or requiring her to pay for all orders in cash may not be feasible or desirable, and classifying her as a value-added customer and increasing the amount of services provided to her would likely result in lower profitability for the company.

Question 9

Value-added activities:
A)Increase revenues
B)Increase the worth of an organization's goods and services to customers
C)Increase the worth of an organization's goods and services to stockholders
D)Increase costs that are unrelated to customers

Accepted Answer

Value-added activities refer to those activities that increase the worth or value of an organization's goods and services to customers. These activities are directly related to satisfying customer needs, preferences and desires, and therefore, they improve the reputation of the organization in the marketplace, increase customer loyalty, and drive sales. Value-added activities can include things like product innovation, superior customer service, brand building, or differentiation strategies. They do not necessarily increase revenues or costs that are unrelated to customers, although they may indirectly contribute to stockholder value.

Question 10

NRL Corporation's accounting information system reported warranty repair and product replacement costs totalling $12,000 in a recent accounting period. These costs are an example of which of the following quality costs?
A)Period costs
B)Post-sales activity costs
C)Activity-based costs
D)Prevention activity costs

Accepted Answer

Warranty repair and product replacement costs are post-sales activity costs as they are incurred after a product has been sold to a customer and relate to the cost of fixing or replacing faulty products.

Question 11

Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage:
A)Customer quality
B)Customer profitability
C)Inventory levels
D)Staffing levels in the marketing department.

Accepted Answer

Activity-based costing information can be used to calculate the cost of serving different customers, which can then be used to identify the most and least profitable customers. By using activity-based management techniques, managers can then focus on improving profitability by either increasing revenue or decreasing costs. Therefore, the best choice is B, customer profitability. The other options are less relevant to activity-based costing information.

Question 12

Which of the following factors are associated with successful ABC implementations?
A)Top management support and high market share
B)Performance evaluations and low market share
C)Top management support and performance evaluations
D)Middle management support and high market share

Accepted Answer

Top management support is essential for successful implementation of ABC as it requires changes in the entire organization. Performance evaluations also play a crucial role in ensuring that the system is effective in identifying and addressing cost drivers. Market share and middle management support may not necessarily be associated with successful ABC implementation.

Question 13

When implementing an ABC system, the accounting information system may require modifications to
A)Include fewer ledger accounts:
B)Include only costs from the most recent periods
C)Gather and report activity and cost driver information
D)Include more ledger accounts

Accepted Answer

Gathering and reporting activity and cost driver information is essential for implementing an ABC system because it focuses on identifying the activities that drive costs and assigning those costs to specific products, services or customers. This requires modifications to the accounting information system to capture and report the activity-based data. Including fewer ledger accounts or only recent costs may not provide the necessary level of detail required for accurate cost assignment, while adding more ledger accounts could result in unnecessary complexity and costs.

Question 14

The cost of implementing an ABC system is likely to be lower if the number of times an activity is performed:
A)Is low
B)Is high
C)Does not fluctuate seasonally
D)Can easily be tracked

Accepted Answer

The answer of The cost of implementing an ABC system...

Question 15

BVH Corporation manufactures and sells cellular phones. Which of the following activities is least likely to be considered a value-added activity for BVH?:
A)Repairing phones
B)Offering phones for sale in designer colours
C)Making phones smaller
D)Creating several ring-tone options for phones

Accepted Answer

Repairing phones is considered a non-value-added activity because it does not directly contribute to the product's value from the customer's perspective. It is often seen as correcting defects or errors, rather than enhancing the product's value or appeal.

Question 16

For small manufacturing firms, ABC systems are best with: Number of Number of
Activities Cost Drivers
A)Few Few
B)Many Few
C)Many Many
D)Few Many

Accepted Answer

For small manufacturing firms, having few activities and few cost drivers simplifies the ABC system, making it easier to manage and implement effectively.

Question 17

In general, the risk of measurement error in an ABC system increases when:
A)Costs are traced rather than allocated
B)Managers are uncertain about the relationship between costs and cost pools
C)The number of cost pools decreases
D)A company uses a team approach to systems design

Accepted Answer

When managers are uncertain about the relationship between costs and cost pools, they may assign costs to inappropriate cost pools, resulting in measurement error. Allocating costs rather than tracing them can also result in measurement error. However, increasing the number of cost pools can decrease measurement error by allowing for more precise allocation of costs. The use of a team approach to systems design can also help to reduce measurement error by incorporating diverse perspectives and expertise.

Question 18

ABC can be used to determine the costs of quality and to help refine quality strategies. Quality activities are commonly classified as:
A)Internal or external
B)Value-added or non-value-added
C)Prevention, appraisal, production, or post-sales
D)Process-oriented or job-oriented

Accepted Answer

The ABC (Activity-Based Costing) method is commonly used to determine the costs of quality and to help refine quality strategies. Quality activities are generally classified into four categories: prevention, appraisal, production, and post-sales. This classification helps to identify the different types of costs associated with each activity and provides insight into where quality improvements can be made. Therefore, choice C is the best answer.

Question 19

How can ABC information be used to manage constrained resources?
A)ABC information cannot be used to manage constrained resources
B)ABC information can help managers identify the best way to relax constraints
C)ABC information can help managers decrease the rate at which products get through the manufacturing process
D)ABC information can help managers justify price increases due to constrained resources

Accepted Answer

ABC information can help managers identify the best way to relax constraints by identifying the most profitable products and processes, reducing waste, and reallocating resources to improve efficiency. This ultimately helps managers make informed decisions that optimize the use of constrained resources. Choices A, C and D are incorrect as they do not address the use of ABC information in managing constrained resources.

Question 20

Activities performed to insure defect-free production are called:
A)Post-sales activities
B)Production activities
C)Prevention activities
D)Appraisal activities

Accepted Answer

Prevention activities are aimed at preventing defects from occurring in the first place, rather than detecting and correcting them after production. This includes activities such as training, process improvement, quality planning and design of experiments.

Quiz 7: Activity-Based Costing and Management

Which of the following do managers use in choosing activities and cost drivers to include in an ABC system?

Product inspections are an example of:

ABC systems are typically associated with:

Which of the following is not a benefit of an ABC system?

Managers can use ABM information to manage customer profitability. The most valuable groups of customers are those having the following characteristics: Types of Service Products Ordered Requirements

Costs associated with developing an ABC system most likely include:

As the number of activities in an ABC system increases, measurement error tends to:

Phuong is a customer of PVL Corporation. She consistently orders low-margin products, but requires costly services from PVL. In employing ABM techniques to manage customer profitability, PVL's staff should:

Value-added activities:

NRL Corporation's accounting information system reported warranty repair and product replacement costs totalling $12,000 in a recent accounting period. These costs are an example of which of the following quality costs?

Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage:

Which of the following factors are associated with successful ABC implementations?

When implementing an ABC system, the accounting information system may require modifications to

The cost of implementing an ABC system is likely to be lower if the number of times an activity is performed:

BVH Corporation manufactures and sells cellular phones. Which of the following activities is least likely to be considered a value-added activity for BVH?:

For small manufacturing firms, ABC systems are best with: Number of Number of Activities Cost Drivers

In general, the risk of measurement error in an ABC system increases when:

ABC can be used to determine the costs of quality and to help refine quality strategies. Quality activities are commonly classified as:

How can ABC information be used to manage constrained resources?

Activities performed to insure defect-free production are called: