Question 1

Downstream costs are not relevant to a product elimination decision.

Accepted Answer

Downstream costs refer to the costs associated with the product after it has been produced, such as marketing and distribution costs. These costs may be relevant in a product elimination decision as they can have an impact on the overall profitability of the product. Therefore, downstream costs should be considered when making a product elimination decision.

Question 2

Total quality control cost is the sum of voluntary and failure costs.

Accepted Answer

Total quality control cost includes both voluntary costs, such as prevention and appraisal costs, and failure costs, such as internal and external failure costs.

Question 3

The objective of target pricing is to establish a price that will maximize profits given existing costs.

Accepted Answer

Target pricing aims to determine the selling price of a product based on the desired profit margin and the market conditions, rather than maximizing profits based on existing costs. It focuses on working backwards from the market price to ensure the product can be produced within cost constraints to meet that target price.

Question 4

Gaining personnel support and obtaining accurate data are two of the more challenging obstacles to the implementation of a successful activity-based costing system.

Accepted Answer

Gaining personnel support can be difficult, as it may require significant changes in processes and responsibilities. And obtaining accurate data can be a challenge, as it often requires collecting data from multiple sources and ensuring that it is entered correctly into the system.

Question 5

In an activity-based costing system, a volume-based cost driver is appropriate for product-level activities.

Accepted Answer

Volume-based cost drivers are appropriate for batch-level or unit-level activities, while activity-based costing focuses on identifying and assigning costs to product-level activities based on their distinct drivers. Therefore, a different type of cost driver would be used for product-level activities in an activity-based costing system.

Question 6

An increase in prevention costs may result in decreases in appraisal, internal failure, and external failure costs and a decrease in total quality costs.

Accepted Answer

Prevention costs are costs incurred to prevent defects from occurring, while appraisal costs are costs incurred to detect defects. By increasing prevention costs, there is a higher likelihood that defects will be prevented before they occur, leading to lower appraisal costs. Additionally, preventing defects in the production process can reduce the likelihood of internal and external failures, which are costly to correct. Therefore, an increase in prevention costs can lead to a decrease in total quality costs.

Question 7

Farber Company produces its product in three departments, Prepping, Machining, and Finishing. A customer recently returned a defective product that had not been machined properly. The company's accountant would classify the repair cost as an internal failure cost.

Accepted Answer

The answer of Farber Company produces its product in three...

Question 8

Bennett Company pays its salespeople a sales commission on each sale they make. This commission is an example of an upstream cost.

Accepted Answer

Sales commissions are considered downstream costs because they are incurred after the production process, during the selling and distribution phase.

Question 9

Voluntary costs refer to internal and external failure costs.

Accepted Answer

Voluntary costs refer to costs that a company incurs willingly to improve its operations and processes, such as investment in training, research and development, and technology. Internal and external failure costs, on the other hand, are considered involuntary costs that arise from poor quality or defects in products or services.

Question 10

The successful implementation of an activity-based costing system depends on employees' attitudes and cooperation.

Accepted Answer

Activity-based costing system involves changes in the way work is done and how costs are allocated. To implement this system successfully, employees' attitudes and cooperation are necessary for the collection of accurate data and the success of the system.

Question 11

Most companies allocate facility-level activity costs directly to products for decision-making purposes.

Accepted Answer

Most companies use activity-based costing (ABC) to allocate facility-level and other indirect costs more accurately to products, rather than allocating them directly, to better inform decision-making.

Question 12

Inspection of products may sometimes be considered a batch-level activity.

Accepted Answer

Inspection of products is typically performed on batches of products rather than individual units, making it a batch-level activity.

Question 13

An increase in appraisal costs will probably lead to a decrease in internal failure costs and an increase in external failure costs.

Accepted Answer

An increase in appraisal costs typically leads to a decrease in both internal and external failure costs because it involves more thorough inspection and testing, catching defects before they reach the customer or cause internal failures.

Question 14

Implementation of an activity-based costing system requires a company to generate more detailed accounting information than would be required by a traditional product cost system.

Accepted Answer

Activity-based costing (ABC) system requires a more detailed analysis of the activities and resources required to produce a product or perform a service. This detailed information provides a more accurate picture of the actual costs incurred, compared to a traditional product cost system that allocates costs based on broad averages.

Question 15

Upstream costs are relevant for deciding whether to discontinue a product line.

Accepted Answer

Upstream costs refer to the costs associated with producing the inputs required to manufacture a product. These costs can include raw materials, labor, and other expenses incurred before the actual production process begins. When deciding whether to discontinue a product line, it is important to consider the upstream costs because they can impact the profitability of the product line. If the upstream costs are high and the product is not generating sufficient revenue to cover those costs, it may be more profitable to discontinue the line.

Question 16

Using a single plant-wide overhead rate is likely to cause some distortion in allocation of product-level costs.

Accepted Answer

Using a single plant-wide overhead rate assumes that all products consume overhead resources in the same way, which may not be accurate. This can lead to some products being allocated too much overhead, while others may be allocated too little.

Question 17

The term "quality" refers to the degree to which products or services exceed customer expectations.

Accepted Answer

Quality refers to the degree to which a set of inherent characteristics of a product or service fulfills requirements or expectations, not necessarily exceeding them.

Question 18

The goal of zero defects will generally lead to minimizing quality costs.

Accepted Answer

Striving for zero defects can lead to an increase in prevention and appraisal costs, potentially outweighing the savings from reduced failure costs, thus not necessarily minimizing overall quality costs.

Question 19

The concept of cost of quality is not applicable in service-type businesses such as accounting firms.

Accepted Answer

The concept of cost of quality is applicable in service-type businesses such as accounting firms. The cost of providing high-quality services, such as training, technology and customer service, can be accounted for in the cost of quality. Additionally, the cost of poor quality, such as rework or dissatisfied customers, can also be measured and addressed in service businesses.

Question 20

Activity-based costing does not use volume-based cost drivers.

Accepted Answer

Activity-based costing (ABC) uses both volume-based and non-volume-based cost drivers to allocate indirect costs to products more accurately, reflecting the activities that generate costs.

Quiz 5: Cost Management in an Automated Business Environment: Abc, Abm, and Tqm