Question 1

In an activity-based costing (ABC)system,cost reduction is accomplished by identifying and eliminating: (CPA adapted) $$\begin{array} { | c | c | c | } 
\hline & \text { All Cost Drivers } & \text { Non walue-adoled Acturities } \
\hline \text { A. } & \text { No } & \text { No } \
\hline \text { B. } & \text { Yes } & \text { Yes } \
\hline \text { C. } & \text { No } & \text { Yes } \
\hline \text { D. } & \text { Yes } & \text { No } \
\hline
\end{array}$$
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

In an ABC system, cost reduction is achieved by identifying and eliminating non-value-added activities, not all cost drivers.

Question 2

Which of the following items would be classified as a product-level cost in an activity-based cost management (ABM)system?
A) Change order to meet a new customer's specification.
B) Movement of materials for products in production.
C) Long-term lease payments for factory equipment.
D) Insurance and property taxes on faculty building.

Accepted Answer

A change order to meet a new customer's specification would be classified as a product-level cost in an activity-based cost management (ABM) system because it is specific to a particular product that the company is producing.

Question 3

Barter Company's cost management and product costing procedures follow activity-based costing (ABC)principles.Activities have been identified and classified as being either value-added or nonvalue-added for each product.Which of the following activities,used in Barter's production process,is nonvalue-added? (CPA adapted)
A) Drill press activity.
B) Heat treatment activity.
C) Design engineering activity.
D) Raw materials storage activity.

Accepted Answer

Raw materials storage is a nonvalue-added activity as it does not transform or add value to the product. It is simply holding the materials until they are needed for production. Activities like drill press, heat treatment and design engineering involve direct transformation or refinement of the product and are considered value-added activities.

Question 4

Activity analysis is one of the first stages in implementing an activity-based costing system.Which of the following steps in "activity analysis" is usually performed first?
A) Classify all activities as value-added or nonvalue-added.
B) Chart,from start to finish,the activities used to complete the product or service.
C) Identify the process objectives that are defined by what the customer wants or expects from the process.
D) Continuously improve the efficiency of all value-added activities and develop plans to eliminate or reduce nonvalue-added ones.

Accepted Answer

The answer of Activity analysis is one of the first...

Question 5

In an activity-based cost management (ABM)system,facility-level costs are those that are incurred to:
A) sustain the company's marketing program.
B) maintain the plant's production capacity.
C) support the research and development process.
D) cause a change in the engineering plans for a product.

Accepted Answer

Facility-level costs are expenses associated with maintaining the production capacity and physical space of the plant or facility. These costs may include rent, property taxes, equipment maintenance, and utilities. Option A is incorrect because marketing costs are not related to facility-level costs. Option C is incorrect because research and development costs are often product-level costs. Option D is incorrect because changes to engineering plans are usually product-level costs as well.

Question 6

Republic Industries decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Republic should charge $8 per order,2% of the order's value for general delivery costs,$1.25 per item,and $30 for delivery.A year later,Republic collected the following information for two of its best customers: 
$$\begin{array} { | l | r | r | } 
\hline \text { Cost driver } & \text { Customer C } & \text { Customer D } \
\hline \text { Number of orders } & 18 & 8 \
\hline \text { Number of deliveries } & 10 & 10 \
\hline \text { Number of items } & 2,000 & 4,000 \
\hline \text { Ordervalue } & \$ 120,000 & \$ 80,000 \
\hline
\end{array}$$
What are the total delivery costs charged to Customer D during the year?
A) $5,344.
B) $5,364.
C) $6,900.
D) $6,964.

Accepted Answer

The total delivery cost for Customer D is calculated as follows:  - Number of orders: 8 orders x $8 = $64  - General delivery costs: 2% of $80,000 = $1,600  - Number of items: 4,000 items x $1.25 = $5,000  - Number of deliveries: 10 deliveries x $30 = $300  Total cost = $64 + $1,600 + $5,000 + $300 = $6,964.

Question 7

Which of the following activities is most likely to be classified as value-added for a manufacturing company?
A) Storing.
B) Ordering.
C) Inspecting.
D) Assembling.

Accepted Answer

Assembling is the process of putting together the different parts to create a finished product. It adds value to the product as it transforms raw materials into a finished good that can be sold to customers. Storing, ordering, and inspecting are important activities but do not add value to the product itself.

Question 8

Activity-based cost management (ABM)can best be defined as:
A) a cost system using multiple departmental overhead rates.
B) the use of cost information gathered using activity-based costing (ABC).
C) a quality-control system focusing on eliminating errors and mistakes.
D) an incentive system for a company's key decision-makers.

Accepted Answer

ABM is the use of cost information gathered using activity-based costing (ABC) to improve decision-making, resource allocation, and operational efficiency. It involves analyzing the costs of activities and processes to understand their relationships with products, services, and customers. Therefore, option B is the most appropriate definition of ABM. Option A suggests a traditional overhead cost allocation method, while option C describes quality control and option D refers to incentives, which are not related to ABM.

Question 9

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:
$$\begin{array} { | l | c | c | } 
\hline & \text { Customer A } & \text { Customer B } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
 What is the amount of the sales support costs that should be allocated to Customer B,assuming Fence uses units purchased to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

The answer of Fence Industries is preparing its annual profit...

Question 10

Activity analysis is an important approach to operations control and the successful implementation of an activity-based costing (ABC)system.Which of the following procedures is not part of activity analysis?
A) Chart,from start to finish,the activities used to complete the product or service.
B) Classify all activities as either value-added or nonvalue-added activities.
C) Identify the process objectives as defined by what the customer desires from the process.
D) Compute the predetermined rate per activity by dividing the total cost pool by the total cost drivers.

Accepted Answer

Computing the predetermined rate per activity by dividing the total cost pool by the total cost drivers is actually part of the process of implementing an activity-based costing (ABC) system, but it is not a part of activity analysis. Activity analysis involves charting and classifying activities, as well as identifying process objectives based on customer desires.

Question 11

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: 
$$\begin{array} { | l | c | c | } 
\hline & \text { Customer A } & \text { Customer B } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
What is the amount of the sales support costs that should be allocated to Customer B,assuming Fence uses purchases orders to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

The total purchase orders are 25 (5 for A and 20 for B). The cost per purchase order is $12,000 / 25 = $480. Customer B has 20 purchase orders, so the cost allocated to B is 20 * $480 = $9,600.

Question 12

Finesse is a specialty molder of plastic jar covers for the cosmetics industry.Because the products sold are expensive cosmetics,the large cosmetic companies who purchase the jar covers are highly sensitive to the appearance of the product.Any cuts,nicks,abrasions,or pieces of dirt embedded will result in rejection of the units.The company spends a significant amount of time in the quality control area.The following list of sub-activities has been developed for quality control: 
$$\begin{array} { | l | l | } 
\hline \text { Number } & \text { Activity Description } \
\hline 3.1 & \begin{array} { l } 
\text { Move units from production area to inspection } \
\text { area }
\end{array} \
\hline 3.2 & \text { Quality Control inspector reviews lots } \
\hline 3.3 & \begin{array} { l } 
\text { Quality Control inspector determines lots to be } \
\text { inspected }
\end{array} \
\hline 3.4 & \text { Each unit is physically inspected } \
\hline 3.5 & \begin{array} { l } 
\text { Defective units are returned to production area } \
\text { for rework }
\end{array} \
\hline 3.6 & \begin{array} { l } 
\text { Good units are sent to shipping for packaging } \
\text { and shipment to final customer }
\end{array} \
\hline 3.7 & \begin{array} { l } 
\text { Record of units inspected is recorded in } \
\text { production office }
\end{array} \
\hline
\end{array}$$
In an activity listing with value-added scores:
A) Activity 3.4 would be assigned a high value-added ranking.
B) Activity 3.5 would be assigned a high value-added ranking.
C) Activity 3.6 would receive the highest ranking.
D) Activity 3.4 would receive a higher ranking than activity 3.1.

Accepted Answer

Activity 3.6 involves a detailed inspection of the finished jar covers, which is crucial for ensuring that the products meet the high standards required by the customer. This activity adds the most value to the production process because it directly contributes to the quality of the final product. Activities 3.4 and 3.5 also contribute to quality control, but to a lesser extent. Activity 3.1 involves setting up the inspection area and equipment, which is necessary but not as directly related to the final product quality as the inspection activities themselves. Therefore, activity 3.4 would not receive a higher ranking than activity 3.1.

Question 13

Which of the following activities is most likely to be classified as value-added for a merchandise company?
A) Purchasing.
B) Waiting.
C) Receiving.
D) Setting up.

Accepted Answer

The answer of Which of the following activities is most...

Question 14

Which of the following items would be classified as a batch-level cost in an activity-based cost management (ABM)system?
A) Indirect labor.
B) Production supervisor's salary.
C) Depreciation on factory building.
D) Machinery set-up costs.

Accepted Answer

Machinery set-up costs are typically associated with batch-level activities, as they are incurred each time a new batch is produced. Indirect labor, production supervisor's salary, and depreciation on factory building are more likely to be classified as facility-level or product-level costs in an ABM system.

Question 15

Which of the following statements about activity-based costing (ABC)is not true? (CIA adapted)
A) In ABC,cost drivers cause costs to be linked to products.
B) ABC is useful for assigning marketing and distribution costs.
C) ABC differs from traditional costing systems in that products are not cross-subsidized.
D) ABC is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.

Accepted Answer

ABC is more likely to result in major differences from traditional costing systems when a firm manufactures multiple products, not just one, because it allocates overhead more accurately based on activities.

Question 16

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: 
$$\begin{array} { | l | c | c | } 
\hline & \text { Customer A } & \text { Customer B } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
What is the amount of the sales support costs that should be allocated to Customer A,assuming Fence uses purchases orders to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

Since the question specifies that Fence Industries uses purchase orders to compute activity-based costs, we can assume that the sales support cost of $12,000 will be allocated based on the number of purchase orders placed by each customer. From the table provided, we can see that Customer A placed 20% of the total purchase orders, which would result in them being allocated 20% of the sales support cost ($12,000 x 0.20 = $2,400). Therefore, the correct answer is A) $2,400.

Question 17

Which of the following items would be classified as a volume-level cost in an activity-based cost management (ABM)system?
A) Indirect materials.
B) Production supervisor's salary.
C) Depreciation on factory building.
D) Research and development.

Accepted Answer

Volume-level costs are costs that vary with the level of production volume, such as indirect materials, which are consumed in proportion to the number of units produced.

Question 18

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows: 
$$\begin{array} { | l | c | c | } 
\hline & \text { Customer A } & \text { Customer B } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
What is the amount of the sales support costs that should be allocated to Customer A assuming Fence uses units purchased to compute activity-based costs?
A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Accepted Answer

To allocate sales support costs to individual customers using units purchased as the activity-based cost driver, we need to calculate the sales support cost per unit purchased. 
Sales support cost per unit = Sales support cost / Total units purchased = $12,000 / 6,000 units = $2 per unit. 
Customer A purchased 2,000 units, so the sales support cost allocated to Customer A would be 2,000 units x $2 per unit = $4,000. Therefore, the correct answer is B.

Question 19

McArthur Company has gathered the following data related to its production process of two of its products for the week ended April 30:
$$\begin{array} { | l | r | r | } 
\hline \text { Model } & \text { Item AB-200 } & \text { Item \#CA40 } \
 \text { Quantly procuced } & \mathbf { 6 0 } & \mathbf { 1 0 0 } \
\hline \text { Unit-level material cost } & \$ 42,000 & \$ 100,000 \
\hline \text { Variable conversion cost } & 72,000 & 300,000 \
\hline \text { Total drect costs } & \$ 114,000 & \$ 400,000 \
\hline \text { Indrect costs: } & & \
\text { Indirect manufacturing cost } & 163,200 & 272,000 \
\hline \text { Indirect operating cost } & \underline { 255,000 } & \underline { 425,000 } \
 \text { Total indirect costs } & \underline { 418,200 } &  \underline {697,000} \
\hline \text { Total costs } & \underline { \$ 532,200 }& \underline { \$ 1,097,000} \
\hline
\end{array}$$
 The costs above that appear to be allocated rather than traced are:
A) Unit level material costs.
B) Variable conversion costs.
C) Indirect production costs only.
D) All indirect costs.

Accepted Answer

The costs mentioned above ( depreciation, rent, utilities, etc.) are all indirect costs that cannot be traced directly to the products but rather allocated based on a predetermined cost allocation method. Therefore, option D - all indirect costs - is the correct answer.

Question 20

Which of the following items would not be used as the cost driver for a volume-level cost in an activity-based cost management (ABM)system?
A) Direct labor hours.
B) Machine hours.
C) Units produced.
D) Square footage.

Accepted Answer

Square footage is not typically used as a cost driver for volume-level costs in an ABM system. Direct labor hours, machine hours, and units produced are all more commonly used as cost drivers for volume-level costs.

Quiz 10: Fundamentals of Cost Management

Which of the following items would be classified as a product-level cost in an activity-based cost management (ABM) system?

Activity analysis is one of the first stages in implementing an activity-based costing system.Which of the following steps in "activity analysis" is usually performed first?

In an activity-based cost management (ABM) system,facility-level costs are those that are incurred to:

Which of the following activities is most likely to be classified as value-added for a manufacturing company?

Activity-based cost management (ABM) can best be defined as:

Activity analysis is an important approach to operations control and the successful implementation of an activity-based costing (ABC) system.Which of the following procedures is not part of activity analysis?

Which of the following activities is most likely to be classified as value-added for a merchandise company?

Which of the following items would be classified as a batch-level cost in an activity-based cost management (ABM) system?

Which of the following statements about activity-based costing (ABC) is not true? (CIA adapted)

Which of the following items would be classified as a volume-level cost in an activity-based cost management (ABM) system?

Which of the following items would not be used as the cost driver for a volume-level cost in an activity-based cost management (ABM) system?