Question 1

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 manage activities and processes that ultimately affect the profitability of a business. It involves identifying the activities performed by an organization, determining the cost of performing those activities, and analyzing the results to improve efficiency and reduce costs. The other options are not accurate definitions of ABM.

Question 2

Which of the following statement is(are)true? (A)Unused capacity costs incurred for the benefit of a company's customers (e.g. ,meet seasonal demands)should be assigned to the customers that require (use)the excess capacity.(B)In general,managerial decisions affecting capacity-level costs and activities also affect volume-level,batch-level,and product-level cost and activities.
A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Accepted Answer

(A) is true because if a customer is using excess capacity, they are essentially benefiting from the cost incurred to create that excess capacity. Therefore, it is fair to assign those costs to the customers using the excess capacity. 
(B) is also true because capacity-level decisions can have ripple effects on other levels of cost and activities. For example, increasing capacity may require the hiring of more workers (volume-level cost) or the purchase of additional equipment (product-level cost).

Question 3

Green Lumber Supply noticed a recent decline in the amount of purchases from a key customer.Worried that other customers might also reduce their purchases,Green's management decided to evaluate the cost of its delivery service.Which of the following cost drivers is more appropriate for general administrative costs of the Delivery Department?
A)Number of different items ordered.
B)Value of each order.
C)Total number of items in each order.
D)Number of deliveries made.

Accepted Answer

The number of deliveries made is a better cost driver for the general administrative costs of the Delivery Department as it directly measures the activity of the department. The other options are more appropriate for other cost drivers, such as inventory or purchasing costs.

Question 4

The amount of production possible under normal working conditions,including planned downtime and scheduled vacations,is called:
A)actual capacity.
B)normal capacity.
C)practical capacity.
D)theoretical capacity.

Accepted Answer

The answer of The amount of production possible under normal...

Question 5

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 6

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

The procedure of computing the predetermined rate per activity by dividing the total cost pool by the total cost drivers is part of the ABC system, but not specifically part of activity analysis. Activity analysis focuses on identifying and charting the activities used to complete the product or service, classifying them as value-added or nonvalue-added, and identifying process objectives based on customer desires.

Question 7

Which of the following statements is(are)true? (A)Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions.(B)The cost of excess capacity is allocated to individual cost objects using the cost driver rate.
A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Accepted Answer

The answer of Which of the following statements is(are)true? (A)Theoretical...

Question 8

The unused resource capacity is the difference between the resources supplied and the resources:
A)purchased.
B)wasted.
C)used.
D)on hanD.This is the definition of unused resource capacity.

Accepted Answer

Unused resource capacity is the difference between the resources supplied and the resources used. Therefore, the best choice is C).

Question 9

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

The answer of Which of the following items would be...

Question 10

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

Question 11

Activity-based costing (ABC)information cannot be used by managerial decision-makers to evaluate the:
A)profitability of a customer.
B)market potential of a product.
C)cost of using a particular supplier.
D)whether to continue providing a service.

Accepted Answer

Activity-based costing provides information on the cost of each activity in producing a product or providing a service, including those related to customers and suppliers. Therefore, it can be used to evaluate the profitability of a customer and the cost of using a particular supplier. It can also be used to assess the cost-effectiveness of a service and make decisions on whether to continue providing it. However, ABC information alone cannot determine market potential as it does not take external factors such as competition and demand into account.

Question 12

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 13

The amount of resources used in an activity-based costing (ABC)system for a specific activity is computed by multiplying the:
A)cost driver rate and the actual cost driver volume.
B)cost driver rate and the planned cost driver volume.
C)overhead rate and the actual cost driver volume.
D)overhead rate and the planned cost driver volume.

Accepted Answer

In an ABC system, the amount of resources used for a specific activity is calculated by multiplying the cost driver rate (which represents the cost of resources used per unit of the cost driver) with the actual cost driver volume (which represents the actual amount of the cost driver used). Therefore, option A is the correct choice.

Question 14

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)caused by a change in the engineering plans for a product.

Accepted Answer

Facility-level costs are those costs that are incurred to maintain the plant's production capacity. These costs are essential to keep the plant operational, and they include expenses like building rent, property taxes, insurance, depreciation on plant and equipment, and maintenance and repairs on the plant's infrastructure. These costs are not related to marketing, research and development, or changes in product engineering plans, but they are necessary to support the plant's ongoing production activities. Therefore, option B is the correct choice.

Question 15

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 is a product-level cost because it is directly related to a specific product or service. The other items listed are overhead costs or facility-level costs that are not directly tied to a specific product or service.

Question 16

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 involves the actual transformation of raw materials into a finished product, which adds value to the product. Storing, ordering, and inspecting are important activities, but they do not directly contribute to the transformation of raw materials into a finished product.

Question 17

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 incurred for each batch of production and therefore can be considered a batch-level cost in an activity-based cost management system. Indirect labor, production supervisor's salary, and depreciation on factory building are all examples of costs that are not directly tied to a specific batch of production and would be classified as either facility-level or product-level costs in an ABM system.

Question 18

A company has high winter demand and low summer demand for its services.The cost of the unused summer capacity should be allocated:
A)to an account called Idle Capacity.
B)evenly to all customers.
C)only to the winter customers.
D)only to the summer customers.

Accepted Answer

The cost of the unused summer capacity should be allocated only to the winter customers because they are the ones who benefit from the extra capacity provided during the peak season. Allocating the cost to summer customers or evenly to all customers would not be fair or logical as they did not use the excess capacity. Allocating the cost to an account called Idle Capacity may not provide a clear understanding of the expenses incurred during the winter season.

Question 19

Which of the following statements regarding quality costs is(are)false? (A)In a cost of quality system,internal and external failure costs are called conformance costs.(B)Prevention costs are costs incurred to detect individual units of product that do not conform to its specifications.
A)Only A is false.
B)Only B is false.
C)Both A and B are false.
D)Neither A nor B is false.

Accepted Answer

The answer of Which of the following statements regarding quality...

Question 20

The degree to which a good or service meets specifications is called:
A)conformance to specifications.
B)customer quality demands.
C)a conformance cost.
D)a compliance cost.

Accepted Answer

Conformance to specifications refers to the degree to which a good or service meets the required specifications and standards set by the company or industry. This is an important aspect of quality management as it ensures that the product or service is consistent and meets the expectations of the customers.

Quiz 10: Fundamentals of Cost Management

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

The amount of production possible under normal working conditions,including planned downtime and scheduled vacations,is called:

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

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 statements is(are) true? (A) Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions.(B) The cost of excess capacity is allocated to individual cost objects using the cost driver rate.

The unused resource capacity is the difference between the resources supplied and the resources:

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?

Activity-based costing (ABC) information cannot be used by managerial decision-makers to evaluate the:

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?

The amount of resources used in an activity-based costing (ABC) system for a specific activity is computed by multiplying the:

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

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

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

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

A company has high winter demand and low summer demand for its services.The cost of the unused summer capacity should be allocated:

Which of the following statements regarding quality costs is(are) false? (A) In a cost of quality system,internal and external failure costs are called conformance costs.(B) Prevention costs are costs incurred to detect individual units of product that do not conform to its specifications.

The degree to which a good or service meets specifications is called: