Question 1

The process of using ABC information to evaluate the costs and benefits of production and to identify opportunities for improvements in profitability and efficiency is called:

Accepted Answer

Activity-based management (ABM) involves using activity-based costing (ABC) information to evaluate the costs and benefits of production processes, with the goal of identifying opportunities for improvements in profitability and efficiency.

Question 2

Which of the following is not a use of Activity Based Management?

Accepted Answer

Activity Based Management (ABM) focuses on managing costs and improving processes related to specific activities within an organization. It is used for managing customer profitability, product and process design, and environmental costs. Designing performance measurement schemes for management, however, is not a direct use of ABM; it is more related to the broader field of performance management and may utilize data from ABM but is not a primary function of ABM itself.

Question 3

Measurement errors in an ABC system can be caused by:

Accepted Answer

Measurement errors in an ABC system can be caused by all the listed factors: choosing an inappropriate denominator value, inaccurate estimates, and compromises when selecting cost drivers.

Question 4

Non value-added activities:

Accepted Answer

Non value-added activities are those that do not add value to a product or service from the perspective of the customer and thus should be eliminated where possible (A) and they waste resources (B).

Question 5

Rhiannon is a customer of Inthenews Ltd. She consistently orders low-margin services, but requires extensive technical support from Inthenews Ltd. In employing ABM techniques to manage customer profitability, Inthenews' staff should:

Accepted Answer

Inthenews Ltd. should consider new approaches to providing services to Rhiannon to manage customer profitability effectively, as she requires extensive support for low-margin services.

Question 6

Which of these is not a benefit of Activity Based Costing?

Accepted Answer

Activity Based Costing (ABC) focuses on identifying activities and assigning costs to them based on actual consumption, which helps in understanding cause and effect relationships and identifying non-value-added activities. However, "cost benefit trade-offs" is not a direct benefit of ABC; instead, ABC aids in accurate cost allocation and management decision-making.

Question 7

Reasons that managers may wish to reduce environmental costs include:

Accepted Answer

A and B are correct because appealing to environmentally conscious shareholders and reducing potential penalties for environmental damage are both valid reasons for managers to want to reduce environmental costs. Reducing the costs of environmental lobbyists (C) is not typically a direct reason for managers to reduce environmental costs.

Question 8

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

Accepted Answer

Activity-Based Costing (ABC) focuses on accurate cost measurement and management decisions, not directly on increasing bonuses for managers. Its benefits include reducing arbitrary cost allocations, optimizing the use of constrained resources, and motivating performance improvements, but not necessarily increasing manager bonuses.

Question 9

How can ABM be used to manage constrained resources?

Accepted Answer

ABM, or Activity-Based Management, focuses on managing activities to improve the value received by the customer and the profit achieved by providing this value. This includes identifying non-value-added activities and resources, and finding ways to reduce or eliminate them. In the context of constrained resources, ABM can help managers identify the best ways to relax these constraints, such as by improving process efficiency or reallocating resources, to ensure that the most critical activities are supported and the overall process flow is optimized.

Question 10

Costs associated with developing an ABC system most likely include:

Accepted Answer

The costs associated with developing an Activity-Based Costing (ABC) system most likely include accounting and information system modifications. This is because implementing an ABC system requires changes to how costs are tracked and allocated, often necessitating updates or changes to existing accounting and information systems to accommodate the new methodology.

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:

Accepted Answer

Activity-based costing (ABC) provides detailed information on the costs associated with specific activities involved in producing a product or service, including those related to servicing customers. This information can help managers understand which customers are more or less profitable, enabling them to make informed decisions to enhance customer profitability through targeted strategies and resource allocation.

Question 12

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

Accepted Answer

As the number of activities in an Activity-Based Costing (ABC) system increases, the complexity of tracking and measuring those activities also increases. This can lead to greater potential for measurement error because there are more processes and calculations involved, each with its own chance for mistakes or inaccuracies.

Question 13

ABC are more costly to develop when activities:

Accepted Answer

Activity-Based Costing (ABC) systems become more costly to develop when activities use multiple types of resources, have costs that are difficult to trace, and when data for the cost driver is difficult to obtain. These factors increase the complexity and effort required to accurately allocate costs, making the development of ABC systems more expensive.

Question 14

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

Accepted Answer

The cost of implementing an Activity-Based Costing (ABC) system is likely to be lower if the activities can easily be tracked. This is because the ease of tracking reduces the complexity and effort required to collect, process, and analyze data, thereby lowering the overall implementation cost.

Question 15

Greyt Expectations is a greyhound sanctuary for retired dogs after their racing career finishes. Dogs are housed here until permanent homes can be found for them. The shelter relies on grants from the racing industry and private donations for funding. One of the shelter's cost pools is animal recordkeeping, which involves maintaining a database with details about the race career of each greyhound in the shelter. Which of the following is the most appropriate cost driver for the recordkeeping cost pool?

Accepted Answer

The most appropriate cost driver for the recordkeeping cost pool is the number of greyhounds accepted into the shelter, as the effort and resources needed for recordkeeping are directly related to the number of dogs' records that need to be maintained.

Question 16

When implementing an ABC system, the costs attached are generally higher when:

Accepted Answer

The costs attached to implementing an Activity-Based Costing (ABC) system are generally higher when more activities are involved because it requires more detailed analysis and tracking of costs across numerous activities, making the process more complex and resource-intensive.

Question 17

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

Accepted Answer

Creating a soundproof area for customers to test different phones is least likely to be considered a value-added activity because it does not directly enhance the product's functionality or appeal in terms of its physical attributes or capabilities. It is more related to the shopping experience rather than improving the product itself.

Question 18

Characteristics typical of customers with low service costs do not include:

Accepted Answer

Arrangements for installment payment of bills typically increase the service costs for customers due to the additional administrative work required to manage and track payments over time, unlike the other options which are associated with lower service costs.

Question 19

ABC systems are typically associated with:

Accepted Answer

ABC (Activity-Based Costing) systems are particularly beneficial for firms with advanced manufacturing techniques, as they provide more accurate cost information by linking costs to specific activities, which is crucial in environments that use information technology and flexible manufacturing practices.

Question 20

Aslowas Ltd is a large merchandiser that employs numerous accounts payable clerks. Their jobs involve processing invoices and paying invoices at regular intervals. Which of the following is the most likely cost driver for the accounts payable activity cost pool?

Accepted Answer

The most likely cost driver for the accounts payable activity cost pool is the number of invoices processed, as this directly impacts the workload and resources needed for processing payments.

Quiz 10: Activity Analysis: Costing and Management