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 typically use judgment in choosing activities and cost drivers to include in an ABC system, as they have knowledge and experience with their organization's operations and can identify the key activities and cost drivers that drive costs. While linear programming and simple regression may be used in other aspects of cost management, they are not typically used in selecting activities and cost drivers for an ABC system. Activity-based management is a broader approach to managing costs that includes the use of ABC, but it is not specifically used in selecting activities and cost drivers for an ABC system.

Question 2

Managers can use ABM information to manage customer profitability. The most valuable groups of customers are those having the following characteristics: $$\begin{array} { l c } 
\text { Types of } & \text { Service } \
\text { Products Ordered } & \text { Requirements }\
\hline \text { a) High-margin } & \text { Extensive } \
\text { b) High-priced } & \text { Low } \
\text { c) Low-margin } & \text { Low } \
\text { d) High-marqin } & \text { Low }
\end{array}$$

Accepted Answer

The answer of Managers can use ABM information to manage...

Question 3

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 classification of quality activities includes prevention activities (aimed at preventing defects from occurring), appraisal activities (aimed at detecting defects), production activities (aimed at correcting defects before delivery), and post-sales activities (aimed at correcting defects after delivery). This classification helps to identify the costs associated with each type of activity and to refine quality strategies. Option A is too broad and does not differentiate between types of quality activities. Option B is also a valid classification, but it focuses on the value added by each activity, rather than its purpose, and is not as commonly used as option C. Option D is not a recognized classification of quality activities.

Question 4

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 Activity-Based Costing (ABC) system increases, the complexity of tracking and measuring those activities also increases. This can lead to more opportunities for measurement error as there are more variables and processes to manage and monitor.

Question 5

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 those that are performed before production to prevent defects from occurring. These may include designing defect prevention methods into the production process, using high-quality materials, and training the workforce in quality techniques. Post-sales activities are done after the product has been sold, and may include warranty repairs or customer service. Production activities involve the actual creation of the product, while appraisal activities are those that are performed after production to check for defects.

Question 6

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

Implementing an ABC system requires the gathering and reporting of activity and cost driver information, which may require modifications to the accounting information system. Option A and D are both not appropriate as an ABC system typically requires more detailed information and not fewer ledger accounts. Option B is also not appropriate as only using costs from the most recent periods ignores the historical data that may be relevant in identifying cost drivers.

Question 7

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 make errors in assigning costs to the wrong pool or misinterpret the data, which can result in inaccurate cost allocation. This increases the risk of measurement error in the ABC system. A, C, and D do not necessarily increase measurement error in an ABC system.

Question 8

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

While an ABC system can certainly help increase profits indirectly by identifying areas for cost savings and optimization, it is not a direct benefit of the system itself. The other choices listed (A, C, and D) are all benefits of an ABC system.

Question 9

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 providing detailed information on the cost drivers of each product or activity. This information can help managers prioritize which products or activities to invest in to increase efficiency and reduce costs, ultimately relaxing constraints. For example, if a certain product requires a specific machine that is causing a bottleneck in the production process, managers can use ABC information to identify the total cost and profitability of that product and determine if investing in additional machines or reallocating resources is a feasible solution.

Question 10

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

The successful implementation of ABC is associated with top management support and performance evaluations. These factors help to ensure that the implementation is given sufficient resources and that the results are being monitored and evaluated. High market share or middle management support may be helpful but are not as critical to the success of the implementation as top management support and performance evaluations.

Question 11

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 a significant amount of employee time and consulting fees. Although it may increase overhead costs initially, it ultimately leads to more accurate cost allocation and can improve profitability in the long run. Reduced profits and loss of market share are not necessarily associated with developing an ABC system.

Question 12

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 are activities that increase the worth of an organization's goods and services to customers, making them more willing to pay for the product or service. This can lead to increased revenues as well as increased customer loyalty and satisfaction. Option A, increasing revenues, can be a result of value-added activities, but it is not the definition of value-added activities. Option C, increasing the worth of an organization's goods and services to stockholders, may also be a result of value-added activities, but it is not the primary goal of these activities. Option D, increasing costs that are unrelated to customers, is not an accurate description of value-added activities.

Question 13

For small manufacturing firms, ABC systems are best with: $\begin{array}{ll}\text { Number of } & \text { Number of } \
\text { Activities } & \text { Cost Drivers }\\hline
\text { a) Few } & \text { Few } \
\text { b) Many } & \text { Few } \
\text { c) Many } & \text { Many } \
\text { d) Few } & \text { Many }
\end{array}$

Accepted Answer

The answer of For small manufacturing firms, ABC systems are...

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 cost of implementing an ABC system is lower if activities can easily be tracked, as it reduces the complexity and resources needed for accurate data collection and analysis.

Question 15

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 form of appraisal activity that involve assessing the quality and conformity of a product to established standards or specifications. They are typically conducted during or after production to identify defects and ensure that the product meets customer requirements.

Question 16

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, and are used in both manufacturing and service industries. However, implementing ABC systems does not guarantee higher profitability for all firms.

Question 17

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

PVL's staff should develop creative approaches to managing Phuong as a customer. ABM is a technique that aims to identify and manage the costs of products or services provided to customers. In this case, Phuong is ordering low-margin products but requiring costly services, which means that she is not a profitable customer for PVL. However, PVL should not simply make no changes in service to Phuong or require her to pay in cash. Instead, they should try to find ways to increase Phuong's profitability by developing creative approaches to managing her as a customer, such as offering her bundled packages or incentivizing her to order higher-margin products. By doing so, they can maintain a positive relationship with Phuong while also maximizing their profitability.

Question 18

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 19

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 provides information about the costs associated with serving different customers. This information can be used to determine which customers are the most profitable and which may need to be dropped or have their service offerings changed. Activity-based management techniques can then be applied to manage the profitability of each customer relationship.

Question 20

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 incurred after the sale of the product, making them post-sales activity costs.

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?

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

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

Activities performed to insure defect-free production are called:

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

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

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

How can ABC information be used to manage constrained resources?

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

Costs associated with developing an ABC system most likely include:

Value-added activities:

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

Product inspections are an example of:

ABC systems are typically associated with:

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:

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

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:

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?