Question 1

Effective implementation of activity-based costing (ABC) requires:

Accepted Answer

ABC implementation requires the support of top management and key employees because they play a crucial role in the success of any new accounting system. They must be willing to provide the necessary resources, including time and money, and be committed to the implementation process. While a consultant may provide useful guidance, they are not deemed necessary for its implementation. A sophisticated computer system may be helpful but it is not a prerequisite to implement ABC. Capturing the complexity of the data is an inherent characteristic of ABC, hence it must be done correctly, but it is not a unique factor in its implementation. Lastly, stating that ABC has no significant implementation issues is incorrect, as all new accounting systems require proper implementation for it to be effective.

Question 2

In regard to selling activities, which one of the following would be a cost driver for selling expense?

Accepted Answer

Number of sales calls is a direct cost driver for selling expenses as it directly affects the cost of sales through expenses such as travel, entertainment, and communication. The other options listed are not directly related to selling expenses.

Question 3

Which one of the following is a high value-added activity?

Accepted Answer

Processing is a high value-added activity as it involves adding value to raw materials and transforming them into finished products that can be sold at a higher price. Set-up, rework, repair, and storage are necessary activities but do not directly add significant value to the product.

Question 4

Activity-based costing (ABC) differs from other costing approaches in that it more accurately measures the cost of activities:

Accepted Answer

Activity-based costing is designed to accurately measure the cost of activities that are not proportional to the volume of outputs produced. This means that it takes into account the fact that some activities may require more resources or time, regardless of the number of units produced. ABC is able to allocate costs more accurately by identifying and tracking the specific activities that contribute to the production of a product or service, which can lead to better decision-making and cost control.

Question 5

An activity that is performed for each unit of production is a(n):

Accepted Answer

Unit-level activities are those that are performed for each unit of production. Examples include assembly, packaging, inspection, and testing. These activities are directly related to the production of the unit and are necessary to complete the manufacturing process.

Question 6

A measure of frequency and intensity of demands placed on activities by cost objects is:

Accepted Answer

Activity consumption cost driver measures the frequency and intensity of demands placed on activities by cost objects. This cost driver is used to allocate overhead costs to different products or services based on the consumption of activity resources.

Question 7

The major limitation of volume-based costing systems is the use of volume-based:

Accepted Answer

Volume-based costing systems use volume-based rates to allocate costs, which can result in inaccuracies when the costs of resources are not directly related to the volume of output. This is a major limitation of volume-based costing systems. Choice A (criteria), D (variances), and E (restrictions) are not directly related to the limitation of volume-based costing systems. While standards (choice B) can be affected by the limitations of volume-based costing systems, they are not the primary limitation.

Question 8

When gathering activity data, which of the following would not be a question that ABC project team members typically ask employees or managers?

Accepted Answer

The answer of When gathering activity data, which of the...

Question 9

Which one of the following is not a unit-level cost driver?

Accepted Answer

Production orders are not a unit-level cost driver as they do not directly affect the cost of producing each unit. Instead, production orders are used to schedule and plan production activities. The other options (direct labor hours, direct material dollars, and machine hours) are all unit-level cost drivers as they directly influence the cost of producing each unit.

Question 10

The examination of the efficiency of each of a firm's activities is:

Accepted Answer

Activity analysis involves examining the efficiency and effectiveness of each activity within a firm to improve performance and reduce costs.

Question 11

The management of activities to improve the value received by the customer and the competitiveness of the organization is:

Accepted Answer

Activity-based management is a strategy used by organizations to improve the value received by customers and increase organizational competitiveness by managing and optimizing various business activities. This involves analyzing the cost and performance of each activity to identify opportunities for improvement and cost reduction while maintaining or enhancing customer satisfaction.

Question 12

Elimination of low-value-added activities in a firm should:

Accepted Answer

Elimination of low-value-added activities should always have priority because it reduces costs and allows a firm to focus on high-value-added activities that contribute to customer value. By eliminating such activities, the firm can become more efficient and effective, which ultimately benefits the customer.

Question 13

Which one of the following is not a recommendation for a successful implementation of ABC/M?

Accepted Answer

All of the options listed (A-D) are features of successful ABC/M implementations, therefore none of them can be excluded as a recommendation.

Question 14

If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the:

Accepted Answer

Volume-based costing allocates costs based on the volume of units produced, leading to inaccuracies when project activities do not directly correlate with production volume. This can result in some managers being overcharged and others undercharged for the costs of their projects.

Question 15

Volume-based overhead rates may cause undesirable strategic effects such as:

Accepted Answer

Volume-based overhead rates can lead to incorrect decisions as the rates do not accurately represent the cost of producing a product. This can in turn lead to unprofitable cross-subsidization of products, where the cost of producing one product is offset by the profits of another, leading to a misallocation of resources. Additionally, using volume-based overhead rates may not provide effective management of operations for process improvement as it does not identify where the actual costs lie, and therefore limits management's ability to make effective changes.

Question 16

A measure of the quantity of resources consumed by an activity is:

Accepted Answer

Resource consumption cost driver measures the quantity of resources consumed by an activity, which in turn affects the cost of that activity. Therefore, it is a valid cost driver.

Question 17

In performing activity analysis during the design of an activity-based costing system (ABC), the management accountant studies:

Accepted Answer

Activity analysis involves identifying and understanding the resources, activities, and cost drivers of a particular operation. This information is essential in developing an effective ABC system, which aims to allocate costs to products or services based on the resources and activities required to produce them. Option A is partially correct but not complete, option B may be helpful but not the focus, option D is irrelevant, and option E is not part of the activity analysis process.

Question 18

An activity that is performed to support the production of a new custom-order product is a(n):

Accepted Answer

The answer of An activity that is performed to support...

Question 19

Volume-based rates produce inaccurate product cost when:

Accepted Answer

When a large share of factory overhead cost is not volume-based and firms produce a diverse mix of products, volume-based rates will not accurately reflect the actual cost of a product. This is because volume-based rates assume that overhead costs are incurred in proportion to the volume of product produced, which may not be the case in reality. Therefore, it is best to use alternative methods for cost allocation in such situations.

Question 20

Successful activity-based costing (ABC) implementation depends upon the firm:

Accepted Answer

The answer of Successful activity-based costing (ABC) implementation depends upon...

Quiz 5: Activity-Based Costing and Customer Profitability Analysis