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Exam 5: Activity-Based Costing and Activity-Based Management

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Question 61

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A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is:

A) direct labor hours
B) number of units produced
C) number of parts used
D) number of suppliers involved

E) None of the above
F) A) and B)

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Question 62

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With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.

A) overcosted
B) fairly costed
C) undercosted
D) ignored

E) A) and B)
F) C) and D)

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Question 63

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Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT:

Put the following ABC implementation steps in order:

A single indirect-cost rate may distort product costs because:

Answer the following questions using the information below: Racer X Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: -Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the standard model?

Overcosting a particular product may result in:

What are the factors that are causing many companies to refine their costing systems to obtain more accurate measures of the costs of their products?

ABC systems always provide decision-making benefits that exceed implementation costs.

Answer the following questions using the information below: Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year: The accounting records show the Mossman Job consumed the following resources: -Factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products because:

As product diversity and indirect costs increase, it is usually best to switch away from an activity based cost system to a broad averaging system.

The focus of ABC systems is on:

Answer the following questions using the information below: Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2010, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2010 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: -When costs are assigned using the single cost driver, number of pages printed, then:

Greater indirect costs are associated with:

Answer the following questions using the information below: Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours) , the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. -Given this change in the cost structure:

When refining a costing system, a company should classify as many costs as possible as direct costs.

Companies that overcost products will most likely lose market share.

Answer the following questions using the information below: Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of Sweatshirts increase to $8.20 per unit. -Using an ABC system, next year's estimates show manufacturing overhead costs will total $228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is:

For service organizations, activity-based cost systems may be used to clarify appropriate cost assignments.

ABC systems are useful in manufacturing, but NOT in the merchandising or service industries.