A

c
t
i
v
i
t
y
B
a
s
e
d
C
o
s
t
i
n
g
a
n
d
A
c
t
i
v
i
t
y
B
a
s
e
d
M
a
1

nagement
37)

o
p
e
r
a
t
i
n
g

If products
are alike,
then for
costing
purposes:

a simple
costing
system will
yield
accurate cost
numbers

i
n
e
f
f
i
c
i
e
n
c
i
e
s

an activitybased costing
system
should be
used

multiple
indirect-cost
rates should
be used

u
n
d
e
r
s
t
a
t
i
n
g

varying
demands will
be placed on
resources
A
A
38)
Undercosting
a particular
product may
result in:

t
o
t
a
l

loss of
market share

p
r
o

lower profits
2

duct costs
A
B
39)

t
w
o
p
r
o
d
u
c
t
s

Overcosting
of a product
is MOST
likely to
result from:

misallocating
direct labor
costs

a
r
e

overpricing
the product

u
n
d
e
r
c
o
s
t
e
d

undercosting
another
product

understating
total product
costs
A
C
40)

n
o

A company
produces
three
products; if
one product
is overcosted
then:

p
r
o
d
u
c
t
s

one product
is
undercosted

a
r
e

one or two
products are
undercosted

u
n
d
e
3

rcosted
A
B
41)

a
s
h
i
f
t

Misleading
cost numbers
are MOST
likely the
result of
misallocating
:

t
o
w
a
r
d

direct
material costs

i
n
c
r
e
a
s
e
d

direct
manufacturin
g labor costs

indirect costs

d
i
r
e
c
t

All of these
answers are
correct.
A
C
42)

c
o
s
t
s

An
accelerated
need for
refined cost
systems is
due to:

C
global
monopolies

rising prices

T
h
e

intense
competition

u
s
e
4

of a single
indirect-cost
rate is more
likely to:

d
e
p
a
r
t
m
e
n
t

undercost
high-volume
simple
products

undercost
low-volume
complex
products

c
o
s
t
i
n
g

undercost
lower-priced
products

C
Both B and C
are correct.
A
B
44)

R
e
f
i
n
i
n
g

Uniformly
assigning the
costs of
resources to
cost objects
when those
resources are
actually used
in a
nonuniform
way is called:

a
c
o
s
t

overcosting

s
y
s
t
e
m

undercosting

peanutbutter
costing

i
n
5

cludes:

A
l
l

classifying as
many costs as
indirect costs
as is feasible

o
f
t
h
e
s
e

creating as
many cost
pools as
possible

a
n
s
w
e
r
s

identifying
the activities
involved in a
process

seeking a
lesser level of
detail
A
C
46)

a
r
e
c
o
r
r
e
c
t
.

Greater
indirect costs
are
associated
with:

specialized
engineering
drawings

D
e
s
i
g
n

quality
specifications
and testing

inventoried
materials and
material
control
systems

o
f
a
n
6

ABC system
requires:

a
c
t
i
v
i
t
y
c
o
s
t

that the job

bid process
be
redesigned

that a causeand-effect
relationship
exists
between
resource
costs and
individual
activities

p
o
o
l
s
c
o
n
t
a
i
n
i
n
g

an
adjustment to
product mix

Both B and C
are correct.
A
B
48)

m
a
n
y

ABC systems
create:

d
i
r
e
c
t

one large cost

pool

homogenous
activityrelated cost
pools

c
o
s
t
s

activity-cost
pools with a
broad focus

B
7

o
u
t
p
u
t

49)
Logical cost
allocation
bases
include:

cubic feet of
packages
moved to
measure
distribution
activity

a
l
l
o
c
a
t
e

machine
hours to
measure
setup activity

c
o
s
t
s

direct
manufacturin
g labor hours
to measure
designing
activity

b
a
s
e
d
o
n

All of these
answers are
correct.
A
A
50)

t
h
e
o
v
e
r
a
l
l

ABC
systems:

highlight the
different
levels of
activities

l
e
v
e
l

limit cost
drivers to
units of
8

of activity

c
o
s
t

generally
undercost
complex
products
A
A
51)

s
y
s
t
e
m
s

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

d
i
s
t
o
r
t

there is an
assumption
that all
support
activities
affect all
products

p
r
o
d
u
c
t

it recognizes
specific
activities that
are required
to produce a
product

c
o
s
t
s
b
e
c
a
u
s
e
:

costs are not

consistently
recorded

it fails to
measure the
correct
amount of
total costs
A
A
52)

t
h
e
y

Traditional
9

do not know
how to
identify the
appropriate
units

m
a
j
o
r
d
i
f
f
e
r
e
n
c
e
s

competitive
pricing is
ignored

they
emphasize
financial
accounting
requirements

f
r
o
m

they apply
average
support costs
to each unit
of product
A
D
53)

t
r
a
d
i
t
i
o
n
a
l

Which of the
following
statements
about
activitybased costing
is NOT true?

c
o
s
t
i
n
g

Activitybased costing
is useful for
allocating
marketing
and
distribution
costs.

s
y
s
t
e
m
s

Activitybased costing
is more likely
to result in
10

if the firm
manufactures
only one
product
rather than
multiple
products.

d
r
i
v
e
r
s
t
h
a
t

Activitybased costing
seeks to
distinguish
batch-level,
productsustaining,
and facilitysustaining
costs,
especially
when they
are not
proportionat
e to one
another.

h
a
v
e
a
c
a
u
s
e
a
n
d
e
f
f
e
c
t

Activitybased costing
differs from
traditional
costing
systems in
that products
are not crosssubsidized.
A
B
54)

r
e
l
a
t
i
o
n
s
h
i
p

Activitybased costing
(ABC) can
eliminate
cost
distortions
because
ABC:

develops cost
11

ith the
activities
performed

a
g
r
e
a
t
e
r

establishes
multiple cost
pools

eliminates
product
variations

n
u
m
b
e
r

recognizes
interactions
between
different
departments
in assigning
support costs
A
A
55)

o
f
d
i
r
e
c
t

Product lines
that produce
different
variations
(models,
styles, or
colors) often
require
specialized
manufacturin
g activities
that translate
into:

m
a
n
u
f
a
c
t
u
r
i
n
g

fewer
indirect costs
for each
product line

l
a
b
o
r

decisions to
drop product
variations

c
o
s
t
12

allocation
rates

m
a
c
h
i
n
e

greater
overhead
costs for each
product line
A
D
71)

r
e
p
a
i
r
s

The MOST
likely
example of
an output
unit-level
cost is:

p
r
o
d
u
c
t
d
e
s
i
g
n
i
n
g

general
administrativ
e costs

paying
suppliers for
orders
received

engineering
costs

machine
depreciation
A
D
72)

c
o
s
t
s

The MOST
likely
example of a
batch-level
cost is:

s
e
t
u
p

utility costs

c
13

osts
A
D
73)

I
t

Design costs
are an
example of:

i
s
u
s
u
a
l
l
y

unit-level
costs

batch-level
costs

d
i
f
f
i
c
u
l
t

productsustaining
costs

facilitysustaining
costs
A
C
74)

t
o
f
i
n
d

________
costs support
the
organization
as a whole.

g
o
o
d

Unit-level

c
a
u
s
e
a
n
d
e
f

Batch-level

Productsustaining

Facilitysustaining
A
D
14

fect
relationships
between
________ and
a cost
allocation
base.

l
e
v
e
l

unit-level
costs

c
o
s
t
s

batch-level
costs

a
n
d
b
a
t
c
h
l
e
v
e
l

productsustaining
costs

facilitysustaining
costs
A
D
76)

c
o
s
t
s

To set
realistic
selling prices:

s
h
o
u
l
d

all costs
should be
allocated to
products

costs should
only be
allocated
when there is
a strong
cause-andeffect
relationship

b
e
a
l
l
o
c
a
t

only unit15

ed

b
a
s
e

only unitlevel costs

should be
allocated
A
A
77)

w
h
e
n
:

Different
products
consume
different
proportions
of
manufacturin
g overhead
costs because
of differences
in all of the
following
EXCEPT:

s
e
v
e
r
a
l
c
o
m
p
l
e
x

selling prices

customers'
customizatio
n
specifications

p
r
o
d
u
c
t
s

setup times

product
design
A
A
78)

a
r
e
m
a
n
u
f
a
c
t
u

Unit-level
cost drivers
are most
appropriate
as an
overhead
assignment
16

red
i
g
n
o
r
e
d

only one
product is
manufacture
d

direct labor
costs are low

C
A
n
s
w
e
r

factories
produce a
varied mix of
products
A
B
79)

t
h
e

With
traditional
costing
systems,
products
manufacture
d in small
batches and
in small
annual
volumes may
be ________
because
batch-related
and productsustaining
costs are
assigned
using unitrelated
drivers.

f
o
l
l
o
w
i
n
g
q
u
e
s
t
i
o
n
s

overcosted

u
s
i
n
g

fairly costed

undercosted

t
17

he
information
below:

A
c
c
o
r
d
i
n
g

Products S5
and CP8 each
are assigned
$50.00 in
indirect costs
by a
traditional
costing
system. An
activity
analysis
revealed that
although
production
requirements
are identical,
S5 requires
45 minutes
less setup
time than
CP8.

t
o
a
n
A
B
C
s
y
s
t
e
m
,

80)
According to
an ABC
system, CP8
is ________
under the
traditional
system.

S
5
u
s
e
s
a

undercosted

d
i
s
p
r
o
p
o
r
t
i
o
n

overcosted

fairly costed

accurately
costed
A
A
81)
18

ately:

smaller
amount of
unit-level
costs

S
e
l
e
c
t

larger
amount of
unit-level
costs

t
h
e
c
o
s
t

smaller
amount of
batch-level
costs

a
l
l
o
c
a
t
i
o
n

larger
amount of
batch-level
costs
A
C
82)
Put the
following
ABC
implementati
on steps in
order:
A

b
a
s
e
s
.

Compute the
allocation
rates.
B

D
A
C
B

Compute the
total cost of
the products.
C

D
B
C
A

Identify the
products that
are the cost
objects.
19

s
p
e
c
i
a
l
p
r
i
c
i
n
g

BADC

CDAB
A
D
83)
ABC systems
identify
________
costs used by
products.

d
e
c
i
s
i
o
n
s

all

short-term
fixed

short-term
variable

A
long-term
fixed
A
A
84)

W
h
e
n

The focus of
ABC systems
is on:

d
e
s
i
g
n
i
n
g

long-term
decisions

short-term
decisions

a
make-or-buy
decisions

c
o
s
20

ting system,
it is easiest
to:

v
a
r
i
a
b
l
e

calculate
total costs
first and then
per-unit cost

calculate perunit costs

first and then
total costs

c
o
m
m
i
t
t
e
d

calculate
long-term
costs first
and then
short-term
costs

n
o
n
d
i
s
c
r
e
t
i
o
n
a
r
y

calculate
short-term
costs first
and then
long-term
costs
A
A
86)
ABC
assumes all
costs are
________
because over
the long run
management
can adjust
the amount
of resources
employed.

A
m
a
n
u

fixed

21

facturing
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:

p
a
g
e
s
p
r
i
n
t
e
d
,
t
h
e
n
H
e
a
l
t
h

direct labor
hours

S
y
s
t
e
m
s
:

number of
units
produced

number of
parts used

number of
suppliers
involved
A
C
122

i
s
f
a
i
r
l
y

When costs
are assigned
using the
single cost
driver,
number of

b
i
l
22

led because
resources are
allocated
uniformly to
all jobs

u
s
u
a
l
l
y

is grossly
under billed
for the job,
while other
jobs will be
unfairly over
billed

r
e
s
u
l
t
s

will likely
seek to do
business
with
competitors

i
n
p
e
a
n
u
t
b
u
t
t
e
r

will
contribute
too little to
profits, and
Wallace
Printing will
not want to
accept
additional
work from
the company
A
C
123

c
o
s
t
i
n
g

Activitybasedcosting
information:

w
i
l
l

should be
used when
services
place similar
demands on
resources

y
23

ield
inaccurate
cost numbers
when
products are
similar

r
e
v
e
a
l

may assist in
improving
product
design and
efficiency
A
D
124

a
c
t
i
v
i
t
i
e
s

Activitybased
management
(ABM)
includes
decisions
about all
EXCEPT:

t
h
a
t
c
a
n
b
e

pricing and
product mix

e
l
i
m
i
n
a
t
e
d

smoothing
costs

reducing
costs

improving
processes
A
B
125

h
e
l
p

ABC
systems:

c
o
n
24

trol
nonfinancial
items such as
number of
setup hours

r
e
f
l
e
c
t

help identify
new designs
to reduce
costs

a
s
m
u
c
h

All of these
answers are
correct.
A
D
126

o
f
t
h
e

Companies
use ABC
system
information
to:

d
i
v
e
r
s
i
t
y

analyze costs

prepare
budgets

a
n
d

evaluate
performance

c
o
m
p
l
e
x
i
t
y

All of these
answers are
correct.
A
D
127

It is
important
that the
product costs

o
f
25

the
manufacturin
g process so
that:

t
o
e
l
i
m
i
n
a
t
e

product costs
will reflect
their relative
consumption
of resources

nonvalueadded costs
can be
eliminated

n
o
n
v
a
l
u
e
a
d
d
e
d

there is less
likelihood of
cross
subsidizing
of product
costs

All of these
answers are
correct.
A
D
128

a
c
t
i
v
i
t
i
e
s

A welldesigned,
activitybased cost
system helps
managers
make better
decisions
because
information
derived from
an ABC
analysis:

i
s
e
a
s
y
t
o

can be used
26

analyze and
interpret

c
u
s
t
o
m
e
r
s

takes the
choices and
judgment
challenges
away from
the managers

r
e
q
u
i
r
e

emphasizes
how
managers can
achieve
higher sales
A
A
129

d
i
f
f
e
r
e
n
t

A PRIMARY
reason for
assigning
selling and
distribution
costs to
products for
analytical
purposes is:

q
u
a
n
t
i
t
i
e
s

to justify a
varied
product mix

that
controllers
are required
to assign all
costs when
valuing
inventories

o
f
s
e
l
l
i
n
g

that different
processes,
products,
and

a
27

nd
distribution
activities

that all
indirect costs
must be
assigned
A
C
130

P
r
o
d
u
c
t
s

For service
organizations
that bill
customers at
a
predetermine
d average
rate, activitybased cost
systems can
help to:

m
a
k
e
d
i
v
e
r
s
e

clarify
appropriate
cost
assignments
for various
service
activities

d
e
m
a
n
d
s

identify the
profitability
of various
service
activities

o
n
r
e
s
o
u
r
c
e
s

Both A and B
are correct.

None of
these
answers are
correct.

b
e
28

cause of
differences in
all of the
following
EXCEPT:

d
e
p
a
r
t
m
e
n
t

volume

selling price

i
n
d
i
r
e
c
t
c
o
s
t

batch size

complexity
A
B
132

The UNIQUE
feature of an
ABC system
is the
emphasis on:

r
a
t
e

costing
individual
jobs

i
s
s
u
f
f
i
c
i
e
n
t

department
indirect-cost
rates

multiple-cost
pools

individual
activities
A
D
133

w
h
e
n
:

One
29

activities
relate to
more than
one level of
the cost
hierarchy

c
o
s
t
s

product costs
are
significantly
crosssubsidized

t
h
e
r
e
a
r
e

the same
allocation
base is
appropriate
for all
departmental
activities

s
e
v
e
r
a
l

it is a service
department
A
C
146

h
o
m
o
g
e
n
e
o
u
s

Using
activity-cost
rates rather
than
department
indirect-cost
rates to
allocate costs
results in
different
product costs
when:

c
o
s
t
p
o
o
l
s

a single
activity
accounts for
a sizable
portion of
department
30

different
activities
have the
same costallocation
base

d
i
f
f
e
r
e
n
t

different
products use
different
resources in
the same
proportion
A
B
147

p
r
o
c
e
s
s
e
s

A key reason
for using an
ABC system
rather than a
departmentcosting
system is
because ABC
assigns
indirect costs:

a
s
w
e
l
l
a
s

using
broader
averages

c
u
s
t
o
m
e
r
s

more simply
than a
departmentcosting
system

in a less
costly
manner

I
t

to reflect
differences
required by

O
31

NLY makes
sense to
implement
an ABC
system when:

s
m
a
l
l

ABC
provides
information
to make
better
decisions

a
m
o
u
n
t
s
o
f

its benefits
exceed
implementati
on costs

i
n
d
i
r
e
c
t

ABC traces
more costs as
direct costs

there is a
strong causeand-effect
relationship
between
costs in the
cost pools
and their
costallocation
bases
A
B
149

c
o
s
t
s
.

P
r
o
d
u
c
t
s

Which of the
following is a
sign that an
ABC system
may be
useful?

m
a
k
e
d
i

There are
32

verse
demands on
resources
because of
differences in
volume,
process steps,
batch size, or
complexity.

a
r
e
s
i
m
i
l
a
r

Products a
company is
less suited to
produce and
sell show
small profits.

i
n
p
r
o
p
o
r
t
i
o
n

Operations
staff agrees
with
accountants
about the
costs of
manufacturin
g and
marketing
products and
services.
A
B
150

t
o
e
a
c
h

Smaller cost
distortions
occur when
the
traditional
systems'
single
indirect-cost
rate and the
activity-costdriver rates:

o
t
h
e
r

a
r
e

use the same

total costs for
computations

m
o
r
33

e different
than alike

F
a
c
t
o
r
i
e
s

use the same

cost driver
units
A
B
151

p
r
o
d
u
c
i
n
g

Activitybased costing
systems
provide
better
product costs
when they:

employ more
activity-cost
drivers

m
o
r
e

employ fewer
activity-cost
drivers

v
a
r
i
e
d

identify and
cost more
indirect cost
differences
among
products

a
n
d
c
o
m
p
l
e
x

always yield
more
accurate
product costs
than
traditional
systems
A
C
152

m
i
x
o
34

f products
have higher
costs than
factories
producing
only a
narrow range
of products
because:

t
h
e
c
o
s
t
s
y
s
t
e
m
.

more
variations
and
complexities
require more
activities

they require
more
engineers

P
r
o
d
u
c
t
s

they require
more direct
laborers

t
h
a
t

they buy
more robotics
A
A
153

a
c
o
m
p
a
n
y

Which of the
following is
NOT a sign
that a
"smoothing
out" costing
system
exists?

i
s

Operations
managers
don't use the
data
originated by

w
e
l
l
35

suited to
make and
sell show
large profits.

t
h
e
n
e
w

New product
variations
have been
added, but
the cost
system has
not been
upgraded.

A
B
C
s
y
s
t
e
m
.

The company
loses bids
they believe
were priced
competitively
.
A
B
Answer the
following
questions
using the
information
below:

T
h
e
n
e
w
c
o
s
t

Cannady
produces six
products.
Under their
traditional
cost system
using one
cost driver,
SR6 costs
$168.00 per
unit. An
analysis of
the activities
and their
costs
revealed that
three cost
drivers
would be
used under

o
f
S
R
6
w
a
s
d
e
t
e
r
m
i
36

ned to be
$178.00 per
unit.

b
e
n
e
f
i
t
e
d

154

The total
amount of
indirect costs
assigned to
product SR6
using the
traditional
method is
________ the
total amount
assigned
using ABC.

f
r
o
m
t
h
e
n
e
w

more than

s
y
s
t
e
m

less than

identical to

None of
these
answers are
correct.
A
B
155

S
R
6
i
s

Given this
change in the
cost:

d
e
f
i
n
i
t
e
l
y

SR6 will now

command a
higher sales
price

SR6 has

m
37

ore
accurately
costed

A
n
a
n
a
l
y
s
i
s

the costing
results for
SR6 under
the new
system
depend on
the adequacy
and quality
of the
estimated
cost drivers
and costs
used by the
system
A
D

o
f
t
h
e
a
c
t
i
v
i
t
i
e
s

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
manufacturin
g labor
hours), the
cost of a set
of wooden
chess pieces
is $325.00.

a
n
d
t
h
e
i
r
c
o
s
t
s
r
e
v
e
a
38

led 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.

N
o
n
e
o
f
t
h
e
s
e
a
n
s
w
e
r
s
a
r
e

156

c
o
r
r
e
c
t
.

The total
amount of
indirect cost
assigned to
produce
chess pieces
using the
traditional
method is
________ the
total amount
assigned
using ABC.

G
i
v
e
n

more than

less than

t
h
i
s

identical to

39

change in
the cost
structure:

h
a
v
e

The costing
results for
chess pieces
under the
new system
depend on
the adequacy
and quality
of the
estimated
cost drivers
and costs
used by the
system.

t
h
e
m
o
s
t
a
c
c
u
r
a
t
e

Chess pieces
have
benefited
from the new
system.

c
o
s
t

Chess pieces
are definitely
more
accurately
costed.

s
y
s
t
e
m

Chess will
now have a
lower sales
price.
A
A
158

i
d
e
n
t
i
f
y

The goal of a
properly
constructed
ABC system
is to:

m
o
r
e
40

indirect costs

develop the
best cost
system for an
economically
reasonable
cost

have separate
allocation
rates for each
department
A
C

41