ACCT434 Advanced Cost Management: Week 1 Activity Based Costing (Version 1)

Reminder: There are several versions of this week’s questions, please make sure you have reviewed and compared our questions with your questions.

ACCT434 Advanced Cost Management
Week 1 Activity Based Costing (Version 1)

1. (TCO 1) The average cost data are for In-Sync Fixtures Company's (a retailer) only two product lines,
Marblette Italian Marble
Purchase volume 20,000 1,000
Purchase cost per unit $50 $250
Shipments received 12 12
Hours used per shipment * 5 3
* These data were accumulated after a careful activity analysis.

Currently, In-Sync Fixtures uses a traditional costing system with indirect costs allocated using purchased cost of goods as a basis. In-Sync Fixtures is considering refining the allocation of its receiving costs of $40,000. It realizes that the Italian Marble is heavier and requires more care than the Marblette but that the Marblette comes in larger volume.
Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures?
a. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base.
b. The traditional allocation method currently being used is causing product-cost cross-subsidization with the product line Marblette being undercosted.
c. The cost allocated to the Italian Marble product line under the current traditional system is more than the activity-based costing allocated cost.
d. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because it probably will cost less to trace the costs to the product lines.

2. (TCO 1) The allocation of indirect costs in an activity-based costing system
a. may require other costs to be allocated to activities before the costs of the activities can be allocated to the products.
b. is simplified because more costs are identified as direct costs.
c. requires the use of heterogeneous cost pools.
d. is simplified because a limited number of activities are identified as cost objects.

3. (TCO 1) Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management?
a. Pricing and product-mix decisions
b. Cost reduction decisions
c. Design decisions
d. Discretionary decisions

4. (TCO 1) A company produces three products; if one product is overcosted then
a. one product is undercosted.
b. one or two products are undercosted.
c. two products are undercosted.
d. no products are undercosted.

5. (TCO 1) To set realistic selling prices
all costs should be allocated to products.
costs should only be allocated when there is a strong cause-and-effect relationship.
only unit-level and batch-level costs should be allocated.
only unit-level costs should be allocated.

6. (TCO 1) Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT
selling prices.
customers' customization specifications.
setup times.
product design.

7. (TCO 1) A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis
a. can be used to eliminate nonvalue-added activities.
b. is easy to analyze and interpret.
c. takes the choices and judgment challenges away from the managers.
d. emphasizes how managers can achieve higher sales.

8. (TCO 1) Companies use ABC system information to
analyze costs
prepare budgets
evaluate performance
All of these answers are correct.

9. (TCO 1) For service organizations that bill customers at a predetermined average rate, activity-based
cost systems can help to
clarify appropriate cost assignments for various service activities.
identify the profitability of various service activities.
Both A and B
None of the above

10. (TCO 1) Danielle Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $180,000. The budgeted number of nozzles to be inserted is 60,000. What is the budgeted indirect cost allocation rate for this activity?
$3.00
$2.50
$2.00
$3.50
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