7) Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT: A) selling prices
B) customers' customization specifications C) setup times D) product design Answer: A Diff: 1
Terms: product-cost cross-subsidization Objective: 4
AACSB: Reflective thinking
8) Unit-level cost drivers are most appropriate as an overhead assignment base when: A) several complex products are manufactured B) only one product is manufactured C) direct labor costs are low
D) factories produce a varied mix of products Answer: B Diff: 2
Terms: output unit-level costs Objective: 4
AACSB: Reflective thinking
9) 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 Answer: C Diff: 2
Terms: output unit-level costs, batch-level costs Objective: 4
AACSB: Ethical reasoning
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Answer the following questions using the information below:
Products S5 and CP8 each are assigned $100.00 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.
10) According to an ABC system, CP8 is ________ under the traditional system. A) undercosted B) overcosted C) fairly costed D) accurately costed Answer: A Diff: 2
Terms: product undercosting Objective: 4
AACSB: Reflective thinking
11) According to an ABC system, S5 uses a disproportionately: A) smaller amount of unit-level costs B) larger amount of unit-level costs C) smaller amount of batch-level costs D) larger amount of batch-level costs Answer: C Diff: 2
Terms: product overcosting Objective: 4
AACSB: Reflective thinking
12) Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities. Answer: TRUE Diff: 2
Terms: output unit-level costs, batch-level costs, product-sustaining costs Objective: 4
AACSB: Reflective thinking
13) Output unit-level costs CANNOT be determined unless you know how many units are in a given batch.
Answer: FALSE
Explanation: Output unit-level costs are the costs of the activities performed on each individual unit whereas batch-level costs are the costs of activities related to a group of units. Diff: 2
Terms: output unit-level costs, batch-level costs, product-sustaining costs Objective: 4
AACSB: Reflective thinking
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14) Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system. Answer: FALSE
Explanation: In addition to unit-level cost drivers, an effective activity-based cost system usually uses batch-level, product-sustaining, and facility-sustaining cost drivers. Diff: 2
Terms: output unit-level costs Objective: 4
AACSB: Reflective thinking
15) Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost-driver assignments are proportionately dissimilar to each other. Answer: TRUE Diff: 2
Terms: output unit-level costs Objective: 4
AACSB: Communication
16) Explain how traditional cost systems, using a single unit-level cost rate, may distort product costs. Answer: Unit-level measures can distort product costing because the demand for indirect activities may be driven by batch-level, product-sustaining, customer-sustaining, or facility-sustaining activities. Cost distortions are larger when the traditional systems' unit-level cost drivers and the alternative activity-cost drivers differ proportionately more from each other. Traditional systems are likely to undercost products with lower production volumes (relatively fewer units of production) and overcost products with higher production volumes (relatively greater units of production). Diff: 2
Terms: output unit-level costs, product overcosting, product undercosting Objective: 4
AACSB: Reflective thinking
17) What are the four parts of the cost hierarchy. Briefly explain each part, and contrast this cost hierarchy to the fixed-variable dichotomy?
Answer: The four parts of the cost hierarchy are output unit-level costs, batch-level costs, product (or service) sustaining costs, and facility sustaining costs. Output unit-level costs are costs of activities performed on each individual unit of a product or service. Batch-level costs are the costs of activities related to a group of units of products or services rather than to each individual unit of product or service. Product (or service) sustaining costs are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the products are produced.
Facility-sustaining costs are the costs of activities that cannot be traced to individual products or services but support the organization as a whole. When compared to the fixed-variable dichotomy, which considers only units of output as a cost driver, the four part cost hierarchy provides opportunity to model many different cost drivers. For example, batch-level costs and product (or service) sustaining costs are driven by the number of batches of a product and the number of different products. Neither of these class of cost drivers are able to be considered in a simple fixed-variable dichotomy. Diff: 2
Terms: cost hierarchy Objective: 4
AACSB: Reflective thinking
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Objective 5.5
1) Put the following ABC implementation steps in order: A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases. A) DACB B) DBCA C) BADC D) CDAB Answer: D Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Analytical skills
2) ABC systems identify ________ costs used by products. A) all
B) short-term fixed C) short-term variable D) long-term fixed Answer: A Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
3) The focus of ABC systems is on: A) long-term decisions B) short-term decisions C) make-or-buy decisions D) special-pricing decisions Answer: A Diff: 2
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
4) When designing a costing system, it is easiest to: A) calculate total costs first and then per-unit cost B) calculate per-unit costs first and then total costs
C) calculate long-term costs first and then short-term costs D) calculate short-term costs first and then long-term costs Answer: A Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
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5) ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed. A) fixed B) variable C) committed
D) nondiscretionary Answer: B Diff: 2
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
6) 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 Answer: C Diff: 1
Terms: activity-based costing (ABC) Objective: 5
AACSB: Reflective thinking
Answer the following questions using the information below:
Fey Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 22 8 375 Deluxe 28 12 225
Overhead costs $40,000 $80,000
7) Assume a traditional costing system applies the $120,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model? A) $49,600 B) $70,400 C) $75,000 D) $45,000 Answer: C
Explanation: C) [$120,000 / (375 + 225)] × 375 = $75,000 Diff: 2
Terms: activity-based costing (ABC) Objective: 5
AACSB: Analytical skills
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