Activity-Based Costing True-False Statements

ACTIVITY-BASED COSTING
TRUE-FALSE STATEMENTS
1.Traditional costing systems use multiple predetermined overhead rates. F
2.Traditionally, overhead is allocated based on direct labor cost or direct labor hours. T
3.Current trends in manufacturing include less direct labor and more overhead. T
4.Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using
cost drivers. T
5.A cost driver does not generally have a direct cause-effect relationship with the resources consumed." F
6.The first step in activity-based costing is to assign overhead costs to products, using cost drivers. F
7.To achieve accurate costing, a high degree of correlation must exist between the cost driver and the actual
consumption of the activity cost pool. T
8. Low-volume products often require more special handling than high-volume products. T
9. When overhead is properly assigned in ABC, it will usually decrease the unit cost of high-volume products. F
10.ABC leads to enhanced control over overhead costs. T
11.ABC usually results in less appropriate management decisions F
12.ABC is generally more costly to implement than traditional costing. T
13.ABC eliminates all arbitrary cost allocations. F
14.ABC is particularly useful when product lines differ greatly in volume and manufacturing complexity. T
15.ABC is particularly useful when overhead costs are an insignificant portion of total costs. F
16.Activity-based management focuses on reducing costs and improving processes. T
176.Any activity that increases the cost of producing a product is a value-added activity. F
18. Engineering design is a value-added activity. T
19.onvalue-added activities increase the cost of a product but not its market value. T
20. Machining is a nonvalue-added activity. F
21. Not all activities labeled nonvalue-added are totally wasteful, nor can they be totally eliminated. T
22. Activity-based costing is appropriate for a company that has high overhead costs that are not proportional
to unit volumes of individual products. T
23. An activity-based costing system should be evaluated with regard to the benefits it can provide an
organization versus the costs of implementing it.T
Costs that are associated with the production of a group of similar products at the same time are referred to as
________________________. ANS: batch-level costs
Costs that support a product type or process are referred to as ________________________.
ANS: product/process level costs
DIF: Easy OBJ: 5-3
12. Costs that support an overall production or service process are referred to as ________________________.
ANS: organizational or facility costs
MCQ
31. Traditionally, overhead has been assigned based on direct labor hours or machine hours. What effect does this
have on the cost of a high-volume item?
a. over-costs the product

b. under-costs the product
c. has no effect the product cost
d. cost per unit is unaffected by product volume
31.Which of the following is not typical of traditional costing systems?

a. Use of a single predetermined overhead rate.
b. Use of direct labor hours or direct labor cost to assign overhead.
c.Assumption of correlation between direct labor and incurrence of overhead cost.
d. Use of multiple cost drivers to allocate overhead
.Relative to traditional product costing, activity-based costing differs in the way costs are
a. processed.
b. allocated.
c. benchmarked.
d. incurred.
32.An traditional costing systems, overhead is generally applied based on

a.direct labor or machine hours.
b.direct material dollars.
c.units of production.
33.An activity that has a direct cause-effect relationship with the resources consumed is an;
a.cost driver.
b.overhead rate.
c.costpool.
d.product activity.
36. A well-designed activity-based costing system starts with

a.identifying the activity-cost pools.
b.computing the activity-based overhead rate.
c.assigning manufacturing overhead costs for each activity cost pool to products.
d.analysing the activities performed to manufacture a product
1. An objective of activity-based management is to
a. eliminate the majority of centralized activities in an organization.

b. reduce or eliminate non-value-added activities incurred to make a product or provide a
service.
c. institute responsibility accounting systems in decentralized organizations.
d. all of the above
Which of the following is typically regarded as a cost driver in traditional accounting practices?
a. number of purchase orders processed

b. number of customers served
c. number of transactions processed
d. number of direct labor hours worked
The term cost driver refers to
a. any activity that can be used to predict cost changes.

b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfers cost data to the management accountant.
d. any activity that causes costs to be incurred.
ANS: D DIF: Moderate OBJ: 5-3
19. Cost allocation bases in activity-based costing should be
a. cost drivers.
b. value-added activities.
c. activity centers.
d. processes.
ANS: A DIF: Easy OBJ: 5-3
20. Costs that are common to many different activities within an organization are known as ____________ costs.
a. product- or process-level
b. organizational-level
c. batch-level
d. unit-level
ANS: B
21. In activity-based costing, cost reduction efforts are directed at specific
a. cost categories.
b. cost pools.
c. processes.
d. cost drivers.
ANS: D
In allocating variable costs to products,
a. a volume-based cost driver should be used.

b. direct labor hours should always be used as the allocation base.
c. a company should use the same allocation base that it uses for fixed costs.
d. a company should never use more than one cost driver.
ANS: A
An activity center is an organizational unit
a. that makes a single product or performs a single service.

b. in which only value-added activities are performed.
c. that incurs only unit, batch, or product/process level costs.
d. for which management wants separate activity information.
ANS: D

Activity-Based Costing True-False Statements

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Activity-Based Costing True-False Statements

Uploaded by

Copyright:

Available Formats

ACTIVITY-BASED COSTING

Costs that support a product type or process are referred to as ________________________.

ANS: product/process level costs

DIF: Easy OBJ: 5-3

a. over-costs the product

31.Which of the following is not typical of traditional costing systems?

32.An traditional costing systems, overhead is generally applied based on

36. A well-designed activity-based costing system starts with

1. An objective of activity-based management is to

a. eliminate the majority of centralized activities in an organization.

a. number of purchase orders processed

The term cost driver refers to

a. any activity that can be used to predict cost changes.

ANS: D DIF: Moderate OBJ: 5-3

19. Cost allocation bases in activity-based costing should be

ANS: A DIF: Easy OBJ: 5-3

21. In activity-based costing, cost reduction efforts are directed at specific

In allocating variable costs to products,

a. a volume-based cost driver should be used.

An activity center is an organizational unit

a. that makes a single product or performs a single service.

You might also like