Activity-Based Costing True-False Statements
Activity-Based Costing True-False Statements
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
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?
.Relative to traditional product costing, activity-based costing differs in the way costs are
a. processed.
b. allocated.
c. benchmarked.
d. incurred.
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.
Which of the following is typically regarded as a cost driver in traditional accounting practices?
a. cost drivers.
b. value-added activities.
c. activity centers.
d. processes.
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
a. cost categories.
b. cost pools.
c. processes.
d. cost drivers.
ANS: D
ANS: A
ANS: D