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    CH 05

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    Von Andrei Medina
    The document contains 30 true/false questions about activity-based costing and activity-based management. It tests understanding of key concepts such as using multiple cost drivers, tracing more costs as direct costs, creating homogeneous cost pools linked to activities, and using ABC analysis to improve operations and eliminate non-value added activities. While ABC systems can provide more accurate product costs, they do not always outweigh implementation costs so a cost-benefit analysis is important.

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    CH 05

    Uploaded by

    Von Andrei Medina
    176 views4 pages
    The document contains 30 true/false questions about activity-based costing and activity-based management. It tests understanding of key concepts such as using multiple cost drivers, tracing more costs as direct costs, creating homogeneous cost pools linked to activities, and using ABC analysis to improve operations and eliminate non-value added activities. While ABC systems can provide more accurate product costs, they do not always outweigh implementation costs so a cost-benefit analysis is important.

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    Activity Costing

    Original Title

    Ch05

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    The document contains 30 true/false questions about activity-based costing and activity-based management. It tests understanding of key concepts such as using multiple cost drivers, tracing more costs as direct costs, creating homogeneous cost pools linked to activities, and using ABC analysis to improve operations and eliminate non-value added activities. While ABC systems can provide more accurate product costs, they do not always outweigh implementation costs so a cost-benefit analysis is important.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    176 views4 pages

    CH 05

    Uploaded by

    Von Andrei Medina
    The document contains 30 true/false questions about activity-based costing and activity-based management. It tests understanding of key concepts such as using multiple cost drivers, tracing more costs as direct costs, creating homogeneous cost pools linked to activities, and using ABC analysis to improve operations and eliminate non-value added activities. While ABC systems can provide more accurate product costs, they do not always outweigh implementation costs so a cost-benefit analysis is important.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    CHAPTER 5

    ACTIVITY-BASED COSTING AND ACTIVITY-BASED


    MANAGEMENT
    TRUE/FALSE

    1. A top-selling product might actually result in losses for the company.

    Answer: True Difficulty: 2 Objective: 1


    Terms to Learn: product undercosting

    2. Companies that undercost products will most likely lose market share.

    Answer: False Difficulty: 2 Objective: 1


    Terms to Learn: product undercosting
    Companies that overcost products will most likely lose market share.

    3. If a company undercosts one of its products, then it will overcost at least one of its other products.

    Answer: True Difficulty: 2 Objective: 1


    Terms to Learn: product-cost cross-subsidization

    4. Direct costs plus indirect costs equal total costs.

    Answer: True Difficulty: 1 Objective: 2


    Terms to Learn: activity-based costing (ABC)

    5. When refining a costing system, a company should classify as many costs as possible as indirect costs.

    Answer: False Difficulty: 1 Objective: 2


    Terms to Learn: refined costing system
    When refining a costing system, a company should classify as many costs as possible as direct costs.

    6. In a homogeneous cost pool, all costs have a similar cause-and-effect relationship with the cost-allocation
    base.

    Answer: True Difficulty: 1 Objective: 2


    Terms to Learn: activity-based costing (ABC)

    7. Indirect labor and distribution costs would most likely be in the same activity-cost pool.

    Answer: False Difficulty: 2 Objective: 2


    Terms to Learn: activity-based costing (ABC)
    Indirect labor and distribution costs would not be in the same activity-cost pool because their cost drivers
    are very dissimilar. A cost driver of indirect labor would include direct labor hours, while a cost driver of
    distribution costs would include, for example, cubic feet of cargo moved.

    5-1
    8. Activity-based costing helps identify various activities that explain why costs are incurred.

    Answer: True Difficulty: 1 Objective: 2


    Terms to Learn: activity-based costing (ABC)

    9. Direct tracing of costs improves cost accuracy.

    Answer: True Difficulty: 1 Objective: 2


    Terms to Learn: activity-based costing (ABC)

    10. An activity-based costing system is necessary for costing services that are similar.

    Answer: False Difficulty: 1 Objective: 3


    Terms to Learn: activity-based costing (ABC)
    An activity-based costing system is only necessary when services are dissimilar and different amounts of
    resources are used by each service.

    11. Traditional systems are likely to undercost complex products with lower production volume.

    Answer: True Difficulty: 2 Objective: 3


    Terms to Learn: product undercosting

    12. For activity-based cost systems, activity costs are assigned to products in the proportion of the demand
    they place on activity resources.

    Answer: True Difficulty: 2 Objective: 3


    Terms to Learn: activity-based costing (ABC)

    13. 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 Difficulty: 2 Objective: 4


    Terms to Learn: output unit-level costs, batch-level costs, product-sustaining costs

    14. Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

    Answer: False Difficulty: 2 Objective: 4


    Terms to Learn: output unit-level costs
    In addition to unit-level cost drivers, an effective activity-based cost system usually uses batch-level,
    product-sustaining, and facility-sustaining cost drivers.

    15. Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost-driver
    assignments are proportionately similar to each other.

    Answer: False Difficulty: 2 Objective: 4


    Terms to Learn: output unit-level costs
    Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost-driver
    assignments are proportionately dissimilar to each other.

    5-2
    16. Availability of reliable data and measures should be considered when choosing a cost-allocation base.

    Answer: True Difficulty: 1 Objective: 5


    Terms to Learn: activity-based costing (ABC)

    17. When designing a costing system, it is easiest to calculate total costs first, and then per-unit costs.

    Answer: True Difficulty: 1 Objective: 5


    Terms to Learn: activity-based costing (ABC)

    18. ABC systems attempt to trace more costs as direct costs.

    Answer: True Difficulty: 1 Objective: 5


    Terms to Learn: activity-based costing (ABC)

    19. ABC systems create homogeneous cost pools linked to different activities.

    Answer: True Difficulty: 1 Objective: 5


    Terms to Learn: activity

    20. ABC systems seek a cost allocation base that has a cause-and-effect relationship with costs in the cost
    pool.

    Answer: True Difficulty: 1 Objective: 5


    Terms to Learn: activity-based costing (ABC)

    21. For service organizations, activity-based cost systems may be used to clarify appropriate cost assignments.

    Answer: True Difficulty: 1 Objective: 5


    Terms to Learn: activity-based costing (ABC)

    22. ABC reveals opportunities for improving the way work is done.

    Answer: True Difficulty: 1 Objective: 6


    Terms to Learn: activity-based management (ABM)

    23. Activity-based management refers to the use of information derived from ABC analysis to analyze and
    improve operations.

    Answer: True Difficulty: 1 Objective: 6


    Terms to Learn: activity-based management (ABM)

    24. Information derived from an ABC analysis might be used to eliminate nonvalue-added activities.

    Answer: True Difficulty: 1 Objective: 6


    Terms to Learn: activity-based management (ABM)

    5-3
    25. Department-costing systems are a further refinement of ABC systems.

    Answer: False Difficulty: 1 Objective: 7


    Terms to Learn: activity-based costing (ABC)
    ABC systems are a further refinement of department-costing systems.

    26. ABC systems are useful in manufacturing, but not in the merchandising or service industries.

    Answer: False Difficulty: 1 Objective: 7


    Terms to Learn: activity-based costing (ABC)
    ABC systems can be useful in manufacturing, merchandising, and service industries.

    27. Costing systems with multiple cost pools are considered ABC systems.

    Answer: False Difficulty: 2 Objective: 7


    Terms to Learn: activity-based costing (ABC)
    The uniqueness of ABC systems is not simply multiple cost pools, but that the cost pools each relate to
    different activities.

    28. ABC systems always provide decision-making benefits that exceed implementation costs.

    Answer: False Difficulty: 1 Objective: 8


    Terms to Learn: activity-based costing (ABC)
    ABC system decision-making benefits do not always exceed implementation costs. This issue needs to be
    evaluated and if the costs exceed the benefits, then an ABC system should not be implemented.

    29. The primary costs of an ABC system are the measurements necessary to implement the system.

    Answer: True Difficulty: 1 Objective: 8


    Terms to Learn: activity-based costing (ABC)

    30. Simply because activity-based costing systems employ more activity-cost drivers, they provide more
    accurate product costs than traditional systems.

    Answer: False Difficulty: 2 Objective: 8


    Terms to Learn: activity-based costing (ABC)
    When there are more activity-cost drivers, there is also more room for error, which may not result in more
    accurate products costs.

    5-4

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