MCQ's - Activity Based Costing

6 Activity Based Costing
CHAPTER
MULTIPLE CHOICE QUESTIONS

1. ABC improves control over overhead costs?
(a) True (b) False
(c) Either of the above (d) None of the above
2. Activity based costing is less expensive than traditional costing system.

(a) True (b) False
3. ________ uses multiple activity rates.

(a) Activity Based Costing (b) Traditional Costing
4. Cost are grouped into ________ according to activities which drive them:
(a) Cost driver (b) Cost pool
(c) Cost object (d) Cost unit
5. In activity based costing, cost are accumulated by:

(c) Cost object (d) None of the above
6. Activity based costing is defined as cost attribution to ___ on the basis of benefit received from
indirect activities.
(c) Cost object (d) Cost unit
7. Under ABC system, the aggregate of closely related tasks is called _________.
(a) Activity (b) Pool
(c) Driver (d) Cost unit
8. The appropriate cost driver for maintenance cost pool is:

(a) No. of customers (b) No. of machine hours
(c) No. of setups (d) No. of deliveries
9. A cost driver is:
(a) An item of production overheads
(b) A common cost which is shared over cost centres
(c) Any cost relating to transport
(d) An activity which generates costs
10. In activity based costing, costs are accumulated by activity using:

(a) Cost drivers (b) Cost objects
(c) Cost pools (d) Cost benefit analysis
11. A cost driver:

(a) Is a force behind the overhead cost
(b) Is an allocation base
(c) Is a transaction that is a significant determinant of cost
(d) All of the above
12. Which of the following is not a correct match:

Activity Cost Driver
(a) Production scheduling Number of production runs
(b) Despatching Number of dispatch orders
(c) Goods receiving Goods received orders
(d) Inspection Machine hours
13. Transactions undertaken by support department personnel are the appropriate cost drivers. Find
the out which is not appropriate:
(a) The number of purchase, supplies and customers’ orders drives the cost associated with new
material inventory, work-in-progress and finished goods inventory.
(b) The number of production runs undertaken drivers production scheduling, inspection and
material handling
(c) The quality of raw material issued drives the cost of receiving department costs
(d) The number of packing orders drives the packing costs.
14. Steps in ABC include:

(a) Identification of activities and their respective costs
(b) Identification of cost driver of each activity and computation of an allocation rate per activity
(c) Allocation of overhead cost to products/services based on the activities involved
(d) All of the above
15. Which of the following is not a benefit of ABC?

(a) Accurate cost allocation (b) Improved decision making
(c) Better control on activity and costs (d) Reduction of prime cost
Activity Based Costing 29

16. The steps involved for installation of ABC in a manufacturing company include the following
except:
(a) Borrowing fund
(b) Feasibility study
(c) Building up necessary IT infrastructure and training of line employees
(d) Strategy and value chain analysis
17. Which of the following statements are true: (1) Activity based management involves activity
analysis and performance measurement; (2) Activity based costing serves as a major source of
information in ABM.
(a) (1) True; (2) False (b) (1) True; (2) True
(c) (1) False; (2) True (d) (1) False; (2) False
18. The key elements of activity based budgeting are:

(a) Type of activity to be performed (b) Quantity of activity to be performed
(c) Cost of activity to be performed (d) All of the above
19. Activity based costing identifies the activities which cause cost to be incurred and trace ___ of
these activities.
(a) Cost drivers (b) Cost object
(c) Activity Based Costing (d) None of the above
20. Cost object is the point of focus for the costs relating to a particular activity.
(a) True (b) False
(c) Either (a) or (b) (d) None of the above
21. The cost objects are linked to the objective of the organization.
(a) True (b) False
(c) Either (a) or (b) (d) None of the above
22. Cost pools under ABC are similar to ___ in traditional cost system.
(a) Cost pool (b) Cost driver
(c) Activities (d) Cost centre
23. ___ is a planning and control system used for continues improvement by setting up budgets based
on activities analysis and used of cost pools and cost drives.
(a) Activity Based Management (b) Activity Cost Management
(c) Activity Based Accounting (d) None of these
24. Processing units on machines is a _________ level activity.

(a) Batch (b) Facility
(c) Unit (d) Organizational
25. Setting up equipment is a _________ level activity.

30 Cost & Management Accounting
26. Performing periodic maintenance on general use equipment is a _________ level activity.
27. Human resources is a _________ level cost.

(c) Unit (d) Product
28. Purchasing is a _________ level cost.

29. Parts management is a _________ level cost.

30. Assembly department costs are _________ level cost.

31. Receiving department costs are _________ level cost.

32. Employee training costs are _________ level cost.

33. Quality control costs are _________ level cost.

34. Equipment set-up costs are _________ level cost.

35. Machine set-up activity is a _________ level activity.

36. Advertising cost, if advertisement is for individual product then it is a _________ level activity.
37. Plant security is a _________ level activity.

Activity Based Costing 31
38. Advertising campaign for promoting the company is a _________ level activity.
39. Material ordering is a _________ level activity.

40. Designing the product is a _________ level activity.

41. Maintenance of building is a _________ level activity.

42. Which of the following is not a limitation of ABC?

(a) Costly to maintain
(b) Complex system
(c) Reduce the frivolous use of common resources
(d) Data can be easily misinterpreted
43. Company X uses activity based costing for its two products: Product B and Product D. One of the
activity cost pools is parts administration. The total estimated overhead cost for that pool was
₹10,10,000 and the expected activity was 4000 part types. If product D requires 1,200 part types,
the amount of overhead allocated to it would be:
(a) ₹2,50,000 (b) ₹2,53,000
(c) ₹3,00,000 (d) ₹3,03,000
44. Company X uses activity based costing and has the following activity cost pools and estimated
overhead cost for each pool:
• Machine related – ₹2,50,000
• Handling material – ₹5,00,000
• Processing purchase related – ₹2,40,000
• General factory – ₹6,30,000
(a) ₹9,90,000 (b) ₹13,70,000
(c) ₹16,20,000 (d) ₹13,80,000
Answer Key
1. (a) 2. (b) 3. (a) 4. (c) 5. (b) 6. (d) 7. (a) 8. (c) 9. (d) 10. (c)
11. (d) 12. (d) 13. (c) 14. (d) 15. (d) 16. (a) 17. (b) 18. (d) 19. (a) 20. (a)
21. (a) 22. (d) 23. (b) 24. (c) 25. (a) 26. (b) 27. (b) 28. (a) 29. (d) 30. (c)
31. (a) 32. (b) 33. (c) 34. (c) 35. (a) 36. (d) 37. (b) 38. (b) 39. (a) 40. (d)
41. (b) 42. (c) 43. (d) 44. (c)
32 Cost & Management Accounting

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6 Activity Based Costing

MULTIPLE CHOICE QUESTIONS

2. Activity based costing is less expensive than traditional costing system.

3. ________ uses multiple activity rates.

5. In activity based costing, cost are accumulated by:

8. The appropriate cost driver for maintenance cost pool is:

10. In activity based costing, costs are accumulated by activity using:

11. A cost driver:

12. Which of the following is not a correct match:

14. Steps in ABC include:

15. Which of the following is not a benefit of ABC?

﻿Activity Based Costing 29

18. The key elements of activity based budgeting are:

24. Processing units on machines is a _________ level activity.

25. Setting up equipment is a _________ level activity.

27. Human resources is a _________ level cost.

28. Purchasing is a _________ level cost.

29. Parts management is a _________ level cost.

30. Assembly department costs are _________ level cost.

31. Receiving department costs are _________ level cost.

32. Employee training costs are _________ level cost.

33. Quality control costs are _________ level cost.

34. Equipment set-up costs are _________ level cost.

35. Machine set-up activity is a _________ level activity.

37. Plant security is a _________ level activity.

39. Material ordering is a _________ level activity.

40. Designing the product is a _________ level activity.

41. Maintenance of building is a _________ level activity.

42. Which of the following is not a limitation of ABC?

32 Cost & Management Accounting

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Activity Based Costing 29