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Exam 5: Activity-Based Costing and Activity-Based Management

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Question 51

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Aqua Company produces two products-Alpha and Beta.Alpha has a high market share and is produced in bulk.Production of Beta is based on customer orders and is custom designed.Also,55% of Beta's cost is shared between design and setup costs,while Alpha's major portions of costs are direct costs.Alpha is using a single cost pool to allocate indirect costs.Which of the following statements is true of Aqua?

A) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs.
B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs.
C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
D) Aqua will overcost Beta's indirect costs because beta has high indirect costs.

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Question 52

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Nichols Inc.manufactures remote controls.Currently the company uses a plant-wide rate for allocating manufacturing overhead.The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour. Nichols' management is considering to implement ABC system because ________.

A) ABC system can be implemented cheaply
B) ABC system provides more accurate direct cost figures
C) ABC system is a highly refined costing system
D) ABC system requires minimal expertise to operate

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Question 53

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

An effective activity-based cost system always ignores facility-sustaining cost drivers.

Is it advisable to ignore facility-sustaining cost drivers during product costing?

Which of the following statements is true of ABC systems?

North Street Corporation manufactures two models of motorized go-carts,a standard and a deluxe model.The following activity and cost information has been compiled: Assume a traditional costing system applies the $37,960 of overhead costs based on direct labor hours.What is the total amount of overhead cost assigned to the deluxe model? (Do not round interim calculations.Round the final answer to the nearest whole dollar. )

It is usually difficult to find good cost driver (cause-and-effect relationship) between ________ and a cost allocation base.

Distribution can be a cost-driver for a manufacturing company under ABC system.

As product diversity and indirect costs increase,it is usually best to switch away from a broad averaging system to an activity-based cost system.

ABC systems provide greater insight than traditional systems into the management of indirect costs.

Extreme Manufacturing Company provides the following ABC costing information: The above activities are used by Departments A and B as follows: How much of the total costs will be assigned to Department A?

Activity-based costing information can be used for ________.

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________.

How does ABC costing system help service companies?

Overcosting a particular product may result in:

For an ABC system to be useful,it must allocated costs from all "links "of the value chain.

Which of the following statements is true of costing systems?

Stark Corporation has two departments,Car Rental and Truck Rental.Central costs may be allocated to the two departments in various ways. If administrative expense of $77,500 is allocated on the basis of number of employees,the amount allocated to the Car Rental Department would be ________.

________ costs support the organization as a whole.