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Abc Qustions

This document contains a screening exam with multiple choice questions about activity-based costing (ABC). ABC allocates overhead costs to products based on cost drivers that measure consumption of activities like setups, design hours, etc. rather than units produced. The exam questions test understanding of key ABC concepts like more accurate product costing when products differ, cost distortions from single overhead rates, identifying activities and cost drivers, and developing activity cost pools.

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Wynie Areola
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0% found this document useful (0 votes)
136 views5 pages

Abc Qustions

This document contains a screening exam with multiple choice questions about activity-based costing (ABC). ABC allocates overhead costs to products based on cost drivers that measure consumption of activities like setups, design hours, etc. rather than units produced. The exam questions test understanding of key ABC concepts like more accurate product costing when products differ, cost distortions from single overhead rates, identifying activities and cost drivers, and developing activity cost pools.

Uploaded by

Wynie Areola
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Screening Exam

Name___________________________________

ACTIVITY BASED COSTING


MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) If products are different, then for costing purposes:
A) an ABC costing system will yield more accurate cost numbers
B) a simple costing system should be used
C) a single indirect-cost rate should be used
D) none of the above

2) Overcosting a particular product may result in:


A) loss of market share B) pricing the product too low
C) operating efficiencies D) understating total product costs

3) Undercosting of a product is most likely to result from:


A) misallocating direct labor costs B) underpricing the product
C) overcosting another product D) overstating total product costs

4) A company produces three products; if one product is overcosted then:


A) one product is undercosted B) one or two products are undercosted
C) two products are undercosted D) no products are undercosted

5) Misleading cost numbers are most likely the result of misallocating:


A) direct material costs B) direct manufacturing labor costs
C) indirect costs D) All of these answers are correct.

6) Refining a cost system includes:


A) classifying as many costs as indirect costs as is feasible
B) creating as many cost pools as possible
C) identifying the activities involved in a process
D) seeking a lesser level of detail

7) Greater indirect costs are associated with:


A) specialized engineering drawings
B) quality specifications and testing
C) inventoried materials and material control systems
D) All of these answers are correct.

8) Design of an ABC system requires:


A) that the job bid process be redesigned
B) that a cause-and-effect relationship exists between resource costs and individual activities
C) an adjustment to product mix
D) Both B and C are correct.

9) ABC systems create:


A) one large cost pool
B) homogenous activity-related cost pools
C) activity-cost pools with a broad focus
D) activity-cost pools containing many direct costs

10) Logical cost allocation bases include:


A) cubic feet of packages moved to measure distribution activity
B) number of setups used to measure setup activity
C) number of design hours to measure designing activity
D) All of these answers are correct.

11) ABC systems:


A) highlight the different levels of activities
B) limit cost drivers to units of output
C) allocate costs based on the overall level of activity
D) generally undercost complex products
12) A single indirect-cost rate may distort product costs because:
A) there is an assumption that all support activities affect all products
B) it recognizes specific activities that are required to produce a product
C) costs are not consistently recorded
D) it fails to measure the correct amount of total costs

13) Traditional cost systems distort product costs because:


A) they do not know how to identify the appropriate units
B) competitive pricing is ignored
C) they emphasize financial accounting requirements
D) they apply average support costs to each unit of product

14) Which of the following statements about activity-based costing is NOT true?
A) Activity-based costing is useful for allocating marketing and distribution costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if
the firm manufactures only one product rather than multiple products.
C) Activity-based costing seeks to distinguish batch-level, product-sustaining, and facility-sustaining
costs, especially when they are not proportionate to one another.
D) Activity-based costing differs from traditional costing systems in that products are not
cross-subsidized.

15) Activity-based costing (ABC) can eliminate cost distortions because ABC:
A) develops cost drivers that have a cause-and-effect relationship with the activities performed
B) establishes multiple cost pools
C) eliminates product variations
D) recognizes interactions between different departments in assigning support costs

Answer the following questions using the information below:

Mertens Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers


Account inquiry hours $200,000 10,000 hours
Account billing lines $140,000 4,000,000 lines
Account verification accounts $75,000 40,000 accounts
Correspondence letters $ 25,000 4,000 letters
Total costs $440,000

The above activities are used by Departments A and B as follows:

Department A Department B
Account inquiry hours 2,000 hours 4,000 hours
Account billing lines 400,000 lines 200,000 lines
Account verification accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters

16) How much of the account inquiry cost will be assigned to Department A?
A) $40,000 B) $200,000
C) $80,000 D) None of these answers are correct.

17) How much of the account billing cost will be assigned to Department B?
A) $14,000 B) $140,000
C) $7,000 D) None of these answers are correct.

18) How much of account verification costs will be assigned to Department A?


A) $15,000 B) $18,750 C) $75,000 D) $5,000

19) How much of correspondence costs will be assigned to Department B?


A) $800 B) $6,250 C) $25,000 D) $10,000

20) How much of the total costs will be assigned to Department A?


A) $79,000 B) $40,000 C) $112,000 D) $440,000
21) How much of the total costs will be assigned to Department B?
A) $79,000 B) $40,000 C) $112,000 D) $440,000

22) Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray
nozzle is $80,000. The budgeted number of nozzles to be inserted is 40,000. What is the budgeted indirect cost
allocation rate for this activity?
A) $0.50 B) $1.00 C) $1.50 D) $2.00

23) Put the following ABC implementation steps in order:


A Compute the allocation rates.
B Compute the total cost of the products.
C Identify the products that are the cost objects.
D Select the cost allocation bases.
A) DACB B) DBCA C) BADC D) CDAB

24) The focus of ABC systems is on:


A) long-term decisions B) short-term decisions
C) make-or-buy decisions D) special-pricing decisions

Answer the following questions using the information below:

Fey Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and
cost information has been compiled:

Number of Number of Number of


Product Setups Components Direct Labor Hours
Standard 22 8 375
Deluxe 28 12 225

Overhead costs $40,000 $80,000

25) Assume a traditional costing system applies the $120,000 of overhead costs based on direct labor hours. What
is the total amount of overhead costs assigned to the standard model?
A) $49,600 B) $70,400 C) $75,000 D) $45,000

26) Assume a traditional costing system applies the $120,000 of overhead costs based on direct labor hours. What
is the total amount of overhead costs assigned to the deluxe model?
A) $49,600 B) $70,400 C) $75,000 D) $45,000

27) Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming
an activity-based costing system is used, what is the total amount of overhead costs assigned to the standard
model?
A) $49,600 B) $70,400 C) $75,000 D) $45,000

28) Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming
an activity-based costing system is used, what is the total amount of overhead costs assigned to the deluxe
model?
A) $49,600 B) $70,400 C) $75,000 D) $45,000

Answer the following questions using the information below:

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows:

T-SHIRTS SWEATSHIRTS
Production and sales volume 60,000 units 35,000 units
Selling price $16.00 $29.00
Direct material $ 2.00 $ 5.00
Direct labor $ 4.50 $ 7.20
Manufacturing overhead $ 2.00 $ 3.00
Gross profit $ 7.50 $13.80
Selling and administrative $ 4.00 $ 7.00
Operating profit $ 3.50 $ 6.80

What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of
Sweatshirts increase to $8.20 per unit.
29) Under the revised ABC system, the activity-cost driver rate for the supervision activity is:
A) $2.58 B) $2.40 C) $2.24 D) $1.16

30) Under the revised ABC system, supervision costs allocated to Sweatshirts will be:
A) $48,720 B) $100,800
C) $100,920 D) None of these answers are correct.

31) Under the revised ABC system, total overhead costs allocated to Sweatshirts will be:
A) $ 48,720 B) $ 76,720
C) $224,920 D) None of these answers are correct.

32) Under the revised ABC system, overhead costs per unit for the Sweatshirts will be:
A) $1.39 per unit B) $1.60 per unit C) $2.19 per unit D) $2.47 per unit

33) Using an ABC system, next year's estimates show manufacturing overhead costs will total $228,300 for 52,000
T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is:
A) $5.41 per t-shirt B) $4.39 per t-shirt C) $1.11 per t-shirt D) ($0.81) per t-shirt

Answer the following questions using the information below:

Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for
the coming year:

Cost Pool Overhead Costs Cost driver Activity level


Supervision of direct labor $320,000 Direct labor-hours 800,000
Machine maintenance $120,000 Machine-hours 960,000
Facility rent $200,000 Square feet of area 100,000
Total overhead costs $640,000

The accounting records show the Mossman Job consumed the following resources:

Cost driver Actual level


Direct labor-hours 200
Machine-hours 1,600
Square feet of area 50

34) If Gregory Enterprises uses the three activity cost pools to allocate overhead costs, what are the activity-cost
driver rates for supervision of direct labor, machine maintenance, and facility rent, respectively?
A) $0.60 per dlh, $0.025 per mh, $0.80 per sq ft B) $1.25 per dlh, $0.25 per mh, $0.50 per sq ft
C) $0.40 per dlh, $0.05 per mh, $0.20 per sq ft D) $0.40 per dlh, $0.125 per mh, $2 per sq ft

35) Using the three cost pools to allocate overhead costs, what is the total amount of overhead costs to be
allocated to the Mossman Job?
A) $200 B) $380 C) $675 D) $170

36) Which method of allocation probably best estimates actual overhead costs used? Why?
A) Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual
jobs.
B) Single direct labor-hours cost driver because it is easiest to analyze and interpret.
C) Three activity-cost drivers because they best reflect the relative consumption of resources.
D) Three activity-cost drivers because product costs can be significantly cross-subsidized.

37) It only makes sense to implement an ABC system when:


A) ABC provides information to make better decisions
B) its benefits exceed implementation costs
C) ABC traces more costs as direct costs
D) there is a strong cause-and-effect relationship between costs in the cost pools and their cost-allocation
bases

Answer the following questions using the information below:

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2010,
manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.

For 2010 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead
costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead
cost drivers. The following information was gathered during the analysis:

Cost pool Manufacturing overhead costs Activity level


Design changes $ 120,000 300 design changes
Setups 640,000 5,000 setups
Inspections 80,000 8,000 inspections
Total manufacturing overhead costs $840,000

During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

Activity Money Managers Hospital Systems


Pages 60,000 76,000
Design changes 10 0
Setups 20 10
Inspections 30 38

38) When costs are assigned using the single cost driver, number of pages printed, then:
A) Velshi Printers will want to retain this highly profitable customer
B) Money Managers will likely seek to do business with competitors
C) Money Managers is unfairly over billed for its use of printing resources
D) Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed

39) Products make diverse demands on resources because of differences in all of the following EXCEPT:
A) volume B) selling price C) batch size D) complexity

40) The unique feature of an ABC system is the emphasis on:


A) costing individual jobs B) department indirect-cost rates
C) multiple-cost pools D) individual activities

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