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MAS.2814 DIY – Activity-based Costing System
1. The "Rule of One" underlies the premise that all
costs are
a. variable. c. unit-based.
b. fixed. d. short-term.
2. Engaging in which of the following will result in
radical changes being made to an organization's
processes?
a. Continuous improvement
b. Benchmarking
c. Reengineering
d. Mass customization
3. Of the following, which is the best reason for using
activity-based costing?
a. to keep better track of overhead costs
b. to more accurately assign overhead costs to
cost pools so that these costs are better
controlled
c. to better assign overhead costs to products
d. to assign indirect service overhead costs to
direct overhead cost pools
4. Traditionally, managers have focused
reduction efforts on
a. activities. c. departments.
b. processes. d. costs.
5. Traditional overhead allocations result in which of
the following situations?
a. Overhead costs are assigned as period costs to
manufacturing operations.
b. High-volume products are assigned too much
overhead, and low-volume products are
assigned too little overhead.
c. Low-volume products are assigned too much,
and high-volume products are assigned too
little overhead.
d. The resulting allocations cannot be used for
financial reports.
6. 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
7. Each of the following statements is true EXCEPT
a. traditional product costing systems seek to
assign all manufacturing costs to products
b. ABC product costing systems seek to assign all
manufacturing costs to products
c. traditional product costing systems are more
refined than an ABC system
d. cost distortions occur when a mismatch
(incorrect association) occurs between the way
indirect costs are incurred and the basis for their
assignment to individual products
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MAY 2020
8. 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 c. BADC
b. DBCA d. CDAB
9. With traditional costing systems, products
manufactured in small batches and in small annual
volumes may be ________ because batch-related
and product-sustaining costs are assigned using
unit-related drivers.
a. Overcosted c. Undercosted
b. Fairly costed d. Ignored
10. Unit-level cost drivers are most appropriate as an
overhead assignment base when:
a. several complex products are manufactured
b. only one product is manufactured
c. direct labor costs are low
d. factories produce a varied mix of products
cost
11. When designing a costing system, it is easiest to
a. calculate total costs first and then per-unit cost
b. calculate per-unit costs first and then total costs
c. calculate long-term costs first and then short-
term costs
d. calculate short-term costs first and then long-
term costs
12. A well-designed, activity-based cost system helps
managers make better decisions because
information derived from an ABC analysis:
a. can be used to eliminate nonvalue-added
activities
b. is easy to analyze and interpret
c. takes the choices and judgment challenges away
from the managers
d. emphasizes how managers can achieve higher
sales
13. A key reason for using an ABC system rather than
a department-costing system is because ABC
assigns indirect costs:
a. using broader averages
b. more simply than a department-costing system
c. in a less costly manner
d. to reflect differences required by different
processes as well as customers
14. 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
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15. Which of the following is a sign that an ABC Number of

system may be useful? Number of Number of Direct
a. There are small amounts of indirect costs Product Setups Components Labor Hrs
b. Products make diverse demands on resources Standard 22 8 375
because of differences in volume, process steps, Deluxe 28 12 225
batch size, or complexity
c. Products a company is less suited to produce and 22. Assume a traditional costing system applies the
sell show small profits P60,000 of overhead costs based on direct labor
d. Operations staff agrees with accountants about hours. What is the total amount of overhead costs
the costs of manufacturing and marketing assigned to the standard model?
products and services a. P24,800 c. P22,500
b. P35,200 d. P37,500
16. An example of a nonvolume-related overhead base
would be: 23. Assume a traditional costing system applies the
a. Direct materials cost c. Direct Labor cost P60,000 of overhead costs based on direct labor
b. Machine hours d. Number of setups hours. What is the total amount of overhead costs
assigned to the deluxe model?
17. Which of the following is not typical of traditional a. P22,500 c. P35,200
costing systems? b. P24,800 d. P37,500
a. Use of a single predetermined overhead rate.
b. Use of direct labor hours or direct labor cost to Use the following information for the next three
assign overhead. questions.
c. Assumption of correlation between direct labor Pelican Co. produces two products (A and B). Direct
and incurrence of overhead cost. material and labor costs for Product A total P35 (which
d. Use of multiple cost drivers to allocate reflects 4 direct labor hours); direct material and labor
overhead. costs for Product B total P22 (which reflects 1.5 direct
labor hours). Three overhead functions are needed for
18. The first step in activity-based costing is to each product. Product A uses 2 hours of Function 1 at
a. assign manufacturing overhead costs for each P10 per hour, 1 hour of Function 2 at P7 per hour, and
activity cost pool to products. 6 hours of Function 3 at P18 per hour. Product B uses
b. compute the activity-based overhead rate per 1, 8, and 1 hours of Functions 1, 2, and 3,
cost driver. respectively. Pelican produces 800 units of A and
c. identify and classify the major activities 8,000 units of B each period.
involved in the manufacture of specific
products. 24. If total overhead is assigned to A and B on the
d. identify the cost driver that has a strong basis of units produced, Product A will have an
correlation to the activity cost pool. overhead cost per unit of
a. P 88.64. c. P135.00.
19. As compared to a high-volume product, a low- b. P123.64. d. none of the above.
volume product
a. usually requires less special handling. 25. If total overhead is assigned to A and B on the
b. is usually responsible for more overhead costs basis of direct labor hours, Product A will have an
per unit. overhead cost per unit of
c. requires relatively fewer machine setups. a. P51.32. c. P461.88.
d. requires use of direct labor hours as the b. P205.28. d. none of the above.
primary cost driver to ensure proper allocation
of overhead. 26. If total overhead is assigned to A and B on the
basis of overhead activity hours used, the total
20. The primary benefit of ABC is it provides product cost per unit assigned to Product A will be
a. better management decisions. a. P86.32. c. P115.50.
b. enhanced control over overhead costs. b. P95.00. d. none of the above.
c. more cost pools.
d. more accurate product costing. 27. Uniformly assigning the costs of resources to cost
objects when those resources are actually used in
21. The last step in activity-based costing is to a nonuniform way is called:
a. identify the major activities that pertain to the a. Overcosting
manufacture of specific products b. Undercosting
b. allocate manufacturing overhead costs to activity c. peanut-butter costing
cost pools d. department costing
c. Identify the cost drivers that accurately measure
each activity’s contribution to the finished 28. Refining a cost system includes:
product a. classifying as many costs as indirect costs as is
d. Assign manufacturing overhead costs for each feasible
activity cost pool to products b. creating as many cost pools as possible
c. identifying the activities involved in a process
Use the following information for the next two d. seeking a lesser level of detail
questions.
Barnes Corporation manufactures two models of office 29. Design of an ABC system requires:
chairs, a standard and a deluxe model. The following a. that the job bid process be redesigned
activity and cost information has been compiled: b. that a cause-and-effect relationship exists
between resource costs and individual
activities

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EXCEL PROFESSIONAL SERVICES, INC.

c. an adjustment to product mix

d. Both B and C are correct

30. 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

31. Traditional cost systems distort product costs

because:
a. they do not know how to identify the
appropriate unit
b. competitive pricing is ignored
c. they emphasize financial accounting
requirements
d. they apply average support costs to each unit
of product

32. Which of the following costs should not be included

in product costs for internal management reports
that are used for decision-making?
a. Costs of unit-level activities.
b. Costs of batch-level activities.
c. Costs of product-level activities.
d. Costs of organization-sustaining activities.

33. Which of the following would probably be the most

accurate measure of activity to use for allocating
the costs associated with a factory's purchasing
department?
a. Machine-hours
b. Direct labor-hours
c. Number of orders processed
d. Cost of materials purchased

34. If substantial batch-level or product-level costs

exist, then overhead allocation based on a
measure of volume such as direct labor-hours
alone:
a. is a key aspect of the activity-based costing
model.
b. will systematically overcost high-volume
products and undercost low-volume products.
c. will systematically overcost low-volume
products and undercost high-volume products.
d. must be used for external financial reporting
since activity-based costing cannot be used for
external reporting purposes.

35. Consider the following statements regarding

traditional costing systems:

I. Overhead costs are applied to products on the

basis of volume-related measures.
II. All manufacturing costs are easily traceable to
the goods produced.
III. Traditional costing systems tend to distort unit
manufacturing costs when numerous goods are
made that have widely varying production
requirements.

Which of the above statements is (are) true?

a. I only.
b. II only.
c. III only.
d. I and III.

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