CH 5 MC Flashcards
What is the main issue with using simple costing systems?
a) They allocate costs based on activities.
b) They use averages to allocate costs, leading to inaccuracy.
c) They accurately track the cost per product.
d) They are only suitable for large companies.
b) They use averages to allocate costs, leading to inaccuracy.
In a simple costing system, what method is used to allocate indirect costs?
a) Machine hours
b) Direct labor hours (DLH)
c) A single overhead rate applied to all products
d) Activity-based costing
c) A single overhead rate applied to all products
Which of the following is a key characteristic of “over costing” a product?
a) The product consumes a high level of resources but is allocated low costs.
b) The product consumes a low level of resources but is allocated high costs.
c) The product has low direct material costs.
d) The product is subsidizing other products with high costs.
b) The product consumes a low level of resources but is allocated high costs.
What is the primary goal of Activity-Based Costing (ABC)?
a) To reduce the number of cost pools
b) To refine costing systems by allocating indirect costs based on activities
c) To use a single cost allocation rate for all products
d) To allocate costs based on direct materials only
b) To refine costing systems by allocating indirect costs based on activities
Which of the following is NOT a level in the ABC cost hierarchy?
a) Unit level
b) Batch level
c) Product sustaining level
d) Customer-level
d) Customer-level
What is “product cost cross-subsidization”?
a) Spreading direct costs uniformly across products.
b) Allocating indirect costs uniformly without considering the resources consumed by each product.
c) Charging higher prices for high-cost products.
d) Reducing the allocation of costs to low-cost products.
b) Allocating indirect costs uniformly without considering the resources consumed by each product.
When is Activity-Based Costing (ABC) particularly beneficial?
a) When direct costs are insignificant compared to indirect costs.
b) When the firm has a small number of cost pools.
c) When products have diverse demands on resources.
d) When all products consume identical resources.
: c) When products have diverse demands on resources.
What is a “cost driver” in the context of Activity-Based Costing (ABC)?
a) A factor that changes the cost of an activity.
b) A product that requires the most resources.
c) A machine used in production.
d) The final product that is sold.
a) A factor that changes the cost of an activity.
What is the “peanut butter” approach in traditional costing?
a) Allocating indirect costs based on the proportion of direct material costs.
b) Allocating overhead costs uniformly using a single rate.
c) Using multiple cost pools for better accuracy.
d) Assigning all overhead costs to the batch level.
b) Allocating overhead costs uniformly using a single rate.
Which of the following is a typical use of Activity-Based Management (ABM)?
a) To allocate costs to products.
b) To help identify and improve non-value-added activities.
c) To reduce direct material costs.
d) To simplify the costing process.
b) To help identify and improve non-value-added activities.
Which of the following is NOT a reason to implement Activity-Based Costing (ABC)?
a) Significant indirect costs are spread across multiple cost pools.
b) The company produces only one product.
c) Operating staff disagrees with reported costs.
d) Products have diverse demands on resources.
b) The company produces only one product.
What is a possible consequence of under-costing a product?
a) It appears more profitable than it is.
b) It absorbs too much cost, making it seem less profitable.
c) It is priced too high in the market.
d) It receives too much cost allocation from indirect costs.
a) It appears more profitable than it is.
What happens when there is “over-allocation” of overhead in the traditional costing system?
a) The actual overhead costs are higher than the applied costs.
b) The applied overhead is higher than the actual overhead costs.
c) There is no need for any adjustments.
d) The allocated costs are reduced for all products.
b) The applied overhead is higher than the actual overhead costs.
In Activity-Based Costing (ABC), what is typically the focus of cost pools?
a) Direct material costs only
b) Indirect costs grouped by activity
c) Labor costs and wages
d) All costs are treated equally
b) Indirect costs grouped by activity
What is the primary difference between traditional costing and Activity-Based Costing (ABC)?
a) ABC uses fewer cost pools than traditional costing.
b) Traditional costing uses a single cost allocation rate, while ABC uses multiple cost pools.
c) ABC only applies to manufacturing companies.
d) Traditional costing assigns indirect costs based on direct labor hours only.
b) Traditional costing uses a single cost allocation rate, while ABC uses multiple cost pools.
