Chapter 5

Question 1

Which of the following statements is true of a peanut-butter costing system?
A) A peanut-butter costing system typically has more-homogeneous indirect cost pools.
B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost
objects.
C) A peanut-butter costing system assumes that all costs are variable.
D) In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such
as products or services based on the activities the products or services consume

Answer 1

B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost
objects.

Question 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

Answer 2

A) loss of market share

Question 3

For a company with diverse products, undercosting overhead of a product will lead to ________.
A) misallocating direct labor costs of the product.
B) misallocating direct material costs of the product
C) misallocating indirect costs of another product
D) misallocating direct costs of another product

Answer 3

C) misallocating indirect costs of another product

Question 4

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.

Answer 4

C) Aqua will overcost Alpha’s indirect costs as it is using a single cost pool to allocate indirect costs.

Question 5

Product-cost cross-subsidization ________.
A) exists when one overcosted product results in more than one other product being overcosted
B) means that if a company undercosts more than one of its products, it will overcost more than one of its
other products
C) means that if a company undercosts one of its products, it will overcost at least one of its other
products
D) exists only when one overcosted product results in all other products being overcosted

Answer 5

C) means that if a company undercosts one of its products, it will overcost at least one of its other
products