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Topics: Costs, Cost accounting, Variable cost Pages: 52 (12513 words) Published: July 1, 2015
CHAPTER 5
ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT

TRUE/FALSE

1.A top-selling product might actually result in losses for the company.

Answer:TrueDifficulty:2Objective:1
Terms to Learn:product undercosting

2.Companies that undercost products will most likely lose market share.

Answer:FalseDifficulty:2Objective:1
Terms to Learn:product undercosting
Companies that overcost products will most likely lose market share.

3.If a company undercosts one of its products, then it will overcost at least one of its other products.

Answer:TrueDifficulty:2Objective:1
Terms to Learn:product-cost cross-subsidization

4.Direct costs plus indirect costs equal total costs.

Answer:TrueDifficulty:1Objective:2
Terms to Learn:activity-based costing (ABC)

5.When refining a costing system, a company should classify as many costs as possible as indirect costs.

Answer:FalseDifficulty:1Objective:2
Terms to Learn:refined costing system
When refining a costing system, a company should classify as many costs as possible as direct costs.

6.In a homogeneous cost pool, all costs have a similar cause-and-effect relationship with the cost-allocation base.

Answer:TrueDifficulty:1Objective:2
Terms to Learn:activity-based costing (ABC)

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

Answer:FalseDifficulty:2Objective:2
Terms to Learn:activity-based costing (ABC)
Indirect labor and distribution costs would not be in the same activity-cost pool because their cost drivers are very dissimilar. A cost driver of indirect labor would include direct labor hours, while a cost driver of distribution costs would include, for example, cubic feet of cargo moved.

8.Activity-based costing helps identify various activities that explain why costs are incurred.

Answer:TrueDifficulty:1Objective:2
Terms to Learn:activity-based costing (ABC)

9.Direct tracing of costs improves cost accuracy.

Answer:TrueDifficulty:1Objective:2
Terms to Learn:activity-based costing (ABC)

10.An activity-based costing system is necessary for costing services that are similar.

Answer:FalseDifficulty:1Objective:3
Terms to Learn:activity-based costing (ABC)
An activity-based costing system is only necessary when services are dissimilar and different amounts of resources are used by each service.

11.Traditional systems are likely to undercost complex products with lower production volume.

Answer:TrueDifficulty:2Objective:3
Terms to Learn:product undercosting

12.For activity-based cost systems, activity costs are assigned to products in the proportion of the demand they place on activity resources.

Answer:TrueDifficulty:2Objective:3
Terms to Learn:activity-based costing (ABC)

13.Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

Answer:TrueDifficulty:2Objective:4
Terms to Learn:output unit-level costs, batch-level costs, product-sustaining costs

14.Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

Answer:FalseDifficulty:2Objective:4
Terms to Learn:output unit-level costs
In addition to unit-level cost drivers, an effective activity-based cost system usually uses batch-level, product-sustaining, and facility-sustaining cost drivers.

15.Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost-driver assignments are proportionately similar to each other.

Answer:FalseDifficulty:2Objective:4
Terms to Learn:output unit-level costs
Misleading cost numbers are larger when unit-level assignments and the alternative activity-cost-driver assignments are proportionately dissimilar to each other.

16.Availability of...
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