Concept Application Paper

Topics: Costs, Cost accounting, Activity-based costing Pages: 47 (10397 words) Published: April 21, 2012
CHAPTER 4
ACTIVITY-BASED COST SYSTEMS

TRUE/FALSE

1.Traditional cost systems use actual departments or cost centers for defining cost pools to accumulate and redistribute costs. a.True
b.False

2.Activity-based cost systems use cost centers to accumulate costs. a.True
b.False

3.Traditional cost systems are likely to undercost complex products with lower production volume. a.True
b.False

4.The first step in designing an activity-based cost system is to develop an activity dictionary. a.True
b.False

5.The Ericson’s Ice Cream Company case in the text provides an illustration of why factories producing a more varied mix of products have higher costs than factories producing only a narrow range of products. a.True

b.False

6.Product lines that produce different variations (models, styles, or colors) often require specialized activities that translate into lower support costs for each product line. a.True
b.False

7.Specialized engineering drawings of products, product quality specifications and quality control testing, inventoried raw materials, and material control systems are examples of activities that equate to greater support costs. a.True

b.False

8.For activity-based cost systems, activity costs are assigned to products in the proportion of the demand they place on activity resources. a.True
b.False

9.An activity-based costing system is necessary for costing services that are similar. a.True
b.False

10.ABC systems seek an activity cost allocation driver that has a cause-and-effect relationship with costs in the cost pool. a.True
b.False

11.In general, the selection of activity cost drivers requires making trade-offs between accuracy and the cost of measurement. a.True
b.False

12.The selection of activity cost drivers requires making choices related to the usage of transaction drivers, duration drivers, and intensity drivers. a.True
b.False

13.Reducing the number of production runs provides an economic benefit even though resources remain at the same level. a.True
b.False

14.An easy way to implement a cost-effective activity-based costing system is to buy a prepackaged ABC software package. a.True
b.False

15.Time-driven activity based cost systems are an improvement over traditional activity-based cost systems because they are less time-consuming to implement and easier to update. a.True
b.False

16.Practical capacity is generally greater than theoretical capacity. a.True
b.False

17.Updates to time-driven ABC models are triggered by events that require the estimates in the model to be modified, such as a significant change in costs of resources supplied. a.True
b.False

18. Practical capacity is used as the denominator for activity cost driver calculations to avoid distortions caused by the assignment of excess capacity costs to the products. a.True
b.False

19.Unused capacity should be treated as a general cost to be shared across all product lines. a.True
b.False

20.Cost driver rates calculated using actual work performed include an allocation for the cost of resources used and for unused capacity. a.True
b.False

21.Assigning selling and distribution costs to product lines is becoming more important because of customer requests for customized services. a.True
b.False

22.Many costs of marketing, selling, and distribution expenses are incurred not to support individual products or product lines, but rather to support customers, market segments or distribution channels. a.True

b.False

23. In a whale curve portraying an ABC customer analysis of customer profitability, the largest customers are typically in the middle. a.True
b.False...
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