1. Activity-based management (ABM) focuses on improving customer value and enhancing profitability. Which of the following is an impact of implementing ABM to control production processes?
a. More effective performance evaluation
b. More accurate cost determination and control
c. More efficient production processes
d. All of the above
2. Select the incorrect statement from the following.
a. An activity is any repetitive action that is performed in fulfillment of a business function.
b. Non-value-added activities increase the time spent on a product but do not increase its worth.
c. The objective of activity-based management is to eliminate all non-value-added activities.
d. Activity analysis attempts to classify activities as value added or non-value-added.
3. All of the following are non-value-added time except:
a. inspection time.
b. move time.
c. processing time.
d. wait time.
4. Which of the following correctly computes manufacturing cycle efficiency?
a. Total Cycle Time – Total Value-Added Time.
b. Total Cycle Time / Total Value-Added Time.
c. Total Value-Added Time + Total Non-Value-Added Time.
d. Total Value-Added Time / Total Cycle Time.
5. The need to rework products because of a poorly designed training program is an example of a non-value-added activity caused by
a. systemic factors.
b. physical factors.
c. human factors.
d. None of the above.
6. (LO3) All of the following are examples of batch-level costs except:
a. costs of engineering change orders.
b. purchase order costs.
c. inspection costs.
d. movement costs.
7. Select the incorrect matching of cost and cost level.
a. Unit level : Direct material
b. Facility level : Equipment maintenance
c. Product level : Product development
d. Batch level : Setup costs
8. Which costing system assigns costs within multiple cost pools to products using multiple drivers?
a. Activity-based costing
b. Variable costing
c. Traditional costing
d. None of the above
9. E Corporation, which makes electronic components for NASA’s space shuttle, uses activity-based costing. One of its activities is described below:
Est. Qty of Required for
Activity Cost Driver Cost Driver Cost Rate Current contract
(1) Quality control No. of units 210,000 units $0.14 17,500 units
Select the incorrect statement from the following.
a. $2,450 will be assigned to the contract on which the company is currently working.
b. The company’s annual estimated quality control costs cannot be determined from the information provided.
c. Since the component is being built for the U.S. Government for use on the space shuttle, it is not unusual for the company to inspect every unit produced.
d. It is likely that the company uses a different cost driver to assign other support costs such as setup costs.
The next two questions are based on the following information:
P Company is considering using activity-based costing instead of its traditional costing system because it believes its current system may be providing misleading information. The following data shows the budgeted manufacturing overhead.
Activity Cost Driver Activity Cost
Materials handling No. of parts handled 6,000,000 $720,000
Setup costs No. of setups 750 315,000
Machining costs Machine hours (MH) 30,000 540,000
Quality control No. of batches 500 225,000
Total overhead cost $1,800,000
The company also estimates that it will work 50,000 direct labor hours in the coming year. The following information is provided for one of the company’s products for the coming year:
Direct material and Direct Labor
Direct materials cost per unit $4.40
Direct labor cost per unit
.05 DLH @ $15/DLH .75
Sales and production data:
Expected sales 20,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hour required 80 MH per batch
10. If the organization uses a traditional full cost system, the cost per unit of this product for the coming year will be
11. If the organization uses an activity-based cost system, the cost per unit of this product for the coming year will be
12. The use of activity-based costing normally results in:
a. substantially lower unit costs for low-volume products than is reported by traditional product costing.
b. equalizing setup costs for all product lines.
c. decreased setup costs being charged to low-volume products.
d. substantially greater unit costs for low-volume products than is reported by traditional product costing.
13. Because of the changes that are occurring in the basic operations of many firms, all of the following represent trends in the way indirect costs are allocated except:
a. treating direct labor as an indirect manufacturing cost in an automated factory.
b. using throughput time as an application base to increase awareness of the costs associated with lengthened throughput time.
c. preferring plant-wide application rates that are applied to machine hours rather than incurring the cost of detailed allocations.
d. using several machine cost pools to measure product costs on the basis of time in a machine center.
14. Activity-Based Costing is appropriate for which of the following organizations?
a. One that produces and sells a wide variety of products.
b. One that produces and sells a single complex product.
c. One that provides a single service to customers.
d. All of the above
15. A number of barriers must be overcome to implement activity-based costing systems successfully. Select the barrier that is not matched up properly with its type.
a. Fear of change Individual barrier
b. Regulatory agencies Environmental barrier
c. Corporate culture issues Organizational barrier
d. All of the above barriers are properly classified.