4) Which of the following statements is true of activity-based costing?
A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs.
B) Activity based costing is more suited to companies with high product diversity than companies with single product line.
C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.
D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.
5) A single indirect-cost rate distort product costs because ________.
A) there is an assumption that all support activities affect all products
B) it recognizes specific activities that are required to produce a product
C) competitive pricing is ignored
D) it assumes all costs are product costs
6) Extracts from cost information of Hebar Corp.:
Simple L3 Pack
Complex L7 Pack
Total
Setup cost allocated using direct labor-hours
$18,750
$6,250
$25,000
Setup cost allocated using setup-hours
$13,200
$11,800
$25,000
Which of the following statement is true of Hebar’s setup costs under traditional costing?
A) L3 pack is undercosted by $5,550
B) L7 pack is undercosted by $5,450
C) L3 pack is overcosted by $5,550
D) L7 pack is overcosted by $5,550
7) Which of the following statements is true of activity-based costing?
A) Activity-based costing ignores the allocation of marketing and distribution costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C) Activity-based costing classifies some of the indirect costs as direct costs.
D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.
8) Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.
A) establish a cause-and-effect relationship with the activities performed
B) use single cost pool for all overhead costs, thereby enabling simplicity
C) use a broad average to allocate all overhead costs
D) never consider interactions between different departments in assigning support costs
9) Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into ________.
A) fewer indirect costs for each product line
B) decisions to drop product variations
C) a greater number of direct manufacturing labor cost allocation rates
D) greater overhead costs for each product line
Premium Company provides the following ABC costing information:
ActivitiesTotal CostsActivity-cost drivers
Account inquiry $200,000 10,000 hours
Account billing $140,000 4,000,000 lines
Account verification accounts $75,000 40,000 accounts
Correspondence letters $ 25,000 4,000 letters
Total costs $440,000
The above activities are used by Departments A and B as follows:
Department ADepartment B
Account inquiry hours 2,500 hours 4,000hours
Account billing lines 400,000 lines 250,000lines
Account verification accounts 10,000 accounts 8,000accounts
Correspondence letters 1,200 letters 1,600letters
10) How much of the account inquiry cost will be assigned to Department A?
A) $50,000
B) $200,000
C) $60,000
D) $80,000
11) How much of the account billing cost will be assigned to Department B?
A) $8,500
B) $8,250
C) $8,750
D) $8,540
12) How much of account verification costs will be assigned to Department A?
A) $15,000
B) $18,750
C) $75,000
D) $5,000
13) How much of correspondence costs will be assigned to Department A?
A) $4,000
B) $6,250
C) $7,500
D) $10,000
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