Test bank chapter 5

1. The major limitation of volume-based costing systems is the use of volume-based:

A. Criteria.

B. Standards.

C. Rates.

D. Variances.

E. Restrictions.

2. Volume-based rates produce inaccurate product cost when:

A. A large share of factory overhead cost is not volume-based.

B. Firms produce a diverse mix of products.

C. Large volumes of a product are manufactured.

D. Both answer A and answer B are correct.

E. None of the answers above is correct.

3. If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the:

A. Activity-based costing

B. Volume-based costing

C. Overhead costing

D. Process costing

4. Volume-based overhead rates may cause undesirable strategic effects such as:

A. Incorrect decisions.

B. Unprofitable cross-subsidization of products.

C. Ineffective management of operations for process improvement.

D. Answers A, B and C are all correct.

E. None of the answers above is correct.

5. Activity-based costing (ABC) differs from other costing approaches in that it more accurately measures the cost of activities:

A. Not proportional to the volume of outputs produced.

B. Directly proportional to the volume of outputs produced.

C. Inversely proportional to the volume of outputs produced.

D. That are non-value adding.

E. At a significantly lower cost in time and money.

6. In performing activity analysis during the design of an activity-based costing system (ABC), the management accountant studies:

A. The cost drivers and managers in the plant.

B. The advice of operation-level managers.

C. The resources, activities and cost drivers in the operation.

D. The cost allocation methods applicable to the firm

E. The implementation problems for an ABC system.

7. Effective implementation of activity-based costing (ABC) requires:

A. Normally the assistance of a consultant.

B. A sophisticated and expensive computer system.

C. Support of top management and key employees.

D. Capturing properly the complexity of the data.

E. ABC has no significant implementation issues.

8. Elimination of low-value-added activities in a firm should:

A. Be discouraged because of potential harmful effects.

B. Not affect customer value.

C. Not have priority because low-value-added activities have little effect on a firm’s performance.

D. Have priority only when a firm is operating at a loss.

E. Happen naturally if the firm is well-managed.

9. When gathering activity data, which of the following would not be a question that ABC project team members typically ask employees or managers?

A. Time spent performing the activity

B. Resources required for the activity

C. Where the activity takes place

D. Value the activity has for the customer

10. Successful activity-based costing (ABC) implementation depends upon the firm:

A. Having support of consultants with needed expertise.

B. Having a thorough activity analysis.

C. Starting with a relatively simple system.

D. Having well-trained managers.

E. Having adequate computer resources.

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