A+ Answers of the following Questions

1. The use of unit-level measures to assign support costs is more likely to:
A. Undercost high-volume products
B. Undercost specialty low-volume products
C. Undercost complex products
D. Both (b) and (c) are correct

2. Misleading product cost numbers are MOST likely the result of misallocating:
A. Direct material costs
B. Direct manufacturing labor costs
C. Support cost
D. All of the above are correct

3. Undercosting a particular product may result in:
A. Loss of market share for the product
B. Lower profits for the product
C. Operating inefficiencies
D. Understating total costs of all the products

1. It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that:
a. Product costs will reflect their relative consumption of resources
b. Better information related to resource constraints can be captured and communicated
c. There is less likelihood of cost distortions
d. All of the above are correct

2. Which of the following is a sign that an ABC system may be useful?
a. There are small amounts of support costs
b. Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity
c. Products a company is less suited to produce and sell show small profits
d. Operations throughout the plant are fairly similar

3. Units of production are most appropriate as a support cost assignment base when:
A. It is a service department
B. Only one product is manufactured
C. Direct labor costs are low
D. Factories produce a complex and varied mix of products

1. Designing an activity-based cost system includes:
A. Classifying as many costs as indirect costs as is feasible
B. Creating as many cost pools as possible
C. Identifying the activities performed by the plant’s resources
D. Seeking a broader focus rather than detail

2. The following information applies to Questions 11 through 13

Merriman Company provides the following ABC costing information:

Activities                                            Total Costs                                        Activity-cost drivers
Account inquiry hours      $500,000                                            10,000 hours
Account billing lines                        $250,000                                     5,000,000 lines
Account verification acct.             $100,000                                     50,000 accounts
Correspondence letters $50,000                                         5,000 letters
Total costs $900,000

The above activities are used by Departments A and B as follows:

                                                            Department A                                                  Department B
Account inquiry hours      1,000 hours                                                      3,000 hours
Account billing lines                        200,000 lines                                                   300,000 lines
Account verification acct.             10,000 accounts                                             8,000 accounts
Correspondence letters 1,000 letters                                                    1,500 letters

How much of the account inquiry costs will be assigned to Department A?
A. $10,000
B. $50,000
C. $150,000
D. $500,000

3. How much of account verification costs will be assigned to Department A?
A. $20,000
B. $50,000
C. $80,000
D. $100,000

1. How much of the account billing costs will be assigned to Department B?
A. $15,000
B. $25,000
C. $30,000
D. $50,000

2. The following information applies to Questions 2 through 3.
Zappo Skate Corporation manufacturers two models of skate boards: a standard and a deluxe model. The following activity and cost information has been complied.

Product                # of setups          # of components              # of total direct labor hours
Standard ;            20                          10                                                        375
Deluxe   30                          15                                                        225
Overhead costs $25,000 $35,000

Assume a traditional costing system applies the $60,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model?
A. $20,000
B. $22,500
C. $25,000
$35,250

3. Number of setups and number of components are identified as activity-cost drivers for overhead costs. Assuming an activity-based costing system is used, what is the total amount of overhead costs assigned to the standard model?
A. $10,000
B. $14,500
C. $24,500
D. $30,000

1. If products are alike, then for costing purposes:
A. A simple costing system will yield accurate cost numbers
B. An activity-based costing system should be used
C. Multiple unit-level cost rates should be used
D. Varying demands will be placed on resources

2. With traditional costing systems, products manufactured in small batches and in small annual volumes may be ______________ because batch-related and product-sustaining costs are assigned using unit-related cost drivers.
A. Overcosted
B. Undercosted
C. Fairly costed
D. Ignored

3. Under traditional costing systems, selling and administrative costs have been largely ignored because they:
a. Are hard to quantify except at exorbitant cost of measurement
b. Have been negligible in amount relative to total costs now that they are growing in amount
c. In the past they are not inventoriable for financial reporting purposes under GAAP
d. Relate to a varied mix of products