Provided by James R. Martin
ABC Main Page | ABC Discussion Questions | | Graduate Management Accounting Course
1. Assume that a
company produces two products in a manufacturing plant. One is a low volume specialty
product that is produced on a demand pull basis, while the other is a high
volume product that is produced on a push basis for inventory. A production
volume based cost allocation system would tend to
a. Accurately reflect the product cost of the two products.
b. Overstate the product cost of the low volume product.
c. Understate the product cost of the low volume product.
d. Overstate the product cost of both products.
e. Understate the product cost of both products.
2. In the situation stated in the
question above, the company’s net income based on a production volume based
system will tend to be ________ relative to net income based on an activity
based costing system.
a. the same.
d. overstated for the low volume product and understated for the high volume product.
e. b and d.
3. Cooper and Kaplan recommend using
which of the following as the basis, or denominator, when developing activity
cost pool rates for activity based costing.
a. the maximum capacity for each activity.
b. the practical capacity for each activity.
c. the planned or budgeted for each activity.
d. the normal capacity for each activity.
e. none of the alternatives given.
4. Which of the following is not an
argument for using a separate stand alone system for activity based costing,
i.e., rather than integrating ABC with the general ledger system used for GAAP?
a. GAAP product costs may be incorrect relative to ABC product costs.
b. It is faster to develop.
c. It is less costly to develop.
d. Subjective information can be used that auditors might question.
e. No appropriate alterative is given above.
5. Which of the following arguments
support integrating ABC with the general ledger system used for GAAP, rather
than using a separate stand alone ABC system?
a. Managers tend to prefer a single accounting system for product costing.
b. Two separate systems tend to be confusing for management.
c. Two separate systems tend to create redundant information and staff.
d. a and b.
e. all of the above.
6. Which of the following types of
characteristics tend to cause too little overhead costs to be charged to the
product using traditional cost allocations?
a. a relatively small product.
b. a relatively low volume product.
c. a relatively simple product.
d. a and b.
e. all of the above.
7. Which audience was activity based
costing originally designed to serve?
a. Users of external financial statements.
b. Front line managers who plan & control activities or processes on a daily basis.
c. Managers who make short term strategic decisions such as outsourcing.
d. Managers who make long term strategic decisions concerning investments.
e. None of the above.
8. A company that uses a traditional
two stage cost allocation approach is likely to do the following.
a. Overhead allocations to high volume products will tend to be overstated while overhead allocations to
low volume products will tend to be understated.
b. Overhead allocations to high volume products will tend to be understated, while allocations to low volume
products will tend to be overstated.
c. Overhead allocations to large products will tend to be understated.
d. a and c.
e. b and c.
The main difference (or differences) between how traditional costing and
activity based costing treat indirect manufacturing costs is (are) that
a. traditional costing uses only production volume based drivers while activity based costing uses only non
production volume based drivers.
b. traditional costing treats only unit level costs as variable, while ABC systems treat unit level, batch level
and product level costs as variable.
c. traditional cost allocations are usually based on a plant wide overhead rate, while ABC systems use
departmental overhead rates.
d. a and b.
e. b and c.
10. The Cooper/Kaplan "Rule of
One" refers to the following:
a. Only one overhead rate should be used to allocate fixed costs.
b. If only one item is represented by an activity cost pool, then the cost can be classified as fixed.
c. If there is more than one activity cost pool, then one of the cost pools must be variable.
d. Traditional cost allocation systems will distort the allocations for at least one cost pool.
e. If there is more than one department, then a single plant wide overhead rate will distort product costs.
Activity based cost systems would probably provide the greatest benefits for
organizations that use
a. job order costing.
b. process costing.
c. historical costing
d. standard costing.
e. absorption costing.
When traditional production volume based overhead allocations are made, rather
than activity based allocations,
a. the unit costs of high volume and large size products tend to be overstated, while the unit cost of low
volume and small products tend to be understated.
b. the unit costs of high volume and large size products tend to be understated, while the unit cost of low
volume and small products tend to be overstated.
c. the unit costs of high volume and small products tend to be overstated, while the unit costs of low
volume and large products is understated.
d. the unit costs of high volume and small products tend to be understated, while the unit costs of low volume
and large products is overstated.
e. None of these.
ABC MC Solution
There are a number of ABC problems with multiple choice
answers in the Extra MC Questions for
MAAW's Chapter 7.
Also see MAAW's Chapter 7 Demonstration Problem for an additional ABC problem with MC answers.