Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
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
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
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.
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.
9. The main difference (or differences) between how traditional costing and activity based costing treat indirect manufacturing costs is (are) that
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.
11. 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.
12. 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.
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 Textbook Chapter 7 Demonstration Problem for an additional ABC problem with MC answers.