Management And Accounting Web

Activity Based Costing MC Solution

Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

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

c. Understate the product cost of the low volume product.

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.

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.

b. the practical capacity for each activity.

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.

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?

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?

d. a and b.

7. Which audience was activity based costing originally designed to serve?

c. Managers who make short term strategic decisions such as outsourcing.

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.

9. The main difference (or differences) between how traditional costing and activity based costing treat indirect manufacturing costs is (are) that

b. traditional costing treats only unit level costs as variable, while ABC systems treat unit level, batch level and product level costs as variable.

10. The Cooper/Kaplan "Rule of One" refers to the following:

b. If only one item is represented by an activity cost pool, then the cost can be classified as fixed.

11. Activity based cost systems would probably provide the greatest benefits for organizations that use

a. job order 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.


ABC MC Questions

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.