Chapter 5 Cost Accounting Test Bank Latest 2026–2027 Updated Managerial Accounting Questions and Answers. Verified Problems Covering Core Concepts and Calculations. Complete Practice Resource for Exams and High Academic Performance.

Chapter 5 - cost accounting test bank


cost accounting (Al-Quds University)




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,Cost Accounting, 14e, Global Edition (Horngren/Datar/Rajan)
Chapter 5 Activity-Based Costing and Activity-Based Management

Objective 5.1

1) If products are different, then for costing purposes:
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A) an ABC costing system will yield more accurate cost numbers
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B) a simple costing system should be used
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C) a single indirect-cost rate should be used
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D) none of the above L L L L



Answer: A L



Diff: 1 L



Terms: activity-based costing (ABC)
L L L L



Objective: 1 L



AACSB: Reflective thinking L L




2) Overcosting a particular product may result in: L L L L L L



A) loss of market share
L L L



B) pricing the product too low L L L L



C) operating efficiencies L



D) understating total product costs L L L L



Answer: A L



Diff: 2 L



Terms: product undercosting
L L L



Objective: 1 L



AACSB: Analytical skills L L




3) Undercosting of a product is most likely to result from: L L L L L L L L L



A) misallocating direct labor costs L L L



B) underpricing the product L L



C) overcosting another product L L



D) overstating total product costs L L L L



Answer: C L



Diff: 2 L



Terms: product overcosting
L L L



Objective: 1 L



AACSB: Reflective thinking L L




4) A company produces three products; if one product is overcosted then:
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A) one product is undercosted
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B) one or two products are undercosted
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C) two products are undercosted
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D) no products are undercosted
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Answer: B L



Diff: 1 L



Terms: product-cost cross-subsidization
L L L



Objective: 1 L



AACSB: Ethical reasoning L L




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,5) Misleading cost numbers are most likely the result of misallocating:
L L L L L L L L L



A) direct material costs L L



B) direct manufacturing labor costs
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C) indirect costs L



D) All of these answers are correct.
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Answer: C L



Diff: 2 L



Terms: activity-based costing (ABC)
L L L L



Objective: 1 L



AACSB: Reflective thinking L L




6) An accelerated need for refined cost systems is due to:
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A) global monopolies L



B) rising prices L



C) intense competition L



D) a shift toward increased direct costs
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Answer: C L



Diff: 2 L



Terms: activity-based costing (ABC)
L L L L



Objective: 1 L



AACSB: Ethical reasoning L L




7) The use of a single indirect-cost rate is more likely to:
L L L L L L L L L L



A) undercost high-volume simple products L L L



B) undercost low-volume complex products L L L



C) undercost lower-priced products L L



D) Both B and C are correct.
L L L L L L



Answer: B L



Diff: 2 L



Terms: product undercosting
L L L



Objective: 1 L



AACSB: Reflective thinking L L




8) Uniformly assigning the costs of resources to cost objects when those resources are actually used in a
L L L L L L L L L L L L L L L L L



nonuniform way is called: L L L



A) overcosting
B) undercosting
C) peanut-butter costing L



D) department costing L L



Answer: C L



Diff: 1 L



Terms: product-cost cross-subsidization
L L L



Objective: 1 L



AACSB: Reflective thinking L L




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L L L L




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, 9) A top-selling product might actually result in losses for the company.
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Answer: TRUE L



Diff: 2 L



Terms: product undercosting
L L L



Objective: 1 L



AACSB: Analytical skills L L




10) Companies that overcost products will most likely lose market share.
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Answer: TRUE L



Diff: 2 L



Terms: product overcosting
L L L



Objective: 1 L



AACSB: Ethical reasoning L L




11) If companies increase market share in a given product line because their reported costs are less than
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their actual costs, they will become more profitable in the long run.
L L L L L L L L L L L



Answer: FALSE L



Explanation: The actual costs will increase because of the additional sales and the other product lines
L L L L L L L L L L L L L L L L



(which are subsidizing the undercosting of the growing product line) will suffer. The net result will be
L L L L L L L L L L L L L L L L L



the company having a lower operating income than it could have had.
L L L L L L L L L L L



Diff: 2 L



Terms: product undercosting
L L L



Objective: 1 L



AACSB: Reflective thinking L L




12) As product diversity and indirect costs increase, it is usually best to switch away from an activity
L L L L L L L L L L L L L L L L L



based cost system to a broad averaging system.
L L L L L L L



Answer: FALSE L



Explanation: The potential significant differences in costs relating to the products as well as the
L L L L L L L L L L L L L L L



magnitude of indirect costs make a more refined costing system more appropriate.
L L L L L L L L L L L



Diff: 2 L



Terms: activity-based costing (ABC)
L L L L



Objective: 1 L



AACSB: Reflective thinking L L




13) If a company overcosts one of its products, then it will undercost at least one of its other products.
L L L L L L L L L L L L L L L L L L L



Answer: TRUE L



Diff: 2 L



Terms: product-cost cross-subsidization
L L L



Objective: 1 L



AACSB: Ethical reasoning L L




14) Explain how a top-selling product may actually result in losses for the company.
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Answer: If indirect costs are not properly allocated to the products, a product may appear to cost less
L L L L L L L L L L L L L L L L L L



than it actually does cost to produce. If the selling price is based on these lower costs, the selling price
L L L L L L L L L L L L L L L L L L L L



may actually be lower than the costs needed to produce the product resulting in losses for the company.
L L L L L L L L L L L L L L L L L L



Diff: 1 L



Terms: product-cost cross-subsidization
L L L



Objective: 1 L



AACSB: Reflective thinking L L




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