ACNT 2402Chapter 03 - Study Guide

Chapter 03 -- Activity-Based Costing - Study Guide 1. Batch-level activities are performed each time a batch of goods is processed. The cost of a batch-level activity is proportional to the number of units in the batch. FALSE 2. Activity-based costing involves a two-stage allocation process in which overhead costs are first assigned to departments and then allocated to products using activity measures. FALSE 3. In the second-stage allocation in activity-based costing, overhead costs are allocated from activity cost pools to products. TRUE 4. The challenge in designing an activity-based costing system is to identify a reasonably small number of activities that explain the bulk of the variation in overhead costs. TRUE 5. Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers. The costs of these resources have no obvious connection with direct labor. TRUE 6. Facility-level activities are activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made. TRUE Page 2 of 14 7. Companies use three common approaches to assign overhead costs to products—plantwide overhead rate, departmental overhead rates, and activity-based costing. The most accurate of these three approaches is departmental overhead rates. FALSE 8. An activity in activity-based costing is an event that causes the consumption of overhead resources. TRUE 9. When designing an activity-based costing system, accountants should be tasked with identifying the activities they think are important and that consume most of the resources in the organization. FALSE