ACCT 3270 EXAM 2
Johnson Superior Products Inc. produces hospital equipment and the setup requirements vary from product to product. Johnson
produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution
costs are pooled together. Costs in this pool are allocated using a number of customer orders for the ease of costing operations.
Based on the information provided, which of the following arguments is valid?
A) Johnson has clearly failed to identify as many direct costs as is economically feasible.
B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect relationship with the single cost driver that is
used as the cost-allocation base for Johnson.
C) Johnson has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as
direct costs.
D) Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.
D
Management accountants use the cost hierarchy to first calculate the ________.
A) labor costs of each product and then they compute material costs
B) overhead costs of each product and then they compute prime costs
C) factory costs of each product and then they compute labor costs
D) total costs of each product and then they compute per-unit costs
D
Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta
is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while
Alpha's major portions are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements
is true of Aqua?
A) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs.
B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs.
C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
D) Aqua will overcost Beta's indirect costs because beta has high indirect costs.
C
For a business that offers customers a store where product can be purchased and picked up or a delivery service that can ship the
product directly to the customer, which of the following would most likely be the best cost allocation base for distribution costs?
A) number of customer service phone calls and emails per period
B) number of pounds of product shipped or delivered
C) Electricity costs for the period
D) Number of products sold
B
For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what
would be the best allocation base for human resource administration costs?
A) direct labor hours
B) electricity costs
C) number of parts purchased
D) machine hours
A
Expected direct costs amounted to $927,000 for the period. Support cost requirements of both products are substantially different
from one another. Zitriks uses an ABC costing system.
, Which of the following is true of Canton's overhead costing?
A) Multiple cost pools are appropriate for Canton's because of high direct costs.
B) Single cost pool is appropriate for Canton's because of high direct costs.
C) Multiple cost pools are appropriate for Canton's because of diverse support costs.
D) Single cost pool is appropriate for Canton's because of diverse support costs.
C
Expected direct costs amounted to $9,130,000 for the period. Support cost requirements of both products are substantially different
from one another. Canton uses an ABC costing system.
Which of the following statements is true of implementing an ABC system?
A) Managers should never compromise on the cause-and-effect relationship of cost drivers and costs.
B) The three guidelines for refining costing systems should be ignored while implementing an ABC costing system.
C) The heterogeneous cost pools give managers greater confidence in the activity and product cost numbers from the ABC system.
D) Identifying the cost-allocation bases defines the number of activity pools into which costs must be grouped in an ABC system.
D
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour.
Nichols' management is considering implementing the ABC system because ________.
A) ABC system can be implemented cheaply
B) ABC system provides more accurate direct cost figures
C) ABC system is a highly refined costing system
D) ABC system requires minimal expertise to operate
C
Which method of allocation probably best estimates actual overhead costs used? Why?
A) Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs.
B) Single direct labor-hours cost driver because it is easiest to analyze and interpret.
C) Three activity-cost drivers because they best reflect the relative consumption of resources.
D) Three activity-cost drivers because product costs can be significantly cross-subsidized.
C
It only makes sense to implement an ABC system when ________.
A) a single product is produced in bulk
B) its benefits exceed its implementation costs
C) it traces more costs as direct costs
D) production process is labor-intensive
B
Which of the following is a sign that an ABC system may be useful for an organization?
A) Significant amounts of indirect costs are allocated using multiple cost pools.
B) Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity.
C) Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs.
D) Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.
D
Which of the following statements is true of ABC systems?
A) ABC systems provide less insight than traditional systems into the management of the indirect costs.
B) ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies.
C) Service companies find great value from ABC because a vast majority of their cost structure is composed of direct costs.
D) ABC systems are valuable for pricing decisions but not for understanding, managing, and reducing costs in government
institutions.
B
Which of the following statements about ABC is not true?
A) A byproduct of ABC implementation can improve the efficiency of operations
Johnson Superior Products Inc. produces hospital equipment and the setup requirements vary from product to product. Johnson
produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution
costs are pooled together. Costs in this pool are allocated using a number of customer orders for the ease of costing operations.
Based on the information provided, which of the following arguments is valid?
A) Johnson has clearly failed to identify as many direct costs as is economically feasible.
B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect relationship with the single cost driver that is
used as the cost-allocation base for Johnson.
C) Johnson has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as
direct costs.
D) Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.
D
Management accountants use the cost hierarchy to first calculate the ________.
A) labor costs of each product and then they compute material costs
B) overhead costs of each product and then they compute prime costs
C) factory costs of each product and then they compute labor costs
D) total costs of each product and then they compute per-unit costs
D
Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta
is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while
Alpha's major portions are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements
is true of Aqua?
A) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs.
B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs.
C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
D) Aqua will overcost Beta's indirect costs because beta has high indirect costs.
C
For a business that offers customers a store where product can be purchased and picked up or a delivery service that can ship the
product directly to the customer, which of the following would most likely be the best cost allocation base for distribution costs?
A) number of customer service phone calls and emails per period
B) number of pounds of product shipped or delivered
C) Electricity costs for the period
D) Number of products sold
B
For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what
would be the best allocation base for human resource administration costs?
A) direct labor hours
B) electricity costs
C) number of parts purchased
D) machine hours
A
Expected direct costs amounted to $927,000 for the period. Support cost requirements of both products are substantially different
from one another. Zitriks uses an ABC costing system.
, Which of the following is true of Canton's overhead costing?
A) Multiple cost pools are appropriate for Canton's because of high direct costs.
B) Single cost pool is appropriate for Canton's because of high direct costs.
C) Multiple cost pools are appropriate for Canton's because of diverse support costs.
D) Single cost pool is appropriate for Canton's because of diverse support costs.
C
Expected direct costs amounted to $9,130,000 for the period. Support cost requirements of both products are substantially different
from one another. Canton uses an ABC costing system.
Which of the following statements is true of implementing an ABC system?
A) Managers should never compromise on the cause-and-effect relationship of cost drivers and costs.
B) The three guidelines for refining costing systems should be ignored while implementing an ABC costing system.
C) The heterogeneous cost pools give managers greater confidence in the activity and product cost numbers from the ABC system.
D) Identifying the cost-allocation bases defines the number of activity pools into which costs must be grouped in an ABC system.
D
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour.
Nichols' management is considering implementing the ABC system because ________.
A) ABC system can be implemented cheaply
B) ABC system provides more accurate direct cost figures
C) ABC system is a highly refined costing system
D) ABC system requires minimal expertise to operate
C
Which method of allocation probably best estimates actual overhead costs used? Why?
A) Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs.
B) Single direct labor-hours cost driver because it is easiest to analyze and interpret.
C) Three activity-cost drivers because they best reflect the relative consumption of resources.
D) Three activity-cost drivers because product costs can be significantly cross-subsidized.
C
It only makes sense to implement an ABC system when ________.
A) a single product is produced in bulk
B) its benefits exceed its implementation costs
C) it traces more costs as direct costs
D) production process is labor-intensive
B
Which of the following is a sign that an ABC system may be useful for an organization?
A) Significant amounts of indirect costs are allocated using multiple cost pools.
B) Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity.
C) Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs.
D) Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.
D
Which of the following statements is true of ABC systems?
A) ABC systems provide less insight than traditional systems into the management of the indirect costs.
B) ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies.
C) Service companies find great value from ABC because a vast majority of their cost structure is composed of direct costs.
D) ABC systems are valuable for pricing decisions but not for understanding, managing, and reducing costs in government
institutions.
B
Which of the following statements about ABC is not true?
A) A byproduct of ABC implementation can improve the efficiency of operations
