Question

1. Smaller cost distortions occur when the traditional systems' single indirect-cost rate and the activity-cost-driver rates: a) are similar in proportion to each other b) use the same cost driver units c) are more different than alike d) use the same total costs for computations

2. Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT: a) operations that remain fairly consistent b) a highly competitive environment, where cost control is critical c) accessible accounting and information systems expertise to maintain the system d) numerous products that consume different amounts of resources

3. ABC systems: a) allocate costs based on the overall level of activity b) limit cost drivers to units of output c) generally undercost complex products d) highlight the different levels of activities

4. The goal of a properly constructed ABC system is to: a) have separate allocation rates for each department b) develop the best cost system for an economically reasonable cost c) identify more indirect costs d) have the most accurate cost system

5. Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into: a) fewer indirect costs for each product line b) decisions to drop product variations c) greater overhead costs for each product line d) a greater number of direct manufacturing labor cost allocation rates

Answer 1

Ques 1
a)are similar in proportion to each other
this is because if the the traditional system uses
machine hrs as the base to calculate
predetermined rate , and also as an activity
overheads are primarily identified over machine
hrs , the costs will be similar
Ques 2
a)operations that remain fairly consistent
ABC costing best works if the activities are different
for the multiple products identified , as explained
in ques 1 if activities are similar there willdistortions hence the
be lower cost and the co.
could get similar results from traditional based
costing
Ques 3
d)highlight the different level of activities
ABC costing identifies the activities related to a particular
product, and then the activity rates are computed and
the more the activity one product cosumes,
the more overhead cost of that activity is
allocated to that product
Ques 4
b)develop the best cost system for an economically reasonable cost
obviously there is always "cost vs benefit"
situation when company implements any new process
so , when applying ABC costing the company should
look that the reduced overheads compared with the
costs of implementing it are justified
Ques 5
c)greater overhead costs of each product line
the more the activities associate with the product
the higher will be the allocated overhead costs
when using ABC costing