# Accounting 202 - Chapter 4

35 Questions  I  By Jc173
Activity-Based Costing, Lean Production, and the Costs of Quality

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• 1.
Cost distortion results in the:
• A.

• B.

• C.

Overcosting of some products and undercosting of other products

• D.

• 2.
When calculating a departmental overhead rate, the numerator should be the:
• A.

Total estimated departmental overhead cost pool.

• B.

Total estimated amount of the departmental allocation base.

• C.

Total estimated amount of manufacturing overhead for the factory.

• D.

Actual quantity of the departmental allocation base used by the job.

• 3.
Which of the following condition(s) favors using departmental overhead rates in place of a plantwide overhead rate?
• A.

Different departments incur different amounts and types of manufacturing overhead.

• B.

Different jobs or products use the departments to a different extent.

• C.

Both of the above are true.

• D.

Neither of the above are true.

• 4.
The use of departmental overhead rates will generally result in the use of a:
• A.

Single cost allocation base.

• B.

Separate cost allocation base for each department in the factory.

• C.

Single overhead cost pool for the factory.

• D.

Separate cost allocation base for each activity in the factory.

• 5.
What is the first step in developing an ABC system?
• A.

Identify the primary activities and estimate a total cost pool for each.

• B.

Allocate the costs to the cost object using the activity cost allocation rates.

• C.

Select an allocation base for each activity.

• D.

Calculate an activity cost allocation rate for each activity.

• 6.
In using an ABC system, which of the following steps is NOT performed before the company’s year begins?
• A.

Identify the primary activities and estimate a total cost pool for each.

• B.

Allocate the costs to the cost object using the activity cost allocation rates.

• C.

Select an allocation base for each activity.

• D.

Calculate an activity cost allocation rate for each activity.

• 7.
The use of which of the following costing systems is most likely to reduce cost distortion to a minimum?
• A.

• B.

• C.

Activity-based costing

• D.

• 8.
Which of the following does ABC take into account?
• A.

The types of manufacturing activities used by the product

• B.

The extent to which the manufacturing activities are used by the product

• C.

Both A and B

• D.

Neither A nor B

• 9.
Which of the following describes how, in ABC, the activity allocation rate is computed?
• A.

The total estimated activity cost pool is divided by the total estimated activity allocation base

• B.

The total estimated activity allocation base is divided by the total estimated activity cost pool

• C.

The total estimated activity allocation base is multiplied by the total estimated activity cost pool

• D.

You take the total estimated activity allocation base and subtract the total estimated total activity cost pool

• 10.
What is the last step in developing an ABC system?
• A.

Identify the primary activities and estimate a total cost pool for each.

• B.

Allocate the costs to the cost object using the activity cost allocation rates.

• C.

Select an allocation base for each activity.

• D.

Calculate an activity cost allocation rate for each activity.

• 11.
Which of the following statements does NOT describe an ABC system?
• A.

ABC systems can create more accurate product costs.

• B.

ABC systems may only be used by service companies.

• C.

ABC systems are more complex and costly than traditional costing systems.

• D.

ABC systems are used in both manufacturing and nonmanufacturing companies.

• 12.
Which of the following can be used in conjunction with activity-based costing?
• A.

Job costing

• B.

Process costing

• C.

Neither A nor B

• D.

Both A and B

• 13.
The __________________system focuses on activities as the fundamental cost objects. It uses the costs of those activities as building blocks for compiling the indirect costs of products and other cost objects.
• A.

Activities-based costing

• B.

Job costing

• C.

Process costing

• D.

Product costing

• 14.
• A.

Cutting back on high-volume products that appear unprofitable.

• B.

Expanding low-volume products that appear profitable.

• C.

Raising the sale price of high-volume products.

• D.

Raising the sale price of low-volume products.

• 15.
Which of the following is MOST likely to be the cost driver for the packaging and shipping activity?
• A.

Number of orders shipped

• B.

Number of setups

• C.

Number of units produced

• D.

Hours of testing

• 16.
• A.

Also called waste activities.

• B.

Activities that neither enhance the customer’s image of the product or service nor provide a competitive advantage.

• C.

Activities that could be reduced or removed from the process with no ill effect on the end product or service.

• D.

All of the above.

• 17.
The benefits of using the ABC costing system are higher if the company:
• A.

Has high indirect costs

• B.

Produces many different products that use differing amounts of resources

• C.

Produces only one product

• D.

Has high indirect costs and produces many different products that use differing amounts of resources.

• 18.
Why are the benefits of adopting ABC/ABM higher for companies in competitive markets?
• A.

Because ABM can pinpoint opportunities for cost savings

• B.

Because accounting /information system expertise is inexpensive to develop

• C.

Because accurate product cost information is not as relevant for price setting

• D.

Because companies in competitive markets have low indirect costs

• 19.
Indications that a product cost system needs revision include:
• A.

Managers lose bids they expected to win and win bids they expected to lose.

• B.

Employees do not believe the cost numbers are accurate.

• C.

The company uses a single-allocation-base system developed long ago.

• D.

All of the above.

• 20.
Signs that a product cost system is not working properly include that:
• A.

Managers don’t understand costs and profits.

• B.

The cost system was installed five years ago.

• C.

The cost system has multiple allocation bases.

• D.

The cost system is fully depreciated.

• 21.
A system that focuses on activities as the fundamental cost object and uses the costs for these activities to compile indirect costs of goods and services is:
• A.

Appraisal costs.

• B.

Activity-based costing.

• C.

Value engineering.

• D.

Prevention costs.

• 22.
Which of the following cost items should be classified as a prevention cost on a cost of quality report?
• A.

Warranty expenses on defective products

• B.

Technical support provided to suppliers

• C.

Supervision of quality inspections

• D.

Net cost of spoiled units

• 23.
If a company were to increase its appraisal costs by inspecting more units as the units are completed, the company’s internal failure costs:
• A.

Would usually increase

• B.

Would usually decrease

• C.

Would usually remain the same

• D.

Could not be predicted

• 24.
If a company were to increase its appraisal costs by inspecting more units as the units are completed, the company’s external failure costs:
• A.

Would usually increase

• B.

Would usually decrease

• C.

Would usually remain the same

• D.

Could not be predicted

• 25.
The cost of testing incoming raw materials from a supplier would be classified as a(an) :
• A.

Prevention cost

• B.

Appraisal cost

• C.

Internal failure cost

• D.

External failure cost

• 26.
The cost of training quality control supervisors would be classified as a(n):
• A.

Prevention cost.

• B.

Appraisal cost.

• C.

Internal failure cost.

• D.

External failure cost.

• 27.
The costs incurred when poor quality goods or services are detected and corrected before delivery to customers are called:
• A.

Appraisal costs.

• B.

External failure costs.

• C.

Internal failure costs.

• D.

Prevention costs.

• 28.
Which of the following pertains to a lean production system?
• A.

It will have like machines grouped together.

• B.

It will produce goods in smaller batches than a traditional production system.

• C.

It will require higher inventory levels than a traditional production system.

• D.

It will require longer set-up times than a traditional system.

• 29.
Which of the following pertains to a lean costing or production system?
• A.

. An individual does fewer tasks than under a traditional production system.

• B.

Product costs attached to units are tracked as units move through production.

• C.

Summary journal entries are made when units are completed.

• D.

Units are produced in larger batches than under a traditional production system.

• 30.
Which of the following is TRUE about a lean production system?
• A.

Customer orders drive the production process.

• B.

Inventory levels are maintained at high levels.

• C.

Raw materials are purchased in large quantities.

• D.

Finished goods are produced ahead of customers’ orders to protect against running out of finished goods inventory.

• 31.
Which of the following is NOT a factor in the success of lean production systems?
• A.

Short production cycle times

• B.

Continuous flow of production without interruptions

• C.

Inflexible production operations

• D.

The focus on quality

• 32.
The production system designed to eliminate waste is called a(n):
• A.

• B.

Lean production system

• C.

Activity-based system

• D.

Full costing system

• 33.
A system in which companies purchase raw materials only when needed is called:
• A.

ABC

• B.

External failure costs

• C.

Internal failure costs

• D.

JIT production

• 34.
Which term listed below describes a system where companies purchase raw materials when needed in production and complete finished goods when needed by customers?
• A.

Internal failure costs

• B.

Backflush costing

• C.

Just-in-time

• D.

External failure costs

• 35.
The cost of warranty work is an example of a(n):
• A.

Prevention cost

• B.

Appraisal cost

• C.

Internal failure cost

• D.

External failure cost

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