Why cant traditional product costing systems account for costs of volume diversity?

Student: ___________________________________________________________________________

1. Which of the following statements is false?

A. Conventional costing systems tend to over cost high-volume product lines. B. Conventional costing systems tend to create a product cost distortion problem. C. In conventional costing, the high-volume products are often subsidising the low-volume products. D. Conventional product costing systems recognise a range of non-volume-based cost drivers.

1. Which of the following statements is false?

A. Under conventional costing, product cost distortions will be relatively insignificant if overhead costs are a small proportion of product cost. B. Activity-based costing will significantly improve the product cost accuracy where overhead costs are a small proportion of total costs. C. Activity-based costing will significantly improve product cost accuracy where there is significant product diversity. D. Upstream and downstream costs are often a significant part of a product's costs.

1. Which of the following statements regarding activity-based costing (ABC) is false?

A. ABC can be used to measure the cost of cost objects. B. ABC can be used to analyse the profitability of customers. C. ABC is not an appropriate tool for analysing non-manufacturing costs. D. ABC evolved as a response to problems with conventional costing systems.

1. Which of the following can signal the need for a new product costing system?

A. Line managers do not believe reported product costs. B. Complex products have high reported profitability while more basic high-volume products show small margins or even losses. C. Overhead rates are high and increasing. D. All of the given answers

1. Which of the following can signal the need for a new product costing system?

A. Bids won and lost are difficult to explain. B. Competitors' high-volume products are priced unreasonably low. C. Our low-volume products are priced low compared to competitors. D. All of the given answers

1. A resource driver is:

A. a factor that causes a cost B. a unit of work performed within the organisation C. used to estimate the cost of resources consumed by an activity D. a factor that causes a cost AND is used to estimate the cost of resources consumed by an activity

1. A cost driver:

A. is a factor that causes a cost B. may also be a resource driver C. is a unit of work performed within the organisation D. is a factor that causes a cost AND may also be a resource driver

1. Activity management:

A. is another name for activity-based costing B. is the same as the comprehensive activity-based product costing system C. uses activity information to monitor and control what is happening in a business D. None of the given answers

1. Which of the following statements is/are true? i. Activity management requires analysis of overhead activities only. ii. Activity management requires analysis of all activities. iii. Activity management requires identification of detailed activities, rather than broad activities.

A. iii B. ii C. i and iii D. ii and iii

1. Consider the following statements. Conventional costing systems can produce distorted product costs if: i. overheads are driven by non-volume factors ii. overheads are a minor part of the product cost iii. it fails to recognise non-manufacturing costs as product costs Which of the statements is true?

A. i B. ii C. iii D. i and iii

1. Consider the following statements. Activity-based costing is more difficult in a service business because: i. service businesses have a low proportion of overhead in their total costs ii. service businesses tend to have a higher level of facility costs than most manufacturers iii. it is often difficult to identify service activities because they are non-repetitive Which of the above statements is true?

A. i B. ii C. ii and iii D. i, ii and iii

1. Consider the following statements. i. The optimal product costing system is the most accurate system. ii. The optimal product costing system is the one that minimises the cost of poor decisions from inferior information. iii. The optimal product costing system is the most expensive one. Which of the statements is true?

A. i B. ii C. iii D. None of the given answers

1. In a simple activity-based product costing system:

A. direct material, direct labour, manufacturing overhead and non-manufacturing overhead are assigned to products on an activity basis B. direct material is traced using a conventional approach, while direct labour, manufacturing overhead and non- manufacturing overhead are assigned to products on an activity basis C. direct material and direct labour are traced using a conventional approach, manufacturing overhead is assigned on an activity basis and non-manufacturing overhead is expensed as it is incurred D. direct material, direct labour and manufacturing overhead are traced using a conventional approach, and non- manufacturing overhead is assigned on an activity basis

1. Calculate the cost per unit for setup for one run of 10 000 units if setup labour is $20 per hour and 10 hours are required to set up.

A. $0 per unit B. $0 per unit C. $2 per unit D. $0 per unit

1. Calculate the activity cost per unit of activity driver if the activity cost is $3500, the activity driver is the number of batches and the total quantity of the activity driver is 1750 batches.

A. $3 per batch B. $1 per batch C. $2 per batch D. $2 per batch

1. Calculate the cost of processing one sales order if the total activity cost is $1 720 000 p., the activity driver is the number of orders received and the annual quantity of the activity driver is 43 000 orders.

A. $20 per order B. $25 per order C. $40 per order D. $50 per order

1. An activity cost pool:

A. is a combination of a number of activities B. must be made up of activities at the same level C. can only be used at the product level D. is a combination of a number of activities AND must be made up of activities at the same level

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Summer Ice Pty Ltd is a manufacturer of a range of ice cream products. The following is a list of activities, costs and quantities of activity drivers for a number of activities that occur in the factory.

Under an activity-based costing system, what is the activity cost per unit of activity driver for measuring ingredients?

A. $12.

B. $15.

C. $13.

D. $14.

1. Summer Ice Pty Ltd is a manufacturer of a range of ice cream products. The following is a list of activities, costs and quantities of activity drivers for a number of activities that occur in the factory.

Under an activity-based system, what is the activity cost per unit of activity division for packing into containers?

A. $0.

B. $0.

C. $0.

D. $0.

1. In an activity-based costing system, a bill of activities will include:

A. a charge for allocated overhead B. the activity cost per unit of activity driver C. the quantity of activity consumed D. the activity cost per unit of activity driver AND the quantity of activity consumed

1. Which of the following is not a useful broad category of cost classification in activity-based costing?

A. The unit level activity B. The batch level activity C. The facility level activity D. The differential level activity

1. Which of the following are examples of batch level activities?

A. Machine setup B. Materials handling C. Machining D. Machine setup AND materials handling

1. Consider the following statements regarding conventional costing systems. i. All overhead costs are assumed to be driven by volume of production. ii. All product costs are direct costs. iii. Conventional costing systems tend to distort product costs when numerous products are made that vary in their production requirements. Which statement/s is/are true?

A. i B. ii and iii C. i and iii D. ii

1. HiTech Products manufactures three types of CD players: Cheap, Econo and Deluxe. HiTech uses an activity-based product costing system. The company has identified five activities. Each activity, its cost and related activity driver are identified below:

The following information pertains to each product line of CD players:

Under an activity-based product costing system, what is the cost per unit of Cheap?

A. $141.

B. $272.

C. $164.

D. $228.

1. HiTech Products manufactures three types of CD players: Cheap, Econo and Deluxe. HiTech uses an activity-based product costing system. The company has identified five activities. Each activity, its cost and related activity driver are identified below:

The following information pertains to each product line of CD players:

Under an activity-based product costing system, what is the cost per unit of Econo (to the nearest dollar)?

A. $

B. $

C. $

D. $

1. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year—lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the activity cost per unit of activity driver for material handling?

A. $2 per part B. $16 per part C. $2 per part D. $5 per part

1. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year—lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the activity cost per unit of activity driver for assembly?

A. $4 per part B. $24 per direct labour hour C. $10 per part D. $10 per direct labour hour

1. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year—lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the total cost of lounge chairs for the year?

A. $1 710 000

B. $1 410 000

C. $890 000

D. $1 150 000

1. The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year—lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.

The level of activity for the year is:

Under an activity-based costing system, what is the total cost of patio chairs for the year?

A. $1 150 000

B. $890 600

C. $1 710 000

D. $590 000

1. Conventional product costing systems result in inaccurate product costs when:

A. direct labour increases B. the proportion of direct labour and raw material increases C. product diversity increases D. the proportion of direct labour and raw material increases AND product diversity increases

1. Which of the following are common production volume measures? i. Direct labour hours ii. Machine hours iii. Direct material cost

A. i and ii B. ii and iii C. i and iii D. iii only

1. Recent developments in manufacturing and marketing have resulted in significant changes to cost manufacturing structures. Which of the following statements is/are false? i. The proportion of direct labour increases ii. The proportion of manufacturing overhead increases iii. Product diversity decreases iv. The proportion of non-volume-related manufacturing overheads increases

A. i and ii B. i and iii C. ii and iii D. iii and iv

1. Recent increases in downstream costs have occurred because of: i. increased advertising and product promotion ii. increased customer servicing iii. increased competition iv. increases in product design

A. i and ii B. ii and iii C. iii and iv D. i, ii and iii

1. Which of the following are indicators of an outdated costing system? i. Products that are difficult to make have high profit margins. ii. Competitors prices appear unrealistically low. iii. Customers are not deterred by price increases. iv. A lot of time is spent on special product cost projects.

A. i, ii and iii B. ii, iii and iv C. i, iii and iv D. i, ii, iii and iv

1. In which of the following may a traditional costing system result in?

A. The product costs are distorted B. Complex products are under costed C. Simple products are over costed D. All the given answers

1. One of the results of the inaccuracies arising from traditional costing systems may be:

A. overhead costs are overapplied B. overhead costs are underapplied C. actual overheads exceed overhead applied D. overhead costs are underapplied AND actual overheads exceed overhead applied

1. Despite the obvious advantages of ABC, many firms are still reluctant to implement it. What are the reasons for this reluctance? i. Uncertainty about the benefits of ABC ii. The opinion that the current system serves all the firm's needs iii. Lack of resources to implement ABC

A. i and ii B. ii and iii C. i and iii D. i, ii and iii

1. Which of the following statements is/are true? i. Both conventional cost systems and ABC focus on resources supplied. ii. Plant and equipment is an example of a committed resource under an ABC system. iii. Committed resources always equal resources used.

A. i B. ii C. iii D. ii and iii

Why can't traditional product costing systems account for costs of volume diversity?

Are there limitations to the traditional costing method?

Why traditional volume

Why traditional costing systems can provide misleading information for decision making?