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Chapter 7—Activity-Based Costing and Management
TRUE/FALSE
1. Unit-level activities are performed each time a unit is produced.
2. Factors that measure the consumption of activities by products and other cost objects are value-added
costs.
3. Activity drivers should be classified as either unit-level or nonunit-level.
4. Product diversity means that products consume overhead activities in systematically different
proportions.
5. The consumption ratio is the amount of each activity consumed by a product.
6. An activity-based costing system first assigns costs to activities and then to cost objects.
7. A volume-based costing system emphasizes direct tracing and driver tracing.
8. An activity dictionary lists the activities in an organization along with some critical activity attributes.
9. Activity attributes are financial and nonfinancial information items that describe individual activities.
10. A work distribution matrix is derived from an interview or a written survey.
11. Resource drivers are factors that measure the consumption of resources by product.
12. To calculate an activity rate, the practical capacity of each activity must be determined.
13. Activity inputs are the resources consumed by the activity in producing its output.
14. Activity analysis is the effort expended to identify those factors that are the root causes of activity
costs.
15. One of the questions answered by activity analysis should be "What activities are done?"
16. Activities necessary to remain in business are called valuable activities.
17. Discretionary activities are necessary to comply with legal mandates.
18. Costs that are caused by the inefficient performance of value-added activities are value added costs.
19. The value-added standard is the waste-free component of the value-added activity.
20. One of the three major dimensions of measuring activity performance is quality.
21. One way to improve efficiency is to produce higher activity output with higher cost.
22. Velocity is the length of time that it takes to produce a unit o output from the time raw materials are
received until the good is delivered.
23. Appraisal costs are incurred to determine whether products and services are conforming to their
requirements or customer needs.
24. A defective product is one that does conform to specifications.
25. Environmental costs are costs that are incurred because poor environmental quality may or does exist.
26. Quality improvement can increase profitability by decreasing costs.
27. Zero defects means that most products conform to specifications.
28. Activity elimination focuses on nonvalue-added activities.
29. Environmental internal failure costs are the costs of activities performed after discharging
contaminants and waste into the environment.
30. Control activities are performed by an organization or its customers in response to poor quality.
31. Control activities are performed by an organization to prevent or detect poor quality.
32. Environmental costs are associated with the creation, detection, remediation, and prevention of
environmental degradation.
33. Sustainable development is development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.
MATCHING
Match each item with the correct statement below.
a.
activity drivers
b.
activity-based costing system
c.
consumption ratio
d.
unit-level activities
e.
activity attributes
f.
resource drivers
1. Activities that are performed each time a unit is produced.
2. Factors that measure the consumption of activities by products and other cost objects.
3. Financial and nonfinancial information items that describe individual activities.
4. System that emphasizes direct tracing and driver tracing.
5. Factors that measure the consumption of resources by activities.
Match each item with the correct statement below.
a.
activity analysis
b.
value-added costs
c.
velocity
d.
activity inputs
e.
activity output measure
f.
activity output
6. Resources consumed by the activity in producing its output.
7. Result or product of an activity.
8. The number of times an activity is performed.
9. Process that answers the question "How many people perform the activities?"
10. Costs necessary to perform value-added activities with perfect efficiency.
Match each item with the correct statement below.
a.
cycle time
b.
direct tracing
c.
activity sharing
d.
driver tracing
e.
value-added activities
f.
activity selection
11. Involves choosing among different sets of activities that are caused by competing strategies.
12. Increases the efficiency of necessary activities by using economies of scale.
13. The length of time it takes to produce a unit of output from the time raw materials are received until
the good is delivered to finished goods inventory.
14. Activities necessary to remain in business
15. Cost assignment method used for a cost of a resource that is exclusively used by an activity.
COMPLETION
1. ___________________ are performed each time a unit is produced.
2. _____________________ are factors that measure the consumption of activities by products and other
cost objects and can be classified as either unit-level or nonunit-level.
3. When products consume overhead activities in systematically different proportion due to such things
as product size, product complexity, setup time and size of batches this is known as
_________________.
4. The ___________________ is calculated by taking the amount of the activity driver per product and
dividing it by total driver quantity.
5. _________________________ assigns costs to activities and then costs to cost objects.
6. ____________________ are financial and nonfinancial information items that describe individual
activities.
7. A company will sometimes use a ____________________ which identifies the amount of labor
consumed by each activity.
8. Accurate ___________________ allow managers to make better pricing decisions, customer-mix
decisions, and other customer-related decisions that improve profitability.
9. Tracing ________________ costs to suppliers can enable managers to choose the true low-cost
supplier.
10. _________________________ is a system-wide, integrated approach that focuses management’s
attention on activities with the objective of improving customer value and profit achieved by providing
this value.
11. A focus on cost reduction instead of cost assignment and emphasizing the maximization of
systemwide performance is known as _______________________.
12. A ____________________ is classified as value-added provided it simultaneously meets three
conditions.
13. When a new product can be designed to use components already being used by other products this is
known as ________________.
14. ___________________ are incurred to prevent poor quality in the products and services being
produced.
15. The cost of recalls would be an example of a(n) ____________________.
16. Reinspection and design changes are examples of _____________________ costs.
17. Cleaning up a polluted lake or an oil spill are examples of __________________ costs.
18. Companies will incur costs to perform such tasks as recycling products, controlling pollution, reducing
contaminates. All of these tasks are examples of _____________________ costs.
19. ______________ is concerned with doing the activity right the first time it is performed.
20. Activities necessary to remain in business are known as _____________________.
MULTIPLE CHOICE
1. Setups, material handling, and inspection are all possible examples of
a.
product diversity.
b.
unit level overhead activities.
c.
nonunit-level overhead activities.
d.
sustainable development.
e.
None of these.
2. ____ is present whenever products have different consumption ratios for different overhead activities.
a.
Environmental costs
b.
Activity sharing
c.
Product diversity
d.
Activity inputs
e.
Control costs
3. A(n) ____ ratio measures the proportion of an activity consumed by a product.
a.
production
b.
consumption
c.
efficiency
d.
quality
e.
usage
4. Using only unit-based activity drivers to assign nonunit-related overhead costs can cause
a.
product diversity.
b.
distorted product costs.
c.
efficiency.
d.
activity sharing.
e.
None of these.
5. Activity drivers can be classified as either ____ or ____.
a.
unit-level; nonunit-level
b.
exact; inexact
c.
inputs; outputs
d.
right; wrong
6. ____ costs in many firms represent a much higher percentage of product costs than direct labor.
a.
Nonvalue-added
b.
Failure
c.
Overhead
d.
Appraisal
e.
Control
7. The activity driver for the shipping activity is the number of orders shipped. Product A uses 20 orders
and Product B uses 60 orders. Calculate the consumption ratios for each product.
a.
0.3; 0.7
b.
0.625; 0.375
c.
0.25; 0.75
d.
0.215; 0.785
8. Receiving provides 12,000 receiving hours and costs $60,000 per year. What is the activity rate for
receiving?
a.
$14 per receiving hour
b.
$5 per receiving hour
c.
$4 per receiving hour
d.
$4.50 per receiving hour
e.
cannot be determined from this information
9. Producing 10,000 units of a cell phone requires $300,000 of prime costs, uses 2,000 machine hours,
and takes 1,200 setup hours. The activity rates are $40 per machine hour and $100 per setup hour.
What is the unit cost of a cell phone?
a.
$60
b.
$40
c.
$50
d.
$100
e.
$30
10. The moving activity has an expected cost of $160,000. Expected direct labor hours are 40,000, and the
expected number of moves is 80,000. The best activity rate for moving is
a.
$4 per move.
b.
$1.33 per hour-move.
c.
$4 per hour.
d.
$2 per move.
Figure 7-4.
Honeydew Company produces two products, a high end laptop computer under the label Bunsen
Laptops, and an inexpensive desktop computer under the label Beaker Computers. The two products
use two overhead activities, with the following costs:
Setting up equipment
$ 2,000
Machining
12,000
The controller has collected the expected annual prime costs for each product, the machine hours, the
setup hours, and the expected production.
Bunsen
Beaker
Direct Labor
$20,000
$5,000
Direct Materials
15,000
4,000
Units
2,000
2,000
Machine hours
750
1,500
Setup hours
50
50
11. Refer to Figure 7-4. Calculate Beaker's consumption ratio for setup hours.
a.
0.50
b.
0.45
c.
0.90
d.
0.25
e.
0.75
12. Refer to Figure 7-4. Calculate the overhead cost per unit for Bunsen Laptops, using a plantwide rate
based on direct labor costs.
a.
$9.63 per laptop
b.
$22.45 per laptop
c.
$5.60 per laptop
d.
$7.22 per laptop
e.
$7.50 per laptop
13. Refer to Figure 7-4. Calculate the overhead cost per unit for each Beaker Computer, using overhead
rates based on machine hours and setup hours.
a.
$6.10 per unit
b.
$4.50 per unit
c.
$5.75 per unit
d.
$3.88 per unit
Figure 7-5.
Rizzo Manufacturing produces two types of cameras: 35mm and digital. The cameras are produced
using one continuous process. Four activities have been identified: machining, setups, receiving, and
packing. Resource drivers have been used to assign costs to each activity. The overhead activities,
their costs, and the other related data are as follows:
Product
Machine Hours
Setups
Receiving Orders
Packing Orders
35mm
10,000
100
200
400
Digital
10,000
250
800
2,000
Costs
$60,000
$40,000
$8,000
$24,000
14. Refer to Figure 7-5. Calculate the total overhead assigned to the 35mm cameras using only machine
hours to calculate a plantwide rate.
a.
$132,000
b.
$72,000
c.
$60,000
d.
$75,000
e.
$66,000
15. Refer to Figure 7-5. Calculate a consumption ratio for setups on the digital cameras.
a.
0.688
b.
0.730
c.
0.700
d.
0.714
e.
0.500
16. Refer to Figure 7-5. Using an activity rate for receiving based on receiving orders, assign receiving
costs to the 35mm camera.
a.
$1,800
b.
$2,000
c.
$1,600
d.
$1,200
e.
$4,000
17. Refer to Figure 7-5. Calculate an activity rate for packing based on packing orders.
a.
$9.00 per packing order
b.
$10.00 per packing order
c.
$8.00 per packing order
d.
$60.00 per packing order
e.
$1.20 per packing order
18. A costing system that first assigns costs to activities and then to products is
a.
activity-based costing.
b.
job-order costing.
c.
activity-based management.
d.
volume based costing.
e.
nonunit-level costing.
19. A list of activities accompanied by information that describes each activity is an activity ____.
a.
manifesto
b.
diary
c.
journal
d.
dictionary
e.
note
20. ____ are assigned using direct tracing and resource drivers.
a.
Resources
b.
Costs
c.
Profits
d.
Materials
e.
Products
21. In an activity dictionary, types of resources consumed is an example of a(n)
a.
activity sharing.
b.
quality.
c.
activity attribute.
d.
allocation.
22. A(n) ____ is derived from the interview process (or written survey).
a.
work distribution matrix
b.
activity explanation matrix
c.
driver consumption matrix
d.
value analysis matrix
e.
tracing matrix
23. To calculate an activity rate, the ____ of each activity must be determined.
a.
practical capacity
b.
expenditure level
c.
processing ratio
d.
value
24. Interviews and surveys are used to identify
a.
cycle time.
b.
velocity.
c.
control costs.
d.
costs.
e.
activities.
25. ____ can help a company become more competitive by providing more accurate cost data.
a.
Unit-based costing
b.
Volume-based costing
c.
Kaizen costing
d.
Production costing
e.
Activity-based costing
26. A company has two inspectors, each earning a salary of $75,000. One inspector works exclusively on
inspecting parts received from outside suppliers, while the other spends 30% of her time inspecting
parts and 70% of her time inspecting final products. How much labor cost should be assigned to the
activity, inspecting parts?
a.
$100,000
b.
$95,000
c.
$75,000
d.
$96,275
e.
$97,500
27. Last year, Stevita Inc. shipped 3,000,000 kilograms of goods to customers at a cost of $2,400,000. If
an individual customer orders 20,000 kilograms and produces $400,000 of revenue (total revenue is
$40 million), the amount of shipping cost assigned to the customer using activity-based costing would
be
a.
$16,000.
b.
$8,000.
c.
$24,000.
d.
$4,000.
e.
$60,000.
