1) Activity based costing system differs from traditional costing systems in the treatment of ________.

A) direct labor costs B) direct material costs C) prime costs D) indirect costs

2) The fundamental cost objects of ABC are ________.

A) activities B) cost drivers C) products D) services

3) Which of the following statements is true of activity-based costing?

A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs. B) Activity based costing is more suited to companies with high product diversity than companies with single product line. C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.

4) A single indirect-cost rate distorts product costs because ________.

A) there is an assumption that all support activities affect all products in a uniform way B) it recognizes specific activities that are required to produce a product C) competitive pricing is ignored D) it assumes all costs are product costs D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.

5) Cost information of Firm A

	Simple P3	Complex P7	Total
Setup cost allocated using direct labor-hours	$19,250	$5,750	$25,000
Setup cost allocated using setup-hours	$13,400	$11,600	$25,000

Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours. Which of the following statements is true of the setup costs under traditional costing? A) P3 is undercosted by $5,850 B) P7 is undercosted by $5,750

C) P3 is overcosted by $5,850 D) P7 is overcosted by $5,850

6) Firm A provides the following ABC costing information:

Activities Total Costs

Labor $392,000 Gas $30,000 Invoices $180,000

Activity-cost drivers

8,000 hours 5,000 gallons 7,500 invoices

Total costs $602,000 The above activities used by their three departments are:

Labor Gas Invoices

Dept. A

2,600 hours 1,800 gallons 1,600 invoices

Dept. B

1,300 hours 1,000 gallons

100 invoices

Dept. C

4,100 hours 2,200 gallons 5,800 invoices

How much of the labor cost will be assigned to Dept. B? A) $127,400 B) $63,700 C) $200,900

D) $97,825