Cost Accounting: A Managerial Emphasis Chapter 5 Activity-Based Costing and Management 1) Peanut butter costing involves assigning costs in a non uniform manner to reflect the different utilization of resources by different products or services. 2) Using a broad average to assign costs to products or services may lead to undercosting or overcosting. 3) A top-selling product might actually result in recorded losses for the company. 4) If a company undercosts one of its products from indirect cost smoothing, then it will overcost at least one of its other products. 5) Product-cost cross-subsidization means that if a company undercosts one of its products, it will gain market share due to a more competitive price. 6) Inaccurate product costs can expose a company to the risk of losing market share to competitors. 7) Using a broad average to allocate costs to products is called A) activity-based costing. B) refined costing. C) peanut butter costing. D) product undercoating. E) job costing. 8) Which of the following statements is TRUE concerning product costing systems? A) Companies that undercost products always sell products at a loss. B) Companies that overcost run the risk of losing customers. C) Undercosting or overcosting does not relate to product cost cross-subsidization. D) Peanut butter costing is another term for direct costing. E) Companies that overcost will make more profit by passing along higher prices to customers. 9) Uniformly assigning the costs of resources to cost objects when those resources are actually used in a non-uniform way is called A) activity-based costing. Fin Mgt Quiz-Chp 5 - Student Version May 16, 2023 9:07 PM Fin Mgmnt Page 1 A) activity-based costing. B) menu-based costing. C) full product-cost allocation. D) variable product-cost allocation. E) broad averaging or peanut butter costing. 10) A product that consumes a relatively low level of resources but is reported to have a relatively high cost, is an example of A) increased market share. B) product marketing. C) product undercosting. D) product overcosting. E) product sub-optimization. 11) A product that consumes a relatively high level of resources but is reported to have a relatively low cost, is an example of A) increased market share. B) product marketing. C) product undercosting. D) product overcosting. E) product sub-optimization. 12) Which of the following is a sign that a "smoothing out" costing system exists? A) Managers rely on data originated by the cost system. B) The company wins bids they thought had low margins. C) A batch consumes a relatively high level of input materials and conversion activities and is reported to have a relatively high cost. D) A batch consumes a relatively low level of input materials and conversion activities and is reported to have a relatively low cost. E) The company loses bids they thought had low margins. 13) The term used to describe a situation when at least one miscosted product causes other products to be miscosted in the organization is known as A) cross-subsidization. B) product marketing. C) product overcosting. D) product undercosting. E) product sub-optimization. 14) Provided a single allocation base is used, jobs are typically overcosted if A) jobs consume proportionately less of the indirect activity but is reported to have higher cost. Fin Mgmnt Page 2 cost. B) jobs require more employees. C) jobs consume proportionately more of the indirect activity and is reported to have higher cost. D) jobs consume proportionately more of the indirect activity but is reported to have lower cost. E) jobs cannot be overcosted; only products or service can be overcosted. 15) The use of a single indirect cost rate is more likely to A) undercost high volume simple products. B) undercost low volume complex products. C) undercost lower priced products. D) overcost higher priced products. E) overcost low volume complex products. 16) A busy law office has a central administration set up, with the administration work for all lawyers shared by the clerical staff. Clients are billed at the firm's hourly rate by the firm. The arrangement is that whenever there is administration work to be done, it is assigned to whoever is available at the time. One of the lawyers has complained that she hardly ever uses the administration services, and so her year end bonus should be larger than those who require the administration services. Therefore they are considering tracking the administration work done for each lawyer separately so that they know how many hours of administration services is being used by each lawyer. At the end of the year, the bonus of each lawyer would be reduced by a charge reflecting the administration services she/he used in the year. If the firm institutes this new approach, this will mean that A) there will be no more cross subsidization. B) there will still be cross-subsidization between lawyers but not between their clients. C) the new information gathered will enable the firm to be able to reduce its costs. D) there will still be cross-subsidization between clients but not between lawyers. E) they will be using a departmental costing system. --------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- 1) When ever possible use the number of units produced as the cost-allocation base for homogeneous indirect cost pools. T/F 2) In a homogeneous cost pool, all costs have a similar cause-and-effect relationship with the cost-allocation base. T/F Fin Mgmnt Page 3 3) Direct cost tracing will accomplish which of the following? A) identify homogeneous costs B) classify more costs as indirect C) focus on the cause-and-effect criterion when choosing allocation bases D) expand the number of indirect cost pools E) classify as many of the costs as direct costs, as is economically feasible 4) How does direct cost tracing improve cost accuracy? A) It identifies the cause-and-effect relationship between direct costs and indirect costs. B) It identifies the cause-and-effect relationship between activities and non-activities. C) It reclassifies costs or costs pools that vary with the quantity of a single activity cost driver as direct. D) It makes no assumptions about the cause-and-effect relationship between direct costs and activities. E) Because with a greater number of cost pools, it does not have to be concerned with the overhead costs used by different products. 5) All costs in a homogeneous cost pool have A) only one cost driver that will accurately represent the relationship between the costs and the activity. B) to be adjusted at year end to actual costs. C) the same cost behaviour. D) the same or a similar cause-and-effect (or benefits-received) relationship with a single cost driver that is used as the cost-allocation base. E) a causal relationship with manufacturing costs. Fin Mgmnt Page 4