Multiple Choice Answers

1. Which of the following is not an advantage of Activity Based Costing (ABC) over traditional volume based costing systems?
ABC may lead to improvement in cost control as managers are charged for using activities
ABC is less likely than a traditional system to undercost complex products.
ABC is more costly to implement than traditional systems
All of the above are advantages of ABC
2. (TCO 6) Which of the following is not generally true when a company compares ABC and traditional costing?
ABC uses more cost drivers
ABC allocates cost based solely on production volume
ABC is more expensive
ABC is less likely to undercost complex, low volume products

3. The process of assigning indirect costs is called
directional association.
variable costing.
cost allocation.
joint costing

4. Which of the following costs does not change when the level of business activity changes?
total fixed costs
total variable costs
total direct materials costs
fixed costs per unit

5. Which of the following is likely to be a noncontrollable cost of a department supervisor?
labor in the department
materials used in the department
insurance on the plant
overtime premium pay earned by those working in the department

6. (TCO 9) The required rate of return used to compute net present value is related to the firm’s
contribution margin.
depreciation methods.
fixed costs.
cost of capital.

7. Costs may be allocated to
products.
services.
departments.
all of the above.

8. The contribution margin per unit is the difference between
total revenue and total fixed costs.
anticipated level of sales and the break-even point in dollars.
total fixed costs and total variable costs.
selling price and variable cost per unit.

9. Which of the following statements about cost pools is not true?
The costs in each of the cost pools should be homogeneous or similar.
Managers must make a cost-benefit decision when determining how many cost
pools are appropriate.
Only four different kinds of costs may be included in a single cost pool.
More cost pools usually provide more accurate information, but are more
expensive.

10. At Wolfe’s Wearables, the break-even point is 2,000 units. If fixed costs total $300,000 and variable costs are $30 per unit, what is the selling price per unit?
$5
$210
$150
$180

11. (TCO 10) The cash budget alerts management to all of the following except?
Stockouts will cause customer dissatisfaction
The cash balance will be very low
Excess cash will be available for investment
Significant capital acquisitions are planned

12. (TCO 10) The difference between standard costs and budgeted costs is that standard costs
refer to a single unit while budgeted costs refer to the cost, at standard, for the total number of budgeted units.
are calculated under ideal conditions, while budgeted costs are calculated for attainable conditions.
are calculated for material while budgeted costs are calculated for labor.
are part of the management accounting system, while budgets are part of the financial accounting system.

13. Labor and overhead are often grouped together and referred to as
prime costs.
conversion costs.
total manufacturing costs.
equivalent unit costs

14. (TCO 6) Which of the following steps is not involved in the ABC approach?
Identify activities which cause costs to be incurred.
Allocate costs to products based on activity usage.
Group costs of activities into cost pools.
Improve processes based on benchmarking

15. Which of the following assumptions made when using C-V-P analysis might affect the validity of the analysis?
Costs can be accurately separated into fixed and variable components.
Fixed costs remain fixed and variable costs per unit do not change over the activity levels of interest.
Both A and B.
Neither A nor B.

16. (TCO 7) Common costs
are fixed costs that are not directly traceable to an individual product line.
normally not avoidable.
Both A and B are true.
Neither A nor B is true.

17. Which of the following steps is not involved in the ABC approach?
Identify activities which cause costs to be incurred.
Allocate costs to products based on activity usage.
Group costs of activities into cost pools.
Improve processes based on benchmarking.

18. Which of the following costs is least likely to be a variable cost?
sales commissions
direct labor
indirect materials
supervisory salaries

19. (TCO 4) The number of units that must be sold to exactly cover its fixed and variable costs is the
contribution margin
break-even point
relevant range
margin of safety

20. (TCO 6) Which of the following steps is not involved in the ABC approach?
Identify activities which cause costs to be incurred.
Allocate costs to products based on activity usage.
Group costs of activities into cost pools.
Improve processes based on benchmarking

21. (TCO 9) Projects with a negative present value will always have a(n)
payback period longer than three years.
internal rate of return less than the required rate of return.
negative accounting rate of return.
series of cash outflows that total more than the initial cost of the project.

22. (TCO 9) The internal rate of return
takes into account the time value of money.
is the rate of return that equates the present value of future cash flows to the initial investment.
both A and B
neither A nor B

23. (TCO 10) The standard cost is
same as actual cost
the cost that should have been incurred to produce an item or service
useful only to manufacturing firms
calculated after production is completed

24. (TCO 10) The difference between the stand and actual cost is a(n)
actual cost overrun.
variance by exception.
slack amount.
standard cost variance.

25. (TCO 10) The difference between standard costs and budgeted costs is that standard costs
refer to a single unit while budgeted costs refer to the cost, at standard, for the total number of budgeted units.
are calculated under ideal conditions, while budgeted costs are calculated for attainable conditions.
are calculated for material while budgeted costs are calculated for labor.
are part of the management accounting system, while budgets are part of the financial accounting system.