Final Exam

Question 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

Answer 1

D) indirect costs

Question 2

For a company with diverse products, undercosting overhead of a product will lead to ________.
A) misallocating direct labor costs of the product.
B) misallocating direct material costs of the product
C) misallocating indirect costs of another product
D) misallocating direct costs of another product

Answer 2

C) misallocating indirect costs of another product

Question 3

For a company which produce its products in batches, the CEO's salary is a(n) \_\_\_\_\_\_\_\_ cost.
A) batch-level
B) output unit-level
C) facility-sustaining
D) product-sustaining

Answer 3

C) facility-sustaining

Question 4

The flexible-budget variance for direct cost inputs can be further subdivided into a ________.
A) static-budget variance and a sales-volume variance
B) sales-volume variance and an efficiency variance
C) price variance and an efficiency variance
D) static-budget variance and a price variance

Answer 4

C) price variance and an efficiency variance

Question 5

With traditional costing systems, products manufactured in small batches and in small annual volumes may be \_\_\_\_\_\_\_\_ because batch-related and product-sustaining costs are assigned using unit-related drivers. 
A) overcosted 
B) fairly costed 
C) undercosted 
D) ignored

Answer 5

C) undercosted

Question 6

\_\_\_\_\_\_\_\_ is an example of an output unit-level cost in the cost hierarchy.
A) Factory rent expense
B) Building security costs
C) Top management compensation costs
D) Machine depreciation

Answer 6

D) Machine depreciation

Question 7

It only makes sense to implement an ABC system when ________.
A) a single product is produced in bulk
B) its benefits exceed its implementation costs
C) it traces more costs as direct costs
D) production process is labor-intensive

Answer 7

B) its benefits exceed its implementation costs

Question 8

Which of the following is true of flexible budget?
A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.
C) It calculates revenues by multiplying budgeted units by actual selling price per unit.
D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.

Answer 8

A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.

Question 9

T or F?
Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income.

Answer 9

True

Question 10

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set.

10) The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of \_\_\_\_\_\_\_\_.
A) labor costs
B) prime costs
C) indirect costs
D) material costs

Answer 10

C) indirect costs

Question 11

Top management compensation cost is an example of \_\_\_\_\_\_\_\_ in the cost hierarchy.
A) unit-level costs 
B) batch-level costs 
C) product-sustaining costs 
D) facility-sustaining costs

Answer 11

D) facility-sustaining costs

Question 12

The unique feature of an ABC system is the emphasis on \_\_\_\_\_\_\_\_. 
A) costing individual jobs 
B) department indirect-cost rates 
C) multiple-cost pools 
D) individual activities

Answer 12

D) individual activities

Question 13

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________.
A) total costs reflect market price
B) value-added costs can be eliminated
C) there is high likelihood of cross-subsidizing of product costs
D) product-pricing errors are minimal

Answer 13

D) product-pricing errors are minimal

Question 14

A master budget is ________.
A) a budget which starts from a zero base
B) developed for a period for a planned output
C) developed at the end of a period
D) a type of flexible budget

Answer 14

B) developed for a period for a planned output

Question 15

A favorable variance indicates that ________.
A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) actual operating income is less than the budgeted amount
D) budgeted contribution margin is more than the actual amount

Answer 15

B) actual revenues exceed budgeted revenues

Question 16

Which of the following items will be same for a flexible budget and a master budget? 
A) total variable cost 
B) total fixed costs 
C) total contribution margin
D) total revenues

Answer 16

B) total fixed costs

Question 17

A flexible budget ________.
A) is another name for management by exception
B) is developed at the end of the period
C) is based on the budgeted level of output
D) provides favorable operating results

Answer 17

B) is developed at the end of the period

Question 18

An unfavorable sales-volume variance could result from ________.
A) an inappropriate assignment of labor or machines to specific jobs
B) competitors taking market share
C) an inefficiency of a purchasing manager in bargaining with suppliers
D) a decrease in actual selling price compared to anticipated selling price

Answer 18

B) competitors taking market share

Question 19

The flexible-budget variance for materials is $5,000 (U). The sales-volume variance is $13,000 (U). The price variance for material is $31000 (F). The efficiency variance for direct manufacturing labor is $7,000 (F). Calculate the efficiency variance for materials.
A) $36,000 favorable
B) $13,000 unfavorable 
C) $6,000 favorable 
D) $36,000 unfavorable

Answer 19

D) $36,000 unfavorable

Explanation:
$5,000(U) = $31,000(F) + Price variance
Price variance = $5,000 + $31,000 = $36,000 (U)

Question 20

T or F
A variance within an acceptable range is considered to be an “in-control occurrence” and calls for no investigation or action by managers.

Answer 20

True

Question 21

\_\_\_\_\_\_\_\_ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced.
A) Unit-level costs
B) Batch-level costs
C) Product-sustaining costs
D) Facility-sustaining costs

Answer 21

C) Product-sustaining costs

Question 22

Fixed overhead costs \_\_\_\_\_\_\_\_.
A) never have any unused capacity 
B) have no spending variance
C) have no efficiency variance
D) have no production-volume variance

Answer 22

C) have no efficiency variance

Question 23

The fixed overhead cost variance can be further subdivided into the ________.
A) price variance and the efficiency variance
B) spending variance and flexible-budget variance
C) production-volume variance and the efficiency variance
D) flexible-budget variance and the production-volume variance

Answer 23

D) flexible-budget variance and the production-volume variance

Question 24

Which of the following statements is true of costing systems?
A) Single-indirect cost pool systems always result in overcosting of products.
B) Single-indirect cost pool systems classify some direct costs as indirect costs.
C) ABC systems always result in overcosting of products.
D) ABC systems classify some indirect costs as direct costs helping to improve processes

Answer 24

D) ABC systems classify some indirect costs as direct costs helping to improve processes