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True or False Questions A cost driver is a factor, such as machine-hours, beds occupied, computer...

True or False Questions

A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes direct costs.

If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job would not be known until the end of the year.

In activity-based costing, all manufacturing costs must be included in product costs.

Direct costs are usually included in the costs that are allocated to activity cost pools in an activity-based costing system.

In the first-stage allocation in an activity-based costing system, all costs allocated to all cost pools are subsequently allocated to products or customers.

If the allocation base in the predetermined overhead rate does not drive overhead costs, it will provide distorted unit product costs.

The cash budget begins with the cost of materials in dollars from the direct materials budget.

In the merchandise purchases budget, the budgeted sales (in units) for a period can be determined by adding the beginning merchandise inventory (in units) to the required purchases (in units) and substracting desired ending merchandise inventory (in units).

Solutions

Expert Solution

1. A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes direct costs.

False, All the cost drivers mentioned in the question are used to calculate variable overhead and they are not the one's which cause direct costs  

2. If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job would not be known until the end of the year.

False. Overhead rate is calculated based on budgeted costs and budgeted units and not on actual costs and activity

3. In activity-based costing, all manufacturing costs must be included in product costs.

False. Activity based costing is used to allocate overheads across various products to analyze their performance but there will be few costs which cannot be allocated to the products.

4. Direct costs are usually included in the costs that are allocated to activity cost pools in an activity-based costing system.

False. Direct costs are not added to costs that are allocated to activity cost pools in an ABC system. only Overheads are included in costs of activity pools

5. In the first-stage allocation in an activity-based costing system, all costs allocated to all cost pools are subsequently allocated to products or customers.

false in the first-stage allocation in an ABC system, some costs may be allocated to a special cost pool that are not subsequently allocated to products or customers

6. If the allocation base in the predetermined overhead rate does not drive overhead costs, it will provide distorted unit product costs.

True. The measure of activity used as the allocation base should drive the overhead cost; if not the products costs will be distorted.

7.The cash budget begins with the cost of materials in dollars from the direct materials budget.

False. it starts with begging balance followed by Cash collected from customers.

8. In the merchandise purchases budget, the budgeted sales (in units) for a period can be determined by adding the beginning merchandise inventory (in units) to the required purchases (in units) and subtracting desired ending merchandise inventory (in units).

True. Budgeted Sales = Opening Inventory + Required Purchases - Ending Inventory

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