Question

 

1) What is the relationship between indirect costs and cost objects in activity-based costing?

a. Indirect costs are directly assigned to cost objects

b. Indirect costs decrease the price of cost objects

c. Indirect costs are expensed as period costs and have no relationship to cost objects

d. Indirect costs are assigned to products via activity cost pools

2) Which of the following is true of cost drivers?

a. If the cost per unit is the same for Traditional Costing and Activity-Based Costing, the company is using the same cost driver

b. If cost distortion exists between Traditional Costing and Activity-Based Costing, the company has no need to analyze costs based on cost pools

c. Since direct labor hours is a direct cost, it is not considered a cost driver

d. None of the above is true

3) Temple Lighting uses Activity-Based Costing as follows.

Activity	Cost Driver	Cost per unit	Quantity of Activity	Cost of Activity
Assembly	Direct Labor Hours	$10.00	15,000	$150,000
Design	# of options	$12.50	2,000	$25,000
Packaging	Units Produced	$2.50	10,000	$25,000

Product X requires direct material of $25.00 per unit, direct labor of $30.00 per unit, 1.5 direct labor hours, and 2 options.

If Temple Lighting used a predetermined rate of $25.00 per direct labor hours instead of activity-based costing, they would be:

a. Undercosting their product by $5 per unit

b. Overcosting their product by $17.50 per unit

c. Undercosting their product by $15 per unit

d. Can’t tell from the information given

4) Gaming For Fun LLC manufactures two types of gaming consoles. Prices for the consoles are set to achieve a 15% gross margin. The assigned overhead cost are as follows:

Types of Consoles	Company-Wide Overhead Rate	ABC
Q100	$80	$75.20
K20	$78	$85.20

The manager has determined that cost distortion exists. Why does cost distortion exist?

a. Q100 consumes less costs per unit under ABC and is underpriced using the company-wide overhead rate

b. Q100 consumes less costs per unit under ABC and is overpriced using the company- wide overhead rate

c. K20 and Q100 consume less costs per unit under ABC and both are overpriced using the company-wide overhead rate

d. K20 is consuming more costs per unit under ABC and is overpriced using the company-wide overhead rate

Answer 1