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Activity Based Costing and Activity Based Management

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Activity-Based Costing and Activity-Based Management 5.1 Objective 5.1 1) Which of the following statements is true of a peanut-butter costing system? A) A peanut-butter costing system typically ha... s more-homogeneous indirect cost pools. B) A peanut butter costing system broadly averages or spreads the cost of resources uniformly to cost objects. C) A peanut-butter costing system assumes that all costs are variable. D) In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume. Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking 2) Overcosting a particular product may result in: A) pricing the product too high B) pricing the product too low C) operating efficiencies D) understating total product costs Answer: A Diff: 2 Objective: 1 AACSB: Analytical thinking 3) For a company with diverse products, undercoating overhead of a product will lead to product-cross -subsidization which means that: A) direct labor costs of the product are misallocated B) direct material costs of the product are misallocated C) indirect costs of another product are misallocated D) direct costs of another product are misallocated Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking4) Aqua Company produces two products–Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua? A) Aqua will over cost Beta's direct costs as it is using a single cost pool to allocate indirect costs. B) Aqua will under cost Alpha's indirect costs because alpha has high direct costs. C) Aqua will over cost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs. D) Aqua will over cost Beta's indirect costs because beta has high indirect costs. Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 5) Product-cost cross-subsidization means that: A) when one product is overcosted, it results in more than one other product being overcosted B) when a company under costs more than one of its products, it will over cost more than one of its other products C) when a company under costs one of its products, it will overcoat at least one of its other products D) when one product is overcosted it results in all other products being overcosted Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 6) Which of the following has accelerated need for refined cost systems? A) global monopolies B) rising prices C) intense competition D) a shift toward increased direct costs Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 7) Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called activity-based costing. Answer: FALSE Explanation: Peanut butter costing occurs when costs are assigned uniformly amount multiple products using average costs that do not take into account the nonuniform way the resources are consumed to produce the different products. Diff: 1 Objective: 1 AACSB: Analytical thinking [Show More]

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