ACCT 3201 Cost Accounting: A Managerial Emphasis, 16e (Horngren) Chapter 14 Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis Q&A-GRADED A+

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1) Which of the following customer related costs are NOT economically feasible to trace but are related to a customer? A) the additional cost of selling one more unit to a new customer who has never... done business with the firm before B) the direct material costs of a product that a customer has purchased C) the allocation of the cost of travel, lodgings, and meals that result from visiting customers at their locations D) the shipping costs that result from shipping a package by Fed Ex to a customer when the technology allows a direct match of that cost to the direct material and direct labor costs of the product Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 2) Which of the following is a reason to gather data, associate revenues with each customer and develop a system of allocating costs to each customer? A) GAAP requirements for external reporting including 10K disclosures B) to assure that highly profitable customers get the appropriate level of care and attention C) ABC systems cannot be implemented without customer-profitability reporting D) to assure that more resources are committed to loss-making customers in an attempt to retain all customers Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking 3) Segmenting customers as a result of customer profitability analysis would be done by which of the following groupings? A) geography such as state or by zip code B) operating income C) gross margin D) total direct costs Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking4) Which of the following classifications would the cost of visiting customers would most likely fit into? A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 5) Which of the following classifications would costs incurred to handle each unit sold fit into? A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking 6) Which of the following classifications would be the most appropriate for the cost of the manager of a retail distribution channel? A) customer-sustaining cost B) distribution-channel cost C) customer batch-level cost D) corporate-sustaining cost Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking 7) Which of the following classifications would be the most relevant for the costs incurred to process orders? A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking8) To improve customer profitability, companies should track which of the following? A) only the final invoice price of a sale B) the volume of the products purchased by each customer C) the location of each customer D) the customer profile Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking 9) Customers making large contributions to the profitability of the company should ________. A) be treated the same as other customers because all customers are important B) receive a higher level of attention from the company than less profitable customers C) be charged higher prices for the same products than less profitable customers D) not be offered the volume-based price discounts offered to less profitable customers Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking 10) To reduce distribution-channel costs, a company could ________. A) improve the efficiency of the ordering process B) make fewer customer visits C) eliminate distribution to retailers and only service wholesalers D) reduce product-handling costs Answer: C Diff: 3 Objective: 1 AACSB: Analytical thinking 11) Price discounts are influenced by ________. A) the volume of product purchased B) the prime cost of production C) the operational budget D) the contribution -margin per unit Answer: A Diff: 3 Objective: 1 AACSB: Analytical thinking12) Managers use a customer-profitability analysis report to ensure that ________. A) unpaid invoices are categorized according to age by due date B) costs related to customers are segmented into different cost pools on the basis of different types of cost drivers or cost-allocation bases C) customers making large contributions to the operating income of a company receive a high level of attention from the company D) cost allocation of indirect cost is in place Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 13) Which of the following illustrates a purpose for allocating costs to cost objects? A) to provide information for cost-control and pricing decisions B) to provide information to customers C) to determine marginal cost D) to measure capital expenditure Answer: A Diff: 2 Objective: 1 AACSB: Analytical thinking 14) How is value-engineering relevant to a well done customer profitability analysis, especially when an ABC system is utilized to calculate customer profits (or losses)? A) ABC will satisfy GAAP and provide input into value-engineering decisions B) ABC offers the opportunity to analyze the costs of activities assigned to each customer and to determine if improvements can be made to optimize profits C) customer profitability analysis will reveal that the cost drivers of less profitable customers are the problem and that value-engineering is the solution D) Only value-added activities will be shown in the cost analysis and thus all other costs will be eliminated via value-engineering Answer: B Diff: 3 Objective: 1 AACSB: Analytical thinking 15) Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services? A) to provide information for economic decisions B) to motivate managers and other employees C) to justify costs or compute reimbursement D) to measure income and assets for reporting to external parties Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking16) Which of the following classifications of costs in the customer-cost hierarchy would be most appropriate for the costs of activities to sell each unit to a customer? A) customer-sustaining costs B) division-sustaining costs C) customer output unit-level costs D) distribution-channel costs Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 17) ________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received) relationships. A) Customer-profitability analysis B) Customer revenues C) Customer cost hierarchy D) Price discounting Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 18) To analyze customer profitability, corporate-sustaining costs should be allocated to customers. Answer: FALSE Explanation: The allocation of corporate-sustaining costs serves no purpose in assessing customer profitability, decision making, performance evaluation, or motivation. Diff: 2 Objective: 1 AACSB: Analytical thinking 19) Costs of activities related to a group of units sold to a customer is termed as customer batch-level costs. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 20) A price discount is the reduction in selling price below list selling price to encourage customers to purchase more quantities. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 21) Tracking price discounts by customer and by salesperson helps improve customer profitability. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 22) Customer-profitability analysis is the reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking23) Costs of displays at customer sites is an example of customer batch-level costs. Answer: FALSE Explanation: Costs of displays at customer sites is an example of customer-sustaining costs. Diff: 2 Objective: 1 AACSB: Analytical thinking 24) Customer-sustaining costs is the costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer. Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking 25) All customers are equally important to a company and should receive equal levels of attention. Answer: FALSE Explanation: Customers should receive a level of attention from the company that matches their contribution to the company's profitability. 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