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4 which of the following statements is true of activity based costing a in activity 4301090


4) Which of the following statements is true of activity-based costing?

A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs.

B) Activity based costing is more suited to companies with high product diversity than companies with single product line.

C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.

D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.


5) A single indirect-cost rate distort product costs because ________.

A) there is an assumption that all support activities affect all products

B) it recognizes specific activities that are required to produce a product

C) competitive pricing is ignored

D) it assumes all costs are product costs

6) Extracts from cost information of Hebar Corp.:



Simple L3 Pack

Complex L7 Pack


Setup cost allocated using direct labor-hours




Setup cost allocated using setup-hours





Which of the following statement is true of Hebar's setup costs under traditional costing?

A) L3 pack is undercosted by $5,550

B) L7 pack is undercosted by $5,450

C) L3 pack is overcosted by $5,550

D) L7 pack is overcosted by $5,550


7) Which of the following statements is true of activity-based costing?

A) Activity-based costing ignores the allocation of marketing and distribution costs.

B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.

C) Activity-based costing classifies some of the indirect costs as direct costs.

D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.


8) Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.

A) establish a cause-and-effect relationship with the activities performed

B) use single cost pool for all overhead costs, thereby enabling simplicity

C) use a broad average to allocate all overhead costs

D) never consider interactions between different departments in assigning support costs


9) Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into ________.

A) fewer indirect costs for each product line

B) decisions to drop product variations

C) a greater number of direct manufacturing labor cost allocation rates

D) greater overhead costs for each product line

Premium Company provides the following ABC costing information:


ActivitiesTotal CostsActivity-cost drivers

Account inquiry              $200,000              10,000              hours

Account billing              $140,000              4,000,000              lines

Account verification accounts              $75,000              40,000              accounts

Correspondence letters              $ 25,000              4,000              letters

Total costs              $440,000


The above activities are used by Departments A and B as follows:


Department ADepartment B

Account inquiry hours              2,500              hours              4,000hours

Account billing lines              400,000              lines                  250,000lines

Account verification accounts              10,000              accounts              8,000accounts

Correspondence letters              1,200              letters              1,600letters


10) How much of the account inquiry cost will be assigned to Department A?

A) $50,000

B) $200,000

C) $60,000

D) $80,000


11) How much of the account billing cost will be assigned to Department B?

A) $8,500

B) $8,250

C) $8,750

D) $8,540


12) How much of account verification costs will be assigned to Department A?

A) $15,000

B) $18,750

C) $75,000

D) $5,000

13) How much of correspondence costs will be assigned to Department A?

A) $4,000

B) $6,250

C) $7,500

D) $10,000




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