Question

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1) Installing a new control panel on a factory production machine would be classified in the ABC cost hierarchy as a (an)

A. output unit-level cost.

B. facility-sustaining cost.

C. batch-level cost.

D. period cost because it is not related to the cost hierarchy.

E. product-sustaining cost.

2)

Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:

Cost Pool Overhead Costs Cost driver Activity level
Supervision of direct labour $320,000 Direct labour hours 800,000
Machine maintenance $120,000 Machine hours 960,000
Facility rent $200,000 Square metres of area 100,000
Total overhead costs $640,000

The accounting records show the Mossman Job consumed the following resources:

Cost driver Actual level
Direct labour-hours 200
Machine-hours 1,600
Square metres of area 50


When selling prices are based on costs assigned using the single cost driver, direct labour hours, then the Mossman job

A. is fairly billed because resources are allocated uniformly to all jobs.

B. will likely seek to do business with competitors.

C. will contribute too little to profits, and Gregory Enterprises will not want to accept additional work from the company.

D. is grossly under billed for the job, while other jobs will be unfairly over billed.

E. may increase overall sales as other jobs will be cross-subsidized.

3)

Activity-based cost systems create

A. activity-cost pools containing many direct costs.

B. activity-cost pools with a broad focus.

C. one large cost pool.

D. heterogenous activity-related cost pools.

E. homogeneous activity-related cost pools.

4)Activity-based costing is a technique to improve the reliability of cost assignment

A. to work-in-process inventory.

B. to all types of inventory.

C. from indirect cost pools to distinct types of outputs.

D. from direct cost pools to distinct types of outputs.

E. from both direct and indirect cost pools to distinct types of outputs.

5)Direct cost tracing will accomplish which of the following?

A. expand the number of indirect cost pools

B. focus on the cause-and-effect criterion when choosing allocation bases

C. classify more costs as indirect

D. identify homogeneous costs

E. classify as many of the costs as direct costs, as is economically feasible

6)If the cost of an activity increases with the number of purchase orders placed, rather than to the quantity of items purchased, it is which of the following?

A. product-sustaining (service-sustaining) costs

B. batch-level cost

C. market-sustaining cost

D. facility-sustaining cost

E. output unit-level cost

Answer 1

ans 1 option b is correct i.e facility sustaining cost

ans 2 option d is correct

ans 3 option E is correct i.e homogenous activity related cost pools

ans 4 option E is correct

ans 5. option E is correct

ans 6 option b is correct. i.e batch level cost