Lafayette Savings and Loan 1.

An objective of activity-based management is to

a. eliminate the majority of centralized activities in an organization.
Lafayette Savings and Loan had the following activities, traceable costs, and b. reduce or eliminate non-value-added activities incurred to make a product or provide a
physical flow of driver units: service.
c. institute responsibility accounting systems in decentralized organizations.
Traceable Physical flow of d. all of the above
Activities Costs Driver Units
2. Which of the following is/are part of activity-based management?
Open new accounts $50,000 1,000 accounts Activity analysis Cost driver analysis
Process deposits 36,000 400,000 deposits
Process withdrawals 15,000 200,000 withdrawals a. yes yes
Process loan applications 27,000 900 applications b. no yes
c. no no
The above activities are used by the Jennings branch and the Crowley branch: d. yes no

Jennings Crowley 3. Which of the following falls under the Activity-Based Management umbrella?

New accounts 200 400 Continuous Business process Activity-based

Deposits 40,000 20,000 improvement reengineering costing
Withdrawals 15,000 18,000
Loan applications 100 160 a. no no yes
b. yes no no
1. Refer to Lafayette Savings and Loan. What is the cost per driver unit for new account c. yes yes yes
activity? ________ d. no yes no

2. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the deposit 4. The sum of the non-value-added time and the value-added time equals
activity?_____________ a. inspection time.
b. production time.
3. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the withdrawal c. the product life cycle.
activity? ______________ d. cycle time.

4. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the loan 5. Which of the following add customer value?
application activity? ______________ a. setup time
b. storage time
5. Refer to Lafayette Savings and Loan. How much of the loan application cost will be c. idle time
assigned to the Jennings branch? ___________ d. processing time

6. Refer to Lafayette Savings and Loan. How much of the deposit cost will be assigned to the 6. Lead time minus production time is equal to
Crowley branch? _____________ a. idle time.
b. storage time.
7. Refer to Lafayette Savings and Loan. How much of the new account cost will be assigned c. non-value-added time.
to the Crowley branch? ______________ d. value-added time.
 d. yes yes yes
7. When a firm redesigns a product to reduce the number of component parts, the firm is
a. increasing consumer value. 13. The actual time it takes to perform a specific task is called
b. increasing the value added to the product. a. inspection time.
c. decreasing product variety. b. service time.
d. decreasing non-value-added costs. c. transfer time.
d. quality time.
8. Non-value-added activities that are necessary to businesses, but not costs that
customers are willing to pay for are known as 14. Manufacturing cycle efficiency is a measure of
a. business-value-added activities. a. bottlenecks.
b. long-term variable activities. b. effectiveness.
c. short-term variable activities. c. efficiency.
d. superior business activities. d. quality.

9. Which of the following would not be considered a value-added activity in the 15. Which of the following is typically regarded as a cost driver in traditional accounting
preparation of a tax return? practices?
a. printing a copy of the return for the client a. number of purchase orders processed
b. printing a copy of the return for the IRS b. number of customers served
c. installing tax software c. number of transactions processed
d. checking for accuracy d. number of direct labor hours worked

10. Which of the following is considered a value-added activity? 16. When a company is labor-intensive, the cost driver that is probably least significant
Idle time Inspection time Transfer time would be
a. direct labor hours.
a. yes yes no b. direct labor dollars.
b. no no no c. machine hours.
c. yes no yes d. cost of materials used.
d. no yes yes
17. An activity driver is used for which of the following reasons?
11. A process map To measure demands To measure resources consumed
a. should indicate only value-added activities.
b. is also known as a detailed flowchart. a. yes yes
c. should indicate only those steps/processes that are obvious in the production of b. yes no
goods/services. c. no yes
d. is also known as a value chart. d. no no

12. A value chart should include which of the following? 18. The term cost driver refers to
Service time Inspection time Transfer time a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
a. yes no yes c. the person who gathers and transfers cost data to the management accountant.
b. no no yes d. any activity that causes costs to be incurred.
c. yes yes no
 1. A primary purpose of using a standard cost system is d. eliminate the need to account for year-end underapplied or overapplied manufacturing
a. to make things easier for managers in the production facility. overhead.
b. to provide a distinct measure of cost control.
c. to minimize the cost per unit of production. 8. Standard costs
d. b and c are correct. a. are estimates of costs attainable only under the most ideal conditions.
b. are difficult to use with a process costing system.
2. The standard cost card contains quantities and costs for c. can, if properly used, help motivate employees.
a. direct material only. d. require that significant unfavorable variances be investigated, but do not require that
b. direct labor only. significant favorable variances be investigated.
c. direct material and direct labor only.
d. direct material, direct labor, and overhead. 9. A bill of material does not include
a. quantity of component inputs.
3. Which of the following statements regarding standard cost systems is true? b. price of component inputs.
a. Favorable variances are not necessarily good variances. c. quality of component inputs.
b. Managers will investigate all variances from standard. d. type of product output.
c. The production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normally change in
the future. 10. An operations flow document

4. In a standard cost system, Work in Process Inventory is ordinarily debited a. tracks the cost and quantity of material through an operation.
with b. tracks the network of control points from receipt of a customer's order through the
a. actual costs of material and labor and a predetermined overhead cost for overhead. delivery of the finished product.
b. standard costs based on the level of input activity (such as direct labor hours worked). c. specifies tasks to make a unit and the times allowed for each task.
c. standard costs based on production output. d. charts the shortest path by which to arrange machines for completing products.
d. actual costs of material, labor, and overhead.
11. A total variance is best defined as the difference between total
5. A standard cost system may be used in a. actual cost and total cost applied for the standard output of the period.
a. job order costing, but not process costing. b. standard cost and total cost applied to production.
b. process costing, but not job order costing. c. actual cost and total standard cost of the actual input of the period.
c. either job order costing or process costing. d. actual cost and total cost applied for the actual output of the period.
d. neither job order costing nor process costing.
12. The term standard hours allowed measures
6. Standard costs may be used for a. budgeted output at actual hours.
a. product costing. b. budgeted output at standard hours.
b. planning. c. actual output at standard hours.
c. controlling. d. actual output at actual hours.
d. all of the above.
13. A large labor efficiency variance is prorated to which of the following at year-end?
7. A purpose of standard costing is to WIP FG
a. replace budgets and budgeting. Cost of Goods Sold Inventory Inventory
b. simplify costing procedures. a. no no no
c. eliminate the need for actual costing for external reporting purposes. b. no yes yes
c. yes no no 3. Refer to Rainbow Company Using the four-variance approach, what is the fixed
d. yes yes yes overhead spending variance? _____________

14. Which of the following factors should not be considered when deciding 4. Refer to Rainbow Company Using the four-variance approach, what is the volume
whether to investigate a variance? variance? _____________
a. magnitude of the variance
b. trend of the variances over time 5. Refer to Rainbow Company Using the three-variance approach, what is the
c. likelihood that an investigation will reduce or eliminate future occurrences of the spending variance? _____________
variance
d. whether the variance is favorable or unfavorable 6. Refer to Rainbow Company Using the three-variance approach, what is the
efficiency variance? _____________
15. At the end of a period, a significant material quantity variance should be
a. closed to Cost of Goods Sold. 7. Refer to Rainbow Company Using the three-variance approach, what is the volume
b. allocated among Raw Material, Work in Process, Finished Goods, and Cost of Goods variance? _____________
Sold.
c. allocated among Work in Process, Finished Goods, and Cost of Goods Sold.
d. carried forward as a balance sheet account to the next period. 8. Refer to Rainbow Company Using the two-variance approach, what is the
controllable variance? _____________

Rainbow Company uses a standard cost system for its production process. Rainbow
Company applies overhead based on direct labor hours. The following 9. Refer to Rainbow Company Using the two-variance approach, what is the
information is available for July: noncontrollable variance? _____________

Standard: 10. Refer to Rainbow Company Using the one-variance approach, what is the total
Direct labor hours per unit 2.20 variance? _____________
Variable overhead per hour $2.50
Fixed overhead per hour
(based on 11,990 DLHs) $3.00

Actual:
Units produced 4,400
Direct labor hours 8,800
Variable overhead $29,950
Fixed overhead $42,300

1. Refer to Rainbow Company Using the four-variance approach, what is the variable
overhead spending variance? _____________

2. Refer to Rainbow Company Using the four-variance approach, what is the variable
overhead efficiency variance? ____________