Cost Accounting Systems A. Traditional Cost Accounting Theories

MODULE 12
COST ACCOUNTING SYSTEMS
A. TRADITIONAL COST ACCOUNTING
THEORIES:
1. Cost accounting involves the measuring, recording, and reporting of

A. product costs
B. manufacturing process
C. future costs
D. managerial accounting decisions
2. The cost management information system provides information

A. that the accountant needs to prepare the financial statements.
B. that the manager needs to effectively manage the firm.
C. that the manager needs to effectively manage not-for-profit organization.
D. b and c.
3. The cost management function is usually under

A. the chief information officer.
B. treasurer.
C. purchasing manager.
D. controller.
4. The main focus of cost management information must be

A. usefulness and accuracy.
B. timeliness and accuracy.
C. usefulness and timeliness.
D. relevance and good format.
5. With regard to the task of management's decision making, cost "management

information is needed to
A. make sound strategic decisions regarding choice of product methods, and
techniques.
B. support recurring decisions regarding replacement equipment, managing
cash flow, etc.
C. provide a fair and effective basis for identifying inefficient operations.
D. provide accurate accounting for inventory, receivables, and other assets.
6. Product costing system design or selection:

A. requires an understanding of the nature of the business
B. should provide useful cost information for strategic and operational
decision needs
C. should be cost effective in design and selection
D. all the above answers are correct
7. Which of the following is, an example of a committed fixed costs?

A. direct materials
B. depreciation on a factory building
C. supervisor's salary
D. insurance on a building
8. Which of the following is an example of discretionary fixed cost?
A. direct labor
B. insurance on a building
C. property taxes on a factory building
D. depreciation on a factory building
9. The distinction between direct and indirect costs depends whether a cost
A. is controllable or non-controllable.
B. is variable or fixed
C. can be conveniently and physically traced to a cost object under consideration.
D. will increase with changes in levels of activity.
10. Controllable costs are:

A. Costs that management decides to incur in the current period to enable the
company to achieve operating objectives other than the filling of orders
placed by customers.
B. Costs that are governed mainly by past decisions that established the
present levels of operating and organizational capacity and that only change
slowly in response to small changes in capacity.
C. Costs that will unaffected by current managerial decisions.
D. Costs that are likely to respond to the amount of attention devoted to them
by a specified manager.
11. Controllable costs for responsibility accounting purposes are directly influenced
only by
A. A given manager within a given period.
B. A change in activity.
C. Production volume.
D. Sales volume.
12. An imputed cost is

A. The difference in total costs which results from selecting one choice instead
of another.
B. A cost that does not entail any cash outlay but which is relevant to the
decision-making process.
C. A cost that may be shifted to the future with little or no effect on current
operations.
D. A cost that continues to be incurred even though there is no activity.
13. Almos, Inc. makes ski-boards in Davao. Identify the correct matching of terms.
A. Fiberglass is factory overhead
B. Plant real estate taxes are a period cost
C. Depreciation on delivery trucks is a product cost
D. Payroll taxes for workers in the Packaging Dept. are direct labor
14. Semi-variable costs

A. per unit remain the same regardless of total output
B. remain the same within the relevant range of output
C. increase in steps as the amount of the cost driver increases
D. have both fixed and variable components in them
15. A step cost is

A. the same as semi-fixed cost
B. the same as mixed cost
C. a cost that increases in steps as the amount of cost-driver volume increases
D. a and c only.
16. An example of a committed fixed cost is:

A. a training program for salespersons.
B. executive travel expenses.
C. property taxes on the factory building.
D. new product research and development.
17. What kind of costs can be conveniently and economically traced to a cost object
or pool?
A. Indirect Costs.
B. Relevant Costs.
C. Direct Costs.
D. Overhead Costs.
18. Which of the following would NOT be a period cost for manufacturing firm?
A. Selling expenses
B. Salary paid to the CEO of the company
C. Repairs to the Receptionist's computer
D. Utilities in manufacturing plant
19. Of most relevance in deciding how indirect costs should be assigned to products
is the degree of
A. Linearity.
B. Causality.
C Avoidability.
D. Controllability.
20. The product cost which is determined in a conventional standard cost accounting
system is a (an)
A. Joint cost.
B. Fixed cost.
C. Expected cost.
D. Direct cost.
21. Which of the following is not a trait of a traditional cost management system?
A. unit-based drivers
B. allocating intensive
C. focus on managing activities
D. narrow and rigid product costing
22. The use of unit-based activity drivers to assign costs tends to

A. overcost low-volume products.
B. overcost high-volume products.
C. overcost all products.
D. undercost all products.
23. Which of the following is typically regarded as a cost driver in traditional

accounting practices?
A. number of purchase orders processed
B. number of customers served
C. number of transactions processed
D. number of direct labor hours worked
24. Which of the following is not typical of traditional systems?

A. Use of a single predetermined overhead rate.
B. Use of direct labor hours or direct labor cost to assign overhead.
C. Assumption of correlation between direct labor an incurrence of overhead
cost
D. Use of multiple cost drivers to allocate overhead.
25. An activity that has a direct cause-effect relationship with the resources
consumed is a (n)
A. cost driver.
B. overhead rate.
C. cost pool.
D. product activity.
26. Each group of overhead costs should be applied based on

A. direct labor hours or cost.
B. units produced.
C. whatever activity drives those specific overhead costs.
D. machine time.
27. The term cost driver refer to:

A. any activity that can be used to predict cost changes.
B. the attempt to control expenditures at a reasonable level.
C. the person who gathers and transfers cost data to 1 management
accountant.
D. any activity that causes costs to be incurred.
28. An accounting system that focuses on transactions is

A. an activity-based accounting system.
B. a product life cycle costing system.
C. a traditional accounting system.
D. all of the above.
29. Traditionally, managers have focused cost reduction efforts on

A. activities.
B. processes.
C. departments.
D. costs.
30. Traditional overhead allocations result in which of the following situations?

A. Overhead costs are assigned as period costs to manufacturing operations.
B. High-volume products are assigned too much overhead, and low-volume
products are assigned too little overhead.
C. Low-volume products are assigned too much, and high-volume products are
assigned too little overhead.
D. The resulting allocations cannot be used for financial reports.
31. Which of the following statements is true?

A. The traditional approach to costing uses many different cost drivers.
B. Costs that are indirect to products are by definition traceable to directly to
products.
C. Costs that are indirect to products are traceable to some activity.
D. All of the above statements are true.
32. Product costs can be distorted if a unit-based cost driver is used and
A. non unit-based overhead costs are a significant proportion of total overhead
B. the consumption ratios differ between unit-based and non unit-based input
categories
C. both a and b
D. neither a nor b
[
33. Which of the following is a trait of a traditional cost management system?
A. unit-based drivers
B. detailed activity information
C. tracing is intensive
D. focus on managing activities
34. The effect of uniform production levels on production cost unit can be achieved
A. by using a factory overhead rate based on different production levels for each
year
B. by using a factory overhead rate based on selling price
C. by closing the factor}' overhead at the end of the accounting period
D. by using a factory overhead rate based on long-run normal production
activity level
[
35. Conventional product costing uses which of the following procedures?

A. Overhead costs are traced to departments, then costs are traced to products.
B. Overhead costs are traced to activities, then costs are traced to products.
C. Overhead costs are traced directly to product.
D. All overhead costs are expensed as incurred.
36. The overhead rates of the traditional approach to product cost use
A. non unit-based cost drivers
B. process costing
C. unit-based cost drivers
D. job-order costing
37. The two main advantages of using predetermined factory-overhead rates are to
provide more accurate unit cost information and to:
A. simplify the accounting process
B. provide cost information on a timely basis
C. insure transmission of correct data
D. adjust for variances in data sources
38. No matter which method is used, underapplied or overapplied overhead usually

is adjusted only:
A. at the end of a year.
B. monthly during the year
C. if the difference exceeds P1, 000 or one percent of total overhead.
D. when the company's profit projections require an adjustment
39. The formula for computing the predetermined manufacturing overhead rate is
estimated annual overhead costs divided by an expected annual operating
activity, expressed as
A. direct labor cost
B. machine hours
C. direct labor hours
D. any of these
40. Which of the following items is not a characteristic of a process cost system?
until the finished
A. Once production begins, it continues product emerges
B. The products produced are heterogeneous in nature
C. The focus is on continually producing homogeneous products
D. When the finished product emerges, all units have precisely
the same amount of materials, labor, and overhead
41. Why is it better to use separate overhead rates?

A. Some departments are labor-intensive, some are machine-intensive.
B. Labor rates vary considerably among departments.
C. The resulting overhead rates are all about the same.
D. All jobs require about the same percentage of time in all departments.
42. The principal difficulty with normal costing is that

A. the unit cost information is not received on a timely basis
B. it can result in fluctuating per-unit overhead costs
C. estimated overhead and estimated activity are likely to differ from actual
overhead and actual costs, resulting in underapplied or overapplied
overhead
D. there is no difficulty associated with using normal costing
43. Disadvantages of actual costing include

A. actual cost systems cannot provide accurate unit cost information on a timely
basis
B. actual cost systems produce unit costs that fluctuate from period to period
C. estimates must be used when calculating the actual overhead rate
D. a and b
44. Volume-based plant-wide rates produce inaccurate product cost when:

A. a large share of factory overhead cost is not volume-based
B. firms produce a diverse mix of product
C. large volumes of production occur
D. Both a and b are correct.
45. If company A has a higher degree of operating leverage than company B, then:
A. the company A has higher variable expenses.
B. the company A's profits are more sensitive to percentage changes in sales.
C. the company A is more profitable.
D. the company A is less risky.
46. Normal costing and standard costing differ in that

A. the two systems can show different overhead budget variances.
B. only normal costing can be used with absorption costing
C. the two systems show different volume variance if standard hours do not
equal actual hours
D. normal costing is less appropriate for multi product firms.
47. Direct product expenses

A. are incurred for the benefit of the business as a whole
B. cannot be identified readily with a given product
C. can be assigned to product only by a process of allocation
D. would not be incurred if the product did not exist
PROBLEMS:
1. Machine hours used to set the predetermined overhead rate were 25,000, actual
hours were 24,000, and overhead applied was P60,000. Budgeted overhead for
the year was
A. P57,600.
B. P59,000.
C. P60,000.
D. P62,500.
2. Cooke Company uses the equation P450,000 + P1.50 per direct labor hour to
budget manufacturing overhead. Cooke has budgeted 150,000 direct labor hours
for the year. Actual results were 156,000 direct labor hours and P697,500 total
manufacturing overhead. The total overhead variance for the year is
A. P4,500 favorable.
B. P18,000 favorable.
C. P4,500 unfavorable.
D. P18,000 unfavorable.
3. Direct materials and direct labor costs total P120,000, conversion costs total
P100.000, and factory overhead costs total P400 per machine hour. If 150
machine hours were used for Job #201 what is the total manufacturing cost for
Job #201?
A. 120,000
B. 160,000
C. 180,000
D. 280,000
4. If estimated annual factory overhead is P800,000, estimate annual direct labor

hours are 400,000, actual June factory overhead is P82,000, and actual June
direct labor hours 38,000, then overhead is:
A. P6,000 overapplied
B. P1,800 overapplied
C. P1,800 underapplied
D. P6,000 underapplied
5. BKY Company predicted that factory overhead for 2006 and 2007 would be
P60,000 for each year. The predicted and actual activity for 2006 and 2007 were
30,000 and 20,000 direct labor hours, respectively.
2006 2007
Sales in units 25,000 25,000
Selling price per unit P10 P10
Direct materials and direct
[[
labor per unit P5 P5
The company assumes that the long-run production level is 20,000 direct labor
hours per year. The actual factory- overhead cost for the end of 2006 and 2007
was P60,000. Assume that it takes one direct labor hour to make one finished
unit.
When the annual estimated factory overhead rate is used, the gross profits for
2006 and 2007, respectively, are
A. P 75,000 and P 75,000
B. P 75,000 and P 55,000
C. P125,000 and P125.000
D. P 75,000 and P 50,000
6. In the Star Company, the predetermined overhead rate is 80% of direct labor
cost. During the month, P210,000 of factory labor costs are incurred, of which
PI80,000 is direct labor and P30,000 is indirect labor. Actual overhead incurred
was P200,000. The amount of overhead debited to Work in Process Inventory
should be
A. P120.000
B. P144,000
C. P168,000
D. P160,000
7. The Assembling Department's output during the period consists of 20,000 units
completed and transferred out, and 5,000 units in ending work in process 60%
complete as to materials and conversion costs. Beginning inventory is 1,000
units, 40%complete as to materials and conversion costs. The equivalent units of
production are
A. 22,600
B. 23,000
C. 24,000
D. 25,000
8. In the Newman Company, there are zero units in beginning work in process,
7,000 units started into production, and 500 units in ending work in process 20%
completed. The physical units to be accounted for are
A. 7,000
B. 7,360
C. 7,600
D. 7,340
9. The Amor Company has 2,000 units in beginning work in process, 20% complete
as to conversion costs, 23,000 units transferred out to finished goods, and 3,000
units in ending work in process one-third complete as to conversion costs,
beginning and ending inventory is fully complete as to materials costs. Equivalent
units for materials and conversion costs are
A. 22,000 and 24,000
B. 26,000 and 24,000
C. 24,000 and 26,000
D. 26,000 and 26,000
10. Catridge Company has no beginning work in process; 9,000 unit are transferred
out and 3,000 units in ending work in process are one-third finished as to
conversion costs and fully complete as materials cost. If total materials cost is
P60,000, the materials cost is
A. P5.00
B. P6.00
C. P5.45
D. P5.35
11.Britney Company has unit costs of P10 for materials and P30 for conversion
costs. If there are 2,500 units in ending work m process, 43% complete as to
conversion costs, and fully complete as to materials cost, the total cost
assignable to the ending work in process inventory is
A. P 45,000
B. P 55,000
C. P 75,000
D. P100,000
12. Dodge Company has a mixing department and a refining department. Its
process-costing system in the mixing department has two direct materials cost
categories (material J and material) and one conversion costs pool. The company
uses First-in First-out cost now method. The following data" pertain to the mixing
department for November 2006
Units
Work in process, November 1: 50
percent completed 15,000
Work in process, November 30, 7
percent completed 25,000
Units started 60,000
Completed and transferred 50,000
Costs
Work-in-process, November 1 P218,000
Material J 720,000
Material P 750,000
Conversion Costs 300,000
Material J is introduced at the start of operations in the Mixing department, and

Material P is added when the product is three-fourths completed in the mixing
department. Conversion costs are added uniformly during the process.
The respective equivalent units for Material J and Material P in the mixing
department for November 2006, are
A. Both 50,000 units
B. 60,000 units and 50,000 units
C. 75,000 units and 60,000 units
D. 60,000 units and 75,000 units
13. The cost of goods completed and transferred out to the Refining department was
A. P1,930,750
B. P1,350,000
C. P1,600,500
D. P1,550,500
14. The Amor Company's accounting records reflected the following data for April
2003. The company accounts its production using First-in, First-out cost flow
method:
Work in process, March 31,2003, 60%
completed as to materials and conversion
costs ? units
Work in process, April 30, 2003, 30%
completed as to materials and conversion
costs 24,000 units
Equivalent units of production for April 2003 64,000
Units started and completed in April 50,000
How many units were in the beginning work-in-process?
A. 6,800
B. 11,333
C. 17,000
D. 24,000
15. Had the company used the weighted-average method accounting for its
production, the equivalent units should be
A. 74,200
B. 57,200
C. 81,000
D. 53,800
16. Lapid Company uses process costing. All materials are; the beginning of the
process. The product is inspected when it is90 percent converted, and spoilage is
identified only at that point Normal spoilage is expected to be 5% of good output
The following are extracted from the production records of Lapid Company for
May 2003:
Units put into process 21,000
Units transferred to finished goods 14,000
In-process, May 31, 75% complete 6,000
How many are considered abnormal lost units?

A. Zero
B. 300
C. 15
D. 850
17. For the month of May, the Production Control Department of La Mesa, Inc;
reported the following production data for Finishing Department (second
department):
Transferred-in from Assembly Department 75,000

Transferred-out to Packaging Department 59,250
In-process end of May (with 1/3 labor and factory
overhead) 15,750
All materials were put into process in Assembly Department. The Cost Accounting
Department collected these figures for Finishing Department.
Unit cost for unit transferred-in from

Assembly Department P 2.70
Labor cost in Finishing Department 41,280.00
Applied factory overhead 112.5% of labor cost
How much was the cost of finished goods transferred out to the Packaging
Department?
A. P240,555
B. P 80,580
C. P260,580
D. P159.975
Use the following data to answer question Nos. 18 through 20.
Mergy Company uses process costing in accounting for its production department,
which uses two raw materials. Material Alpha is placed at the beginning of the
process. Inspection is at the 85% completion stage. Material Bravo is then added to
the good units. Normal spoilage units amount to 5% of good output. The company
records contain the following information for April:
Started during the period 20,000 units
Material Alpha P26,800
Material Beta P22,500
Direct labor cost P75,160
Factory overhead P93.950
Transferred to finished goods 14,000
Work in process (95% complete), April 30 4,000
18. How much were Material cost per equivalent unit for Alpha and Beta,
respectively?
A. P1.40; P1.36
B. P1.40; P1.06
C. P1.34; P1.06
D. P1.34; P1.25
19. The equivalent units of production for Material Alpha and Beta are
Alpha Beta
A. 18,000 14,000
B. 18,000 18,000
C. 20,000 18,000
D. 20,000 14,000
20. The number of normal and abnormal lost units are:

Normal Abnormal
A. 700 1,400
B. 1,400 700
C. 900 1,100
D. 1,100 900
Use the following information that pertains to beta manufacturing company
to answer questions 21 through 23:
Beginning direct materials inventory P 20,000
Beginning WIP inventory 20,000
Beginning finished goods inventory 40,000
Ending direct materials inventory 10,000
Ending WIP inventory 100,000
Ending finished goods inventory 50,000
Purchases 140,000
Direct labor 160,000
Factory overhead 200,000
21. What is the amount of direct materials used during the period?
A. P140,000
B. P130,000
C. P150,000
D. P150,000
22. What is the amount of cost of goods manufactured during the
period?
A. P430,000
B. P420,000
C. P470,000
D. P510,000
23. What is the amount of cost of goods sold during the period?
A. P430,000
B. P420.000
C. P470.000
D. P510,000
24. ABC Company had a total overhead of P360,000 and selling administrative
expense of P140,000 for the year,1,000 units and 3,000 units of B were
produced. A requires 3 machine h and B requires one machine hour per unit.
What is overhead chargeable per unit of A
A. P 60
B. P 90
C. P120
D. P180
25. ABC Company had a total overhead of P360,000 and selling and administration
expense of P140,000 for the year. 1,000 units of A and 3,000 units of B were
produced. A requires 3 and B requires one machine hours per unit. A requires 6
direct labor hours and B requires 4 direct labor hours per unit. 40% of overhead
is related to labor and the balance to machines. Labor-related overhead per hour
amounts to
A. P 8
B. P12
C. P18
D. P24
expense of P140,000 for the year. 1,000 units of f and 3,000 units of B were
produced. A requires 3 and B requires one machine hours per unit. A requires 6
direct labor hours a B requires4 direct labor hours per unit. 40% of overhead
related to labor and the balance to machines. The overhead per unit of B
amounts to
A. P 60
B. P 68
C. P156
D. P180
produced. Assuming that 20% of all overhead are batch-related for l,000
batches, 40% of which was for producing product A, batch-related overhead for
product A per unit amounts to
A. P20
B. P40
C. P60
D. P80
produced. Assuming that 30% of overhead is product related overhead - 20% of
which is related to product A, product-related overhead per unit of A amounts to
A. P30
B. P40
C. P50
D. P60
B. ACTIVITY-BASED COST SYSTEM
THEORIES:
1. Which system focuses on the management of activities with the objective of

improving the value received by the customer and the profit received by
providing this value?
A. activity-based management
B. traditional cost management system
C. contemporary cost control
D. standard cost system
2. The primary benefit of using ABC is that it provides

A. better management decisions.
B. enhanced control over overhead costs.
C. more cost pools.
D. more accurate product costing.
3. Symptoms of an outdated cost system include all of the following EXCEPT

A. product costs change because of changes in financial reporting.
B. products that are difficult to produce show little profit.
C. competitors' prices appear unrealistically low.
D. the company has a highly profitable niche all to itself.
4. Which of the following factors would suggest a need to switch to activity-based

costing?
A. Product lines similar in volume and manufacturing complexity.
B. Overhead costs constitute a significant portion of total costs.
C. The manufacturing process has been stable.
D. Production managers use data provided by the existing system.
5. Primary concepts under activity-based management include all of the following

except:
A. activity analysis
B. total quality management
C. activity-based costing
D. cost driver analysis
6. Which of the following is typical of activity-based costing systems?

A. Use of a single predetermined overhead rate.
B. Use of direct labor hours or direct labor cost to assign overhead.
C. Assumption of correlation between direct labor and incurrence of
overhead cost.
D. Use of multiple cost drivers to allocate overhead.
7. A least likely reason to use activity-based overhead rates is that
A. some departments are labor-intensive, some are machine-intensive.
B. significant amounts of overhead are driven by different, factors,
C. rates calculated for some departments are much higher than for other
departments.
D. all jobs require about the same amounts of cost-driving activities.
8. The presence of any of the following factors would suggest switch to ABC except
when
A. product line differ greatly in volume,
B. overhead costs constitute a minor portion of total costs.
C. the manufacturing process has changed significantly.
D. production managers are ignoring data provided by existing system.
9. Which of the following is a limitation of activity-based costing?

A. More cost pools
B. Less control over overhead costs.
C. Poorer management decisions
D. Some arbitrary allocations continue
10. Which of the following is not a benefit of activity-based costing?

A. More accurate product costing.
B. Enhanced control over overhead costs.
C. Less costly to use.
D. Better management decisions.
11. As compared to a high-volume product, a low-volume product

A. usually requires less special handling.
B. is usually responsible for more overhead costs per unit.
C. requires relatively fewer machine setups.
D. requires use of direct labor hours as the primary cost driver to ensure proper
allocation of overhead.
12. Each of the following is a limitation of activity-based costing system except that:
A. it can be expensive to use.
B. it is more complex than the traditional costing.
C. more cost pools are used.
D. some arbitrary allocations still continue.
13. Which of the following is NOT a sign of poor cost data?

A. Competitors' prices for high-volume products appear much too high.
B. The company seems to have a highly profitable niche all to itself.
C. Customers don't balk at price increases for low-volume products.
D. Competitors' prices for low-volume products appear much too high.
14. All of the following statements are correct except that

A. activity-based costing has been widely adopted in service industries.
B. the objective of installing ABC in service firms is different than it is in a
manufacturing firm,
C. a larger proportion of overhead costs are company-wide costs in service
industries.
D. the general approach to identifying activities and activity cost pools is the
same in a service company as in a manufacturing company.
15. Which of the following lists the most to least accurate method of cost
assignments?
A. direct tracing, driver tracing, allocation
B. allocation, direct tracing, driver tracing
C. driver tracing, direct tracing, allocation
D. allocation, driver tracing, direct tracing
16. A well-designed activity-based costing system starts with

A. identifying the activity-cost pools.
B. computing the activity-based overhead rate.
C. assigning manufacturing overhead costs for each activity cost pool to
products.
D. analyzing the activities performed to manufacture a product.
17. An objective of activity-based management is to

A. eliminate the majority of centralized activities in an organization.
B. reduce or eliminate non-value-added activities incurred to make a product or
provide a service.
C. institute responsibility accounting systems in decentralized organizations.
D. all of the above
18. Which of the following falls under the Activity-Based Management umbrella?
Continuous Business process Activity-based

improvement reengineering costing
A. NO NO YES
B. YES NO NO
C YES YES YES
D. NO YES NO
19. In activity-based costing, final cost allocations assign costs to

A. departments.
B. processes.
C. products.
D. activities.
20. In activity-based costing, preliminary cost allocations assign costs to

A. departments.
B. processes.
C. products.
D. activities.
21. Of the following, which is the best reason for using activity-based costing?
A. to keep better track of overhead costs
B. to more accurately assign overhead costs to cost pools so that these costs are
better controlled
C. to better assign overhead costs to products
D. to assign indirect service overhead costs to direct overhead cost pools
22. ABC should be used in which of the following situations?
A. single-product firms with multiple steps
B. multiple-product firms with only a single process
C. multiple-product firms with multiple processing steps
D. in all manufacturing firms
23. Any activity that causes resources to be consumed is called a

A. just-in-time activity
B. cost driver
C. facility-level activity
D. nonvalue-added activity
24. A base used to allocate the cost of a resource to the different activities using that
resource is
A. resource driver
B. final cost object
C. activity driver
D. driver
25. The first step in activity-based costing is to

A. assign manufacturing overhead costs for each activity cost pool to products.
B. compute the activity-based overhead rate per cost driver.
C. identify and classify the major activities involved in the manufacture of
specific products.
D. identify the cost driver that has a strong correlation to the activity cost pool.
26. The last step in activity-based costing is to

A. identify the major activities that pertain to the manufacture of specific
products.
B. allocate manufacturing overhead costs to activity cost pools
C. identify the cost drivers that accurately measure each activity's
contribution to the finished product.
D. assign manufacturing overhead costs for each activity co pool to products.
27. Which of the following is not a distinction between the traditional and ABC
costing systems?
A. the number of overhead cost pools tends to be higher systems ABC
B. the number allocation bases tend to be higher in ABC system

C. costs within an ABC cost pool tend to be more homogeneous than the costs
within a traditional system's cost pool
D. all ABC systems are one-stage costing systems, while traditional systems
may be one- or two-stage
28. Activity-based management (ABM) is

A. a costing system in which multiple overhead cost pools an allocated using
bases that include one or more nonvolume related factors.
B. a base used to allocate the cost of a resource to the different activities using
it
C. the use of information obtained from ABC to make improvements in the
firm.
D. a base used to allocate the cost of an activity to products and customers
29. All of the following are ways that activities can be managed to achieve
improvements in a process, except
A. activity induction
B. activity selection
C. activity elimination
D. activity sharing
30. An activity-based costing system uses which of the following procedures?

A. Overhead costs are traced to departments, then costs are traced to products
B. Overhead costs are traced to activities, then costs are traced to products.
C. Overhead costs are traced directly to products.
D. All overhead costs are expensed as incurred.
31. A cost pool is

A. all of the costs of a particular department.
B. all costs in a group such as variable costs or discretionary fixed costs
C. all costs related to a product or product line.
D. all costs that have the same driver.
32.In contrast to a company that uses a single overhead rate, one that uses activity
based costing
A. will have higher product costs than one using a single overhead rate,
B. cannot compute budget variances.
C. will incur additional costs for recordkeeping.
D. must have a preponderance of fixed overhead costs.
33. Activity-based overhead rates are more useful than a single plant- wide rate if
A. overhead costs are driven by several activities.
B. direct labor cost varies significantly from department to department.
C. all products require about the same amounts of all activities.
D. manufacturing overhead costs are nearly all fixed.
34. More accurate product costing information is produced by assigning costs using
A. a volume-based, plant-wide rate.
B. volume-based, departmental rates.
C. activity- based pool rates.
D. all of the above
35. Which of the following best describes the flow of overhead costs in an activity-
based costing system?
A. Overhead costs - direct labor cost or hours —> products
B. Overhead costs - products
C. Overhead costs products> activity cost pools —> cost drivers
D. Overhead costs - machine hours —*• products
36. Finding a single cost driver that .changes in the same proportion as all the
variable factory overhead costs is:
A. simplified by breaking out the fixed portion of overhead cost
B. the first step in variable overhead cost management
C. difficult, but manageable
D. impossible
37. Total activity cost is the sum of
A. resource driver assigned costs and activity driver assigned costs
B. direct and indirect costs
C. directly traceable resource costs and resource driver assigned costs
D. opportunity costs and realized costs
38. Activity drivers differ from resource drivers in that activity drivers
A. are used to assign indirect costs while resource drivers are used to assign
direct costs
B. assign the cost of activities to cost objects while resource drivers assign the
cost of resources to activities
C. assign the cost of activities to resources and resource drivers assign the cost
of resources to cost objects
D. are used to assign direct costs while resource drivers are used to assign
indirect costs
39. Which of the following activities may support all the organization's processes and
are the highest level of activities?
A. batch-level activities
B. product-sustaining activities
C. facility-level activities
D. unit-level activities
40. Which of the following activities is directly traceable to a product?

A. batch-level activities
B. unit-level activities
C. facility-level activities
D. product-sustaining activities
41. All of the following are unit-based cost drivers except

A. machine hours
B. number of units
C. number of setups
D. direct labor hours
42. A base used to allocate the cost of products, customers, or other final cost
objects is a(n)
A. resource driver
B. final cost object
C. activity driver
D. driver
43. Examples of activities at the product level of costs include

A. cutting, painting, and packaging
B. scheduling, setting up, and moving
C. designing, changing, and advertising
D. heating, lighting and security
44. Examples of unit-level costs are

A. portions of electricity and indirect materials
B. salaries of schedulers and setup personnel
C. salaries of designers and programmers
D. depreciation and insurance of building
45. Examples of batch-level activity drivers include
A. units of output and direct labor hours
B. number of batches and material moves
C. number of products and design changes
D. square footage occupied
46. Unit level costs are costs that

A. inevitably increase whenever a unit is produced
B. are caused by the number of batches produced and sold
C. are incurred to support the number of different products produced
D. are incurred to sustain capacity at a production site
47. Plant-level costs are costs that

A. inevitably increase whenever a unit is produced
B. are caused by the number of batches produced and sold
C. are incurred to support the number of different products produced
D. are incurred to sustain capacity at a production site
48. An activity that adds cost to the product but does not increase it market value is
a
A. value-added activity
B. cost-benefit activity
C. cost driver
D. nonvalue-added activity
49. The following activity is value-added:

A. Storage of raw materials
B. Turning a piece of metal on a lathe
C. Moving parts from machine to machine
D. All of these
50. When a firm redesigns a product to reduce the number of component parts, the
firm is
A. increasing consumer value.
B. increasing the value added to the product.
C. decreasing product variety.
D. decreasing non-value-added costs.
51. Manufacturing cycle efficiency is a measure of

A. bottlenecks.
B. effectiveness.
C. efficiency.
D. quality.
52. Under activity-based costing, benchmarks for product cost should contain an
allowance for
A. idle time.
B. idle time and scrap materials.
C. spoilage.
D. none of the above.
53. The amount of time between the development and the production of a product is
A. the product life cycle.
B. lead time.
C. production time.
D. value-added time.
54. Batch-level resources are

A. acquired for individual units of product or service
B. acquired for making a group of similar products
C. acquired to produce and sell a specific product
D. acquired to provide a general capacity to produce products and services.
55. An appropriate cost driver base should

A. have a cause-and-effect relationship with the activity and the use of
resources
B. predict or explain activities use of resources with reasonable accuracy
C. be based on the practical capacity of the resource to support activities
D. all of the above
56. In a pure activity-based cost system which of the following, might be treated as
period costs?
A. facility-level costs
B. product-level costs
C. batch-level costs
D. unit-level costs
57. Designing and redesigning are activities that are classified as

A. Facility level
B. Batch level
C. Unit level
D. Product level
58. Examples of unit level activities are

A. scheduling, setting up, and receiving
B. designing, changing, and advertising
C. heating, lighting, and security
D. cutting, painting, and packaging
59. Which of the following is not considered to be a facility-level cost?

A. Cost of Property Insurance.
B. Cost of personnel administration.
C. Cost of Liability Insurance for only one of the product lines.
D. Cost of building security.
60. Which of the following is the best way to consider a product-level cost?
A. A product-level cost can be avoided when a product line is discontinued.
B. A product-level cost can be avoided when a there is change in the production
schedule so the product is not produced this week.
C. A product level cost can be avoided when a business segment is
discontinued.
D. A product level cost can be avoided when the corporation is dissolved.
61. Examples of activities at the batch level of costs include
A. scheduling, setting up, and moving
B. designing, changing, and advertising
C. heating, lighting, and security
D. cutting, painting, and packaging
62. An example of a nonvolume-related overhead base would be:

A. Direct materials cost
B. Machine hours
C. Direct Labor cost
D. Number of setups
63. Which of the following is not a batch-level activity?

A. Engineering changes.
B. Equipment setups.
C. Inspection.
D. Material handling.
64. Elimination of non-value-added activities in a firm should:

A. be discouraged because of potential harmful effects
B. not affect customer value
C. not have priority because non-value-added activities do not affect a firm's
performance
D. have priority only when a firm is operating at a loss
65. Successful activity-based costing (ABC) implementation depends upon the firm
having:
A. top management support
B. ABC linked to its competitive strategy
C. adequate resources
D. all of the above)
66. Page Company's cost allocation and product costing procedure-follow activity-
based costing principles. The following activities have been identified and
classified as being either value-adding or non-value adding as to each product.
1. Raw materials storage activity

2. Design engineering activity
3. Drill press activity
4. Heat treatment activity
5. Quality control inspection activity
6. Issuance of purchase order activity
How are the foregoing activities classified?
Value-adding Non-value adding

A. 1, 2, 5, 6 3, 4
B. 1,2,4 3,5,6
C. 2, 4, 5 1,3,6
D. 2, 3, 4 1,5,6
PROBLEMS:
1. One of Alien Company's activity cost pools is machine setups, with estimated
overhead of P300,000. Alien produces slacks (400 setups) and shirts (600
setups). How much of the machine setup cost pool should be assigned to slacks?
A. P 0
B. P120,000
C. P150,000
D. P180.000
2. The overhead rate for Machine Setups is P100 per setup. Products A and B have
80 and 60 setups, respectively. The overhead assigned to each product is
A. Product A P8,000, Product B P8,000
B. Product A, P6,000, Product B P6,000
C. Product A P8,000, Product B P6,000
D. Product A, P6,000, Product B P8,000
3. Sylvia Company has identified an activity cost pool to which it has allocated
estimated overhead of P1,920,000 and determined the expected use of cost
drivers per that activity to by 160,000 inspections. Widgets require 40,000
inspections, Gadgets 30,000 inspections, and Targets, 90,000 inspections.
The overhead assigned to each product is

A. Widgets P40,000, Gadgets P30.000, Targets P90,000
B. Widgets P480,000, Gadgets P360,000, Targets PI,080,000
C. Widgets P360,000, Gadgets P480.000, Targets PI,080,000
D. Widgets P480,000, Gadgets P360,000, Targets PI,080,000
4. Arid Company produces products BH and XP. The direct cost of BH is P250 per
unit and XP is P350 per unit. Fifty units of BH and150 units of XP were produced.
Overhead amounting to P130,000 is allocated to products using direct costs as
the relevant cost driver.
The cost of XP per unit amounts to
A. P750
B. P1,000
C. P1, 050
D. P1, 250
5. Beltran Company produces products X and Y. The direct cost of X is P250 per unit
(P100 materials and P150 labor) and Y is P31 (P230 material and P120 labor) per
unit. Fifty units of X and 150 units of Y were produced. Overhead amounts to
P130,000 and composed of material handling PI 2, 000, labor support P60,00
machine operation P48,000, and general administration P10,00 Material handling
cost driver is material cost, labor support co driver is labor cost. Machine
operation cost resulted from running the machines a total of 480 hours (three-
fourth of which was for product X). General administration effort related equally
product X and Y. Material handling chargeable per unit of (rounded) amounts to
A. P30; P 70
B. P40; P 80
C. P60; P140
D. P70; P 30
6. Ray Manufacturing has four categories of overhead. The four categories and
expected overhead costs for each category for next year are listed as follows:
Maintenance P510,000
Material handling 250,000
Setups 60,000
Inspection 210,000
Currently, overhead is applied using a predetermined overhead rate based upon

budgeted direct labor hours 100,000 direct labor hours are budgeted for next
year.
The company has been asked to submit a bid for a proposed job. The plant
manager feels that obtaining this job would result in a new business in future
years. Usually bids are based upon full manufacturing costs plus 10 percent.
Estimates for the proposed job are as follows:
Direct materials P30,000

Direct labor (8,000 hours) P24,000
Number of material moves 100
Number of inspections 120
Number of setups 24
Number of machine hours 4,000
The plant manager has heard of a new way of applying overhead that uses cost
pools and activity drivers. Expected activity for the four activity drivers that
would be used are:
Machine hours 60,000

Material moves 20,000
Setups 3,000
Quality inspections 12,000
What is the total cost of the proposed job if Ray Manufacturing uses direct labor
hours as its only activity driver?
A. P144,000
B. P136,400
C. P112,400
D. P106,400
7. Germie, Inc., has identified the following overhead costs and activity drivers for
next year:
Overhead Expected Activity Expected

Item Cost Driver Quantity
Setup costs P100,000 Number of setups 500
Ordering costs 40,000 Number of orders 3,200
Maintenance 200,000 Machine hours 4,000
Power 20,000 Kilowatt hours 80,000
The following are two of the jobs completed during the

Job 500 Job 501
Direct materials P1, 500 P2,000
Direct labor P1, 400 P2,400
Units completed 100 160
Direct labor hours 100 160
Number of setups 2 8
Number of orders 8 10
Machine hours 40 50
Kilowatt hours 60 100
The company's normal activity is 4,000 direct labor hours.
If the four activity drivers are used to allocate overhead total overhead allocated
to Job 500 would be
A. P2,766.50.
B. P2,415.00.
C. P2,515.00.
D. P2.815.00.
8. Genco manufactures two versions of a product. Production and cost information

show the following:
Model A Model
Units produced 200 400
Material moves (total) 20 80
Direct labor hours per unit 1 2
Material handling costs total P200,000. Under ABC, the m handling costs
allocated to each unit of Model A and MI would be:
Model A Model B
A. P100 P333
B. P200 P400
C. P333 P200
D. P130 P100
9. Hughes Company produces three products with the following production and cost
information:
Model A Model B Model C

Units produced 2 ,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change 15 10 5
orders
Overhead costs include setups P90,000; shipping costs PI40,000; and

engineering costs PI80,000. What would be the per unit overhead cost for Model
A if direct labor hours were the allocation base?
A. P20.50
B. P41.00
C. P82.00
D. P76.00
10. What would be the per unit overhead cost for Model A if activity-based costing
were used?
A. P20.50
B. P74.00
C. P82.00
D. P76.00
11. Gilmore Company produces two products in a single factors. The following
production and cost information has been determined:
Model 1 Model 2
Units produced 1,000 200
Material moves (total). 100 40
Testing time (total) 250 125
Direct labor hours per unit 1 5
The controller has determined total overhead to be P480,000. P140,000 relates

to material moves; P150,000 relates to testing; the remainder is related to labor
time.
If Gilmore uses direct labor hours to allocate overhead to each model, what
would overhead per unit be for Model 2?
A. P 158.33
B. P 400.00
C. P 950.00
D. P1,200.00
12. If Gilmore uses activity-based costing to allocate overhead to each model/what

would overhead per unit be for Model 2?
A. P158.33
B. P415.93
C. P925.00
D. P815.00
13. Wesleyan University Hospital plans to use activity-based costing to assign
hospital indirect costs to the care of patients. The hospital has identified the
following activities and activity rates for the hospital's indirect costs:
Activity Activity Rate
Room and meals P150 per day
Radiology P 95 per image
Pharmacy P 20 per physician order
Chemistry lab P 85 per test
Operating room P550 per operating room hour
The records of two representative patients were analyzed, using the activity
rates. The activity information associated with the two patients is as follows:
Patient Flor Patient Laura

Number of day's 7.0 3
Number of images 4.0 2
Number of physician orders 5.0 1
Number of tests 6.0 2
Number operating room hours 4.5 1
Determine the activity cost associated with Patient Flor;
A. P4,500
B. P4,550
C. P4,495
D. P4.515
14. Food Factory, Inc., has identified the following cost drivers for its expected
overhead costs for the year:
Budgeted Cost Cost Driver

Cost Pools Cost Driver Level
Setup P 80,000 Number of setups 100
Ordering 40,000 Number of orders 500
Maintenance 100,000 Machine hours 2,500
Power 20,000 Kilowatt hours 5,000
Total direct labor hours budgeted = 1,000 hours.
The following data applies to one of the products completed during the year:
Activity Driver
Cost Product X Driver Consumption
Direct materials P2,000 Number of 2
Setups
Number of
Direct labor P2,400 orders 5
Units completed 200 Machine 25
hours
Direct labor hours 80 Kilowatt 50
hours
If the activity-based cost drivers are used to allocate overhead cost, the total
cost of Product X will be:
A. P7,400
B. P7,800
C. P4,400
D. P7,600
15. Mary Manufacturing Company manufactures two products (X and Y). The
overhead costs of P29,000 have been divided into three cost pools that use the
following activity drivers:
No. of Labor No. of Labor
Product No. of Orders Transactions Hours
X 30 100 1,000
Y 20 300 4,000
Cost per pool P5,000 P4,000 P20,000
Using traditional costing, what is the amount of overhead cost to be assigned to
Product Y using labor hours as the allocation base?
A. P21,750
B. P 5,800
C. P16,000
D. P23,200
16. EMPIRE Company makes two products, E and M. E is being introduced this
period, whereas M has been in production for 2 years. For the period about to
begin, 1,000 units of each product are to be manufactured. The only relevant
overhead item is the cost of engineering change orders. E and M are expected to
require eight and two change orders, respectively. E and M are expected to
require -2 and 3 machine hours, respectively. The cost of a change order is P600.
If EMPIRE applies engineering change order cost on the basis of machine hours,
the overhead cost per unit to be assigned to E and M, respectively, are
A. P2.40 and P3.60, respectively
B. P3.60 and P2.40, respectively
C. P4.80 and P3.60, respectively
D. P3.60 and P4.80, respectively
17. EMPIRE Company makes two products, E and M. E is being introduced this
period, whereas M has been in production for 2 years. For the period about to
begin, 1,000 units of each product are to be manufactured. The only relevant
overhead item is the cost of engineering change orders. E and M are expected to
require eight and two change orders, respectively. E and M are expected to
require 2 and 3 machine hours, respectively. The cost of a change order is P600,
If EMPIRE is using direct tracing, the amount of overhead per unit that will be
assigned to E and M, respectively, are
A. P2.40 and P3.60, respectively
B. P3.60 and P2.40, respectively
C. P4.80 and PI .20, respectively
D. PI .20 and P4.80, respectively
Question Nos. 18 and 19 are based on the following:
Toylandia Company manufactures two products, X-MAN and Machman. Toylandia's

overhead costs consist of setting up machines, P400.000; machining, P900,000; and
inspecting, P300,000.
Information on the two products is:

X-MAN Machman
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
18. Overhead applied to X-MAN using traditional costing is

A. P600,000.
B. P768,000.
C. P832,000.
D. P960,000.
19. Overhead applied to Machman using activity-based costing is
A. P 640,000.
B. P 768,000.
C. P 832,000.
D. P1,000,000.
20. The Oilfield plant has two categories of overhead: maintenance and inspection.
Costs expected for these categories for the coming year are as follows:
Maintenance P100,000
Inspection 150,000
The plant currently applies overhead using direct labor hours and expected
capacity of 50,000 direct labor hours. The following data have been assembled
for use in developing a bid for E proposed job:
Direct materials P1 ,000

Direct labor P4,000
Machine hours 500
Number of inspections 4
Direct labor hours 800
The total number of expected machine hours for all jobs during the year is
25,000, and the total expected number of inspections is 1,500.
Using activity-based costing system and the appropriate activity-drivers, the total
cost of the potential job would be
A. P2,400
B. P3,600
C. P7,400
D. P7,750
21.Using direct labor hours to assign overhead, the total cost of the potential job
would be
A. P 5,000
B. P11,000
C. P 8,000
D. P 9,000
22. Peal Company had the following information:
Activity Driver Unit Variable Cost Level of Activity Driver

Units sold P40
Setups 1,000 80
Engineering hours 60 2,000
Other data:
Total fixed costs (traditional) 400,000
Total fixed costs (ABC) P150,000
Units selling price P80
What is the breakeven point in units using ABC?
A. 10,000 unit
B. 5,000 units
C. 5,000 units
D. 8,750 units
Question Nos. 23 through 28 are based on the following:
Special Products recently installed an activity-based relational data base. Using the
information contained in the activity relational table, the following pool rates were
computed:
P200 per purchase order

P12 per machine hour, process A
P15 per machine hours, process B
P40 per engineering hour
Two products are produced by Special Products: A and B, Each product has an area
in the plant that is dedicated to its production. The plant has two manufacturing
processes, process A and process B. Other processes include engineering, product
handling, and procurement. The product relational table for Special is as follows:
Product A:
Activity Driver #_and Name Activity Usage
1 Units 200,000
2 Purchase orders 250
3 Machine hours 80,000
4 Engineering hours 1,250
Product B:
Activity Driver # and Name Activity Usage
1 Units 250,000
2 Purchase orders 125
3 Machine hours 10,000
4 Engineering hours 1,500
23. How much overhead cost will be assigned to product B using process B?
A. P1,200,000
B. P960.000
C. P120,000
D. P150,000
24. What is the unit cost of Product A?

A. P4.71
B. P252.00
C. P4.80
D. P5.30
25. Dagger Corporation has the following activities: creating bills of materials (BOM),
studying manufacturing capabilities, improving manufacturing processes,
training employees, and designing tooling. The general ledger accounts reveal
the following expenditures for manufacturing engineering:
Salaries P150,000
Equipment 80,000
Supplies 20,000
Total P250,000
The equipment is used for two activities: improving processes and designing tooling.
Thirty-five percent of the equipment's time is used for improving processes and
sixty-five percent is used for designing tools. The salaries are for two engineers. One
is paid P100,000, while the other earns P50,000. The P100,000 engineer spends
40% of his time training employees in new processes and 60% of his time on
improving processes. The remaining engineer spends equal time on all activities.
Supplies are consumed in the following proportions:
Creating BOMs 25%

Studying capabilities 10%
Improving processes 20%
Training employees 25%
Designing tooling 20%
What is the cost assigned to the designing tooling activity?

A. P1 62,500
B. P 66,000
C. P50,000
D. P250,000
Use the following data to respond to questions 26 through 29
Consider the following facts for NM Company which produces product N and M
Activity Cost Driver N’s share M's share Unused Cost
Setups # of set ups 10 40 5 P 5,500
Ordering # of orders 5 10 5 3,200
Receiving # of receipts 22 12 6 2,400
Product
Dev. # of parts 180 120 100 2,800
Gen Mgt #, labor hrs 2,900 4,100 1,000 7,200
Security Area covered 3,200 5,400 400 9,000
Materials # of units
produced 400 800 120,000
Labor # of DLH 1,700 3,1001 1,200 56,000
26. Set up cost chargeable per unit of M accounting for unused capacity amounts to
A. 2.50
B. 2.75
C. 5.00
D. 5.50
27. Ordering cost chargeable per unit of N ignoring unused earner amounts to
A. 2.00
B. 2.67
C. 3.00
D. 4.00
28. The cost of unused capacity excluding labor costs amounts to
A. 11,260
B. 11,460
C. 11,856
D. 14,856
C. STRATEGIC COST MANAGEMENT AND JIT
THEORIES:
1. The major functions of management are
A. strategic management and long-range planning.
B. planning and decision making.
C. identifying threats and opportunities for the firm.
2. The three major types of competitive strategy include

A. cost leadership, differentiation, and productivity.
B. cost leadership, focus, and productivity.
C. differentiation, focus, and productivity.
D. cost leadership, differentiation, and focus.
3. Sustainability means the balancing of

A. short term and long term goals in economic performance,
B. short term and long term goals in social aspects.
C. short term and long term goals in environmental aspects.
4. Simultaneous engineering can be used to

A. reduce both product and process complexity.
B. integrate activity-based costing with value chain analysis
C. reduce the time-to-market of new products through elimination of batch-
level activities.
D. reduce manufacturing cycle efficiency by reducing process waste.
5. Engaging in which of the following will result in radical changes being made to an
organization's processes?
A. Continuous improvement
B. Benchmarking
C. Reengineering
D. Mass customization
6. In the contemporary business environment, cost management focus is on

A. financial reporting and cost analysis.
B. common emphasis on standardization and standard costs.
C. development and implementation of the business strategy.
D. a and c.
7. Which focuses on process improvement, process innovation, or business

reengineering?
A. a. functional-based responsibility accounting
B. activity-based responsibility accounting
C. strategic-based responsibility accounting
D. none of the above
8. The optimal level in the optimal cost management system is when
A. measurement costs are greater than error costs
B. measurement costs are less than error costs
C. the total of measurement costs and error costs are minimized
D. both b and c
9. A repetitive action fulfilling a business function and increasing the worth of the
product and the price that the customer is willing to pay for the product is
referred to as a:
A. non-value added activity
B. value-added activity
C. business value-added activity
D. activity analysis
10. The actual time that a product must be delayed while waiting to be processed is
called:
A. service time
B. inspection time
C. transfer time
D. idle time
11. The resource utilized by a given product divided by the total amount of the
resource available is called the
A. activity driver
B. consumption ratio
C. cost object
D. sustaining activity
12. The primary objective of just-in-time processing is to

A. accumulate overhead in activity cost pools
B. eliminate or reduce all manufacturing inventories
C. identify relevant activity cost drivers
D. none of them
13. The benefits of a successful Just-In-Time system include all of the following
except:
A. funds tied up in inventories are released for use elsewhere.
B. inventory buffers are increased.
C. throughput time is reduced.
D. defect rates are decreased.
14. Which of the following is not a benefit of just-in-time processing?

A. Control of significant inventory balances.
B. Enhanced product quality.
C. Reduction of rework costs.
D. Production cost savings.
15. A key concept of the JIT inventory system is:

A. the raw materials, work in process, and finished goods inventories of
manufacturing companies act as buffers so that operations can proceed
smoothly even if suppliers are late with deliveries or a department is unable
to operate for a brief period due to breakdowns or other reasons,
B. the use of many suppliers so as to ensure rapid delivery of materials for
production.
C. the maintenance of a stock of raw materials so that defective
materials can be replaced quickly so as to maintain a high rate of
productivity.
D. inventories are costly to carry and can be kept to minimum levels or
eliminated completely with careful planning.
16. The just in time (JIT) concept applies to which of the following:
I. The acquisition of raw materials.

II. The assembly of manufactured parts in products.
III. The shipment of finished products to customers.
A. I.
B. I, III.
C. I, II, III.
D. II, III.
17. The flow of goods through a JIT system is based on:

A. a workstation efficiently completing its processing of a batch of units so that
the units can proceed forward to the next workstation before the next
workstation is ready to receive them.
B. processing goods in large batch sizes rather than less economical small
batches.
C. maintaining a stockpile of raw materials in anticipation of materials shortages.
D. producing to meet customer demand with no buildup of inventory at any
point in the production process.
18. Under just-in-time processing

A. raw materials are received just in time for use in production
B. subassembly parts are completed just in time for use in assembling finished
goods
C. finished goods are completed just in time to be sold
D. all of the above
19. A successful JIT system is based upon which of the following concepts?
A. The company must rely upon a large number of suppliers to ensure frequent
deliveries of small lots.
B. The company should always choose those suppliers offering the lowest prices.
C. The company should avoid long-term contracts with suppliers so as to exert
pressure on suppliers to make prompt and frequent deliveries.
D. A small number of suppliers make frequent deliveries of specific quantities
thus avoiding the buildup of large inventories of materials on hand.
20. A company adopting the JIT approach would:

A. produce large batches of products so as to recoup the costs associated with
setups.
B. attempt to reduce setup time so as to economically produce in smaller
batches.
C. adapt a functional plant layout so as to enhance production flexibility.
D. require workers to become highly specialized in operating a
single machine.
21. Conventional and just-in-time manufacturers differ in that the conventional
manufacturer is likely to
A. be a new entrant into its industry,
B. need less storage space than its JIT competitors.
C. give less credibility to management accounting reports,
D. have a longer production cycle than its JIT competitors.
22. In
JIT manufacturing, each operation produces
A. only what is necessary for the succeeding operations
B. all that it can to offset fixed costs
C. a fixed percentage in excess of orders to ensure adequate
quality stock
D. all that it can in order to build inventories
23. Many companies have significantly lowered inventory levels and costs using
A. activity- based costing.
B. an enterprise resource planning
C. the just-in-time method.
D. a total quality management system.
24. JIT manufacturing emphasizes system.

A. large amounts of inventory on hand so that the company does not run out of
it
B. Small amounts of inventory on hand resulting in lower quality goods because
production is rushed
C. reducing investment in inventory and increasing the emphasis on quality
D. both b and c
25. A just-in-time manufacturer is more likely than a conventional manufacturer to

A. receive more frequent deliveries of materials.
B. spend less money on advertising.
C. need workers with fewer skills.
26. Just-in-time manufacturing

A. is a demand pull rather than a push through the system
B. allows the firm to focus on quality and productivity simultaneously
C. increases product cost accuracy by increasing a firm's ability to track costs to
products
D. all of the above
27. If JIT manufacturing is used, maintenance of the production equipment would be

classified as a
A. unit-level activity
B. cell-level activity
C. product-level activity
D. facility-level activity
28. Under JIT manufacturing, many overhead costs formerly classified as indirect
costs are now;
A. eliminated
B. depreciated
C. no longer traceable
D. directly traceable to the product
29. When JIT manufacturing is used, which of the following costs is considered an
indirect product cost?
A. the cost to set up cell equipment
B. the cost of maintenance on equipment
C. property taxes on the plant
D. salary of the cell supervisor
30. When JIT manufacturing is used, which of the following costs is considered a
direct product cost?
A. insurance on the plant and equipment
B. repair parts for the machinery
C. janitors' salary
D. salary of the plant supervisor
31. Problems encountered with using traditional product costing for JIT
manufacturing usually stem from
A. assigning direct materials costs to units of product.
B. assigning direct labor costs to units of product.
C. assigning overhead costs to units of product,
32. A characteristic of the just-in-time manufacturing environment is

A. frequent deliveries of materials
B. manufacturing cells
C. little or no inventory of finished product
D. all of the above
33. Just-in-time relates to

A. people getting to their job location just in time to begin their work.
B. machinery placed in service just in time to begin production.
C. materials received from suppliers just in time for production needs.
34. Which of the following is a value-added activity?

A. Engineering design.
B. Machinery repair. .
C. Inventory storage.
D. Inspections.
35. Which of the following is a nonvalue-added activity?

A. Engineering design.
B. Machining.
C. Inspection.
D. Packaging.
36. A nonvalue-added activity in a service enterprise is

A. taking appointments.
B. traveling.
C. advertising.
D. all of them.
37. Value-added activities
A. should be reduced or eliminated.
B. involve resource usage that customers are willing to pay for,
C. add cost to a product without affecting the selling price.
D. cannot be differentiated from nonvalue-added activities.
38. The company's' goal for defective units as a percentage of total units produced
should be:
A. 1.50%
B. 0.00%
C. 0.05%
D. 0.53%
39. All of the following are examples of non-value-added activities except

A. ordering
B. assembling
C. receiving
D. inspections
40. Sequencing if-then statements is a simple method of:

A. testing a strategy
B. prioritizing objectives
C. creating lead measures
D. evaluating performance
41. Setting balanced objectives, setting target values, and aligning rewards are:
A. necessary steps in creating a balanced scorecard
B. important aspects of the capital budgeting process
C. the heart of process innovation
D. the ingredients for economic forecasting
42. Delivery performance declines by:

A. increasing cycle time
B. decreasing cycle time
C. increasing velocity
D. decreasing turnover
43. Just-in-time processing

A. is based on a just-in-case philosophy.
B. results in a push approach,
C. minimizes inventory storage and waiting time.
D. all of these.
44. An element of just-in-time processing is

A. dependable suppliers who are willing to deliver on short notice.
B. a multi-skilled workforce.
C. a total quality control system.
D. all of them.
45. Which account is used in just-in-time processing?

A. Raw materials inventory
B Work in process inventory
C. Merchandise inventory
D. Raw and In-Process inventory
46. Under just-in-time processing, all of the following are received or completed "just
in time" except
A. finished goods.
B. raw materials.
C. supplies.
D. subassembly parts.
47. A just-in-time manufacturing process should have substantially less of which of

the following than a traditional manufacturing process?
Idle Time Transfer Time Value-Added Time Cycle Time

A. YES YES YES YES
B. YES NO NO YES
C. YES YES NO YES
D. NO YES NO NO
48. Manufacturing cycle efficiency should be increased by employing which of the

following techniques?
Just-in-Time Flexible Batch
Inventory Manufacturing Systems Manufacturing
A. YES YES YES
B. YES YES NO
C. NO NO NO
D. YES NO YES
Small Computer Company has the following personnel:
I. Two inspectors: inspect the final computers

II Four fabricators: make the computer cases
III. Two computer programmers: run all of the bookkeeping for the accounting
records
IV. Seven assemblers: manufacture the mother boards
V. One owner: writes the paychecks
49. Which groups of employees are value-added workers?

A. I and II
B. III and V
C. II and III
D. II and IV
50. Which groups of employees are non-value-added workers?

A. I, II, and III
B. III, IV, and V
C. I, III and V
D. I, II, and IV
PROBLEMS:
Brad Company developed the following budgeted life-cycle income statement for two
proposed products. Each product's life cycle is expected to be two years.
Product A Product B Total
Sales P230,000 P220,000 P450,000
Cost of goods sold 150,000 150,000 300,000
Gross profit P 80,000 P70,000 P150,000
Period expenses:
Research and development (60,000)
Marketing (50,000)
Life-cycle income P400,000
A 10% return on sales is required for new products. Because the proposed products
did not have a 10% return on sales, the products were going to be dropped.
Relative to Product B, Product A requires more research and development costs but
fewer resources to market the product. Seventy percent of the research and
development costs are traceable to Product A, and 40 percent of the marketing costs
are traceable to Product A.
1. If research and development costs and marketing costs are traced to each
product, life-cycle income for Product A would be
A. P18.000
B. P22,000
C. P70,000
D. P80,000
2. Return on sales for Product A would be

A. 34.8%
B. 10%
C. 7.83%
D. 8.89%
3. Wine Factory sells a product for PI 50 per unit. Its market share is 25 percent.
The marketing manager feels that the market share can be increased to 33
percent with a reduction in price to P130. The product is currently earning a profit
of P24 per unit. The president of Wine Factory feels that the P24 profit per unit
must be maintained. What is the target cost per unit?
A. P130
B. P150
C. P106
D. P126
4. What is the original cost per unit?

A. P130
B. P150
C. P106
D. P126
5. Hristec Company sells a product for P215 per unit. Its market share is 20
percent. The marketing manager feels that the market share can be increased to
30 percent with a reduction in price to PI95. The product is currently earning a
profit of P45 per unit. The president of Hristec Company feels that the P45 profit
per unit must be maintained. What is the original cost per unit?
A. P170
B. P195
C. P215
D. P150
Prior to installing a JIT system, Friendly Company used machine hours to assign
maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation. The
maintenance costs totaled P840,000 per year. The machine hours used by each
product and the quantity produced of each product are as follows:
Machine Hours Quantity Produced
4-inch 6,000 15,000 rolls
6-inch 10,000 12,500 rolls
9-inch 8,000 11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were
trained to perform maintenance. Maintenance costs for the three cells still totaled
P840,000; however, these costs are now traceable to each cell.
Cell, 4-inch P220,000
Cell, 6-inch 300,000
Cell, 9-inch 320,000
6. The maintenance cost per roll of 4-inch insulation before JIT is installed would be
A. P24.00
B. P17.50
C. P14.00
D. P13.16
7. The maintenance cost per roll of 9-inch insulation before JIT is installed would be
A. P17.50
B. P25.00
C. P28.57
D. P75.00
8. The product cell for Crane Company has budgeted conversion costs of P420,000
for the year. The cell is planned to be available 2,100 hours for production. Each
unit requires P12.50 of materials costs. The cell started and completed 700 units.
The cell process time for the product is 15 minutes per unit.
What is the total product cost for the period?

A. P35,000
B. P38,750
C. P40,000
D. P43,750
9. Big Computers has the following personnel:
Seven assemblers: manufacture the mother boards
One owner: writes the paychecks
Two inspectors: inspect the final computers
Three fabricators: make the computer cases
One computer programmer: runs all of the bookkeeping for the
accounting records
Two shipping clerks; ship computers to the warehouse
What would be the value-added labor ratio for this company?

A. 4/8 or 37.5 percent
B. 1/2 or 50 percent
C. 5/8 or 62.5 percent
D. ¾ or 75 percent
10. At the beginning of 2005, Peterson Company installed a JIT purchasing and
manufacturing system. The following information has been gathered about one of
the company's products:
Theoretical annual capacity 2,200

Actual production 2,000
Production hours available 800
On-time deliveries 900
Total deliveries 950
The theoretical velocity is:

A. 2.32 units per hour
B. 2.44 units per hour
C. 2.5 units per hour
D. 2.75 units per hour
11. Actual velocity is:

A. 2.5 units per hour
B. 2.75 units per hour
C. 2.32 units per hour
D. 2.44 units per hour
12. Dapitan, Inc. manufactures a product that experiences the following activities:
Processing (three departments) 40 hours

Moving (four moves) " 18 hours
Waiting time 42 hours
Storage time (before delivery) 100 hours
The MCE for the product is

A. 5
B. 25
C. 20
D. 40
13. At the beginning of 2007, Sanchez Company installed a JIT purchasing and
manufacturing system. The following information has been gathered about one of
the company's products:
Theoretical annual capacity 2,200
Actual production 2,000
Production hours available 1,000
On-time deliveries 900
Total deliveries 940
Number of defective units 30
The company's on-time delivery percentage is:

A. 90 percent
B. 95.7 percent
C. 94 percent
D. 104.4 percent
D. Product Quality and Productivity/ Total Quality Management
Product Quality and Productivity
1. Value engineering can result in

A. product redesign
B. changes in materials specifications
C. modifications in process methods
D. all of the above
2. A primary objective in measuring productivity is to improve operations either by

using fewer inputs to produce the same output, or to produce:
A. more effectively
B. with fewer constraints
C. more outputs with the same inputs
D. more outputs with more inputs
3. Which of the following assesses the productivity efficiency for all inputs combined
in order to value change in productivity?
A. partial productivity measurement
B. profile productivity measurement
C. profit-linked productivity measurement
D. total productivity measurement
4. Changes in the productivity of different types of resources are NOT always:

A. measurable and observable
B. in the same direction or at an equal pace
C. unique and differentiated
D. simultaneous and positive
5. A partial productivity measure has several limitations, including that:

A. it ignores any productivity effect caused by other manufacturing factor
quantity changes.
B. it ignores any effect that changes in the production factor have on
productivity.
C. it ignores and effect that changes in operating characteristics of the firm may
have on the productivity of the input resource.
D. all of the above answers are correct.
6. How can productivity be improved?
A. using less input to produce the same output
B. using the same input to produce more output
C. improve input trade-off efficiency by using a less costly mix of inputs
D. all of the above
7. One major problem in measuring productivity in not-for-profit organizations is the

absence of revenue as the:
A. common measure for inputs
B. common measure for outputs
C. basis for financial reporting
D. common denominator with commercial firms
8. Productivity increases if:

A. less output is produced with more input.
B. the same output is produced with more input.
C. the same output is produced with fewer inputs.
D. laborers put in more effort.
9. An advantage of partial measures of productivity is that it:

A. allows managers to focus on the use of a particular input.
B. is a complex measure that is difficult to interpret by everyone in the
organization.
C. looks at the effect of multiple inputs.
D. is a perfect measure of performance.
10. Characteristics of total quality management include:

A. focusing on customer satisfaction
B. striving on continuous improvement
C. involvement of the entire work force
D. All of the above are characteristics of TQM
11. A technique by which companies analyze fluctuations in a process is called:

A. statistical process control
B. a quality audit
C. benchmarking
D. Pareto analysis
12. Focusing on how best in class companies achieve their results is referred to as:
A. reverse engineering
B. results benchmarking
C. process benchmarking
D. competitive benchmarking
13. Which of the following is not an important principle of TQM?

A. The organization should focus on improving goods from the consumer's
viewpoint
B. Everyone in the organization is required to participate
C. There should be a system of planning, controlling, and decision making
D. Complacency is the norm
14. Total quality management directs management attention to the relationship

between the internal production/service process and the:
A. CEO of the competition
B. ultimate customer
C. activity analysis
D. control charts
15. Which of the following is the correct sequence of the value chain?
A. design, research and development, production, supply, marketing,
customer service, distribution
B. research and development, design, supply, production, marketing,
distribution, customer service
C. research and development, design, supply, production, marketing,
customer service, distribution
D. supply, research and development, design, production, marketing,
distribution, customer service
16. A tool that focuses on manufacturing processes and seeks to reduce or optimize
the activities performed within the process is
A. process value analysis
B. re-engineering
C. caveat analysis
D. benchmarking
17. A tool that compares how tasks are performed internally with the best practices
of industry leaders is
B. re-engineering
C. caveat analysis
D. benchmarking
18. An approach to developing new ways to perform existing activities is called

B. re-engineering
C. caveat analysis
D. benchmarking
19. A danger in Process Reengineering is that:

A. non-value-added activities may be eliminated.
B. some resources may no longer be required.
C. employee morale may suffer.
20. Attempting to determine why activities are performed and how well they are
performed is a goal of
B. both traditional and activity-based costing systems
C. computer-integrated manufacturing systems
D. just-in-time manufacturing
21. The goal of total quality control is

A. to have less defective material than good material
B. to permit defects as long as they do not exceed a certain level
C. to have zero defect
D. both b and c
22. Regardless of the differences in form and control, a common feature that should
be present in any Cost of Quality Report is that the report:
A. promotes total quality management (TQM)
B. stratifies costs by product line
C. stratifies costs by plant
D. d. stratifies costs by division
23. Costs incurred to improve product quality by precluding product defects are
known as:
A. internal failure costs
B. external failure costs
C. appraisal costs
D. prevention cost
24. Which of the following represents an external failure cost?

A. reprocessing a defective product before shipment
B. replacing a-defective product after shipment
C. hiring for quality
D. inspecting products during production
25. If a company has high failure costs, the best course of action to reduce total
quality costs would be to:
A. increase prevention costs
B. increase the costs associated with compliance
C. increase the cost of non-compliance
D. increase appraisal costs
26. Continuous improvement is synonymous with:

A. process benchmarking
B. total quality management
C. management by objectives
D. management by exception
27. The quality costs that are incurred to determine whether particular units of
product meet quality standards are
A. appraisal costs.
B. external failure costs.
C. internal failure costs.
D. prevention costs.
28. The cost of downtime on machines while rework is being performed is a(n)
A. appraisal cost.
B. external failure cost.
C. internal failure cost.
D. prevention cost.
29. Worker training is a(n)

A. appraisal cost.
B. external failure cost.
C. internal failure cost.
D. prevention cost.
30. The costs of reworking defective units to make them saleable are classified as
A. appraisal costs
B. external failure costs
C. internal failure costs
D. prevention costs
31. The costs caused by inefficiency in prevention activities are:

A. nonvalued-added costs
B. value-added costs
C. neither nonvalued-added or value-added costs
D. both nonvalued-added or value-added costs
32. Which of the following describes the zero defects view?

A. it permits a predetermined level of defective units to be produced
B. it is the level where the number of defects allowed minimizes total cost.
C. it is the level where there are no defects.
33. An example of a control cost is:

A. supplier evaluation and selection
B. scrap
C. cost of recalling products
D. all of the above
34. Sales returns and allowances due to a quality deficiency is an example of:
A. external failure costs
B. appraisal costs
C. internal failure costs
D. prevention costs
35. Jetters Company manufactured 100,000 motors for dehumidifiers and used
20,000 direct labor hours. The selling price of each motor is P25 and the labor
cost is P10 per hour. The labor productivity ratio is:
A. P10
B. P12.50
C. 4 motors per hour
D. 2.5 motors per hour
36. At the end of 2006, Alban Company implemented a new labor process and
redesigned its product with the expectation that input usage efficiency would
increase. Now, at the end of 2007, the president of the company wants an
assessment of the changes on the company's productivity. The data needed for the
assessment are as follows:
2006 2007
Output 10,000 12,000
Output prices P10 P10
Change in profits P10,700
Profit-linked measurements:
Materials P4,600
Labor 3,250
Power (250)
Net P7,600
How much is the price-recovery component?
A. P 3,100
B. P (1,350)
C. P10,700
D. P 7,600
37. At the end of 2006, Duabi Corporation implemented a new labor process and
redesigned its product with the expectation that input usage efficiency would
increase. Now, at the end of 2007, the president of the company wants an
assessment of the changes on the company's productivity. The data needed for
the assessment are as follows:
2006 2007
Output 30,000 38,000
Output prices P12 P12
Materials (lbs.) 10,000 10,400
Materials unit price P8 P7
Labor hours 14,000 15,000
Labor rate per hour P6 P7
Power (KwH) 12,000 13,000
Price per KwH P3 P4
By how much did profits change as a result of productivity changes in materials?

A. P 13,000 decrease
B. P 15,870 increase
C. P 23,400 decrease
D. P 20,800 increase
Use the following information to answer questions 39 through 41:
Testing 60,000
Rework 27,500
Training 45,000
Product liability insurance 35,000
Quality planning 43,000
Customer surveys 15,000
Reinspection and retesting 17,500
Warranty repairs 50,000
Total quality costs P293.000
Sales for 2005 were P1,000,000
38. What is the amount of appraisal costs?

A. P60,000
B. P92.500
C. P32,500
D. P75,000
39. What is the amount of external failure costs?

A. P35,000
B. P85,000
C. P50,000
D. 67,500
40. If Kurt Company is able to reduce quality costs to 2.5 percent of sales, what will
happen to profits?
A. Decrease by P25,000
B. Increase by P268,000
C. Decrease by P293,000
D. Increase by P25,000

Cost Accounting Systems A. Traditional Cost Accounting Theories

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Cost Accounting Systems A. Traditional Cost Accounting Theories

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MODULE 12

COST ACCOUNTING SYSTEMS

A. TRADITIONAL COST ACCOUNTING

1. Cost accounting involves the measuring, recording, and reporting of

2. The cost management information system provides information

3. The cost management function is usually under

4. The main focus of cost management information must be

5. With regard to the task of management's decision making, cost "management

6. Product costing system design or selection:

7. Which of the following is, an example of a committed fixed costs?

10. Controllable costs are:

12. An imputed cost is

14. Semi-variable costs

15. A step cost is

16. An example of a committed fixed cost is:

22. The use of unit-based activity drivers to assign costs tends to

23. Which of the following is typically regarded as a cost driver in traditional

24. Which of the following is not typical of traditional systems?

26. Each group of overhead costs should be applied based on

27. The term cost driver refer to:

28. An accounting system that focuses on transactions is

29. Traditionally, managers have focused cost reduction efforts on

30. Traditional overhead allocations result in which of the following situations?

31. Which of the following statements is true?

35. Conventional product costing uses which of the following procedures?

38. No matter which method is used, underapplied or overapplied overhead usually

41. Why is it better to use separate overhead rates?

42. The principal difficulty with normal costing is that

43. Disadvantages of actual costing include

44. Volume-based plant-wide rates produce inaccurate product cost when:

46. Normal costing and standard costing differ in that

47. Direct product expenses

4. If estimated annual factory overhead is P800,000, estimate annual direct labor

Material J is introduced at the start of operations in the Mixing department, and

How many are considered abnormal lost units?

Transferred-in from Assembly Department 75,000

Unit cost for unit transferred-in from

20. The number of normal and abnormal lost units are:

B. ACTIVITY-BASED COST SYSTEM

1. Which system focuses on the management of activities with the objective of

2. The primary benefit of using ABC is that it provides

3. Symptoms of an outdated cost system include all of the following EXCEPT

4. Which of the following factors would suggest a need to switch to activity-based

5. Primary concepts under activity-based management include all of the following

6. Which of the following is typical of activity-based costing systems?

9. Which of the following is a limitation of activity-based costing?

10. Which of the following is not a benefit of activity-based costing?

11. As compared to a high-volume product, a low-volume product

13. Which of the following is NOT a sign of poor cost data?

14. All of the following statements are correct except that

16. A well-designed activity-based costing system starts with

17. An objective of activity-based management is to

Continuous Business process Activity-based

19. In activity-based costing, final cost allocations assign costs to

20. In activity-based costing, preliminary cost allocations assign costs to

23. Any activity that causes resources to be consumed is called a

25. The first step in activity-based costing is to

26. The last step in activity-based costing is to

B. the number allocation bases tend to be higher in ABC system

28. Activity-based management (ABM) is

30. An activity-based costing system uses which of the following procedures?

31. A cost pool is

40. Which of the following activities is directly traceable to a product?