Multiple Choice Questions

16. Which terms would make the following sentence true? Manufacturing companies that benefit
the most from activity-based costing are those where overhead costs are a _________
percentage of total product cost and where there is ___________ diversity among the various
products that they produce.

A) low, little

B) low, considerable

C) high, little

D) high, considerable

Ans:  D

17. Would factory security and assembly activities be best classified at an appliance manufacturing
plant as unit-level, batch-level, product-level, or organization-sustaining?

Security Assembly
A) Product Unit
B) Batch Batch
C) Organization Unit
D) Organization Product

Ans:  C
18. Which of the following would be an acceptable measure of activity for a material handling
activity cost pool?

Number of Weight of
material moves material moved
A) Yes Yes
B) No Yes
C) Yes No
D) No No

Ans:  A

19. An activity-based costing system that is designed for internal decision-making generally will not
conform to generally accepted accounting principles. Which of the following is NOT a reason for
this happening?

A) Some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining
costs) will not be assigned to products.

B) Some nonmanufacturing costs are assigned to products.

C) Allocation bases other than direct labor-hours, direct labor cost, and machine-hours are
used.

D) First-stage allocations may be based on subjective interview data.

Ans:  C

20. Providing the power required to run production equipment is an example of a:

A) Unit-level activity.

B) Batch-level activity.

C) Product-level activity.

D) Organization-sustaining activity.

Ans:  A

21. Parts administration is an example of a:

A) Unit-level activity.

B) Batch-level activity.

C) Product-level activity.

D) Organization-sustaining.

Ans:  C
22. If a cost object such as a product or customer has a negative green margin, then:

A) its red margin will be positive.

B) its red margin may be either positive or negative.

C) its red margin will be negative.

D) its red margin will be zero.

Ans:  C Appendix:  8A

23. Tatman Corporation uses an activity-based costing system with the following three activity cost
pools:

Activity Cost Pool Total Activity

Fabrication.................................. 10,000 machine-hours
Order processing......................... 800 orders
Other........................................... Not applicable

The Other activity cost pool is used to accumulate costs of idle capacity and organization-
sustaining costs.
The company has provided the following data concerning its costs:

Wages and salaries...................... $320,000

Depreciation................................ 220,000
Occupancy..................................  120,000
Total............................................ $660,000

The distribution of resource consumption across activity cost pools is given below:

Activity Cost Pools

Order
Fabrication Processing Other Total
Wages and salaries............... 20% 65% 15% 100%
Depreciation......................... 15% 35% 50% 100%
Occupancy........................... 5% 70% 25% 100%

The activity rate for the Fabrication activity cost pool is closest to:

A) $3.30 per machine-hour

B) $13.20 per machine-hour

C) $10.30 per machine-hour

D) $8.80 per machine-hour

Ans:  C LO:  2,3