A-ONE COMMERCE ACADEMY/ T.Y.

BAF OBJECTIVES [32]

CHAPTER 6: ACTIVITY BASED COSTING SYSTEMS

Sr. Question Option 1 Option 2 Option 3 Option 4 Ans.

Types of activities The extent to
used by the which the
1. In ABC indirect costs are allocated to the products based on product activities are used Both (1) and (2) None of the above 3
Four basic steps are used in an ABC system. List the proper order of
these steps given below:
(a) Identify the primary activities and estimate a total cost pool for
each
(b) Allocate the costs to the cost object using the activity cost
allocation rates
(c) Select an allocation base for each activity
2. (d) Calculate an activity cost allocation rate for each activity. C, A, B, D A, C, D, B B, A, C, D A, D, C, B 2
All of the following are considered to be part of the activity levels Production-level Batch-level Product-level
3. often used to implement ABC, with the exception of activity activity activity Unit-level activity 1
Which of the following systems focuses on activities as the
fundamental cost objects and uses the costs of those activities for Activity-based
4. compiling the indirect costs of products? Job costing costing Process costing Product costing 2
ABC costing
systems are less ABC costing ABC costing
ABC systems complex and systems have systems can be
accumulate therefore, less separate indirect used in
Regarding activity-based costing systems, which of the following overhead costs by costly than cost allocation rates manufacturing
5. statements is true? departments traditional systems for each activity firms only 3
Material ordering, Designing, part-
Cutting, painting machine set up, specification and Heating, lighting
6. Examples of activities at the batch level of costs include: and packaging and inspection advertising and security 2
 Material ordering, Designing, part-
Cutting, painting machine set up, specification and Heating, lighting
7. Examples of activities at the product level of costs include: and packaging and inspection advertising and security 3
Number of Number of Number of direct
Which of the following is typically regarded as a cost driver in purchase orders Number of transactions labour hours
8. traditional accounting practices? processed customers served processed worked 4
The person who
Any activity that The attempt to gathers and
can be used to control delivers cost data Any activity that
predict cost expenditure at a to the management causes costs to be
9. The term cost driver refers to charges reasonable level accountant incurred 4
10. Cost allocation bases in activity-based costing should be Cost drivers Cost pools Activity centers Resources 1
Costs that are common to many different activities within an
11. organisation are known as _____ costs. Product-level Facility-level Batch-level Unit-level 2
Relative to traditional product costing, activity-based costing
12. differs in the way costs are Processed Allocated Benchmarked Incurred 2
13. In activity-based costing, final cost allocations assign costs to Departments Processes Products Activities 3
Dividing the actual Dividing the cost Dividing the actual Dividing the cost
cost for each budgeted for each cost for each budgeted for each
activity pool by the activity pool by the activity pool by the activity pool by the
actual activity base estimated activity estimated activity actual activity base
14. Activity rates are determined by for that pool base for that pool base for that pool in that pool 2
Providing the power required to run production equipment is an Batch-level Product-level Organization-
15. example of a Unit-level activity activity activity sustaining activity 1

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [33]

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [34]

The following tasks are associated with an activity-based costing

system:
(1) Calculation of cost application rates
(2) Identification of cost drivers
(3) Assignment of cost to products
(4) Identification of cost pools
Which of the following choices correctly expresses the proper
16. order of the preceding tasks? 1, 2, 3, 4 2, 4, 1, 3 3, 4, 2, 1 4, 2, 1, 3 4
Which of the following is not a broad, cost classification category Product-sustaining
17. typically used in activity-based costing? Unit-level Batch-level level Management-level 4
In an activity-based costing system, direct materials used would Product-sustaining
18. typically be classified as a Unit-level cost Batch-level cost cost Facility-level cost 1
In an activity-based costing system, materials receiving would Batch-level Product-sustaining Facility-level
19. typically be classified as a Unit-level activity activity activity activity 2
The salaries of a manufacturing plant’s management are said to Unit-level Batch-level Product-sustaining Facility-level
20. arise from activities activities activities activities 4
An activity that has a direct cause-effect relationship with the
21. resources consumed is a (n) Cost driver Overhead rate Cost pool Product activity 1
Assigning Analyzing the
manufacturing activities
Computing the overhead costs for performed to
Identifying the activity-based each activity cost manufacture a
22. A well-designed activity-based costing system starts with activity-cost pools overhead rate pool to products product 4
 Increase the cost
Decrease the cost per unit for low Provide less
per unit for low volume products as accurate cost per Result in the same
volume products as compared to a unit for low cost per unit for
compared to a traditional volume products low volume
traditional overhead than will products as does
23. Assigning overhead using ABC will usually overhead allocation allocation traditional costing traditional costing 2
Enhanced control
Better management over overhead More accurate
24. The primary benefit of ABC is it provides decisions costs More cost pools product costing 4
Enhanced control
More accurate over overhead Better management
25. Which of the following is not a benefit of activity-based costing? product costing costs decisions Less costly to use 4
Poorer
Less control over ABC can be management
26. Which of the following is a limitation of activity-based costing? More cost pools overhead costs expensive to use decisions 3
Personnel
27. Which of the following is not a facility-level activity? Plant management Product design administration Training 2
Engineering Inventory
28. Which of the following is not a product-level activity? Product design changes management Equipment setups 4
Engineering
29. Which of the following is not a batch-level activity? changes Equipment setups Inspection Materials handling 1
30. Which of the following is not a unit-level activity? Purchase ordering Assembling Painting Sewing 1
Engineering
31. Which of the following is not a facility-level activity? Plant depreciation Property taxes changes Utilities 3
Engineering Inventory
32. Which of the following is not a product-level activity? Product design changes Material handling management 3
33. Which of the following is not a batch-level activity? Purchase ordering Equipment setups Inspection Assembling 4

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [35]

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [36]

34. Which of the following is not a unit-level activity? Drilling Cutting Sanding Inspecting 4
35. Which of the following is a unit-level activity? Painting Purchase ordering Inspection Material handling 1
Engineering
36. Which of the following is a batch-level activity? Assembling Product design changes Purchase ordering 4
37. Which of the following is a product-level activity? Equipment setups Product design Property taxes Utilities 2
Engineering
38. Which of the following is a facility-level activity? changes Product design Property taxes Inspection 3
Activities required to support or sustain an entire production Unit-level Batch-level Product-level Facility-level
39. process are called activities activities activities activities 4
Value-added
40. Cost allocation bases in activity-based costing should be Cost drivers activities Activity centers Processes 1
To allocate and
assign all product To determine a
To identify what costs incurred to cost object for
product costs are the appropriate which cost To allocate and
incurred by a products or information is assign indirect
41. What is the purpose of ABC? company services needed costs 4
Product-line Facility support
42. What type of activity is the cost of processing purchase orders? Unit-level activity activity Batch-level activity activity 2
Product-line Facility support
43. What type of activity is the cost of designing products? Unit-level activity activity Batch-level activity activity 2
Which one of the following is the most appropriate cost driver for Number of Number of sales Number of parts Number of
44. the ordering and receiving materials cost pool? receiving clerks invoices ordered purchases orders 4
 Determining how
much direct
materials and
labour should be Comparing the
Assigning various Collecting various allocated to a actual performance
overhead costs to types of costs that specific product or of managers against
45. In an activity-based cost system, to what does ‘pooling costs’ refer? products relate to an activity service the budget 2
Under ABC, Under ABC,
Under ABC, overhead costs are Under ABC, direct allocation is based
allocation is based equally divided and indirect costs on the units
on the activities between products, are allocated based produced which is
which generate the jobs, or on a cause and a more accurate
46. What is one aspect of ABC that differs from traditional costing? respective expenses departments effect relationship allocation of costs 1
A method of
accounting for
material, labour A method of
and overhead costs allocating indirect Another name for
47. ABC is related to products costs benchmarking A cost object 2
Products A service offered A machine used for
48. Which of the following is a typical cost pool? manufactured to customers Direct labour packaging products 4
Allocate costs to
products from
Define all activities pools where costs
within the Assign costs to are accumulated
organization and pools according to based upon the
Allocate costs to all the costs required the reasons the activities that cause
In establishing an Activity Based Costing System, an organization’s activities within an to perform those costs are assumed the costs to be
49. goal is to organization activities to be incurred incurred 4

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [37]

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [38]

A group of
individual costs Selected to
whose total is minimize allocated Equivalent to cost
50. Cost drivers are allocated Used to assign costs costs pools 2
Multiply Divide estimated Divide
manufacturing activity pool Multiply estimated manufacturing
overhead rate by amount by activity pool overhead rate by
How is an activity cost rate calculated when using ABC to assign actual cost driver estimated cost amount by actual actual cost driver
51. manufacturing overhead costs? level driver level cost driver level level 2
Which one of the following is a collection of overhead costs related
52. to a cost object? Cost pool Cost driver Cost object Cost allocation 1
An accounting system that collects financial and operating data on Activity-based
53. the basis of the underlying nature and extent of the cost drivers is Direct costing costing Target costing Cycle-time costing 2
Method of Technique of
54. ABC is a Method of costing allocation costing All of the above 2
55. An Activity which generates cost is a Cost driver Cost pool Cost unit Cost centre 1
56. The customer order processing activity has cost driver Order value Order source Inspection plus a & b only 4
Activity based Asset Based
57. ABC stands for costing ABC Analysis Control All of the above 1
58. Documentation activity has cost driver No. of bookings No. of spare parts No. of proposals All of the above 1
Focuses on
activities Classifies activities
performed to into A,B,C Used for
59. ABC based costing produce product categories controlling cost None of the above 1
 Ascertains
relationship
Ascertain the between activities
factors that cause Ascertains cost of and products
60. ABC tries to activity such activity produced All of the above 4
Identification of
factors which
Identification of determine the cost Collection of cost
61. The steps in ABC include: main activities of activity of each activity All of the above 4
Activity that Activity that Activity that
62. A cost driver is an generates cost collects cost assigns cost All of the above 1
63. Cost drivers may be Structural Organisational Activity All of the above 4
Organisational cost Structural cost
64. No. of purchase orders is an Activity cost driver driver driver All of the above 1
Organisational cost Structural cost
65. No of inspections is an Activity cost driver driver driver All of the above 1
66. ABC provides information which is Better More accurate More reliable All of the above 4
Engineering Training
67. Cost driver for customer order processing is Order Value Inspection plans changes requirements 1
No of machine
68. Cost driver for inspection activity is Inspection plans No of orders Order value changes 1
Flow of product
69. Cost driver for production activities is from assembly Activity level Inspection plans No of orders 1
Recruitment Capital No of systems
70. Cost driver for personal activities is activity expenditure Volume of activity operational 1
No of accounting No of times
71. Cost driver for financial accounting activity is transactions accounts produced Volume of activity All of the above 4

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [39]

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [40]

Reduction of setup Elimination of Pick lowest cost

72. Under ABC cost reduction is achieved by time wasteful activities alternatives All of the above 4
Reducing direct Use common Pick cheapest
73. Under traditional costing cost reduction is achieved by labour components alternatives All of the above 1
Distinction cannot Distinction can be
be made for cost made for cost
attached to various attached to various
activities or activities or Activities are
74. ABC cannot be applied where functions functions identifiable None of the above 1
Co-operation
between operating
Activities are Overheads are units and service
75. Implementation of ABC system is possible when identifiable related to activities functions All of the above 4
Advertising Ordering of
76. Following is not a facility level activity. campaigns Property taxes Insurance materials 4
Product level
77. Machine set up is a Batch level activity Unit level activity activity None of the above 1
Product level Facility level
78. Inspection is the Unit level activity activity activity None of the above 1
Facility level Product line
79. Testing of product is a Batch level activity Unit level activity activity activity 1
Engineering Ordering of
80. Following is not a product line activity Product designing changes materials None of the above 3
Facility level Product level
81. Plant security is a activity activity Unit level activity Batch level activity 1
Product level
82. Loading machine is a Unit level activity Batch level activity activity None of the above 2
 Product line Facility level
83. Product designing is a activity Batch level activity activity All of the above 1
Facility level Product level
84. Building depreciation is a activity activity Unit level activity Batch level activity 1
85. ABM has a Narrow scope Wider scope No scope None of the above 2
86. ABM is the application of ABC Traditional costing Operating costing Target costing 1
Better decision
87. ABM helps in the management in making Cost control Cost allocation Cost absorption 1
Top level Middle level Lower level
88. ABM implementation requires support of Workers management management management 2
Includes operating
89. ABC Includes ABC Excludes ABC costing None of the above 2
Management of Management of Management of Management of
90. ABC emphasizes processes and work workers Materials finance 1
Activities where Activities where
cost reduction is cost control is
91. ABC identifies Wasteful activities possible possible None of the above 2
Increasing cost Reducing cost Controlling cost
92. ABC focuses on drivers drivers drivers All of the above 2
Existing
information on No support of Separate
93. Implementation of ABM requires system support information system information system None of the above 1
94. Traditional Costing allocates overheads on the basis of _____. Volume Activities 1
95. ABC allocates overheads on the basis of _____. Volume Activities 2
_____ costing is defined as “Cost attribution to cost units on the
basis of benefits received from indirect activities i.e. ordering,
96. setting-up, assuring quality etc”. ABC Target 1

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [41]

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [42]

97. _____ are elements that are used for performing the activities. Resources 1
A cost _____ is a term used to indicate grouping of costs incurred
98. on a particular activity which drives them. Pool 1
Any element that would cause a change in the cost of activity is
99. cost _____. Driver 1
100. ABC is suitable when there is a _____ range of products. Wide Narrow 1
101. ABC is suitable when the operations are _____. Complex Simple 1
ABC is suitable when the overheads form a _____ proportion of the
102. total costs. High Low 1
103. In ABC, overheads are allocated in proportion of _____. Volume Activities 2
104. Use of indirect materials is a/an _____ level of activity. Unit 1
105. Machine set up is a/an _____ level of activity. Batch 1
106. Producing parts specifications is a/an _____ level of activity. Product 1
107. Plant security is a/an _____ level of activity. facility 1
108. ABC focuses on _______ Activities
109. The activity that generates cost is a _____ Cost driver
110. Cost driver may be ______ Organizational
111. No of purchase orders is a ______ Cost driver
112. ABC provides ______ information Reliable
113. Cost driver for inspection activity is _______ Inspection plans
Recruitment
114. ________ is a cost driver for personnel activities. Activity
115. Reduction of setup time reduces _____. Cost
116. Reduction in _____ labour reduces cost. Direct
 Implementation of ABC system is possible when activities are
117. _____. Identifiable
118. Production scheduling is a cost _____ Pool
119. Material handling is a cost ______. Pool
120. For purchasing cost, no of purchase order is a ______. Cost driver
121. Direct costs do not need _____ Cost drivers
122. ABC uses ______ cost drivers Multiple
Traditional costing systems are generally more accurate than ABC
123. costing. True False 2
Companies that use ABC trace direct materials and direct labour to
124. cost objects just as would be done using traditional costing systems. True False 1
The use of direct labour hours or direct machine hours to trace
costs to products occurs with the use of absorption costing but not
125. with the use of ABC. True False 2
Activity-based costing involves a two-stage allocation in which
overhead costs are first assigned to departments and then to jobs on
126. the basis of direct labour hours. True False 2
127. Machine setup is normally considered a batch-level cost. True False 1
128. Machine setup is normally considered a unit-level cost. True False 2
Building depreciation is generally considered an organizational or
129. facility cost. True False 1
Activity-based costing is appropriate for a company that
130. manufactures a wide variety of products. True False 1
Activity-based costing is appropriate for a company that
131. manufactures a single product. True False 2

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [43]

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [44]

Activity-based costing is appropriate for a company that has low

overhead costs that are proportional to the unit volumes of
132. products. True False 2
Activity-based costing is appropriate for a company that has low
overhead costs that are proportional to unit volumes of individual
133. products. True False 1
Activity cost pools are cost accumulations associated with a given
134. activity. True False 1
Activity cost pools are assigned to products, using factory overhead
135. rates for each activity. True False 1
Activity rates are computed by dividing the cost budgeted for each
136. activity pool by the estimated activity base for that pool. True False 1
Direct labour hours is not a cost pool that is regularly used in the
137. activity-based costing method. True False 2
Activity based costing is much easier to apply than single plant-
138. wide factory overhead allocation. True False 2
Activity based costing can be used to allocate period costs to
139. various products that the company sells. True False 1
Activity based costing can only be used to allocate manufacturing
140. factory overhead. True False 2
Traditionally, overhead is allocated based on direct labour cost or
141. direct labour hours. True False 1
Current trends in manufacturing include less direct labour cost or
142. direct labour hours. True False 1
The first step in activity-based costing is to assign overhead costs to
143. products, using cost drivers. True False 2
 When overhead is properly assigned in ABC, it will usually
144. decrease the unit cost of high-volume products. True False 1
145. ABC leads to enhanced control over overhead costs. True False 1
146. ABC usually results in less appropriate management decisions. True False 2
147. ABC is generally more costly to implement than traditional costing. True False 1
148. ABC eliminates all arbitrary cost allocations. True False 2
ABC is particularly useful when product lines differ greatly in
149. volume and manufacturing complexity. True False 1
ABC is particularly useful when overhead costs are an insignificant
150. portion of total costs. True False 2
Activity-based costing focuses on reducing costs and improving
151. processes. True False 1
152. Plant management is a batch-level activity. True False 2
153. Painting is a product-level activity. True False 2
A company that uses only volume-based measures will overcost its
154. low-volume products. True False 2
155. ABC will be most useful in estimating fixed costs. True False 1
Volume-based measures will tend to overcost high volume
156. products. True False 1
157. Direct materials are normally considered as batch-level costs. True False 2
158. Unit level costs occur once for each unit produced. True False 1
159. Batch level costs occur once for each unit produced. True False 2
160. Machine setup is normally considered a batch-level cost. True False 1
161. Machine setup is normally considered a unit-level cost. True False 2

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [45]

A-ONE COMMERCE ACADEMY/ T.Y.BAF OBJECTIVES [46]

Building depreciation is generally considered an organizational or

162. facility cost. True False 1
Building depreciation is generally considered an product or process
163. level cost. True False 2
164. ABC is a traditional system of cost allocation TRUE FALSE 1
165. ABC involves identification of activities and cost associated with it. TRUE FALSE 1
166. Cost driver is an activity that generates cost TRUE FALSE 1
167. Cost driver may be structural TRUE FALSE 1
168. ABC provides more accurate information TRUE FALSE 1
169. Inspection plan is a cost driver for customer order processing TRUE FALSE 2
170. No of orders is a cost driver for inspection activity TRUE FALSE 2
171. Recruitment activity is a cost driver for personal activity. TRUE FALSE 1
172. Volume of activity is a cost driver for financial accounting activity. TRUE FALSE 1
173. Reduction of set up time reduces cost. TRUE FALSE 1
174. Reduction of direct labour reduces cost. TRUE FALSE 1