1.

All of the following are reasons for using predetermined overhead rates in product
costing except:
a. to overcome the problem of fluctuations in activity levels that have no impact on
fixed overhead costs.
b. to overcome the problem caused by overhead containing both fixed and variable
costs.
c. to adjust for variations in actual overhead costs that are unrelated to fluctuations in
activity.
d. to allow management to determine whether a product, product line, or customer is
profitable.

2. What is the best method for disposing of significant underapplied factory overhead?
a. Charge the underapplied amount to cost of goods sold
b. Prorate the underapplied amount to cost of goods sold, finished goods, and work in
process
c. Prorate the underapplied amount to inventory only (work in process and finished
goods)
d. Charge the underapplied amount to a loss account at the end of the period

3. Select the incorrect statement concerning overapplied overhead.

a. The overhead control account will have a debit balance.
b. The amount of overhead transferred to WIP from the overhead control account
exceeded the actual amount of overhead incurred.
c. Overapplied overhead must be closed at year-end because a single year’s activity
level was used to set the predetermined overhead rate.
d. Overapplied overhead may result if the company’s actual utilization of capacity is
greater than expected.
4. Select the incorrect matching of cost and cost level.
a. Unit level : Direct material
b. Facility level : Equipment maintenance
c. Product level : Product development
d. Batch level : Setup costs

5. Which costing system assigns costs within multiple cost pools to products using multiple
drivers?
a. Activity-based costing
b. Variable costing
c. Traditional costing
d. None of the above

6. The use of activity-based costing normally results in:

a. substantially lower unit costs for low-volume products than is reported by traditional
product costing.
b. equalizing setup costs for all product lines.
c. decreased setup costs being charged to low-volume products.
d. substantially greater unit costs for low-volume products than is reported by
traditional product costing.

7. Because of the changes that are occurring in the basic operations of many firms, all of
the following represent trends in the way indirect costs are allocated except:
a. treating direct labor as an indirect manufacturing cost in an automated factory.
b. using throughput time as an application base to increase awareness of the costs
associated with lengthened throughput time.
c. preferring plant-wide application rates that are applied to machine hours rather than
incurring the cost of detailed allocations.
 d. using several machine cost pools to measure product costs on the basis of time in a
machine center

8. Activity-Based Costing is appropriate for which of the following organizations?

a. One that produces and sells a wide variety of products.
b. One that produces and sells a single complex product.
c. One that provides a single service to customers.
d. All of the above

9. A number of barriers must be overcome to implement activity-based costing systems

successfully. Select the barrier that is not matched up properly with its type.
a. Fear of change Individual barrier
b. Regulatory agencies Environmental barrier
c. Corporate culture issues Organizational barrier
d. All of the above barriers are properly classified

10. The document that summarizes the expected quantities and costs needed to produce a
unit is called a
a. bill of materials.
b. total cost of ownership document.
c. operations flow document.
d. standard cost card.

11. Which of the following items is not included in annual inventory carrying costs?
a. Inventory storage cost
b. Inventory purchase cost
c. Insurance on inventory
d. Property taxes on inventory
12. When the level of safety stock is increased:
a. lead time will increase.
b. carrying costs will decrease.
c. the frequency of stock outs will decrease.
d. lead time will decrease.