Activity-Based Costing and Other

Cost Management Tools

Chapter 25

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Activity based costing is used to assign what kinds
of costs?

1. Direct materials
2. Direct labor
3. Manufacturing Overhead
4. All of the above

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Answer: 3 Direct costs (materials and labor) are
easy to assign to products. Indirect costs such as
manufacturing overhead must be allocated.

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The main difference between ABC and traditional
system is that ABC

1. Uses a separate allocation rate for each

activity
2. Uses a single allocation rate for all activities
3. Does not allocate indirect costs

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Answer: 1

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The cost allocation rate for each activity is the estimated

1. Total quantity of the allocation base ÷ estimated total

indirect cost
2. Total quantity of the allocation base ÷ estimated total
direct costs
3. Total indirect cost ÷ estimated total quantity of the
allocation base
4. Total direct cost ÷ estimated totally quantity of the
allocation base

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Answer: 3

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Indirect costs are allocated to the cost object by
1. Cost allocation rate x actual quantity of the allocation
base
2. Cost allocation rate x estimated quantity of the
allocation base
3. Cost allocation rate ÷ actual quantity of the allocation
base
4. Cost allocation rate ÷ estimated quantity of the
allocation base

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Answer: 1

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Reevaluating activities to reduce costs is called

1. Activity-Based Costing
2. Value engineering
3. Management by exception
4. Target costing

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Answer: 2

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Target pricing
1. Starts with the product cost and adds a profit to
determine the target sales price
2. Starts with the product gross profit and subtracts
company’s expenses to determine targeted net
income
3. Starts with the price customers are willing to pay
and subtracts the company’s desired profit to
determine the target cost

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Answer: 3

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Characteristics of a JIT system include all of the
following except:

1. Production is completed in a series of

processing departments
2. Production is completed in self-contained work
cells
3. Employees work in teams
4. Production is in small batches of units

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Answer: 1

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Inventory accounts in a JIT system consist of all of
the following except

1. Raw and In-Process Inventory

2. Work-in-Process Inventory
3. Finished Goods Inventory
4. Beginning Finished Goods Inventory

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Answer: 2

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Training personnel is an example of which type of
quality cost?
1. Prevention costs
2. Appraisal costs
3. Internal failure costs
4. External failure costs

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Answer: 1

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Warranty cost is an example of which type of
quality cost?
1. Prevention costs
2. Appraisal costs
3. Internal failure costs
4. External failure costs

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Answer: 4

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At the end of the year, $54,000 of manufacturing
overhead has been allocated to all jobs. Work in
progress is debited $54,000. What account is
credited $54,000?
1. Manufacturing overhead
2. Manufacturing wages
3. Finished goods inventory
4. Cost of goods sold

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Answer: 1

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At the end of the year, $50,000 of manufacturing
overhead has been incurred. $55,000 of
manufacturing overhead has been allocated.
To close the Manufacturing Overhead account
1. Debit Manufacturing Overhead for $50,000
2. Debit Manufacturing Overhead for $5,000
3. Credit Manufacturing Overhead for $55,000
4. Credit Manufacturing Overhead for $5,00

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Answer: 2

Manufacturing Overhead
Actual $50,000 Allocated $55,000
Close $5,000

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If you debit the Manufacturing Overhead account
to close it, which account do you credit?

1. Manufacturing overhead
2. Manufacturing wages
3. Finished goods inventory
4. Cost of goods sold

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Answer: 4

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 28
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