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Exam 5: Cost Management in an Automated Business Environment: ABC, ABM, and TQM

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Question 31

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Compared to a traditional two-stage cost allocation system,activity-based costing systems:

A) Use fewer cost centers.
B) Use more cost drivers.
C) Are less expensive to maintain.
D) All of these answers are correct.

E) A) and B)
F) A) and C)

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Question 32

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Which of the following is an example of a prevention cost?

A) Downtime
B) Inventory inspection
C) Product design
D) Repair and rework

E) All of the above
F) A) and B)

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Question 33

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Legal costs to file design patents are an example of a(n) :

The term "quality" refers to the degree to which products or services exceed customer expectations.

Voluntary costs refer to internal and external failure costs.

Which of the following is a volume-based cost driver?

Perez Company manufactures two products.Making Product A requires 6,000 hours of labor,and Product B requires 4,000 hours of labor.Perez undertakes an automation program that reduces the consumption of labor required by Product A to only 3,000 hours of labor.Product B is not affected by the automation process.Overhead cost prior to the automation totaled $30,000.After automation,overhead cost amounted to $56,000.Perez uses direct labor hours as a companywide allocation base before and after the automation. Required: 1)Compute the amount of overhead costs allocated to both products before automation. 2)Compute the amount of overhead costs allocated to both products after automation. 3)Are direct labors hours a good choice for allocation after the automation? Why or why not?

All of the following are downstream costs except:

When making a long-term cost plus pricing decision,a company should consider:

One of the advantages of activity-based costing systems over traditional systems is that ABC systems require less record keeping.

Bates Company makes two products.Product X requires 6,000 hours of labor,and Product Y requires 4,000 hours of labor.Bates undertook an automation program that reduced the consumption of labor required by Product X to only 2,000 hours of labor.Product Y was not affected by the automation process.Overhead cost prior to the automation totaled $10,000.After automation,overhead cost amounted to $24,000.Assuming Bates uses direct labor hours as a companywide allocation base before and after the automation,the amount of overhead cost allocated to:

Anderson Company produces a variety of products,some in labor-intensive departments and some in heavily automated departments.Using a companywide overhead allocation rate based on direct labor will result in overcosting some products and undercosting others.

Indicate whether each of the following statements is true or false. Activity-based costing systems are useful for many manufacturing companies but not for businesses that exist to provide services to their customers.______ Costs that are closely related to volume of production may be classified as unit-level even if they do not change with each individual unit of product.______ Activities related to producing groups of products are referred to as product-level activities.______ Batch-level costs are fixed with respect to the number of units produced in a single batch of a product.______ Machine setup costs are usually classified as batch-level costs.______

Performance Bicycle Company makes steel and titanium handlebars for bicycles.It requires approximately one hour of labor to make one handlebar of either type.During the most recent accounting period,Barr Company made 7,000 steel bars and 3,000 titanium bars.Setup costs amounted to $84,000.One batch of each type of bar was run each month.If a single companywide overhead rate based on direct labor hours is used to allocate overhead costs to the two products,the amount of setup cost assigned to the steel bars will be:

Which of the following statements is false regarding upstream and downstream costs?

Miller Company makes two types of chairs.One of the chairs is a rocking chair.The other is a straight-back chair.Both chairs are made by hand.Miller Company uses a companywide overhead rate that is based on direct labor hours to assign overhead costs to the two products.If Miller automates the production of straight-back chairs and continues to use direct labor hours as a companywide allocation basis:

How would a company determine the optimal number of activity centers in an activity-based costing system?

Companies operating in a highly automated environment that produce many different products with varying levels of production should use activity-based cost drivers to improve the accuracy of their cost allocations.

Unit-level activity costs follow a fixed cost behavior pattern (i.e.,such costs vary on a per unit basis but are constant in total).

The successful implementation of an activity-based costing system depends on employees' attitudes and cooperation.