Activity-Based Costing: Master the Concepts for Managerial Accounting

Question 1

What is the primary advantage of implementing Activity-Based Costing (ABC)?

Accepted Answer

Enhanced decision-making

Answer

Lower production costs

Answer

Increased customer satisfaction

Answer

Eliminated overhead costs

Question 2

Which of the following is NOT a potential benefit of Activity-Based Costing (ABC)?

Accepted Answer

Boosted productivity

Answer

Enhanced cost accuracy

Answer

Improved decision-making

Answer

Better understanding of cost drivers

Question 3

The primary purpose of an activity rate in Activity-Based Costing (ABC) is to:

Accepted Answer

Determine cost per unit of activity

Answer

Assign costs to products or services

Answer

Identify relevant cost drivers

Answer

Calculate total activity costs

Question 4

Which of the following is a key assumption that underpins Activity-Based Costing (ABC)?

Accepted Answer

Activities consume resources

Answer

Costs are linearly related to activity levels

Answer

All costs can be traced to activities

Answer

Overhead costs are insignificant

Question 5

Which of the following is NOT a potential application of Activity-Based Costing (ABC)?

Accepted Answer

Long-term strategic planning

Answer

Product profitability analysis

Answer

Customer profitability analysis

Answer

Process improvement

Question 6

Which of the following is the primary objective of Activity-Based Costing (ABC)?

Accepted Answer

To enhance the precision of product and service costing.

Answer

To minimize overhead expenses.

Answer

To optimize financial reporting.

Answer

To replace existing costing methods entirely.

Question 7

What is the initial step in implementing an ABC system?

Accepted Answer

Identifying the activities that drive costs.

Answer

Allocating expenses to activities.

Answer

Calculating activity rates.

Answer

Distributing costs to products and services.

Question 8

How is an activity rate determined?

Accepted Answer

Total cost of the activity divided by the number of activity drivers.

Answer

Number of activity drivers divided by the total cost of the activity.

Answer

Total cost of the activity multiplied by the number of activity drivers.

Answer

Number of activity drivers multiplied by the total cost of the activity.

Question 9

What is the purpose of a cost hierarchy in ABC?

Accepted Answer

To classify activities based on their relationship to products and services.

Answer

To identify activities that should be outsourced.

Answer

To optimize resource allocation.

Answer

To reduce overhead costs.

Question 10

Which fundamental principle underpins Activity-Based Costing (ABC)?

Accepted Answer

Costs are first assigned to activities, then to products or services.

Answer

Costs are assigned непосредственно to products or services.

Answer

All costs are considered fixed costs.

Answer

Only manufacturing costs are accounted for.

Question 11

Which of the following is NOT a typical driver used to assign costs to activities?

Accepted Answer

Interest expense.

Answer

Number of units produced.

Answer

Number of customer orders processed.

Answer

Amount of raw materials utilized.

Question 12

What is a key advantage of using ABC to allocate overhead costs?

Accepted Answer

Enhanced accuracy in cost information.

Answer

Reduction in overhead costs.

Answer

Simplification of the accounting process.

Answer

Guaranteed allocation of all overhead costs.

Question 13

Which of the following statements about ABC is accurate?

Accepted Answer

ABC can assist in identifying and eliminating non-value-added activities.

Answer

ABC is only applicable for large organizations.

Answer

ABC is a rigid system that cannot adapt to changing circumstances.

Answer

ABC solely focuses on direct costs.

Question 14

What is the function of a cost hierarchy in an ABC system?

Accepted Answer

Assigning costs to different levels of activities.

Answer

Calculating the overhead rate.

Answer

Identifying the most significant cost drivers.

Answer

Determining product or service profitability.

Question 15

Which of the following is NOT a fundamental assumption of Activity-Based Costing (ABC)?

Accepted Answer

All activities share the same cost driver.

Answer

Activities consume resources.

Answer

Overhead costs can be assigned to products or services.

Question 16

Within the manufacturing industry, what is a key advantage of implementing Activity-Based Costing (ABC)?

Accepted Answer

Improved precision in product costing

Answer

Reduced administrative workload

Answer

Simplified inventory management

Question 17

Which of the following is NOT identified as a limitation of Activity-Based Costing (ABC)?

Accepted Answer

Facilitates transparency in cost allocation

Answer

Involves complex implementation and maintenance

Answer

May not be suitable for simple cost structures

Answer

Can lead to potential data inaccuracies

Question 18

In an ABC system, which of the following is commonly used to drive costs to activities?

Accepted Answer

Cost drivers

Answer

Standard costs

Answer

Historical costs

Answer

Overhead rates

Question 19

The primary purpose of calculating activity rates in ABC is to:

Accepted Answer

Assign indirect costs to activities based on their respective consumption of resources

Answer

Identify potential areas for cost reduction

Answer

Allocate costs directly to products or services

Answer

Determine the profitability of each activity

Question 20

ABC is most beneficial for organizations that:

Accepted Answer

Have diverse product lines with varying cost structures

Answer

Have a low volume of transactions

Answer

Operate in highly stable and predictable environments

Answer

Primarily focus on direct costs

Question 21

Which of the following is NOT a common application of Activity-Based Costing (ABC)?

Accepted Answer

Capital budgeting

Answer

Product costing

Answer

Pricing decisions

Answer

Process improvement