Chapter 08

Managerial Accounting

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Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making True/False Questions 1. If a manufacturing company is using activity-based costing for internal purposes only, then organization-sustaining overhead costs should not be allocated to any of the products. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 2. Batch-level activities are performed each time a batch of goods is handled or processed. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. Organization-sustaining activities are carried out regardless of how many units are made, how many batches are run, or how many different products are made. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 4. Direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 5. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” costs. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 6. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-5
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Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 7. A duration driver provides a measure of the amount of time required to perform an activity. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 8. In general, transaction drivers are more accurate measures of the consumption of resources than duration drivers. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 9. The costs of idle capacity should not be assigned to products in activity-based costing. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 10. In traditional costing systems, all manufacturing costs are assigned to products--even manufacturing costs that are not caused by the products. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 11. Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs on the basis of direct labor hours.
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Chapter 08 - Chapter 8 Activity-Based Costing: A Tool to...

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