chap003(3) - Chapter 003 Systems Design Activity-Based...

Chapter 003, Systems Design: Activity-Based Costing
True / False Questions
1. Departmental overhead rates applied on the basis of a volume measure such as direct labor-
hours or machine-hours will eliminate any distortions in unit costs due to product diversity.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 1
Level: Hard
2. Facility-level activities are activities that support specific products.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 1
Level: Medium
3. An activity-based costing system is generally easier to set up and run than a traditional cost
system.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 1
Level: Medium
4. Activity-based costing uses a number of activity cost pools, each of which is allocated to
products on the basis of direct labor-hours.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 1
Level: Easy
3-1

Chapter 003, Systems Design: Activity-Based Costing
5. In activity-based costing, a plantwide overhead rate is used to apply overhead to products.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 1
Level: Medium
6. Unit-level activities are performed each time a unit is made.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 1
Level: Easy
7. Costs classified as batch-level costs should depend on the number of batches processed
rather than on the number of units produced, the number of units sold, or other measures of
volume.
TRUE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 1
Level: Medium
8. Activity rates in activity-based costing are computed by dividing costs from the first-stage
cost assignments by the activity measure for each activity cost pool.
TRUE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 2
Level: Hard
3-2

Chapter 003, Systems Design: Activity-Based Costing
9. When a company changes from a traditional costing system to an activity-based costing
system, the unit product costs of high-volume products typically change more than the unit
product costs of low-volume products.
FALSE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 3
Level: Hard
10. When a company changes from a traditional costing system to an activity-based costing
system, costs will ordinarily shift from high-volume to low-volume products when the
activity-based costing system includes batch-level or product-level costs.
TRUE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
Learning Objective: 4
Level: Hard
11. When a company changes from a traditional costing system to an activity-based costing
system, the unit product costs of low volume products typically increase more than the unit
product costs of high volume products decrease.