ch10 - CHAPTER 10 ACTIVITYBASED COSTING AND MANAGEMENT...

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CHAPTER 10 ACTIVITY-BASED COSTING AND MANAGEMENT TRUE/FALSE 1. Profit margin equals a product’s gross margin less the cost of capacity resources needed to  support its production. LO1 – False Profit margin equals a product’s contribution margin less the cost of  capacity resources needed to support its production. 2. Profit margin is the appropriate measure for evaluating long-term profitability. LO1 – True 3. When allocating capacity costs to products, controllable and non-controllable cost pools  need to be allocated to cost objects. LO1 – False Controllable costs need to be allocated, 4. Activity-based costing (ABC) is an approach to determining product costs. LO1 – True 5. For a bank, maintaining the ATM computer network would be a product-level activity. LO1 – True 6. Because ABC is an allocation, it involves the two steps involved in any allocation – compute  the allocation rate and multiply the rate by the number of cost driver units in a cost object. LO2 – True  7. To obtain the activity rate for each cost pool, divide the total cost in each pool by the  unallocated cost. LO2 – False To obtain the activity rate for each cost pool, divide the total cost in each  pool by the practical capacity of its associated driver. 8. Changing the allocation method  never  affects the reported profit margins for each product  line. LO2 – False Changing the allocation method may affect the reported profit margins for  each of the product lines.   9. Implementing a full-fledged activity-based costing system is often a costly, time-consuming,  and tedious exercise. 10- 1
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LO2 – True 10. A survey by the Institute of Management Accountants found that only 8% of responding  firms in the U.S. use activity-based costing. LO2 – False A survey by the Institute of Management Accountants shows that only  54% of responding firms in the U.S. use activity-based costing. 11. ABC provides useful information for product planning by providing accurate estimates of  profit margins. LO3 – True  10-2
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Activity-Based Costing and Management 12. An ABC system may be used to measure the profitability or profit potential of a market  segment, but  not  an individual customer. LO3 – False An ABC system may be used to measure the profitability or profit  potential of an individual customer or a market segment. 13. A curve that plots customer profitability, after ranking customers in order of their profitability  is know as a whale curve.
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