Activity based costing abc can eliminate cost

23. Activity-based costing (ABC) can eliminate cost distortion because ABC:
a. Develops cost drivers that have a cause-and-effect relationship with the activities performed
b. Establishes multiple cost pools
c. Eliminates product variation
d. Recognizes interactions between different departments in assigning support costs
24. When evaluating a make-or-buy decision, which of the following does NOT need to be considered?
a. Alternative uses of the production capacity
b. The original cost of the production equipment
c. The quality of the supplier’s product
d. The reliability of the supplier’s delivery schedule
A1 PASSERS REVIEW CENTER///70

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 25 AND 26:
Shirt Company produces two product lines: T-shirt s and Sweatshirts. Product profitability is analyzed as
follows:
T-SHIRTS SWEATSHIRT
Production and sales volume 60,000 units 35,000 units
Selling price P16.00 P29.00
Direct material P 2.00 P5.00
Direct labor P4.50 P7.20
Manufacturing overhead P2.00 P3.00
Gross profit P7.50 P13.80
Selling and administrative P4.00 P7.00
Operating profit P3.50 P6.80
Shirt Company’s manager have decide to revise their current assignment of overhead costs to reflect the
following ABC cost information:
Activity Activity cost Activity-cost-driver
Supervision P100,920 Direct labor hours (DLH)
Inspection P124,000 Inspections
Activities demanded
T-SHIRTS SWEATSHIRTS
0.75 DLH/unit 1.2 DLH/unit
45,000 DLHs 42,000 DLHs
60,000 inspections 17,500 inspections
25. Under the revised ABC system, total overhead costs allocated to Sweatshirts will be:
a. P 48,720
b. P76,720
c. P224,920
d. None of these answers are correct
26. Using an ABC system, next year’s estimates show manufacturing overhead costs will total P228,300 for
52,000 T-shirt. If all other T-shirt costs and sales prices remain the same, the profitability that can be
expected is
a. P5.41 per t-shirt
b. P4.39 per t-shirt
c. P1.11 per t-shirt
d. (P0.81) per t-shirt
27. If breakeven point is 100 units, each unit sells for P30, and fixed costs are P1,000, then on a graph the:
a. Total revenue line and the total cost line will intersect at P3,000 of revenue
b. Total cost line will be zero units sold
c. Revenue line will start at P1,000
d. All of these answers are correct
28. Put the following ABC implementation steps in order:
A. Compute the allocation rates.
B. Compute the total cost of the product.
C. Identify the products that are the cost object.
D. Select the cost allocation bases
a. DACB
b. DBCA
c. BADC
d. CDAB