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1CHAPTER4ACTIVITY-BASEDCOSTMANAGEMENTSYSTEMSTRUE/FALSE1.Simplybecauseactivity-basedcostingsystemsemploymoreactivitycostdrivers,theyprovidemoreaccurateproductcoststhantraditionalsystems.a.Trueb.False2.Atop-sellingproductmightactuallyresultinlossesforthecompany.a.Trueb.False3.Traditionalsystemsarelikelytoundercostcomplexproductswithlowerproductionvolume.a.Trueb.False4.Usingmultipleunit-levelcostdriversgenerallyconstitutesaneffectiveactivity-basedcostsystem.a.Trueb.False5.TheCooperPenCompanycaseinthetextprovidesanillustrationofwhyfactoriesproducingamorevariedmixofproductshavehighercoststhanfactoriesproducingonlyanarrowrangeofproducts.a.Trueb.False6.Productlinesthatproducedifferentvariations(models,styles,orcolors)oftenrequirespecializedactivitiesthattranslateintolowersupportcostsforeachproductline.a.Trueb.False7.Specializedengineeringdrawings,qualityspecificationsandtesting,inventoriedmaterials,andmaterialcontrolsystemsareexamplesofactivitiesthatequatetogreatersupportcosts.a.Trueb.False8.Foractivity-basedcostsystems,activitycostsareassignedtoproductsintheproportionofthedemandtheyplaceonactivityresources.a.Trueb.False29.Anactivity-basedcostingsystemisnecessaryforcostingservicesthataresimilar.a.Trueb.False10.ABCsystemsseekacostallocationbasethathasacause-and-effectrelationshipwithcostsinthecostpool.a.Trueb.False11.Ingeneral,theselectionofactivitycostdriversrequiresmakingtrade-offsbetweenaccuracyandthecostofmeasurement.a.Trueb.False12.Theselectionofactivitycostdriversrequiresmakingchoicesrelatedtotheusageoftransactiondrivers,durationdrivers,andintensitydrivers.a.Trueb.False13.Reducingthenumberofproductionrunsprovidesaneconomicbenefiteventhoughresourcesremainatthesamelevel.a.Trueb.False14.Aneasywaytoimplementaneffectiveactivity-basedcostingsystemistobuyaprepackagedABCsoftwarepackage.a.Trueb.False15.Activity-basedcostinghelpstoidentifyvariousactivitiesthatexplainwhycostsareincurred.a.Trueb.False16.ABCrevealsopportunitiesforimprovingthewayworkisdone.a.Trueb.False17.Usingactualdriverquantitiesratherthanpracticalcapacitytoassignproductcostscanleadtoimprovementsinproductcosts.a.Trueb.False18.Practicalcapacityisusedasthedenominatorforactivitydrivercalculationstoavoiddistortionscausedbytheassignmentofexcesscapacitycoststotheproducts.a.Trueb.False319.Unusedcapacityshouldbetreatedasageneralcosttobesharedacrossallproductlines.a.Trueb.False20.Costdriverratescalculatedusingactualworkperformedincludeanallocationforthecostofresourcesusedandforunusedcapacity.a.Trueb.False21.Assigningsellinganddistributioncoststoproductlinesisbecomingmoreimportantbecauseofcustomerrequestsforcustomizedservices.a.Trueb.False22.Thecostsofmarketing,selling,anddistributionexpenseshavebeendecreasingrapidlyinrecentyears.a.Trueb.False23.Customerswhodemandlowpricesandcustomizedservicesarethemostprofitablecustomers.a.Trueb.False24.Ingeneral,servicecompaniesareidealcandidatesforactivity-basedcosting.a.Trueb.False25.Forserviceorganizations,activity-basedcostsystemsclarifyappropriatecostassignmentsandhelptoidentifytheprofitabilityofvariousserviceactivities.a.Trueb.False26.ThemostsuccessfulABCprojectsoccurwhenaclearbusinesspurposeexistsforbuildingtheABCmodel.a.Trueb.False27.WhentheABCsystemhasapoormodeldesign,ABCcanstillovercomethebarrierstoimplementationandprovideaneffectivesystem.a.Trueb.False28.Anactivity-basedcostingsystemismeanttoperformtheroleofoperationalcontrolaswellastoprovidethebasisforcostinginventoryforfinancialreporting.a.Trueb.False429.EvenwhentheABCprojectisinitiatedfromthefinancegroup,amultifunctionalprojectteamshouldbeformed.a.Trueb.False30.ABCsystemsalwaysprovidedecision-makingbenefitsthatexceedimplementationcosts.a.Trueb.False5MULTIPLECHOICE31.Activity-basedcosting(ABC)caneliminatecostdistortionsbecauseABC:a.developscostdriversthathaveacause-and-effectrelationshipwiththeactivitiesperformedb.establishesmultiplecostpoolsc.eliminatesproductvariationsd.recognizesinteractionsbetweendifferentdepartmentsinassigningsupportcosts32.Traditionalcostsystemsdistortproductcostsbecause:a.theydonotknowhowtoidentifytheappropriateunitsb.excesscapacitycostsareignoredc.theyemphasizefinancialaccountingrequirementsd.theyapplyaveragesupportcoststoeachunitofproduct33.Unit-levelcostdriversintraditionalcostsystemsdistortproductcostsbecausethey:a.assumethatallsupportactivitiesaffectallproductsb.recognizespecificactivitiesthatarerequiredtoproduceaproductc.donotconsistentlyrecordcostsd.failtomeasurethecorrectamountoftotalcostsforallproducts34.Smallercostdistortionsoccurwhenthetraditionalsystems’unit-levelassignmentsandthealternativeactivitycostdriverassignments:a.aredifferentinproportiontoeachotherb.aresimilarinproportiontoeachotherc.aremoredifferentthanaliked.usethesamecostdriverunits35.Theuseofunit-relatedmeasurestoassignsupportcostsismorelikelyto:a.undercosthigh-volumeproductsb.undercostspecialtylow-volumeproductsc.undercostcomplexproductsd.Both(b)and(c)arecorrect.36.MisleadingcostnumbersareMOSTlikelytheresultofmisallocating:a.directmaterialcostsb.directmanufacturingl