A company produces three products; if one product is overcosted then:

Chapter 5 Activity-Based Costing and Activity-Based Management

Objective 5.1

1) If products are different, then for costing purposes:

A) an ABC costing system will yield more accurate cost numbers

B) a simple costing system should be used

C) a single indirect-cost rate should be used

D) none of the above

Answer: A

2) Overcosting a particular product may result in:

A) loss of market share

B) pricing the product too low

C) operating efficiencies

D) understating total product costs

Answer: A

3) Undercosting of a product is most likely to result from:

A) misallocating direct labor costs

B) underpricing the product

C) overcosting another product

D) overstating total product costs

Answer: C

4) A company produces three products; if one product is overcosted then:

A) one product is undercosted

B) one or two products are undercosted

C) two products are undercosted

D) no products are undercosted

Answer: B

5) Misleading cost numbers are most likely the result of misallocating:

A) direct material costs

B) direct manufacturing labor costs

C) indirect costs

D) All of these answers are correct.

Answer: C

6) An accelerated need for refined cost systems is due to:

A) global monopolies

B) rising prices

C) intense competition

D) a shift toward increased direct costs

Answer: C

7) The use of a single indirect-cost rate is more likely to:

A) undercost high-volume simple products

B) undercost low-volume complex products

C) undercost lower-priced products

D) Both B and C are correct.

Answer: B

8) Uniformly assigning the costs of resources to cost objects when those resources are actually used in a

nonuniform way is called:

A) overcosting

B) undercosting

C) peanut-butter costing

D) department costing

Answer: C