Activity-based Costing MCQs

1. Which of the following statements is true about Activity-based costing (ABC)?

ABC is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” costs.

ABC is ordinary a replacement, rather than a supplement for, the company’s usual costing system

Most organization that use ABC have only one costing system that serves the needs of external reports and internal decision making

In practice, ABC can only be done one way correctly – different “flavors” are not allowed

2. In activity-based costing:

Non-manufacturing costs may not be assigned to products

Some manufacturing costs may be excluded from product costs

Allocation bases are the same as those used in traditional costing methods

Similar to traditional costing, activity-based costing only uses one overhead cost pool

3. Dividing costs of the department into activity cost pools is known as:

First-stage allocation

Second stage allocation

Third stage allocation

Fourth stage allocation

4. To calculate activity rates, all of the following are necessary except:

Determine the total activity for each cost pool that would be required to produce the current product mix

Determine the total activity for each cost pool that would be required to serve present customers

Calculate activity rates by dividing the total cost for each activity by its total activity

Calculate activity rates by dividing the total cost for each activity by the percentage of the activity allocated to the product

5. Which of the following would not be deducted from sales in a management report prepared using ABC costing method?

Direct material

Direct labor

Variable selling and administration costs

Shipping costs

6. Which of the following is the different concerning ABC costing when compared to traditional cost?

Traditional costing and ABC costing usually yield very similar product costs

In an ABC costing system costs are only assigned to products that actually required work that gave rise to a particular cost

In ABC costing batch-level costs are applied to products using unit-level bases

Under traditional costing, batch level costs are shifted from high-volume products to low volume products

7. Which of the following is a true statement concerning ABC costing systems being used to generate external reports?

Companies do not use ABC costing systems for external reporting purposes, because it does not conform to GAAP

Some companies do use ABC costing for external reporting but must reconcile product costs to GAAP before generating reports

Auditors like ABC costing because of its objective approaches to cost allocations

Activity-based Costing MCQs

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