Multiple-Choice Overview of the Chapter}
1. Overhead allocation based on volume alone:

a. is a key element of activity-based costing.

b. systematically overcosts high-volume products and undercosts low-volume products.

c. systematically overcosts low-volume products and undercosts high-volume products.

d. must be used to prepare external financial reports.

2. Using activity-based costing, overhead costs are accumulated in:

a. a single, company-wide pool.

b. departmental pools.

c. pools created according to the number of cost drivers that can be identified.

d. batches and allocated to products based on the costs of materials or labor.
3. First-stage allocations in an activity-based cost system:

a. typically use percentages to allocate costs to activities.

b. allocate fixed costs only.

c. allocate variable costs only.

d. are unnecessary because ABC requires a one-stage allocation process.
4. Activity-based costing would be least effective when:

a. products differ substantially in volume and lot size.

b. there is a close link between direct labor hours and overhead costs.

c. managers use cost information to make pricing or other product decisions.

d. the processes used to manufacture products differ substantially in terms of complexity.
5. All of the following are characteristic of activity-based costing except the:

a. use of cost drivers as a basis for allocating costs.

b. accumulation of costs by activities.

c. failure to recognize economies of scale.

d. use of volume as a possible cost driver.
6. The allocation of overhead costs:

a. is used by service and manufacturing organizations to assign costs to products.

b. is used only by manufacturing organizations.

c. is used to assign the costs of direct materials and labor.

d. must be based on sales or production volume.
7. The denominator used in calculating a predetermined overhead rate:

a. should have a causal relationship to the costs being assigned.

b. is not affected by varying levels of volume.

c. should change monthly to allow for fluctuations in volume.

d. is determined once volume and actual costs are known.
8. The level of activity that is most likely to use volume for the allocation of overhead is the:

a. unit level.

b. product level.

c. batch level.

d. facility level.
9. An example of a product-level cost is the cost:

a. of setting up machines for different products.

b. incurred to operate a break room.

c. of a factory's payroll.

d. incurred to operate a product-testing center.
10. An example of a batch-level cost is the cost:

a. of setting up machines for different products.

b. incurred to operate a break room.

c. of a factory's payroll.

d. incurred to operate a product-testing center.