6) Facility-sustaining costs are the costs of activities ________.

A) undertaken to support individual products or services regardless of the number of units or batches in which the units are produced

B) related to a group of units of a product or service rather than each individual unit of product or service

C) that managers cannot trace to individual products or services but that support the organization as a whole

D) performed on each individual unit of a product or service such as the cost of energy, machine depreciation, and repair

7) ________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced.

A) Unit-level costs

B) Batch-level costs

C) Product-sustaining costs

D) Facility-sustaining costs

8) Unit-level cost drivers are most appropriate as an overhead assignment base when ________.

A) several complex products are manufactured

B) only one product is manufactured

C) direct material costs are low

D) prime costs are low

9) With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.

A) overcosted

B) fairly costed

C) undercosted

D) ignored

Answer the following questions using the information below:

Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8.

10) According to an ABC system, CP8 is ________ under the traditional system.

A) undercosted

B) overcosted

C) fairly costed

D) accurately costed

11) According to an ABC system, S5 uses a disproportionately ________.

A) smaller amount of unit-level costs

B) larger amount of unit-level costs

C) smaller amount of batch-level costs

D) larger amount of batch-level costs

12) Service-sustaining costs are the costs of activities that managers cannot trace to individual services but that support the organization as a whole.

13) Quality-inspection costs is an example of batch-level costs.

14) An effective activity-based cost system always ignores facility-sustaining cost drivers.

15) Misleading cost numbers are larger when only unit-level cost drivers are used for allocating overheads of multiple complex products.