STRATEGIC COST MANAGEMENT MIDTERM EXAMINATION THEORY 1. Which of the following statements is true? A. Costs that are indirect to products are traceable to some activity. B. The traditional approach to costing uses many different cost drivers. C. Costs that are indirect to products are by definition traceable directly to products. D. All of the above statements are true. 2. Mass customization can be achieved through the use of A. Activity-based costing. C. Just-in-time inventory. B. Flexible manufacturing systems. D. all of the above. 3. Process value analysis is a key component of activity-based management that links product costing and A. Continuous improvement. B. Reduction of the number of cost pools. C. Overhead rates based on broad averages. D. Accumulation of heterogeneous cost pools. 4. An approach to developing new ways to perform existing activities is called A. Benchmarking. C. Process value analysis. B. Caveat analysis. D. Re-engineering. 5. A(n) method first traces costs to a department and then to products. A. absorption costing C. direct costing B. activitybased costing D. traditional costing 6. Traditional overhead allocations result in which of the following situations? A. The resulting allocations cannot be used for financial reports. B. Overhead costs are assigned as period costs to manufacturing operations. C. Low-volume products are assigned too much, and high-volume products are assigned too little overhead. D. High-volume products are assigned too much overhead, and low-volume products are assigned too little overhead. 7. Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called A. department costing. C. peanut-butter costing. B. overcosting. D. undercosting. 8. Which of the following is NOT a trait of a traditional cost management system? A. allocation intensive C. narrow and rigid product costing B. focus on managing activities D. unit-based drivers 9. Symptoms of an outdated cost system include all of the following EXCEPT A. competitors' prices appear unrealistically low. B. products that are difficult to produce show little profit. C. the company has a highly profitable niche all to itself. D. product costs change because of changes in financial reporting. 10. Which of the following is NOT a sign of poor cost data? A. The company seems to have a highly profitably niche all to itself. B. Customers don't balk at price increases for low-volume products. C. Competitors' prices for low-volume products appear much too high. D. Competitors' prices for high-volume products appear much too high. 11. Traditionally, managers have focused cost reduction efforts on A. activities. C. departments. B. costs. D. processes. 12. An objective of activity-based management is to A. eliminate the majority of centralized activities in an organization. B. institute responsibility accounting systems in decentralized organizations. C. reduce or eliminate nonvalueadded activities incurred to make a product or provide a service. D. all of the above 13. A(n) method first traces costs to activities and then to products. A. absorption costing C. direct costing B activity-based costing D. traditional costing 14. An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is A. Activity-based costing. Direct costing. B. Cycle-time costing. D. Variable costing. 15. Activity-based costing and generally accepted accounting principles differ in that ABC A. does not define product costs in the same manner as GAAP. B. cannot be used to compute an income statement, but GAAP can. C. information is useful only to managers, while GAAP information is useful to all organizational stakeholders. D. is concerned only with costs generated from automated processes, but GAAP is concerned with costs generated from both manual and automated processes. 16. Design of an ABC system requires A. an adjustment to product mix. B. that thejob bid process be redesigned. C. that a cause-andeffect relationship exists between resource costs and individual activities. D. both (A) and (C). 17. In an activitybased costing system, what should be used to assign a department's manufacturing overhead cost to products produced in varying lot sizes? A. A single cause and effect relationship. B. Multiple cause and effect relationships. C. Relative net sales values of the products. D. A product's ability to bear cost allocations. 18. A basic assumption of activity-based costing (ABC) is that A. Only variable costs are included in activity-cost pools. B. All manufacturing costs vary directly with units of production. C. Only costs that respond to unit-level drivers are product costs. D. Products or services require the performance of activities, and activities consume resources. 19. Book Co. uses the activity-based costing approach for cost allocation and product costing purposes. Printing, cutting, and binding functions make up the manufacturing process. Machinery and equipment are arranged in operating cells that produce a complete product starting with raw materials. Which of the following are characteristic of Boo's activity- based costing approach? I. Cost drivers are used as a basis for cost allocation. II. Costs are accumulated by department or function for purposes of product costing. Ill. Activities that do not add value to the product are identified and reduced to the extent possible. A. lonly. C. I and III. B. land II. D. II and III. 20. The UNIQUE feature of an ABC system is the emphasis on A. costing individual jobs. C. individual activities. B. department indirect-cost rates. D. multiple-cost pools. 21. ABC should be used in which of the following situations? A. in all manufacturing firms B. single-product firms with multiple steps C. multiple-product firms with only a single process D. multipleproduct firms with multiple processing steps 22. In activity-based costing, preliminary cost allocations assign costs to A. activities. C. processes. B. departments. D. products. 23. In activity-based costing, final cost allocations assign costs to A. activities. C. processes. B. departments. D. products. 24. ABC systems create A. one large cost pool. B. activity-cost pools with a broad focus. C. homogenous activity-related cost pools. D. activity-cost pools containing many direct costs. 25. What is the normal effect on the numbers of cost pools and allocation bases when an activity- based cost (ABC) system replaces a traditional cost system? A. B. C. D. Cost Pools Increase Increase No Effect No effect Allocation Bases Increase No Effect Increase No effect