Quantity Price Cost Accounting A Managerial Emphasis 7th Canadian By Charles – Test Bank
Cost Accounting, Cdn. Ed., 7e (Horngren)
Chapter 5 Activity-Based Costing and Management
5.1 Identify the basic elements of activity-based costing systems as distinguished from traditional systems, and explain how preventable undercosting and overcosting of products and services affects profitability.
1) Peanut butter costing involves assigning costs in a non uniform manner to reflect the different utilization of resources by different products or services.
Answer: FALSE
Explanation: The term peanut butter costing describes a particular costing approach that uses broad averages for assigning (or spreading, as in spreading peanut butter) the cost of resources uniformly to cost.
Diff: 1 Type: TF
Skill: Remember
Objective: LO 5-1
2) Using a broad average to assign costs to products or services may lead to undercosting or overcosting.
Answer: TRUE
Diff: 1 Type: TF
Skill: Remember
Objective: LO 5-1
3) A top-selling product might actually result in recorded losses for the company.
Answer: TRUE
Diff: 2 Type: TF
Skill: Understand
Objective: LO 5-1
4) If a company undercosts one of its products from indirect cost smoothing, then it will overcost at least one of its other products.
Answer: TRUE
Diff: 2 Type: TF
Skill: Understand
Objective: LO 5-1
5) Product-cost cross-subsidization means that if a company undercosts one of its products, it will gain market share due to a more competitive price.
Answer: FALSE
Explanation: Product-cost cross-subsidization means that if a company undercosts one of its products, it
will overcost at least one of its other products.
Diff: 2 Type: TF
Skill: Remember
Objective: LO 5-1
6) Inaccurate product costs can expose a company to the risk of losing market share to competitors.
Answer: TRUE
Diff: 2 Type: TF
Skill: Remember
Objective: LO 5-1
7) Using a broad average to allocate costs to products is called
A) activity-based costing.
B) refined costing.
C) peanut butter costing.
D) product undercoating.
E) job costing.
Answer: C
Diff: 1 Type: MC
Skill: Remember
Objective: LO 5-1
8) Which of the following statements is TRUE concerning product costing systems?
A) Companies that undercost products always sell products at a loss.
B) Companies that overcost run the risk of losing customers.
C) Undercosting or overcosting does not relate to product cost cross-subsidization.
D) Peanut butter costing is another term for direct costing.
E) Companies that overcost will make more profit by passing along higher prices to customers.
Answer: B
Diff: 1 Type: MC
Skill: Understand
Objective: LO 5-1
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