Quantity Price Cost Accounting A Managerial Emphasis 7th Canadian – Test Bank

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