Set A

1. Product undercosting occurs when the product

a. consumes a high level of resources, but reports a low cost per unit.
b. consumes a high level of resources, and reports a high cost per unit.
c. consumes a low level of resources, and reports a low cost per unit
d. consumes a low level of resources, but reports a high cost per unit.
2. Which of the following activities is directly traceable to a product?
a. Batch-level activities
b. Unit-level activities
c. Facility-level activities
d. Product-sustaining activities
3. Firm A has the following information with regard to the production and sales of product XIT:
selling price per unit is $15, total variable cost per unit is $9, total fixed costs are $15,000.
What is the contribution margin percentage (P/V Ratio) for XIT?
a. 40%
b. 60%
c. 67%
d. 250%
4. The total of which pair of costs make up prime costs?
a. Direct material and manufacturing overhead
b. Direct material and direct labor
c. Indirect material and indirect labor
d. Direct labor and manufacturing overhead
5. In a costing system, sales and distribution overheads are allocated to products in proportion of
their sales. What is the most serious distortion this costing system will cause?
a. All the products will be overpriced.
b. More complex products will be overpriced.
c. The product/brand managers will have no incentive to reduce their sales and
distribution overheads
d. The system will underestimate the profitability of customers asking for more indirect
services and putting orders in small lots.
6. What is the name of the costing approach used where the products selling price is identified
and ways are established of meeting production costs and making an acceptable profit?
a. Total life cycle costing.
b. Benchmarking.
c. Activity based costing.
d. Target costing.
7. Which of the following statements about activity-based costing (ABC) is false:
a. ABC cannot be used in service industry
b. ABC, in conjunction with activity-based management, can help a company eliminate
(or reduce) non-value-added costs
c. In comparison with traditional-costing systems, ABC results in more costs being
classified as direct costs.
d. AB C tends to reduce cost distortion among product lines.

8. What is the name of the costing approach used where efforts are made to reduce the unit
manufacturing costs of a particular product below the unit cost in the previous period?
a. Kaizen costing.
b. Total life cycle costing.
c. Target costing.
d. Activity based costing.
9. Which of the following can signal the need for a new costing system?
a. Product-line profit margins are difficult to explain.
b. Sales are increasing, but profits are decreasing.
c. Overhead costs are very high, and increasing over time.
d. All of the above
10. Which of the following is not a unit-level activity:
a. Processing units on machines
b. Consuming factory supplies
c. Designing products
d. Doing painting work on products
11. Which of the following would be classified as a product-level activity?
a. plant management
b. production scheduling
c. engineering changes
d. material handling
12. Which of the following may be a factor in some customers being less profitable than others?
a. Frequency of ordering
b. Special handling of parts or products
c. Faster delivery time required
d. All of the above
13. Which of the following add customer value?
a. setup time,
b. storage time
c. idle timed
d. processing time
14.

The pool rate for the physician-time activity is $4.60 per patient minute (the cost driver).
Determine the total activity cost for Routine Visits.
a. $276,000
b. $360,000
c. $184,000
d. $526,909
15. Persand Company has two products: A and B. The annual production and sales level of
Product A is 9,094 units. The annual production and sales level of Product B is 15,826. The
company uses activity-based costing and has prepared the following analysis showing the
estimated total cost and expected activity for each of its three activity cost pools:

The overhead cost per unit of Product A under activity-based costing is closest to:
a. $1.83.
b. $1.98.
c. $5.00.
d. $10.00.
16.

In constructing a cost-volume-profit (CVP) graph, at what level on the vertical axis will the total
cost line begin?
a.
b.
c.
d.

$120,000

$80,000
$240,000
$40,000

17. Contribution per unit is 1. Fixed costs are 5,000. Production and sales are 7,500 units.
When sales rise
a. Contribution margin rises by an amount greater than profit
b. Contribution margin rises by an amount smaller than profit
c. Contribution margin and profit rise by the same amount
d. Contribution margin drops
18. One of the following is not an assumption that underlies CVP analysis
a. Fixed costs per unit will remain the same throughout the relevant range
b. Variable cost per unit will increase as sales increase
c. Variable Costs have a linear relationship with sales.

d. Selling price is constant throughout the relevant range

19. Nanyang Ltd produces a single product. The selling price is $50 a unit and the variable costs
is $30 a unit. The annual fixed costs of the business are $4,000. The business aims to make
$10,000 profit during the forthcoming year. How many units must be sold to achieve this
target?
a. 200 units
b. 500 units
c. 700 units
d. 280 units
20. Within the relevant range of production, average variable cost per unit tends to:
a. Fluctuate drastically.
b. Vary inversely with the level of production.
c. Vary directly and proportionately with the level of production.
d. Remain relatively constant.

Set B
1. When a firm uses broad cost allocators, it causes products to be costed improperly, with some
having too high costs and others having too low costs. This is known as
a. Product undercosting
b. Product overcosting.
c. Product smoothing.
d. Product cost cross-subsidization.
2. If the cost of goods manufactured is greater than the cost of goods sold, then:
a. Work in process inventory has decreased during the period.
b. Finished goods inventory has increased during the period.
c. Total manufacturing costs must be greater than cost of goods manufactured.
d. Finished goods inventory has decreased during the period.
3. Cost of activities performed on each individual unit of a product or service would be
identified as

a.
b.
c.
d.

batch-level costs.
output unit-level costs.
product-sustaining costs.
facility-sustaining costs.

4. Assigning overhead using ABC often:

a. Shifts overhead costs from high-volume products to low-volume products
b. Shifts overhead costs from low-volume products to high-volume products
c. Provides the same results as traditional costing
d. Requires one predetermined overhead rate .
5. Consider the following statements regarding traditional costing systems:
I.
Overhead costs are applied to products on the basis of volume-related measures.
II.
All manufacturing costs are easily traceable to the goods produced.
III.
Traditional costing systems tend to distort unit manufacturing costs when numerous
goods are made that have widely varying production requirements.
Which of the above statements is (are) true?
a. II only.
b. III only.
c. I and III.
d. II and III.
6. Assume that a company produces two products in a manufacturing plant. One is a low volume
specialty product that is produced on a demand pull basis, while the other is a high volume
product that is produced on a push basis for inventory. A production volume based cost
allocation system would tend to
a. Accurately reflect the product cost of the two products.
b. Overstate the product cost of the low volume product.
c. Understate the product cost of the low volume product.

d. Overstate the product cost of both products.

7. The costs of activities that can be eliminated without deterioration of product quality,
performance, or perceived value are known as which of the following?
a. Kaizen costs
b. Best practice costs
c. Non-value-added costs
d. Reengineering costs
8. Cooper and Kaplan recommend using which of the following as the basis, or denominator,
when developing activity cost pool rates for activity based costing.
a. the maximum/theoretical capacity for each activity.
b. the practical capacity for each activity
c. the planned or budgeted for each activity.
d. the actual activity level.
9. Performing periodic maintenance on general use equipment is an example of a:
a. Unit-level activity
b. Facility-level activity
c. Batch-level activity
d. Product-level activity
10.

In constructing a cost-volume-profit (CVP) graph, the total expense line and the total revenue
line will intersect at what level on the vertical axis?
a. $200,000
b. $160,000
c. $240,000
d. $320,000
11. An objective of activity-based management is to
a. Eliminate the majority of centralized activities in an organization.
b. Reduce or eliminate non-value-added activities incurred to make a product or provide
a service.
c. Institute responsibility accounting systems in decentralized organizations.
d. all of the above
12. Which of the following is most likely to make the implementation of ABC/ABM slow and
difficult?
a. The inability of all employees to understand the computations involved in ABC.
b. A lack of involvement by or support from upper management.
c. The need for dual costing systems.
d. An inability to eliminate all business-value-added activities
13.

The pool rate for the physician-time activity is $4.60 per unit per patient minute (the cost
driver). Determine the activity cost per unit for Extended Visits.
a. $40.00
b. $46.00
c. $92.00
d. $51.43
14. Persand Company has two products: A and B. The annual production and sales level of
Product A is 9,094 units. The annual production and sales level of Product B is 15,826. The
company uses activity-based costing and has prepared the following analysis showing the
estimated total cost and expected activity for each of its three activity cost pools:

The activity rate under the activity-based costing system for Activity 3 is closest to:
a. $29.32
b. $30.00
c. $33.33
d. $41.53
15. Firm A has the following information with regard to the production and sales of Z. Selling
price per unit is $15, total variable cost per unit is $9, total fixed costs are $15,000. What is
the breakeven point in units for Z.
a. 1000 units
b. 1667 units
c. 2500 units
d. 3000 units
16. The breakeven point is 10,000 units, sales are 12,000 units. The margin of safety expressed as
a percentage of the break-even point is therefore:
a. 25%
b. 20%
c. 120%
d. 80%

17. Product A sells for $24 and has a contribution margin ratio of 25%. Sales are expected to
decline by 10,000 units over the next accounting period. What will be the loss in operating
income?
a. $ 240,000
b. $250,000
c. $ 25, 000
d. $ 60,000
18. If sales are $820,000, variable costs are $524,800, and operating income is $260,000, what is
the contribution margin ratio (P/V Ratio)?
a. 53.1%
b. 33%
c. 64%
d. 36%
19. Which product will be safer during economic slowdown:
a. Having high BEP and high P/V Ratio
b. Having low BEP and low P/V Ratio
c. Having high BEP and low P/V Ratio
d. Having low BEP and high P/V Ratio
20. Ashland Burglar Alarms Inc sells a single product. The product has a selling price of $ 50 per
unit and variable expenses of 80% of sales. If the companys fixed expenses total $ 150000
per year than it will have a break even point in sales dollars of :
a. $750000
b. $187500
c. $15000
d. $3750