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ITEMS 31 to 34 ARE BASED ON THE FOLLOWING INFORMATION: A company produces and sells two types of products. It classifies its costs as belonging to four functions - production, marketing, distribution, and customer services. For purposes of setting selling prices for the products, all company costs are assigned to the two products. The direct costs of the four functions are traced directly to the two products. The indirect costs, on the other hand, are accumulated into four separate cost pools and then assigned to the two products using appropriate allocation bases. 31. The allocation base that would most likely be the best for allocating the Indirect costs of the marketing function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. direct labor hours. 32. The allocation base that would most likely be the best for allocating the indirect costs of the distribution function is a. number of shipments. b. number of sales persons. c. direct labor hours. d. machine hours. 33. The allocation base that would most likely be the best for allocating the indirect costs of the customer services function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. number of units produced. 34. It is a comprehensive understanding of how an organization generates its output. It involves the determination of which activities are value-adding or non-value-adding and how the latter may be reduced or eliminated. It is a key component of ABC Management that links product costing and continuous improvement. a. ABC system b. Process value analysis c. Backflush costing d. JIT system 35. Which of the following statements is not correct? a. ABC tends to increase the number of cost pools and cost drivers used.

ITEMS 31 to 34 ARE BASED ON THE FOLLOWING INFORMATION: A company produces and sells two types of products. It classifies its costs as belonging to four functions - production, marketing, distribution, and customer services. For purposes of setting selling prices for the products, all company costs are assigned to the two products. The direct costs of the four functions are traced directly to the two products. The indirect costs, on the other hand, are accumulated into four separate cost pools and then assigned to the two products using appropriate allocation bases. 31. The allocation base that would most likely be the best for allocating the Indirect costs of the marketing function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. direct labor hours. 32. The allocation base that would most likely be the best for allocating the indirect costs of the distribution function is a. number of shipments. b. number of sales persons. c. direct labor hours. d. machine hours. 33. The allocation base that would most likely be the best for allocating the indirect costs of the customer services function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. number of units produced. 34. It is a comprehensive understanding of how an organization generates its output. It involves the determination of which activities are value-adding or non-value-adding and how the latter may be reduced or eliminated. It is a key component of ABC Management that links product costing and continuous improvement. a. ABC system b. Process value analysis c. Backflush costing d. JIT system 35. Which of the following statements is not correct? a. ABC tends to increase the number of cost pools and cost drivers used.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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NOTE: answer 35-37 ONLY
ITEMS 31 to 34 ARE BASED ON THE FOLLOWING INFORMATION: A company produces and sells two types of products. It classifies its costs as belonging to four functions - production, marketing, distribution, and customer services. For purposes of setting selling prices for the products, all company costs are assigned to the two products. The direct costs of the four functions are traced directly to the two products. The indirect costs, on the other hand, are accumulated into four separate cost pools and then assigned to the two products using appropriate allocation bases. 31. The allocation base that would most likely be the best for allocating the Indirect costs of the marketing function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. direct labor hours. 32. The allocation base that would most likely be the best for allocating the indirect costs of the distribution function is a. number of shipments. b. number of sales persons. c. direct labor hours. d. machine hours. 33. The allocation base that would most likely be the best for allocating the indirect costs of the customer services function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. number of units produced. 34. It is a comprehensive understanding of how an organization generates its output. It involves the determination of which activities are value-adding or non-value-adding and how the latter may be reduced or eliminated. It is a key component of ABC Management that links product costing and continuous improvement. a. ABC system b. Process value analysis c. Backflush costing d. JIT system 35. Which of the following statements is not correct? a. ABC tends to increase the number of cost pools and cost drivers used. b. ABC's philosophy is to accumulate heterogeneous cost pools. c. In ABC system, homogenizing cost pools minimizes broad averaging of costs that have different drivers. d. Design of an ABC system starts with process value analysis, a comprehensive understanding of how an organization generates its output. 36. In ABC system, costs are grouped in cost pools and then allocated by a common allocation base, which ordinarily is the cost's cost driver. Such allocation base is the common denominator for systematically correlating indirect costs and a cost object. In a homogeneous cost pool, the allocation base should a. be a non-financial measure so that the allocation may be more objective. b. be a financial measure so that the allocation may be more objective. c. have a cause-and-effect relationship with the cost items in the cost pool. d. assign the costs in the pool uniformly to cost objects even if the cost objects do not use resources uniformly. 37. Which of the following statements is false? a. Under ABC, a product is allocated only those costs that pertain to its production, hence, the products are not cross subsidized. b. In ABC, the activities determined serve as cost objects. Costs for each activity are accumulated in a cost pool and then allocated using the appropriate activity base or cost driver. c. If a firm manufactures only one product, rather than multiple products, ABC is more likely to result in major differences from traditional costing systems. d. ABC is useful for allocating production costs, as well as marketing and distribution costs.
Transcribed Image Text:ITEMS 31 to 34 ARE BASED ON THE FOLLOWING INFORMATION: A company produces and sells two types of products. It classifies its costs as belonging to four functions - production, marketing, distribution, and customer services. For purposes of setting selling prices for the products, all company costs are assigned to the two products. The direct costs of the four functions are traced directly to the two products. The indirect costs, on the other hand, are accumulated into four separate cost pools and then assigned to the two products using appropriate allocation bases. 31. The allocation base that would most likely be the best for allocating the Indirect costs of the marketing function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. direct labor hours. 32. The allocation base that would most likely be the best for allocating the indirect costs of the distribution function is a. number of shipments. b. number of sales persons. c. direct labor hours. d. machine hours. 33. The allocation base that would most likely be the best for allocating the indirect costs of the customer services function is a. number of shipments. b. number of sales persons. c. number of customer phone calls. d. number of units produced. 34. It is a comprehensive understanding of how an organization generates its output. It involves the determination of which activities are value-adding or non-value-adding and how the latter may be reduced or eliminated. It is a key component of ABC Management that links product costing and continuous improvement. a. ABC system b. Process value analysis c. Backflush costing d. JIT system 35. Which of the following statements is not correct? a. ABC tends to increase the number of cost pools and cost drivers used. b. ABC's philosophy is to accumulate heterogeneous cost pools. c. In ABC system, homogenizing cost pools minimizes broad averaging of costs that have different drivers. d. Design of an ABC system starts with process value analysis, a comprehensive understanding of how an organization generates its output. 36. In ABC system, costs are grouped in cost pools and then allocated by a common allocation base, which ordinarily is the cost's cost driver. Such allocation base is the common denominator for systematically correlating indirect costs and a cost object. In a homogeneous cost pool, the allocation base should a. be a non-financial measure so that the allocation may be more objective. b. be a financial measure so that the allocation may be more objective. c. have a cause-and-effect relationship with the cost items in the cost pool. d. assign the costs in the pool uniformly to cost objects even if the cost objects do not use resources uniformly. 37. Which of the following statements is false? a. Under ABC, a product is allocated only those costs that pertain to its production, hence, the products are not cross subsidized. b. In ABC, the activities determined serve as cost objects. Costs for each activity are accumulated in a cost pool and then allocated using the appropriate activity base or cost driver. c. If a firm manufactures only one product, rather than multiple products, ABC is more likely to result in major differences from traditional costing systems. d. ABC is useful for allocating production costs, as well as marketing and distribution costs.
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