1) Product lines that produce different variations (models, styles, or colors) often require specialized activities that translate into lower overhead costs for each product line.
2) Specialized engineering drawings of products, product quality specifications and quality control testing, inventoried raw materials, and material control systems are examples of activities that equate to greater overhead costs.
3) It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that:
A) product costs will reflect their relative consumption of resources.
B) better information related to resource constraints can be captured and communicated.
C) there is more likelihood of cost distortions.
D) All of the above are correct.
4) Activity-based costing (ABC) can eliminate cost distortions because ABC:
A) develops cost drivers that directly link the activities performed to the products manufactured.
B) establishes multiple cost pools.
C) employs capacity-related cost drivers.
D) recognizes interactions between different departments in assigning overhead costs.
5) Different products consume different proportions of overhead costs because of differences in all of the following EXCEPT:
A) sales prices.
B) customers’ customization specifications.
C) setup times.
D) product design.
6) Which of the following is a sign that an ABC system may be useful?
A) There are small amounts of overhead costs.
B) Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.
C) Products a company all show large profits.
D) Operations throughout the plant are fairly similar.
7) Units of production are most appropriate as an overhead cost assignment base when:
A) it is a service department.
B) only one product is manufactured.
C) direct labor costs are low.
D) factories produce a complex and varied mix of products.
8) Product lines that produce different variations (models, styles, or colors) often require specialized activities that translate into:
A) lower overhead costs for each product line.
B) decisions to drop product variations.
C) more favorable direct labor cost ratios.
D) more overhead costs for each product line.
9) When a company manufactures a variety of complex products, several unit-level cost drivers can capture the complexity and diversity of the production processes:
10) Greater manufacturing overhead costs are associated with:
A) specialized engineering drawings of new products.
B) quality specifications for products and quality control testing.
C) inventoried materials and material control systems.
D) All of the above are correct.
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