Concept Application Paper
CHAPTER 4
ACTIVITY-BASED COST SYSTEMS
TRUE/FALSE
1. Traditional cost systems use actual departments or cost centers for defining cost pools to accumulate and redistribute costs. a. True b. False
2. Activity-based cost systems use cost centers to accumulate costs. a. True b. False
3. Traditional cost systems are likely to undercost complex products with lower production volume. a. True b. False
4. The first step in designing an activity-based cost system is to develop an activity dictionary. a. True b. False
5. The Ericson’s Ice Cream Company case in the text provides an illustration of why factories producing a more varied mix of products have higher costs than factories producing only a narrow range of products. a. True b. False
6. Product lines that produce different variations (models, styles, or colors) often require specialized activities that translate into lower support costs for each product line. a. True b. False
7. 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 support costs. a. True b. False
8. For activity-based cost systems, activity costs are assigned to products in the proportion of the demand they place on activity resources. a. True b. False
9. An activity-based costing system is necessary for costing services that are similar. a. True b. False
10. ABC systems seek an activity cost allocation driver that has a cause-and-effect relationship with costs in the cost pool. a. True b. False
11. In general, the selection of activity cost drivers requires making trade-offs between accuracy and the cost of measurement. a. True b. False
12. The selection of activity cost drivers requires making choices related to the
ACTIVITY-BASED COST SYSTEMS
TRUE/FALSE
1. Traditional cost systems use actual departments or cost centers for defining cost pools to accumulate and redistribute costs. a. True b. False
2. Activity-based cost systems use cost centers to accumulate costs. a. True b. False
3. Traditional cost systems are likely to undercost complex products with lower production volume. a. True b. False
4. The first step in designing an activity-based cost system is to develop an activity dictionary. a. True b. False
5. The Ericson’s Ice Cream Company case in the text provides an illustration of why factories producing a more varied mix of products have higher costs than factories producing only a narrow range of products. a. True b. False
6. Product lines that produce different variations (models, styles, or colors) often require specialized activities that translate into lower support costs for each product line. a. True b. False
7. 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 support costs. a. True b. False
8. For activity-based cost systems, activity costs are assigned to products in the proportion of the demand they place on activity resources. a. True b. False
9. An activity-based costing system is necessary for costing services that are similar. a. True b. False
10. ABC systems seek an activity cost allocation driver that has a cause-and-effect relationship with costs in the cost pool. a. True b. False
11. In general, the selection of activity cost drivers requires making trade-offs between accuracy and the cost of measurement. a. True b. False
12. The selection of activity cost drivers requires making choices related to the