ACTIVITY BASED COSTING

True / False Questions

1. When combining activities in an activity-based costing system, activities should be grouped together
at the same level. For example, batch-level activities should not be combined with unit-level activities.
True False

2. In activity-based costing, organization-sustaining costs should not be included in product costs for
internal management reports that are used for decision-making. However, companies frequently include
organization-sustaining costs in product costs to satisfy external reporting requirements.
True False

3. Unit-level production activities are performed each time a unit is made.

True False

4. Activity-based costing uses a number of activity cost pools, each of which is allocated to products on
the basis of direct labor-hours.
True False

5. An activity-based costing system is generally easier to set up and run than a traditional cost system.
True False

6. Duration drivers ordinarily require more effort to record than transaction drivers.
True False

7. In activity-based costing, as in traditional costing systems, nonmanufacturing costs are not assigned to
products.
True False

8. In activity-based costing, a plantwide overhead rate is used to apply overhead to products.

True False

9. Changing a cost accounting system is likely to meet with little resistance in an organization since it is a
technical matter of little interest to individuals outside of the accounting department.
True False

10. The first-stage allocation in activity-based costing is the process by which overhead costs are
assigned to products before they are assigned to customers.
True False

11. An action analysis report reconciles activity-based costing product costs with traditional product
costs based on direct labor.
True False
12. If a company switches from a traditional costing system to an activity-based costing system in which
some activities are batch-level and product-level, costs ordinarily shift from high-volume to low-volume
products.
True False

35. Jasmine Company uses activity-based costing. The company has two products: A and B. The annual
production and sales of Product A is 10,000 units and of Product B is 4,000 units. There are three activity
cost pools, with estimated total cost and expected activity as follows:
The activity-based costing cost per unit of Product A is closest to:
A. $6.00
B. $9.70
C. $1.50
D. $3.00

36. Marton Corporation has provided the following data from its activity-based costing accounting
system:

The activity rate for the "designing products" activity cost pool is closest to:
A. $124 per product design hour
B. $181 per product design hour
C. $55 per product design hour
D. $1,526,916 per product design hour