Activity Based Costing
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CPA Auditing and Attestation (AUD) › Activity Based Costing
Which of the following is true about activity-based costing?
It can be used with either process or job costing
It can be used only with job costing
It can be used on with process costing
It should not be used with process or job costing
Explanation
ABC assumes that the resource-consuming activities that generate costs are activities and not outputs. ABC is appropriate for all types of cost accumulation systems, including both job order and process costing.
Limitations of an activity-based costing system include which of the following?
It eliminates arbitrary assignment of overhead costs
Activity based costing systems are less reliable
The expense of obtaining cost data is relatively high
Control of overhead costs is enhanced
Explanation
Activity-based costs anticipate increased cost pools and increased allocation bases. The determination of the amounts that go in these pools and their related cost drivers will likely be more costly than in traditional systems.
The basic assumption of activity-based costing is that:
Products or services require the performance of activities and activities consume resources
Only costs that respond the unit level drivers are product costs
All manufacturing costs vary directly with units of production
Only variable costs are included in activity cost pools
Explanation
ABC divides the production processes into activities where costs are accumulated. The production process assumes activities consume resources and that the outcome of the production process requires performance of the activities.
For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the:
Total costs
Net sales value at split off
Joint costs
Sales price less a normal profit margin at point of sale
Explanation
Sales price less the cost to complete is defined as the net sales value at split-off. In other words, this is the additional contribution to income generated by completing the product.
Which of the following is not a basic approach to allocating costs for costing inventory in joint cost situations?
Flexible budget amounts
Sales value at split off
Physical measures such as weights or volume
Explanation
Flexible budget amounts are not a basic approach to allocating costs for costing inventory in joint cost situations.
Which of the following parts of a manufacturing facility would be a cost center?
Engineering department
Engineering manager
Both
Neither
Explanation
A cost center is where costs are grouped, assigned, or collected.