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Traditional product costing systems (e.g., job and process costing) are designed primarily to accumulate cost information for financial reporting.

True

The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.

False

The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.

False

The department cost allocation method provides more accurate product cost information for managerial decision-making than the plant wide cost allocation method.

True

The plant wide cost allocation method should be used by companies that manufacture products that are similar and use the same resources.

True

Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities.

True

Direct labor cost (DLC) and direct labor hours (DLH) are examples of volume-related cost drivers in the cost hierarchy.

True

The number of products produced is an example of a facility-related cost driver in the cost hierarchy.

False

Activity-based costing (ABC) provides more detailed measures of costs than do plant wide or department allocation methods.

True

Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC.

True

In general, traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC).

True

Using direct labor costs to allocate overhead costs in an activity-based costing (ABC) system will encourage management to reduce labor costs.

True

Which of the following statements is (are) true regarding the potential effects of using reported product costs for decision making?
(A) Traditional product costing systems (e.g., job and process costing) are designed primarily to accumulate cost information for financial reporting.
(B) If a single cost driver is used as the allocation base, applied manufacturing overhead for product costing purposes may lead to inappropriate managerial decisions.

Both A and B are true.

Activity-based costing (ABC) is a costing technique that uses a two stage allocation process. Which of the following statements best describes these two stages?

The costs are assigned to activities, and then to the products based upon their use of the activities.

Which of the following statements is true?
A. One of the lessons learned from activity-based costing (ABC) is that all costs are really a function of volume.
B. The primary purpose of the plant wide and department allocation methods is allocating direct costs to specific products.
C. A problem with activity-based costing (ABC) is that it requires more recordkeeping than other methods.
D. Direct cost allocations are required for the plant wide and department allocation methods.

A problem with activity-based costing (ABC) is that it requires more recordkeeping than other methods.

Which of the following should not be used as the allocation base in a company that appropriately uses a single plant wide rate?

Sales volume

The electricity used for production machinery would be classified as a

volume-related activity

Which of the following costs is not related to a batch-related activity?

Compliance costs

Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced?

Volume-related activities

Volume-based costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of direct material used in the production process. Activity-based costing (ABC) has consistently shown that Volume-based costing ___________ the cost of high volume products and ______________ the cost of low volume products.

Overstates, Understates

Department D has recently purchased and installed new computerized equipment for Product X. This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings) in Department D by $3.00 per case. Machine hours will not change. If Smelly uses a plantwide rate based on direct labor hours, what is the revised product cost per case for Product X?

$69.50

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