1. Which of the following statements is true?

A. Activity-based costing is less complicated than traditional costing.

B. Traditional costing is simpler than activity-based costing.
C. Activity-based costing is also known as the peanut-butter costing.
D. Traditional costing uses several cost drivers in assigning overhead costs to products.

2. It is a systematic costing method that mainly uses 'activities' as basis to allocate

overhead and indirect costs to products. What is it?
A. Total Quality Management (TQM)
B. Activity-Based Costing (ABC)
C. Traditional Costing
D. None among the choices

3. ABC provides reliable data for product costing by using multiple ________ that are more
reflective of the actual causes of incurred overhead costs.
A. cost drivers
B. cost pools
C. cost centers
D. activity centers

4. The design of an ABC system requires ____________________.

A. that the job bid process be redesigned.
B. that a cause-and-effect relationship exists between resource costs and individual
activities
C. an adjustment to the existing product mix
D. none among the choices

5. Which among the following is not true about activity-based costing?

A. ABC is useful for allocating marketing and distribution costs.
B. ABC is more likely to result in major differences from traditional costing systems if the
firm manufactures only one product rather than multiple products.
C. ABC seeks to distinguish batch-level, product-sustaining, and facility-sustaining costs,
especially when they are not proportionate to one another.
D. ABC differs from traditional costing systems in that products are not cross-subsidized.

6. Many companies use ABC system information to ____________.

A. analyze costs
B. prepare budgets
C. evaluate performance
D. all of the choices are correct

7. 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. non-value-added costs can be eliminated.
C. there is less likelihood of cross-subsidizing of product costs.
D. all of the choices are correct

8. A well-designed ABC system helps managers make better decisions because information
derived from an ABC analysis _______________________________________.
A. can be used to eliminate non-value-added activities.
B. is easy to analyze and interpret.
 C. takes the choices and judgment challenges away from the managers.
D. emphasizes how managers can achieve higher sales.

9. Activity-based costing (ABC) can be applied to

A. Selling overhead costs
B. Administrative overhead costs
C. Manufacturing overhead costs
D. All of the choices

10. Which of the following situations would most likely use traditional costing rather than
ABC?
A. High-overhead cost operations
B. Companies with diverse products
C. Capital-intensive companies
D. Labor-intensive companies

11. Which of the following situations would most likely use ABC rather than traditional
costing?
A. Insignificant overhead cost operations
B. Companies with only one product
C. Capital-intensive companies
D. Labor-intensive companies

12. Which costing method uses several cost drivers in allocating its overhead costs?
A. Activity-based costing
B. Balanced scorecard
C. Traditional costing
D. Kaizen costing

13. This costing method often leads to accurate product costing and is geared towards the
elimination of non-value-added activities.
A. Activity-based costing
B. Balanced scorecard
C. Traditional costing
D. Kaizen costing
14. In the implementation of ABC system, it is important to identify the cost drivers. What is
a cost driver?
A. Cost driver is the particular activity that ceases the incurrence of certain costs. In
other words, it is the activity which triggers a change in the cost of an activity.
B. Cost driver is a group of costs usually associated with a common cost driver.
C. Cost driver is a unit of organization that performs a set of tasks.
D. Cost driver is part of the production process for which management wants a separate
reporting of the costs of the activity involved.

15. What is defined as a group of costs usually associated with a common cost driver?
A. Cost driver
B. Activity
C. Cost pools
D. Activity centers

16. Activity centers can be classified into four categories. Which is not among the
classification?
A. Unit-level activities
B. Batch-level activities
 C. Predetermined activities
D. Facility-level activities

17. What is the formula for calculating the predetermined overhead rate?
A. Predetermined overhead rate = Estimated overhead costs ÷ Estimated activity level
B. Predetermined overhead rate = Estimated overhead costs x Estimated activity level
C. Predetermined overhead rate = Estimated overhead costs + Estimated activity level
D. Predetermined overhead rate = Estimated overhead costs - Estimated activity level

18. What management system integrates ABC with other concepts such as Total Quality
Management (TQM), process value analysis and target costing to produce a
management system that strives for excellence through cost reduction and continuous
process improvement?
A. Kaizen management
B. Top management
C. Activity-based management
D. Middle management

19. What is the goal of activity-based management (ABM)?

A. The goal of ABM is to reduce or eliminate non-value-added activities and costs.
B. The goal of ABM is to reduce or eliminate value-added activities and costs.
C. The goal of ABM is to increase non-value-added activities and costs.
D. The goal of ABM is to reduce or increase non-value-added activities and costs.

20. Which of the following add customer value?

a. setup time
b. storage time
c. idle time
d. processing time

21. Which of the following would not be considered a value-added activity in the preparation of
a tax return?
a. printing a copy of the return for the client
b. printing a copy of the return for the IRS
c. installing tax software
d. checking for accuracy
22. Which of the following is typically regarded as a cost driver in traditional accounting
practices?
a. number of purchase orders processed
b. number of customers served
c. number of transactions processed
d. number of direct labor hours worked
23. When a company is labor-intensive, the cost driver that is probably least significant would
be
a. direct labor hours.
b. direct labor dollars.
c. machine hours.
 d. cost of materials used.
24. The term cost driver refers to
a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfers cost data to the management accountant.
d. any activity that causes costs to be incurred.
25. Costs that are common to many different activities within an organization are known as
____________ costs.
a. product- or process-level
b. organizational-level
c. batch-level
d. unit-level
26. Setup time is

A batch cost A value-added cost A production cost

a. no no yes
b. yes yes no
c. yes no yes
d. no yes yes
27. Setup time is

A batch cost A value-added cost A production cost

a. no no yes
b. yes yes no
c. yes no yes
d. no yes yes

28. In allocating fixed costs to products in activity-based costing,

a. direct labor hours should always be used as the allocation base.
b. a company should use the same allocation base that it uses for variable costs.
c. a cost driver that is not volume-related should be used.
d. machine hours should always be used.
29. Of the following, which is the best reason for using activity-based costing?
a. to keep better track of overhead costs
b. to more accurately assign overhead costs to cost pools so that these costs are
better controlled
c. to better assign overhead costs to products
 d. to assign indirect service overhead costs to direct overhead cost pools
30. Activity-based costing and activity-based management are effective in helping managers do
all of the following except
a. trace technology costs to products.
b. promote excellence standards.
c. identify only value-added activities.
d. analyze performance problems.
31.Kan Co. produces two products (A and B). Direct material and labor costs for Product A total
P35 (which reflects 4 direct labor hours); direct material and labor costs for Product B
total P22 (which reflects 1.5 direct labor hours). Three overhead functions are needed
for each product. Product A uses 2 hours of Function 1 at P10 per hour, 1 hour of
Function 2 at P7 per hour, and 6 hours of Function 3 at P18 per hour. Product B uses 1,
8, and 1 hours of Functions 1, 2, and 3, respectively. Kan produces 800 units of A and
8,000 units of B each period. If total overhead is assigned to A and B on the basis of
units produced, Product A will have an overhead cost per unit of
a. P 88.64.
b. P123.64.
c. P135.00.
d. none of the above.
32. Use the information from #31 If total overhead is assigned to A and B on the basis of
units produced, Product B will have an overhead cost per unit of
a. P84.00.
b. P88.64.
c. P110.64.
d. none of the above.
33. Use the information from #31 If total overhead is assigned to A and B on the basis of
direct labor hours, Product A will have an overhead cost per unit of
a. P51.32.
b. P205.28.
c. P461.88.
d. none of the above.
34. Use the information from #31. If total overhead is assigned to A and B on the basis of
direct labor hours, Product B will have an overhead cost per unit of
a. P51.32.
b. P76.98.
c. P510.32.
d. none of the above.
35. Use the information from #31. If total overhead is assigned to A and B on the basis of
overhead activity hours used, the total product cost per unit assigned to Product A will
be
a. P86.32.
 b. P95.00.
c. P115.50.
d. none of the above.
36. Use the information from #31 If total overhead is assigned to A and B on the basis of
overhead activity hours used, the total product cost per unit assigned to Product B will
be
a. P115.50.
b. P73.32.
c. P34.60.
d. none of the above.
37. Mary Manufacturing Company manufactures two products (X and Y). The overhead costs
of P29,000 have been divided into three cost pools that use the following activity drivers:
Product No. of Orders No. of Labor No. of Labor
Transactions Hours
X 30 100 1,000
Y 20 300 4,000
Cost per P5,000 P4,000 P20,000
pool
Using traditional costing, what is the amount of overhead cost to be assigned to Product Y
using labor hours as the allocation base?
A. P21,750 C. P16,000
B. P 5,800 D. P23,200
38. Arid Company produces products BH and XP. The direct cost of BH is P250 per unit and XP is
P350 per unit. Fifty units of BH and 150 units of XP were produced. Overhead amounting to
P130,000 is allocated to products using direct costs as the relevant cost driver.
The cost of XP per unit amounts to
A. P750 C. P1,050
B. P1,000 D. P1,250

39. One of Alien Company’s activity cost pools is machine setups, with estimated overhead of
P300,000. Alien produces slacks (400 setups) and shirts (600 setups). How much of the
machine setup cost pool should be assigned to slacks?
A. P 0 C. P150,000
B. P120,000 D. P180,000

40. Genco manufactures two versions of a product. Production and cost information show the

following:

Model A Model B
Units produced 200 400
Material moves (total) 20 80
Direct labor hours per 1 2
unit
 Material handling costs total P200,000. Under ABC, the material handling costs allocated to
each unit of Model A and Model B would be:
A. B. C. D.
Model A P100 P200 P333 P130
Model B P333 P400 P200 P100

41. Genco manufactures two versions of a product. Production and cost information show the

following:

Model A Model B
Units produced 200 400
Material moves (total) 20 80
Direct labor hours per 1 2
unit
Material handling costs total P200,000. Under ABC, the material handling costs allocated to
each unit of Model A and Model B would be:
A. B. C. D.
Model A P100 P200 P333 P130
Model B P333 P400 P200 P100

42. EMPIRE Company makes two products, E and M. E is being introduced this period,
whereas M has been in production for 2 years. For the period about to begin, 1,000 units
of each product are to be manufactured. The only relevant overhead item is the cost of
engineering change orders. E and M are expected to require eight and two change orders,
respectively. E and M are expected to require 2 and 3 machine hours, respectively. The
cost of a change order is P600.
If EMPIRE is using direct tracing, the amount of overhead per unit that will be assigned to E
and M, respectively, are
A. P2.40 and P3.60, respectively C. P4.80 and P1.20, respectively
B. P3.60 and P2.40, respectively D. P1.20 and P4.80, respectively
EMPIRE Company makes two products, E and M. E is being introduced this period,
whereas M has been in production for 2 years. For the period about to begin, 1,000 units
of each product are to be manufactured. The only relevant overhead item is the cost of
engineering change orders. E and M are expected to require eight and two change orders,
respectively. E and M are expected to require 2 and 3 machine hours, respectively. The
cost of a change order is P600.
If EMPIRE is using direct tracing, the amount of overhead per unit that will be assigned to E
and M, respectively, are
A. P2.40 and P3.60, respectively C. P4.80 and P1.20, respectively
B. P3.60 and P2.40, respectively D. P1.20 and P4.80, respectively
43. Germie, Inc., has identified the following overhead costs and activity drivers for next year:
Overhead Item Expected Activity Driver Expected
Cost Quantity
Setup costs P100,000 Number of 500
setups
 Ordering costs 40,000 Number of 3,200
orders
Maintenance 200,000 Machine hours 4,000
Power 20,000 Kilowatt hours 80,000
The following are two of the jobs completed during the year:
Job 500 Job 501
Direct materials P1,500 P2,000
Direct labor P1,400 P2,400
Units completed 100 160
Direct labor hours 100 160
Number of setups 2 8
Number of orders 8 10
Machine hours 40 50
Kilowatt hours 60 100
The company’s normal activity is 4,000 direct labor hours.
If the four activity drivers are used to allocate overhead costs, total overhead allocated to
Job 500 would be
A. P2,766.50. C. P2,515.00.
B. P2,415.00. D. P2,815.00

44. Wesleyan University Hospital plans to use activity-based costing to assign hospital indirect
costs to the care of patients. The hospital has identified the following activities and
activity rates for the hospital’s indirect costs:
Activity Activity Rate
Room and meals P150 per day
Radiology P 95 per image
Pharmacy P 20 per physician order
Chemistry lab P 85 per test
Operating room P550 per operating room
hour
The records of two representative patients were analyzed, using the activity rates. The
activity information associated with the two patients is as follows:
Patient Flor Patient Laura
Number of days 7.0 3
Number of images 4.0 2
Number of physician orders 5.0 1
Number of tests 6.0 2
Number operating room hours 4.5 1
Determine the activity cost associated with Patient Flor:
A. P4,500 C. P4,495
B. P4,550 D. P4,515

45. Food Factory, Inc., has identified the following cost drivers for its expected overhead costs
for the year:
 Budgeted Cost Cost Driver
Cost Level
Cost Pools Driver
Setup P 80,000 Number of setups 100
Ordering 40,000 Number of orders 500
Maintenance 100,000 Machine hours 2,500
Power 20,000 Kilowatt hours 5,000
Total direct labor hours budgeted = 1,000 hours.
The following data applies to one of the products completed during the year:
Cost Product X Activity Driver Driver
Consumption
Direct materials P2,000 Number of setups 2
Direct labor P2,400 Number of orders 5
Units 200 Machine hours 25
completed
Direct labor 80 Kilowatt hours 50
hours
If the activity-based cost drivers are used to allocate overhead cost, the total cost of
Product X will be:
A. P7,400 C. P4,400
B. P7,800 D. P7,600
46. Questions 46 & 47 are based on the following information.
Gilmore Company produces two products in a single factory. The following production and cost
information has been determined:

Model 1 Model 2
Units produced 1,000 200
Material moves (total) 100 40
Testing time (total) 250 125
Direct labor hours per unit 1 5
The controller has determined total overhead to be P480,000. P140,000 relates to material
moves; P150,000 relates to testing; the remainder is related to labor time.

i
. 46. If Gilmore uses direct labor hours to allocate overhead to each model, what would
overhead per unit be for Model 2?
A. P 158.33 C. P 950.00
B. P 400.00 D. P1,200.00

ii
. 47. If Gilmore uses activity-based costing to allocate overhead to each model, what would
overhead per unit be for Model 2?
A. P158.33 C. P925.00
B. P415.93 D. P815.00
i
.

48, Questions 48 & 49 are based on the following information.

Hughes Company produces three products with the following production and cost information:

Model A Model B Model C

Units produced 2,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5

Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000.

.48. What would be the per unit overhead cost for Model A if direct labor hours were the allocation
base?
A. P20.50 C. P82.00
B. P41.00 D. P76.00

. 49. What would be the per unit overhead cost for Model A if activity-based costing were used?
A. P20.50 C. P82.00
B. P74.00 D. P76.00

ii
50. Questions 50 & 51 are based on the following information.
The Oilfield plant has two categories of overhead: maintenance and inspection. Costs expected for
these categories for the coming year are as follows:
Maintenance P100,000
Inspection 150,000
The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct
labor hours. The following data have been assembled for use in developing a bid for a proposed job:
Direct materials P1,000
Direct labor P4,000
Machine hours 500
Number of inspections 4
Direct labor hours 800
The total number of expected machine hours for all jobs during the year is 25,000, and the total
expected number of inspections is 1,500.

. 50. Using activity-based costing system and the appropriate activity drivers, the total cost of the
potential job would be
A, P2,400 C. P7,400
B. P3,600 D. P7,750
. 51. Using direct labor hours to assign overhead, the total cost of the potential job would be
A. P 5,000 C. P 8,000
B. P11,000 D. P 9,000

52. Dagger Corporation has the following activities: creating bills of materials (BOM), studying
manufacturing capabilities, improving manufacturing processes, training employees, and
designing tooling. The general ledger accounts reveal the following expenditures for
manufacturing engineering:
Salaries P150,000
Equipment 80,000
Supplies 20,000
Total P250,000
The equipment is used for two activities: improving processes and designing tooling. Thirty-five
percent of the equipment’s time is used for improving processes and sixty-five percent is used for
designing tools. The salaries are for two engineers. One is paid P100,000, while the other earns
P50,000. The P100,000 engineer spends 40% of his time training employees in new processes and
60% of his time on improving processes. The remaining engineer spends equal time on all
activities. Supplies are consumed in the following proportions:
Creating BOMs 25%
Studying capabilities 10%
Improving processes 20%
Training employees 25%
Designing tooling 20%
What is the cost assigned to the designing tooling activity?
A. P162,500 C. P50,000
B. P 66,000 D. P250,000
53. Use the following data to respond to questions 53 through 55
Consider the following facts for NM Company which produces product N and M
Activity Cost Driver N’s M’s Unuse Cost
share share d

Setups # of set ups 10 40 5 P

5,500
Ordering # of orders 5 10 5 3,200
Receiving # of receipts 22 12 6 2,400
Product # of parts 180 120 100 2,800
Dev.
Gen Mgt #, labor hrs 2,900 4,100 1,000 7,200
Security Area covered 3,200 5,400 400 9,000
Materials # of units 400 800 120,00
produced 0
Labor # of DLH 1,700 3,100 1,200 56,000

. 53. Set up cost chargeable per unit of M accounting for unused capacity amounts to
 A. 2.50 C. 5.00
B. 2.75 D. 5.50

. 54. Ordering cost chargeable per unit of N ignoring unused capacity amounts to
A. 2.00 C. 3.00
B. 2.67 D. 4.00

. 55. The cost of unused capacity excluding labor costs amounts to

A. 11,260 C. 11,856
B. 11,460 D. 14,856