Cost Accounting

Name: ______________________

Activities:

A. Go to a local department or grocery store.

a. List five packaged items for which it is readily apparent that packaging is
essential and, therefore, would be considered value-added.

b. List five packaged items for which it is readily apparent that packaging is
nonessential and therefore adds no value.

c. For each item listed in (b), indicate why you think the item was packaged
rather than left unpacked.

B. For each of the following costs commonly incurred in a manufacturing company, identify a
cost driver and explain why it is an appropriate choice.

a. Machine set up cost

b. Computer operations
c. Freight costs for materials
d. Material handling
e. Material storage
f. factory depreciation
g. advertising expense
h. Building utilities
i. equipment maintenance
j. engineering changes
k. quality control

C. Answer the following questions by choosing the best answer among the given choices:

1. Activity based costing is considered to be a traditional costing method.

a. True b. False
2. Under ABC, indirect manufacturing costs are predominantly assigned on the basis of
direct machine hours.
a. True b. False
3. Which of the following would not be included in a product's cost for inventory
valuation for the financial statements?
a. Factory Supplies b. Quality Control c. Interest Expense
4. Which would be the least favorable basis for allocating manufacturing overhead for a
factory with automated equipment and a significant variation of services by its indirect
labor?
a. ABC b. Direct Labor Hours c. Machine Hours
5.Which would be the most favorable basis for allocating manufacturing overhead for a
factory with automated equipment and a significant variation of services by its indirect
labor?
a. ABC b. Direct Labor Hours c. Machine Hours
6. Activity-based costing will provide greater accuracy when allocating costs than a
manufacturer's machine hours when its products and customers are __________
diverse.
a. Less b. More

7. When using machine hours for allocating manufacturing overhead (instead of activity-
based costing), a low-volume item requiring a significant amount of special handling will
be assigned too __________ manufacturing overhead.
a. Little b. Much
 8. The cost to set up production equipment is best allocated directly to products via
machine hours.
a. True b. False
9. Setup cost is an example of a batch-level cost.
a. True b. False
10. Manufacturing costs are often organized in the general ledger by function and
department. When applying activity-based costing, these manufacturing costs will be
sorted by activities.
a. True b. False
11.In activity-based costing, the manufacturing overhead cost per unit will depend
partially on the number of units in a batch.
a. True b. False
12. In ABC the assumption is that __________ use resources or cause costs.
a. Activities b. Products

13. If products are uniform and customers are similar in their demands, activity-based
costing may not offer a significant advantage over machine hours when assigning
overhead.
a. True b. False
14. A product with a high gross profit could be an unprofitable product.
a. True b. False
15. Activity-based costing can be used to allocate SG&A expenses in order to assist
management with pricing and other marketing decisions.
a. True b. False