1. (TCO 1) The average cost data are for In-Sync Fixtures Company’s (a retailer) only two product lines, Marblette and Italian Marble.
Marblette Italian Marble
Purchase volume 20,000 1,000
Purchase cost per unit $50 $250
Shipments received 12 12
Hours used per shipment * 5 3
* These data were accumulated after a careful activity analysis.
Currently, In-Sync Fixtures uses a traditional costing system with indirect costs allocated using purchased cost of goods as a basis. In-Sync Fixtures is considering refining the allocation of its receiving costs of $40,000. It realizes that the Italian Marble is heavier and requires more care than the Marblette but that the Marblette comes in larger volume.
Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures?
(Points : 3) The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base.
The traditional allocation method being used is causing product-cost cross-subsidization with the product line Marblette being undercosted.
The cost allocated to the Italian Marble product line under the traditional system is more than the activity-based costing allocated cost.
The use of this refined activity-based costing system will increase the accuracy of the resulting product costs becaues it probably will cost less to trace the costs to the product lines.
a simple costing system will yield accurate cost numbers.
an activity-based costing system should be used.
multiple indirect-cost rates should be used.
varying demands will be placed on resources.
misallocating direct labor costs.
overpricing the product.
undercosting another product.
understating total product costs.
general administrative costs.
paying suppliers for orders received.
customers’ customization specifications.
to justify a product mix.
that controllers are required to assign all costs when valuing inventories.
that different processes, products, and customers require different quantities of selling and distribution activities.
that all indirect costs must be assigned.
should be used when services place similar demands on resources.
usually results in peanut-butter costing.
will yield inaccurate cost numbers when products are similar.
may assist in improving product design and efficiency.
activities relate to more than one level of the cost hierarchy.
product costs are significantly cross-subsidized.
the same allocation base is appropriate for all departmental activities.
it is a service department.
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