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Answers to supplementary objective test

questions

CHAPTER 1 – ABC AND ABM

1.1 Statements (1) and (4) are not correct.

Traditional costing systems assume that products consume activities in
proportion to their production volumes, which means that high-volume products
absorb too much overhead and low-volume products too little. ABC remedies
this by absorbing overheads based on the actual use each product makes of
the overhead activities.

ABC still provides historic information on product costs but it can be viewed as
the best estimate of longer term product costs as in the long term all costs are
variable. It therefore supports longer-term strategic decision making in areas
such as product pricing, product range and mix, and new product development.

1.2 C

1.3 1 Using Activity Based information to improve efficiency: Operational

2 Identifying and removing non value adding activities: Operational

3 Carrying out a Customer Account Profitability exercise to better focus
sales activity: Strategic

4 Using Activity Based information to design and develop new products:
Strategic

The first two applications are concerned with improvements to operational
activity, whereas the last two have a longer term strategic impact

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