Question 1. Indirect costs are costs that cannot be traced to cost objects in an economically feasible

1. Indirect costs are costs that cannot be traced to cost objects in an economically feasible way.

2. To motivate engineers to design simpler products, costs for production, distribution, and customer service may be included in product-cost estimates.

3. For external reporting, inventoriable costs under GAAP sometimes include R&D costs.

Under GAAP, inventoriable costs include only the costs of producing and sometimes the design costs of the product.

4. Today, companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases.

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5. When using the cause-and-effect criterion, cost drivers are selected as the cost allocation bases.

6. The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.

7. The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach.

9. Full allocation of corporate costs to divisions is justified when the notion of controllability is applied.

10. When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources.

11. If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately.

12. Facility-sustaining costs do not have a cause-and-effect relationship with individual products.

13. An individual cost item can be simultaneously a direct cost of one cost object and an indirect cost of another cost object.

14. All customers are equally important to a company and should receive equal levels of attention.

15. The purpose of price discounting is to encourage increases in customer purchases.

16. There are two elements that influence customer profitability – revenues and costs.

17. Companies that only record the invoice price can usually track the magnitude of price discounting.

18. An activity-based costing system may focus on customers rather than products.

19. A customer cost hierarchy may include distribution-channel costs.

20. The cost of visiting customers is an example of a customer output unit-level cost.

21. In general, distribution-channel costs are more easily influenced by customer actions than customer batch-level costs.

22. If one of four distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely be reduced by 25%.

23. To more accurately assess customer profitability, corporate-sustaining costs should be allocated.

24. It is common to find that a small number of customers generate a high percentage of operating income.

25. The static-budget variance is the difference between an actual result and a budgeted amount in the static budget.

26. The flexible-budget variance is the difference between an actual result and the flexible-budget amount based on the level of output actually achieved in the budget period.

27. Additional insight can be gained by dividing the sales-mix variance into the flexible-budget variance and the sales-volume variance.

28. A favorable sales-mix variance arises when the actual sales-mix percentage is less than the budgeted sales-mix percentage.

29. A composite unit is a hypothetical unit with weights based on the mix of individual units.

30. The sales-mix variance can be explained in terms of the budgeted contribution margin per composite unit of the sales mix.

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