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Financial vs. Cost Accounting

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Questions and Answers

What is the main purpose of the Activity-based costing (ABC) system?

To trace indirect costs to specific activities (correct)
To accumulate all overheads in a single company-wide pool
To focus on expensive resources and calculate total cost of each activity
To assign costs based on broad averages

How does peanut-butter costing differ from traditional costing methods?

It assigns costs based on the basis of activities that generate the costs
It uses multiple bases to assign overhead costs to the products
It assigns costs based on broad averages (correct)
It accumulates all overheads in a single company-wide pool

What is the primary reason for using multiple bases to assign overhead costs in the ABC system?

To focus on expensive resources
To increase the cost pools to accumulate overhead costs
To assign costs based on broad averages
To emphasize resources whose consumption varies significantly by product and product type (correct)

What is the role of cost drivers in the ABC system?

To determine the factors which cause the activity cost pool to increase (B) Signup and view all the answers

How should an organization create activity centers to allocate costs correctly to the product level?

By looking for diversity and determining cost driver for each activity (C) Signup and view all the answers

What is the primary focus of Cost Accounting?

Analyzing internal cost controls and efficiency (B) Signup and view all the answers

What is the main difference between traditional costing and Activity Based Costing (ABC)?

Traditional costing uses machine hours, while ABC uses activities performed in the production unit (A) Signup and view all the answers

What is the role of activities in Activity Based Costing?

To attract costs and distribute total costs to products (C) Signup and view all the answers

What does Proper Costing require the application of?

Principles, practices, rules, and standard tools (C) Signup and view all the answers

Why does Cost Accounting measure and report financial and other information related to the organisation’s acquisition and consumption of resources?

To lead to the improvement of internal cost controls and efficiency (A) Signup and view all the answers

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