CPA Bar Quiz: Apply Activity Based Costing

What this quiz covers

This quiz focuses on Apply Activity Based Costing, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Bar.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. $200 per setup
2. $300 per setup (correct answer)
3. $480 per setup
4. $150 per setup

Explanation: Cost driver rate = Total pool cost / Total cost driver units = $240,000 / 800 setups =$300 per setup. Option A uses an incorrect denominator of 1,200. Option C divides the pool cost by 500 setups instead of 800. Option D divides by 1,600, doubling the actual driver quantity.

Question 2

1. $500 per inspection
2. $150 per inspection
3. $300 per inspection (correct answer)
4. $750 per inspection

Explanation: Cost driver rate = $150,000 / 500 inspections =$300 per inspection. Option A divides the pool cost by 300 instead of 500. Option B divides by 1,000, which doubles the driver quantity. Option D divides by 200, significantly understating the driver base.

Question 3

1. $7,100 (correct answer)
2. $5,100
3. $3,900
4. $8,300

Explanation: ABC overhead = (5 x $300) + (8 x$300) + (4 x $300) =$1,500 + $2,400 +$1,200 = $5,100. Total cost = Direct materials + Direct labor + Overhead =$1,200 + $800 +$5,100 = $7,100. Option B reports only the overhead component without adding direct materials and labor. Option C omits some overhead pools from the calculation. Option D applies incorrect driver quantities.

Question 4

1. An activity performed once for each individual unit produced or sold
2. An activity performed once per production run, with the cost independent of the number of units in the batch (correct answer)
3. An activity performed to support the continued existence of a specific product line in the product portfolio
4. An activity performed to sustain the overall production facility regardless of which specific products are manufactured

Explanation: A batch-level activity occurs each time a batch or production run is processed, and its total cost depends on the number of batches, not the number of units within each batch. Machine setups, purchase orders, and first-article inspections are classic batch-level activities. Option A describes a unit-level activity. Option C describes a product-sustaining activity. Option D describes a facility-sustaining activity.

Question 5

1. $360,000
2. $300,000
3. $240,000 (correct answer)
4. $180,000

Explanation: Setup rate = $360,000 / 600 =$600 per setup. Engineering rate = $180,000 / 600 =$300 per hour. Standard overhead = (200 x $600) + (400 x$300) = $120,000 +$120,000 = $240,000. Option A is the full setup pool cost, not Standard's share. Option B is the overhead allocated to the Deluxe product. Option D is the full engineering pool cost.

Question 6

1. Standard $240 per unit; Deluxe$600 per unit (correct answer)
2. Standard $300 per unit; Deluxe$360 per unit
3. Standard $480 per unit; Deluxe$360 per unit
4. Standard $200 per unit; Deluxe$500 per unit

Explanation: Standard overhead per unit = $240,000 / 1,000 =$240. Deluxe overhead per unit = $300,000 / 500 =$600. Option B divides total overhead equally across units regardless of product. Option C reverses the division logic for Standard. Option D uses incorrect denominator amounts.

Question 7

1. $60 per DLH
2. $80 per DLH (correct answer)
3. $100 per DLH
4. $48 per DLH

Explanation: Predetermined overhead rate = Total overhead / Total cost driver = $480,000 / 6,000 DLH =$80 per DLH. Option A divides by 8,000 DLH. Option C divides by 4,800 DLH. Option D divides by 10,000 DLH.

Question 8

1. $120 per unit
2. $80 per unit
3. $240 per unit (correct answer)
4. $160 per unit

Explanation: Traditional overhead per unit = Rate x DLH per unit = $80 x 3 =$240. Option A applies the rate to 1.5 DLH instead of 3. Option B applies the rate to 1 DLH. Option D applies the rate to 2 DLH.

Question 9

1. $700
2. $1,050 (correct answer)
3. $1,400
4. $875

Explanation: Cost driver rate = $280,000 / 4,000 orders =$70 per order. Customer A cost = 15 orders x $70 =$1,050. Option A applies the rate to 10 orders rather than 15. Option C applies the rate to 20 orders. Option D applies the rate to 12.5 orders using an incorrect order count.

Question 10

1. $18,000
2. $24,000
3. $21,600 (correct answer)
4. $15,600

Explanation: Rates: Maintenance = $180,000 / 9,000 =$20 per machine hour; Design = $120,000 / 400 =$300 per change; Packaging = $60,000 / 500 =$120 per shipment. Product Omega overhead = (600 x $20) + (20 x$300) + (30 x $120) =$12,000 + $6,000 +$3,600 = $21,600. Option A uses only the maintenance pool. Option B applies incorrect rates to the driver quantities. Option D omits the design cost pool from the calculation.

Question 11

1. $4,200 (correct answer)
2. $3,600
3. $5,100
4. $2,400

Explanation: Client B cost = (1 x $150) + (6 x$300) + (15 x $150) =$150 + $1,800 +$2,250 = $4,200. Option B omits the intake cost and applies only case management and admin. Option C applies an incorrect case hour rate. Option D omits the admin support component entirely.

Question 12

1. Traditional costing is more accurate because it assigns higher cost to Product X, a more complex product
2. Traditional costing over-costs Product X and under-costs Product Y, a pattern consistent with a high-volume product subsidizing a low-volume, higher-overhead-consuming product (correct answer)
3. ABC always produces lower overhead costs than traditional allocation for all products
4. The ABC result is incorrect because Product X should carry more overhead per unit than Product Y under any valid costing system

Explanation: Under traditional direct-labor-hour allocation, Product X (3 DLH) absorbs more overhead per unit than Product Y (1.5 DLH) simply because of labor hour consumption. ABC reveals that Product X actually consumes less overhead per unit ($180) than the traditional rate implies ($240) - traditional over-costs X. Conversely, Product Y is significantly under-costed under traditional costing ($120 traditional vs.$160 ABC) - its complex batch and product-level activity consumption is not captured by a labor-hour driver. This classic pattern occurs when a volume-based driver over-allocates to high-labor-intensity products and under-allocates to products that drive disproportionate batch and product-level activity. Option A accepts inaccuracy as accuracy. Option C is incorrect; ABC produces higher costs for some products and lower for others depending on actual activity consumption. Option D assumes a fixed ordering that ABC specifically aims to challenge.

Question 13

1. Eliminate the product immediately because it consumes more overhead than the company average
2. Revert to traditional costing because ABC reveals too many cost distortions
3. Investigate whether the product's selling price adequately covers its true resource consumption before making a retention or repricing decision (correct answer)
4. Reduce the batch-level cost pool by consolidating product lines to lower the overhead rate

Explanation: When ABC reveals that a product consumes disproportionate overhead, the analytically correct response is to determine whether the product's price compensates for its full cost of resources consumed. The product may be viable at a higher price or may warrant discontinuation if repricing is not feasible. Option A jumps to discontinuation without evaluating profitability at the correct cost basis. Option B treats the information as a problem rather than a management tool. Option D reduces the cost pool mechanically without addressing the underlying resource consumption issue.

Question 14

1. An activity performed to support the existence of a specific product, such as product design, engineering change orders, or product-specific testing (correct answer)
2. An activity performed once for each individual unit of product produced or sold
3. An activity performed once per production batch regardless of how many units are in the batch
4. An activity performed to maintain the overall production facility regardless of which products are manufactured

Explanation: A product-sustaining activity is performed to enable a specific product to exist in the product line. Its cost does not vary with the number of units produced or batches run, but it would be eliminated if the product were discontinued. Examples include product engineering, specialized tooling, and product-specific regulatory compliance. Option B describes a unit-level activity. Option C describes a batch-level activity. Option D describes a facility-sustaining activity.

Question 15

1. Cardiac care should be expanded because it is the highest-revenue service line
2. Cardiac care was over-charged under the prior system; ABC reveals its true overhead consumption is substantially lower, which will increase its reported profitability (correct answer)
3. The ABC result confirms that cardiac care is unprofitable and should be restructured
4. The prior square-footage allocation was more accurate because it used a tangible, measurable driver

Explanation: The ABC analysis shows that cardiac care was bearing 35% of overhead but actually consuming only 18%. This over-allocation under the prior system artificially depressed cardiac care's reported profitability. Under ABC, overhead allocated to cardiac care drops by nearly half, improving its reported margin. Option A conflates revenue size with the insight that ABC provides. Option C reaches the opposite conclusion from what the data shows. Option D confuses physical measurability with causal accuracy; square footage has no causal relationship with the activities that actually drive overhead in a hospital.

Question 16

1. Consolidating pools always reduces ABC accuracy and should never be done
2. Three pools are always sufficient for accurate ABC allocation in any manufacturing environment
3. Fewer pools reduce complexity and maintenance cost but may reintroduce cross-subsidization if consolidated pools combine activities that are driven by different cost drivers (correct answer)
4. The number of cost pools does not affect allocation accuracy because total overhead assigned to all products is unchanged

Explanation: Reducing the number of cost pools in an ABC system involves a genuine tradeoff: fewer pools lower the cost and complexity of maintaining the system but reduce accuracy if activities with different cost drivers are merged. For example, combining machine setups (driven by batch count) with engineering changes (driven by product complexity) into one pool would reintroduce the cross-product subsidization that ABC was designed to eliminate. Option A overstates the case against consolidation; in some environments, simplified ABC is sufficiently accurate. Option B understates the case for complexity in environments with highly diverse products. Option D is incorrect; while total overhead is unchanged, the distribution across products depends entirely on how many distinct drivers are used.

Question 17

1. ABC allocates more total overhead than traditional costing, inflating Product N's costs
2. Traditional costing was more accurate for Product N and ABC should be recalibrated
3. Under traditional costing, Product N was likely receiving a cost subsidy from Product M through an activity-unrelated volume driver; ABC corrects this by tracing costs to actual activity consumption (correct answer)
4. The reversal indicates ABC is unreliable because it produces results inconsistent with the prior method

Explanation: This reversal is a classic sign of cross-subsidization under traditional costing. Product N was allocated disproportionately low overhead under the volume-based driver - likely because it uses fewer direct labor hours or machine hours despite driving significant batch and product-level activities. Product M, on the other hand, was over-burdened with overhead it did not actually cause. ABC corrects the allocation by tracing costs to actual activity drivers, revealing Product M's true profitability and Product N's true cost burden. Option A is incorrect; total overhead is the same under both methods. Option B assumes traditional costing is the standard rather than recognizing its known systematic biases. Option D treats inconsistency as a defect rather than recognizing it as the purpose of the ABC analysis.

Question 18

1. $240,000
2. $180,000
3. $360,000
4. $300,000 (correct answer)

Explanation: Deluxe overhead = (400 setups x $600) + (200 engineering hours x$300) = $240,000 +$60,000 = $300,000. Option A applies the Standard product's allocation, not Deluxe's. Option B is the full engineering pool, not Deluxe's allocation. Option C is the full setup pool cost.

Question 19

1. $150 per move
2. $200 per move
3. $450 per move
4. $300 per move (correct answer)

Explanation: Cost driver rate = $90,000 / 300 moves =$300 per move. Option A divides by 600 moves, doubling the actual driver quantity. Option B divides by 450. Option C divides by 200, understating the driver base and overstating the rate.

Question 20

1. $30 per unit (correct answer)
2. $120 per unit
3. $60 per unit
4. $45 per unit

Explanation: ABC overhead per unit for Product Y = $120,000 / 4,000 units =$30 per unit. This is significantly lower than Product Y's traditional overhead per unit ($80 x 1.5 DLH =$120), indicating Product Y was over-costed under traditional allocation. Option B confuses the pool amount with a per-unit rate. Option C uses 2,000 units as the denominator. Option D uses an incorrect denominator.