Consider the following statements regarding traditional costing systems:
I. Overhead costs are applied to products on the basis of volume-related measures.
II. All manufacturing costs are easily traceable to the goods produced.
III. Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements.
Which of the above statements is (are) true?

Select one:

a. I only

b. II only

c. III only

d. I and III

e. II and III

Question 12

Many traditional costing systems:

Select one:

a. trace manufacturing overhead to individual activities and require the development of numerous activity-costing rates

b. write off manufacturing overhead as an expense of the current period

c. combine widely varying elements of overhead into a single cost pool

d. use a host of different cost drivers (e.g., number of production setups, inspection hours, orders processed) to improve the accuracy of product costing

e. produce results far superior to those achieved with activity-based costing

Question 13

The relationship between cost and activity is termed:

Select one:

a. cost estimation

b. cost prediction

c. cost behavior

d. cost analysis

e. cost approximation

Question 14

A forecast of a cost at a particular level of activity is termed:

Select one:

a. cost estimation

b. cost prediction

c. cost behavior

d. cost analysis

e. cost approximation

Question 15

Which of the following costs changes in direct proportion to a change in the activity level?

Select one:

a. Variable cost

b. Fixed cost

c. Semivariable cost

d. Step-variable cost

e. Step-fixed cost

Question 1, overhead cost are applied to products on the basis of only one appropriate basis (absorption basis) and no overhead manufacturing cost is traceable to the goods. Traditional costing systems allocates the overhead cost to products on inappropriate basis.

So the answer is Option-C.

Question 12

Option A is incorrect because it is Activity based costing that identifies the cost drivers that are the cause of the cost generation.

Option B is also incorrect because in traditional absorption costing, the manufacturing overheads are not written off, they are absorbed in the unit product cost.

Option C is correct because there is no concept of cost drivers in absorption costing so saying that all the funds are aggregated to one cost pool generally known as manufacturing overhead cost.

Option D false again. it is the activity based costing that improves the overhead absorption basis.

Option E is also incorrect because activity based costing is superior than traditional costing.

Question 13

Option C is correct simply because it is its definition. Cost estimation, cost prediction and cost approximation is about forecasting techniques whereas cost analysis is about different cost arising and managing & controlling them.

Question 14

Cost estimation is about forecasting cost that is on relevant basis like using activity - cost relation.

Question 15

Variable cost changes in direct relation to the activity level. Fixed does not changes with activity level. Semi fixed is fixed and variable as well. Step fixed remains fixed for the threshold and then again remains fixed for another threshold level of activity.