The average cost data are for In-Sync Fixtures Company's (a retailer) only two product lines, Marblette and Italian Marble.
___________________________Marblette___Italian Marble
Purchase volume_____________20,000_____1,000
Purchase cost per unit_________$50________$50
Shipments received___________12_________12
Hours used per shipment*_______5__________3
*These data were accumulated after a careful activity analysis.
Currently, In-Sync Fixtures uses a traditional costing system with Indirect costs allocated using purchased cost of goods as a basis. In-Sync Fixtures is considering refining the allocation of their receiving costs of $40,000. They realize that the Italian Marble is heavier and requires more care than the Marblette but that the Marblette comes in larger volume.
Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures?
a) The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base.
b) The traditional allocation method currently being used is causing product-cost cross-subsidization with the product line Marblette being undercosted.
c)The cost allocated to the Italian Marble product line under the current traditional system is more than the activity-based costing allocated cost.
d) The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because it probably will cost less to trace the costs to the product lines.
Production-cost cross-subsidization results from
a) allocating indirect costs to multiple products
b) assigning traced costs to each product
c) assigning costs to different products using varied costing systems within the same organization
d) assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products