Answer the Following Questions Using the Information Below

question 73

Multiple Choice

Answer the following questions using the information below:
Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours) , the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set.
-Given this change in the cost structure ________.

• A) The costing results for chess pieces under the new system depend on the adequacy and quality of the estimated cost drivers and costs used by the system.
• B) Chess pieces have benefited from the new system.
• C) Chess pieces are definitely more accurately costed.
• D) Chess will now have a lower sales price.

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Definitions:

Year 2

Typically refers to the second year of a business or project, often used in the context of financial or growth performance analysis.

Variable Costing

An accounting technique that involves only variable costs like direct materials, direct labor, and variable manufacturing overhead in the costing of products.

Absorption Costing

A method of accounting that incorporates all costs related to manufacturing—including direct materials, direct labor, and all manufacturing overheads, whether fixed or variable—into the product's cost.

Carrying Value

The book value of an asset on a balance sheet, representing its acquisition cost minus depreciation or amortization.