Acc 117 Ch 17 - Activity Based Costing - WileyPlus

The first step in the development of an activity-based costing system is: (a) identify and classify activities and allocate overhead to cost pools. (b) assign overhead costs to products. (c) identify cost drivers. (d) compute overhead rates.

(a) identify and classify activities and allocate overhead to cost pools.

Which of the following would be the best cost driver for the assembling cost pool? (a) Number of product lines. (b) Number of parts. (c) Number of orders. (d) Amount of square footage.

(b) Number of parts.

The overhead rate for Machine Setups is $100 per setup. Products A and B have 80 and 60 setups, respectively. The overhead assigned to each product is: (a) Product A $8,000, Product B $8,000. (b) Product A $8,000, Product B $6,000. (c) Product A $6,000, Product B $6,000. (d) Product A $6,000, Product B $8,000

(b) Product A $8,000, Product B $6,000.

Activity-based management (ABM)

Extends ABC from product costing to a comprehensive management tool that focuses on reducing costs and improving processes and decision-making.

A traditional costing system allocates overhead by means of multiple overhead rates. (T/F)

False

An advantage of ABC is that it is inexpensive to implement. (T/F)

False

As manufacturing processes have become more automated, more companies have chosen to allocate overhead on the basis of direct labor costs. (T/F)

False

To assign overhead costs to an individual product, the activity-based overhead rate is multiplied by the number of employees who participate in manufacturing the product. the number of direct labor hours used during the period. the number of products produced during the period. the number of cost drivers used per product.

the number of cost drivers used per product.

(VA / NVA) 1) Inspecting completed skis. 2) Storing raw materials 3) Machine setups 4) installing bindings on skis 5) Packaging skis for shipment 6) reworking defective skis

(VA / NVA) 1) NVA 2) NVA 3) NVA 4) VA 5) VA 6) NVA

Morgan Toy Company manufactures six primary product lines of toys in its Morganville plant. As a result of an activity analysis, the accounting department has identified eight activity cost pools. Each of the toy products is produced in large batches, with the whole plant devoted to one product at a time. Classify each of the following activities as either unit-level, batch-level, product-level, or facility-level: (a) engineering design (b) machine setup (c) toy design (d) interviews of prospective employees (e) inspections after each setup (f) polishing parts (g) assembling parts (h) health and safety.

(a) Product-level (b) Batch-level (c) Product-level (d) Facility-level (e) Batch-level (f) Unit-level (g) Unit-level (h) Facility-level

A frequently cited limitation of activity-based costing is: (a) ABC results in more cost pools being used to assign overhead costs to products. (b) certain overhead costs remain to be allocated by means of some arbitrary volume-based cost driver such as labor or machine hours. (c) ABC leads to poorer management decisions. (d) ABC results in less control over overhead costs.

(b) certain overhead costs remain to be allocated by means of some arbitrary volume-based cost driver such as labor or machine hours.

The primary objective of just-in-time processing is to: (a) accumulate overhead in activity cost pools. (b) eliminate or reduce all manufacturing inventories. (c) identify relevant activity cost drivers. (d) identify value-added activities.

(b) eliminate or reduce all manufacturing inventories.

The following activity is value-added: (a) Storage of raw materials. (b) Moving parts from machine to machine. (c) Shaping a piece of metal on a lathe. (d) All of the above.

(c) Shaping a piece of metal on a lathe.

Any activity that causes resources to be consumed is called a: (a) just-in-time activity. (b) facility-level activity. (c) cost driver. (d) non—value-added activity.

(c) cost driver.

A relevant facility-level cost driver for heating costs is: (a) machine hours. (b) direct material. (c) floor space. (d) direct labor cost.

(c) floor space.

Activity-based costing (ABC): (a) can be used only in a process cost system. (b) focuses on units of production. (c) focuses on activities performed to produce a product. (d) uses only a single basis of allocation.

(c) focuses on activities performed to produce a product.

Activity-based costing: (a) is the initial phase of converting to a just-in-time operating environment. (b) can be used only in a job order costing system. (c) is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. (d) uses direct labor as its primary cost driver.

(c) is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers.

Under just-in-time processing: (a) raw materials are received just in time for use in production. (b) subassembly parts are completed just in time for use in assembling finished goods. (c) finished goods are completed just in time to be sold. (d) All of the above.

(d) All of the above.

Donna Crawford Co. has identified an activity cost pool to which it has allocated estimated overhead of $1,920,000. It has determined the expected use of cost drivers for that activity to be 160,000 inspections. Widgets require 40,000 inspections, Gadgets 30,000 inspections, and Targets 90,000 inspections. The overhead assigned to each product is: (a) Widgets $40,000, Gadgets $30,000, Targets $90,000. (b) Widgets $640,000, Gadgets $640,000, Targets $640,000. (c) Widgets $360,000, Gadgets $480,000, Targets $1,080,000. (d) Widgets $480,000, Gadgets $360,000, Targets $1,080,000.

(d) Widgets $480,000, Gadgets $360,000, Targets $1,080,000.

A company should consider using ABC if: (a) overhead costs constitute a small portion of total product costs. (b) it has only a few product lines that require similar degrees of support services. (c) direct labor constitutes a significant part of the total product cost and a high correlation exists between direct labor and changes in overhead costs. (d) its product lines differ greatly in volume and manufacturing complexity.

(d) its product lines differ greatly in volume and manufacturing complexity.

An activity that adds costs to the product but does not increase its perceived market value is a: (a) value-added activity. (b) cost driver. (c) cost/benefit activity. (d) non—value-added activity.

(d) non—value-added activity.

Which of the following is not one of the four steps involved in calculating unit costs under activity-based costing? - Compute the overhead rate per cost driver. - Identify and classify the major activities involved in the manufacture of specific products, and allocate manufacturing overhead costs to the appropriate cost pools. - Assign manufacturing overhead costs for each cost pool to products, using the overhead rates. - Identify the cost driver that has a minor correlation to the costs accumulated in the activity cost pool.

- Identify the cost driver that has a minor correlation to the costs accumulated in the activity cost pool.

Just-in-time (JIT) processing

A processing system dedicated to having the right amount of materials, parts, or products arrive as they are needed, thereby reducing the amount of inventory.

Which of the following is used to eliminate inventories? A cost-pool approach A value-added approach A push approach A pull approach

A pull approach

Batch-level activities

Activities performed for each batch of products rather than for each unit.

Unit-level activities

Activities performed for each unit of production.

Product-level activities

Activities performed in support of an entire product line, but not always performed every time a new unit or batch of products is produced.

Facility-level activities

Activities required to support or sustain an entire production process.

Value-added activity

An activity that increases the perceived worth of a product or service to a customer.

Non—value-added activity

An activity that, if eliminated, would not hinder the company's operations or reduce the perceived worth of its product or service.

Activity-based costing (ABC)

An overhead cost-allocation system that allocates overhead to multiple activity cost pools and assigns the activity cost pools to products or services by means of cost drivers that represent the activities used.

Activity

Any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service.

Cost driver

Any factor or activity that has a direct cause-effect relationship with the resources consumed. In ABC, cost drivers are used to assign activity cost pools to products or services.

Which of the following is not one of the classification levels of activity-based costing activities? Facility-level activities Macro-level activities Product-level activities Batch-level activities

Macro-level activities

What is the primary benefit of activity-based costing? The cost of implementation More cost pools More accurate product costing Arbitrary allocations of overhead costs

More accurate product costing

Activity cost pool

The overhead cost attributed to a distinct type of activity or related activities.

Activity-based costing allocates overhead costs in a two-stage process. (T/F)

True

Activity-based costing is used in service industries as well as manufacturing. (T/F)

True

Direct material and direct labor costs are easier to trace to products than overhead. (T/F)

True

In activity-based costing, an activity is any event, action, transaction, or work sequence that incurs cost when producing a product. (T/F)

True

Donatello Co. has identified an activity cost pool to which it has allocated estimated overhead of $9,600,000. It has determined the expected use of cost drivers for that activity to be 800,000 inspections. Widgets require 200,000 inspections, Gadgets 150,000 inspections, and Targets 450,000 inspections. How much is the overhead assigned to each product? Widgets $3,200,000, Gadgets $3,200,000, Targets $3,200,000 Widgets $2,400,000, Gadgets $1,800,000, Targets $5,400,000 Widgets $200,000, Gadgets $150,000, Targets $450,000 Widgets $3,200,000, Gadgets $1,600,000, Targets $4,800,000

Widgets $2,400,000, Gadgets $1,800,000, Targets $5,400,000