ACC 320 Chapter 9

allocated MOH for activity =

activity-based rate x actual quantity of cost driver used

a ranking of 4 layers of costs incurred in a business & is a way to mindfully arrange costs, and it supplies insights on how to spot cause-and-effect relationships between activities and cost drivers

cost hierarchy

unit level, batch level, product level, facility level? accounting

facility

unit level, batch level, product level, facility level? executive management

facility

unit level, batch level, product level, facility level? facility maintenance

facility

unit level, batch level, product level, facility level? human resources

facility

unit level, batch level, product level, facility level? selling

unit

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to executive management?

# of employees

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to information technology?

# of employees

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to purchasing?

# of purchase orders

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to distribution?

# of units # of shipments

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to inventory management?

# of units # of shipments

examples of cost drivers:

- # pounds of ingredients moved - # of machine hours - # of inspections - # of cleaning/maintenance hours

disadvantages of implementing ABC:

- initial costs - time-consuming - employee pushback - continuous updates required to system

advantages of implementing ABC:

- more precise profit planning - better pricing decisions - improves product-mix decisions - sound make-or-buy decisions - manufacturing efficiency

a cost driver should be:

1. directly related to the activity being performed 2. useful for performance measurement purposes

4 cost levels in a cost hierarchy:

1. facility-level 2. product/process-level 3. batch-level 4. unit-level

steps for allocating/applying MOH using ABC rates:

1. identify direct costs (DM & DL) 2. identify activities and cost drivers for MOH 3. calculate cost driver rates and assign MOH to products

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to human resources?

# of employees

since ABC uses multiple MOH costs pools, there will be multiple _______ ________ ________

MOH control accounts

plant-wide rate =

Total MOH costs in plant-wide cost pool / total quantity of a single driver

when is over/under applied MOH calculated and what is it allocated to?

calculated at end of the period and allocated to WIP inventory, FG inventory, and COGS

is a task, effort, or other usage of a resource that causes a particular cost.

cost driver

cost per transaction =

cost for supplying an activity (under TDABC) x number of minutes per transaction

under traditional job costing, applied MOH is a _________, and actual MOH is a ___________

credit, debit

unit level, batch level, product level, facility level? information technology

facility

enable the manufacturing process or delivery of services and are incurred by the company as a whole and can't be traced to individual products/services

facility-level costs

TDABC is an alternative to ABC that only needs an estimate of what?

how much time one transaction within an activity takes

in the activity based rate calculation, the denominator volume for each activity Is what?

the total occurrences of its cost driver

producing using a facility's highest and best use, which assumes no downtime. its a level that can only be achieved if the plant can produce at full efficiency, all the time. its unreliable

theoretical capacity

a company's total capacity can be expressed as ____________, _____________, and _______________ capacity.

theoretical, practical, and normal

relies on the cost of productive time supplied by an organization for all facilities, machines, and people and the usage of that time by transaction type as the basis for allocating costs

time-driven activity-based costing

activity based rate (cost driver rate) =

total cost in activity cost pool / total quantity if activity's cost driver

rate for supplying an activity (under TDABC) =

total cost of activity / practical capacity available expressed in time

increase in total with every additional unit of a product made or service delivered. easy examples are DM and DL

unit-level costs

Alice is a new cost accountant working at a local factory in her hometown. She has been given the task of ensuring that costs for the company have been put into the correct cost hierarchies. She is currently evaluating a list and searching for batch-level costs. Which of the following is comprised of costs that would be included in her list of batch-level costs? a. cleaning/maintenance, machine set-up, movement of materials b. indirect materials, supervisor salary, direct labor c. movement of materials, cleaning/maintenance, equipment maintenance d. property tax, insurance, machine set up

a. cleaning/maintenance, machine set-up, movement of materials

unit level, batch level, product level, facility level? purchasing

batch

incurred when a group of items is processed together

batch-level costs

the quantity needed to satisfy average customer demand over a period of time, say, a few years assuming that available production capacity is greater than or equal to expected customer demand

normal capacity

reduces theoretical capacity by considering unavoidable interruptions for things like maintenance, holiday shutdowns, and employee training. its a challenging, but plausible, production level

practical capacity

unit level, batch level, product level, facility level? inventory management

product

unit level, batch level, product level, facility level? distribution

product and batch

_________-level costs are unaffected by the number of units or batches produced

product/process

incurred by the company to support an entire product line or individual type of service delivery

product/process level costs

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to accounting?

sales dollars # of reports requested

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to selling?

sales dollars # of units

cost drivers: # of employees square footage # of reports requested # of purchase orders # of units # of shipments sales dollars which pertain to facility maintenance?

square footage