accounting 3 chapter 6

automation in manufacturing has led to:

an increase in overhead cost a decrease in direct labor as a percentage of total cost

activity-based costing can identify activities that would benefit from process _____

improvements

red costs

factory depreciation admin office rent

In an ABC system, batch-level activities should be combined with unit-level activities.

false

Activity-based costing uses the _________ drop item here process to divide overhead costs among activity cost pools.

first-stage allocation

employees may be asked to estimate their time spent dealing with cost pool activities so that1:

first-stage allocations will be more accurate

when using a tradition cost system, standard, ____- volume products are generally overcosted and custom, ____ volume products are often undercosted.

high and low

First-stage allocations are usually based on the results of ______

interviews with employees

19th and 20th centuries cost systems relied on allocation bases such as

labor hours machine hours

an activity __ pool relates to a single activity measure in the ABC system.

cost

in activity based costing another team for activity measure is:

cost driver

what type of team is needed to design and implement

cross functional

an activity measure us a(n) _____ base in activity base costing system

allocation

a characteristic essential for successful implementation of ABC is:

c) ABC data should be linked to how people are rewarded.

costs assigned and/or traced when computing product margin in a traditional cost systems are:

direct materials - direct labor - manufacturing overhead

green cost

shipping costs direct materials

Activity-based costing estimates the costs of the resources consumed by_________ .

cost objects

a product profitability report

report purposely does not include the costs in the Customer Relations and Other activity cost pools. excludes costs not caused by specific products were excluded from the report because they are not caused by the products.

activity rates are used to apply overhead costs to products and customers in the __-stage allocation.

second

TO RECONCILE ABC PRODUCT MARGIN TO NET INCOME:

subtract overhead costs not assigned to products.

match the activity pool with an appropriate activity measure.

customer orders-number of customer orders product design-number of product designs order size-machine hours customer relations-number of customers

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs? Direct labor-hours

direct labor hours

The traditional absorption costing method assigns selling and administrative expenses to products

false

activity-based costing only charges products for the cost of the capacity used because:

it results in a more stable unit product cost -products are only assigned the costs of resources they actually use.

overhead includes both manufacturing and non manufacturing costs under:

just activity based costing

in a traditional absorption costing system all _____ costs are assigned to products.

manufacturing

under activity based costing ______ and _____ costs may be assigned to products on a cause- and effect basis

manufacturing manufacturing

customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer ____/

margin

yellow cost

marketing strategies direct labor factory utilities

in activity-based costing, first- stage allocation assigns __________ costs to activity cost pools.

overhead

to compute a product's profit or _____ ______, sales direct and indirect costs are needed.

product margin

which costing method assigns only manufacturing cots to produced?

traditional absorption costing

In activity-based costing, products are charged only for the costs of the capacity they use.

true

match the following activity levels in activity -based costing with the correct activity

unit level-power to run production equipment batch level-machine set up product level-product design customer level-sales calls organization sustaining-factory cooling system.

Traditional cost systems allocate all manufacturing cost using _____ allocation base.

volume related

Which of the following are costs that could be adjusted to changes in activity, but would require management action?

yellow

true or false; in activity-based costing system, it is best to combine activities that are not highly correlation

you want them to be highly correlated

the activity rate for the customer orders activity pool is $20 per order. If there are 400 customers orders for a product the total overhead cost assigned to this product for customer order is $.

$8000

What is the customer margin for Denny Corporation? What conclusion can you draw from this information?

(900), further analysis is required

a company assigns overhead using a plant rate. If total estimated manufacturing overhead is $900,000 AND THE TOTAL ESTIMATED IS $30,000 MACHINE-HOURS, TH OVERHEAD COST ASSIGNED TO A PRODUCT USING 12,000 MACHINE HOURS IS :

(900,000/30000)*12000

Place the steps for implementing ABC in order:

1. define activities, activity cost pools, and activity measure. 2. assign overhead costs to activity cost pools. 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.

a company has four cost pools -- customer relations, order size, product design and customer order. Indirect labor is used % for customers, 30% for order size, and 35% for product design. the percentage is used for customer orders is:

100-(15+30+35)= 20%

What is the total overhead cost assigned to Product A?

110000

What is the product margin for Product A?

140000

a company has two activity pools- Customer orders and products Design. The activity rates are $300 per order for Customer Orders and $500 per design for product design. How much overhead cost would be assigned to a customer placing 4 orders and required 10 designs?

300*40+(500*10)=6200

For what reasons in an ABC system more costly to maintain than traditional costing systems?

>Numerous activity measures must be entered into system. >>Numerous activity measures must be collected and checked

ABC IS NOT USED FOR EXTERNAL REPORTING BECAUSE _____ WOULD NOT BE COMFORTABLE USING ALLOCATION BASED ON EMPLOYEE INTERVIEWS.

AUDITORS

activity based costing provides managers with info that effects:

BOTH FIXED AND VARIABLE COSTS

Which of the following is an example of a cost that is deducted from the yellow margin to arrive at the red margin?

Factory building lease

It is necessary to compute an activity rate for the "Other" category of costs.

False

The costs of direct materials and direct labor costs are allocated to cost objects using the first-stage allocation.

False

the most common management reports using ABC data are:

Product and costumer profitability reports

total cost of each activity divided by the total activity is the computation:

The activity rates are computed by dividing the total cost for each activity by its total activity. activity rates

What is the amount of production overhead allocated to the assembling unit cost pool?

The amount of production overhead allocated to the assembling unit cost pool = $800,000 × 40% = $320,000.

The activity rates are computed by dividing the total cost for each activity by its total activity.

True

an example of a transaction driver is the _______

are simple counts of the number of times an activity occurs, such as the number of bills sent out to customers.

setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of __-level activities.

batch

why is top management support needed when ABC is implemented

because their leadership is instrumental in properly motivating all employees to embrace the need to change.

compared to traditional systems, activity based costing uses____ cost pools and unique measures of activity.

more

the greatest number of activites in an ABC system, the (more/less) _______ costly it is for the company to develop.

more

for what reason is an ABC cost system more costly to maintain than traditional costing systems?

) Numerous activity measures must be entered into system. b) Numerous activity measures must be collected and checked.

which of the following departments should be included in the design of ABC system?

accounting engineering marketing

which of the following items are the same under both ABC and traditional costing

total sales and total cost and net operating income

in activity-based costing, the consumption of overhead resources is caused by:

an activity

comparing the performance within an organization to that of other similar organization is called ________.

benchmarking

activity- based costing is not used for external reporting because:

-External reports are less detailed than internal -ABC does not comply to GAAP -It is difficult to make changes in the accounting systems

ORGANIZATION-SUSTAINING ACTIVITIES INCLUDE:

-SETTING UP A COMPUTER NETWORK -PREPATING ANNUAL REPORTS -HEATING A FACTORY This category includes activities such as heating the factory, cleaning executive offices, providing a computer network, arranging for loans, preparing annual reports to shareholders, and so on.

match the following words with the correct description

Transaction driver - Number of times an activity occurs Duration driver - Amount of time to perform an activity Activity measure - Cost driver Activity cost pool - Amount of costs accumulated for a single activity

customer-level activities include:

relate to specific customers and include activities such as sales calls, catalog mailings, and general technical support that are not tied to any specific product. mailing catalogs sales calls

Computing the overhead costs to be assigned to products for an action analysis report involves more detail than for a conventional ABC analysis.

true

what level of activity is performed each time an item of a product is produced?

unit-level activities

what pieces of information are provided in product and customer profitability reports?

These reports help companies channel their resources to their most profitable growth opportunities while at the same time highlighting products and customers that drain profits. -unprofitable product lines -profitable product lines -unprofitable customers

in the 19th and 20th centuries, cost systems relied on allocation bases such as:

Typically, either one plantwide overhead cost pool or a number of departmental overhead cost pools were used to assign overhead costs to products. labor hours & machine hours

the first major step in implementing ABC is identify the _____ that will form the foundation for the system?

activities

Activity-based costing accumulates costs for each ___________

activity

focus on activities to eliminate waste, decrease processing time, and reduce defects is the basis of _____ ___ ____-

activity based management

In constructing an action analysis report, the results of the first-stage allocation are used for computing:

activity rates

An example of a product-level activity is _____________

advertising

under activity-based costing, overhead includes:

all indirect costs

in activity-based costing, what costs are not assigned to products?

organization-sustaining unused capacity what is assigned to products? Sales commission & direct labor

what type of activities are carried out regardless of which customers are served, which products are produced, how many batches are run or how many units are produced.

organizing sustaining

administrating parts inventory is a(n) ______ activity.

product level