Accounting Chapter 6

what causes traditional and activity-based costing systems to report different product margins?

-the ABC system assigns non manufacturing overhead costs to products on a cause-and-effect basis as apposite. -traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base. -traditional cost systems allocate all manufacturing overhead costs to products.

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

-the costs of organization-sustaining activities -costs of idle capacity

select which activities could be combined into one batch-level activity.

-the number of customer orders -the number of shipped orders

which characteristics are essential for successful implementation of ABC?

-top managers must support ABC -A cross-functional team should be created. -ABC data should be linked to how people are rewarded.

which of the following might be included in a customer relations cost pool?

-cost of sales calls -customer entertainment

which reports are the most common management reports using ABC data?

-customer profitability -product profitability

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

-net income -total costs -total sales

When using a traditional cost system, standard, __-volume products are generally overcosted and custom, __-volume products are often undercosted

high low

in recent years, direct labor as a percentage of total cost began declining, which caused overhead to

increase

ABC is generally used for __ reporting.

internal

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

batch

the term __ __ is also used when referring to an allocation base or activity measure in activity-based costing.

cost driver

activity-based costing uses numerous __ cost pools.

overhead

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

overhead

activity-based costing treats organization-sustaining costs as __ costs.

period

power to run production equipment would be a(n) __-level activity.

unit

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.

The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs in activity-based costing, the total cost assigned to a customer who had 7 designs done would be $__.

200000/1600 designs=125*7 = 875

if the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product would be $__.

65x120=$7800

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

cost

a cost pool including costs to entrain customers and make sales calls would be considered a __ activity.

customer-level

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

everything but unsatisfied customers

compared to traditional systems, activity-based costing uses __ cost pools and unique measure of activity.

more

the greater the number of activities in an ABC system, the (more/less) __ costly it is for the company to develop.

more

usually, traditional costing __ high-volume products and __ low-volume products

overcosts undercosts

in traditional costing, which type of cost in not included in the product margin?

period

when a team is created to design and implement an ABC system, it should include members that represent many different functional areas.

true

which of the following statements is true regarding overhead allocation in the 19th and 20th centuries?

direct labor hours was a satisfactory overhead allocation base.

an activity cost pool accumulates for:

exactly one activity measure.

In activity-based costing, __ allocation is the process of assigning overhead costs to activity cost pools.

first-stage

customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer __.

margin

__-__ activities occur regardless of which customers are served, which products are produced or how many batches are run or units made.

organization sustaining

__ help companies channel their resources into the most profitable growth opportunities.

product and customer profitability reports

which costing method assigns only manufacturing costs to products?

traditional

if the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, what is the total number of customer orders?

$1,700

types of costs that might be included in a cost pool based on order size include:

-equipment depreciation -factory supplies

the first major step in implementing ABC is to identify the __ that will form the foundation for the system.

activities

A(n) __ is any event that causes consumption of overhead resources.

activity

in activity-based costing, each cost pool has its own unique measure of __.

activity

in activity-based costing, what causes the consumption of overhead resources?

activity

overhead includes both manufacturing and non manufacturing costs under:

activity -based costing

under __ costing, overhead costs are not assigned to products if costs are not specific to products.

activity-base

the most common reports prepared using ABC data are the product and customer __ reports.

profitability.

individual customer __ minus individual customer __ equals customer margin.

sales costs

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

second

which stage in activity-based costing uses activity rates to apply overhead costs to products?

second

to reconcile ABC product margin to net income:

subtract overhead costs not assigned to products.

what activity measure it most appropriate for a cost pool consisting of the costs of resources consumed taking and processing customer orders?

the number of customer orders

in ABC, the greater the number of activities:

-the more costly the system will be to design -the more accurate the costs are likely to be.

an activity measure in activity-based costing is used as a(n) __ base.

allocation

in traditional costing, which type of cost is not included in the product margin?

period

designing and advertising a product are all __-level activities

product

which activity measure is most appropriate for a cost pool consisting of the costs of resources consumed taking and processing customer orders?

the number of customer orders.

employees designated as indirect factory workers should provide what information to assist in first-stage allocations in ABC?

the percentage of employee time spent for each activity pool.

in a(n)__ costing system, only direct materials, direct labor, and manufacturing overhead are assigned to products.

traditional

__ drivers are simple counts of the number of times an activity occurs.

transaction

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.

some manufacturing costs may be excluded from product cost when using ABC.

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.

all manufacturing costs are allocated to products in a(n) __ system, regardless of whether the product consumes the resources associated with those costs.

traditional

what cost system uses a volume-related allocation base for all of the manufacturing costs?

traditional

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.

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

-machine hours -labor hours

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

-marketing -engineering -accounting

which of the following costs can be easily traced to individual products?

-warranty repair costs -sales commission -shipping costs

In the activity rate for the Customer Orders activity pool is $20 per order and there are 400 customer orders, the total overhead cost assigned to this cost pool is $__.

400x20=8000

the customer orders cost pool consumes 25% of the indirect factory wages. What amount will be allocated to this cost pool in the first-stage allocation if total indirect factory wages are $500,000

500000x.25=125000

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

ABC systems assign nonmanufacturing overhead on a(n) __-and-__ basis.

cause effect