ACG 203 Exam 2

overhead

n ABC costing, ________ is expanded to include all indirect costs - manufacturing and nonmanufacturing.

sequential method

A method of allocating support department costs to production departments that considers some inter-support-department services in a sequential or step-down fashion. Also known as the step-down method.

direct

A method that allocates all support department costs directly to production departments without considering the services provided between service departments.

joint manufacturing process

A single manufacturing process that generates multiple outputs.

support department

A department that provides a necessary service to produce a product, but is not directly involved in the production process. Also known as a service department.

service department

A department that provides necessary services to produce a product, but is not directly involved in the production process. Also known as a support department.

cost (responsibility) center.

Support departments are normally accounted for as a __________

1. Define activities, activity cost pools, and activity measures 2. Assign overhead costs to activity cost pools 3. Calculate activity rates 4. Assign overhead costs to cost objects using the activity rates and activity measures 5. Prepare management reports

The Steps for Implementing Activity-Based Costing Are?

interviewing the employees that work in the respective overhead departments.

The activities, activity cost pools, and activity base are often identified and defined by...?

joint costs

The costs incurred in a joint manufacturing process.

support department cost allocation

The costs of services provided by a support department transferred to production departments.

joint products

The outputs generated from a joint manufacturing process.

split-off point An example is crude oil going through a production process to the point of splitting into the continuation of manufacturing gasoline or kerosene from the crude oil.

The point in a joint manufacturing process where the joint products become separable.

indirect

Activity Based Costing allocates ______ nonmanufacturing costs to products whenever the products have presumably caused the cost to be incurred.

cost pool; cost driver

Activity base is an allocation base for a ________ - also known as a ___________

Activity based costing is different from job and process costing because....Nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis.Some manufacturing costs may be excluded from product costs.Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.

Activity based costing is different from job and process costing because....

dividing the total cost in each cost pool by the total activity base.

Activity rates are then computed by...?

identifying activities with cost improvement opportunities.

Activity-based costing can be used to improve the cost of a product by....?

1. First, top managers must strongly support the ABC implementation because their leadership is instrumental in properly motivating all employees to embrace the need to change. 2. Second, top managers should ensure that ABC data is linked to how people are evaluated and rewarded. If employees continue to be evaluated and rewarded using traditional (non-ABC) cost data, they will quickly get the message that ABC is not important and they will abandon it. 3. Third, a cross-functional team should be created to design and implement the ABC system. The team should include representatives from each area that will use ABC data, such as the marketing, production, engineering, and accounting departments.

There are three essential characteristics of a successful activity-based costing implementation.

possibility that some support departments may also serve other support departments

the direct method ignores the...?