Chapter 4 Activity based Job Costing

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

overcosts, undercosts

Acitivty based management does what?

-eliminates waste -decrease processing time -reduce defects

Departmental overhead rates

-may not assign overhead correctly with a company has a range of products -may use different allocation bases in different departments

Benefits of activity based costing

-more accurate product costs -helping target areas for process improvement -helping managers understand the nature of overhead costs

implementing activity-based costing

-requires taking employees away from other tasks -requires substantial resources -shoudl be done by a cross-functional team

Which of the following issues needs to be considered when implementing an ABC System

-the cost in each activity cost pool may not be strictly proportional to its activity measure -the cost of designing and implementing the system may outweigh the benefits of the system

Levels of activity for ABC

-unit level -batch level -facility level -product level

a technique that attempts to assign overhead costs more accurately to products is known as

Activity - based costing (ABC)

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

Activity Rate

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of _ level activities

Batching Costs

Departmental overhead rates may not correctly assign overhead costs in situations where a company has

a variety of products

Acitvity measure is what

an allocation base

if factorywide overhead costs do not move in the same direction as the plantwide activity base, products will be

distorted

activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are facility-level or

organization-sustaining

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

Organization-Sustaining

Activity rate is also considered what in acivity based costing

Predetermined overhead

Administrating parts inventor is a(n) _ activity

Product level activity

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

unit

using direct-labor hours or another volume based cost driver to assign overhead may...

-ignores other significant causes of overhead costs -may result in selling products at a loss -may result in overcharging customers for products

Reasons that companies are moving away from a plant wide overhead rate like direct labor?

-many tasks are now done with automated equipment -direct labor is no longer directly correlated to overhead for many products -a variety of products are made by companies

Activity based costing is most likely to be beneficial when

-overhead costs are high and increasing and no one knows why -products differ substantialy in batch size and the activities they require

in acitvity based costing, each cost pool accumulates costs that relate to a single _ measure in the ABC system

activity

Activity

any event that causes the consumption of overhead resources

what is the first stage of allocating overhead costs to products

overhead costs are assigned to activity cost pools

what is the basis of benchmarking

performance within the same industry