Managerial Accounting - Chapter 5

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is __________$ per machine hour.

$30

A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is:

$360,000

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, calculate the appropriate activity rate(s).

$8 per customer call and $15 per development hour

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

1. ABC does not comply with GAAP 2. external reports are less detailed than internal reports

What are some of the limitations of activity-based costing systems?

1. ABC requires substantial resources. 2. ABC procedures produce numbers that do not match traditional costing. 3. Managers and employees may resist the change to ABC.

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.

Identifying the activities that will form the foundation for the system:

1. often involves interviewing employees 2. involves a great deal of judgment 3. can be time-consuming

An activity-based costing system:

1. requires substantial resources 2. is costly to maintain 3. produces different numbers than a traditional system

True or false: Most companies that use activity based costing replace their traditional accounting system with it.

False

True or false: Traditional cost systems tend to overcost standard products and overcost specialty products. True false question.

False: traditional systems undercost specialty products that tend to consume more overhead.

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC.

Which of the following help companies channel their resources into the most profitable growth opportunities?

Product and customer profitability reports

An ABC system usually _____ a traditional cost system

Supplements

Which of the following is not essential for the successful implementation of an ABC system?

Top managers must design the ABC system.

Which costing method assigns only manufacturing costs to products?

Traditional absorption costing

True or false: Activity-based costing can be used for process improvement.

True: Since ABC is more detailed than other costing systems, it can provide information that can improve the business process.

Some manufacturing costs may be excluded from product costs when using:

activity based costing

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

activity rates

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of _______-________ ________.

activity-based management

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

an activity

Batch‐level activities

are costs incurred every time a group (batch) of units is produced or a series of steps is performed. Purchase orders, machine setup, and quality tests are examples of batch‐level activities.

Facility support activities

are necessary for development and production to take place. These costs are administrative in nature and include building depreciation, property taxes, plant security, insurance, accounting, outside landscape and maintenance, and plant management's and support staff's salaries.

Product‐line activities

are those activities that support an entire product line but not necessarily each individual unit. Examples of product‐line activities are engineering changes made in the assembly line, product design changes, and warehousing and storage costs for each product line.

In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ______ basis.

cause and effect

Individual product costs calculated using ABC are not listed on ______ reports.

external

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

first-stage

The first major step when implementing an ABC system is:

identify the activities

In traditional costing, ______ costs are assigned to products.

manufacturing

Unit‐level activities

occur every time a service is performed or a product is made. The costs of direct materials, direct labor, and machine maintenance are examples of unit‐level activities.

If some products are overcosted and some are undercosted the errors will:

offset each other in cost of goods sold and inventory valuations

Usually, traditional costing ______ high-volume products and ______ low-volume products.

overcosts; undercosts

In activity-based costing, first-stage allocation assigns _______ costs to activity cost pools.

overhead

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

profitability

Activity-based costing uses activity rates to apply overhead costs to products in ________ allocation.

second-stage

All manufacturing costs are assigned to products in _______ costing.

traditional