Managerial accounting chapter 6
A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was
175000
If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is
7800
Under activity-based costing, overhead includes ______.
all indirect costs
The profit from a product is also called the
product margin
Which of the following items are the same under both ABC and traditional costing?
Net operating income Total sales Total costs
In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation.
first
The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is
machine hours
Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer
margin
When using a traditional costing system, standard products often report an artificially ______ product margin, while custom products report an artificially ______ product margin.
low, high
The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000, the amount allocated to this cost pool in the first-stage allocation is
125000
A company has two activity cost pools—Customer Orders and Product 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 requiring 10 designs?
6200
The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is
8000
The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs. The total cost assigned to a customer who had 7 designs done is
875
In ABC, any event that causes consumption of overhead resources is a(n) __________
Activity
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of _______ -level activities
Batch
Which of the following is NOT an ABC level of activity?
Employee
ABC does not assign customer-level and unused capacity costs to products.
False
When using a traditional absorption costing system, what type of costs are assigned to products even if the costs are not caused by the products?
Manufacturing only
Activity-based costing ______ include activities that do not relate to the number of units produced.
May
Activity-based costing treats organization-sustaining costs as _______ expenses.
Period
Activities such as design or engineering changes for an item being produced are referred to as _________-level activities.
Product
Costs incurred that are not related to number of batches run or unit produced, such as making design changes are _______ -level costs
Product
Which of the following help companies channel their resources into the most profitable growth opportunities?
Product and customer profitability reports
Which of the following is NOT an organizational sustaining cost?
Set-up labor wages
Which costing method assigns only manufacturing costs to products?
Traditional absorption costing
The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is ______.
customer orders
The most appropriate activity measure for a cost pool consisting of the costs of resources consumed taking and processing individual customer sales is the number of ______.
customer orders
A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.
customer-level
The amount of time required to perform an activity is measured by a(n) driver.
duration
Activity-based management is focused on ______.
eliminating waste reducing defects
An activity cost pool accumulates costs for Blank______ activity measure(s).
exactly one
In traditional absorption costing, ______ costs are assigned to products.
only manufacturing
In activity-based costing, first-stage allocation assigns ________ costs to activity cost pools.
overhead
The basis of benchmarking is comparing ______.
performance within the same industry
The final step in implementing ABC is
prepare management reports
A function of sales and the direct and indirect costs that the product causes is the
product margin
All manufacturing costs are assigned to products when using Blank______ costing systems.
traditional absorption
All manufacturing costs are assigned to products when using ______ costing systems.
traditional absorption
Simple counts of the number of times an activity occurs are ___________ drivers.
transaction
Activity-based costing (ABC) is a costing method that provides managers with cost information for decisions that potentially affect capacity.
true
Providing power to run production equipment is generally considered a(n) _____-level activity.
unit
In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ______ basis.
cause-and-effect
In ABC costing, the consumption of overhead resources is caused by ______.
an activity
Costs at the batch level depend on the number of ______.
batches processed
A systematic approach that can identify improvement opportunities is ______.
benchmarking
Activity based costing provides managers with information that potentially affects ______.
both fixed and variable costs
An activity-based costing system ______.
-uses numerous overhead cost pools -may exclude some manufacturing costs from product costs
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, the activity rates are ______.
$8 per customer call and $15 per development hour
In activity-based costing, what costs are not assigned to products?
- Organization-sustaining - Unused capacity
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ______.
activity cost pool
In ABC, the term cost driver is used to refer to a(n) because it should "drive" the cost being allocated .
activity measure
Overhead includes both manufacturing and nonmanufacturing costs under ______ costing.
activity-based
Factors to consider when implementing an ABC system include it Blank______.
should be designed by a cross-functional team of influential managers does not distinguish between relevant and irrelevant costs usually does not replace the cost system used for external reporting
To reconcile ABC product margin to net income
subtract overhead costs not assigned to products
Traditional cost systems allocate all manufacturing costs using ______ allocation base(s).
volume related
In activity-based costing, ______ are different from those calculated using traditional costing
product margins
In activity-based costing, first-stage allocation assigns ________ costs to activity cost pools.
product margins
The most common management reports using ABC data are
product profitability customer profitability
An example of a duration driver is the ______.
time spent preparing invoices
Arrange the steps for implementing ABC in the correct order. (Place the first step at the top.)
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 5. prepare management reports
The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000, the amount allocated to this cost pool in the first-stage allocation is ______.
125000
If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, the total number of customer orders is ______.
1700
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of activity-based _________
Management
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?
Organization-sustaining
What causes traditional and activity-based costing systems to report different product margins?
Traditional cost systems allocate all manufacturing overhead costs to products. Traditional cost systems only use volume-related allocation bases. The ABC system assigns nonmanufacturing overhead costs to products on a cause-and-effect basis as appropriate.
Under activity-based costing, overhead includes Blank______.
all indirect costs
An activity-based costing system may not be embraced by a company's managers because they
consider it unimportant because it does not replace the existing system for external reporting are threatened because ABC profitability data contradicts historical and cultural norms see the implementation as an accounting project disconnected from their jobs
In activity based costing another term for activity measure is Blank______.
cost driver
To help determine the customers that a company should cultivate relationships with a customer ___________ report may be prepared
margin
Unit-level activities are ______.
proportional to the number of units produced
Customer-level activities include ______.
sales calls mailing catalogs
Activity rates are used to apply overhead costs to products and customers in_______ - stage allocation
second
Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation.
second
Organization-sustaining activities include _____.
setting up a computer network heating a factory preparing annual reports
An example of a transaction driver is the Blank______.
number of bills sent to a customer
Usually, traditional costing ______ high-volume products and ______ low-volume products.
overcosts; undercosts