Acc-203 Test 2
True or false: ABC is designed to provide managers with detailed information about the cost of activities and is therefore not useful in providing sustainability-related information.
False
True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.
False
True or false: The worst type of quality costs for a company to incur are internal failure costs.
False
What are examples of facility-level activities?
Human resource hiring fairs Paying factory insurance
What is NOT a volume-based cost driver?
Machine setups
A group-level activity for a service company is the same as a(n) _____________ -level activity for a manufacturing company
batch-level activity
Costs at the batch level depend on the number of _________
batches produced
How total costs changes as some level of activity changes is called cost _____________.
behavior
Activity-based costing systems typically include ______ cost drivers
both volume- and non-volume-based
Gross profit margin calculates gross margin as a percentage of _____________
sales/ revenue
mixed costs are also commonly known as _______________ costs.
semivariable costs
A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______ -level activity.
service-level activity
Under activity-based costing, a degree program at a university is considered a(n) ____________ -level activity
service-level activity
A proactive approach managers use to determine what costs should be is called ______
target costing
The approach to determine what costs should be in order to earn an acceptable profit across a product's life cycle is called __________ ___________ or cost planning
target costing
The activity rate is computed by dividing the ______ by the ______.
total activity cost; total cost driver
An approach that aims to improve products by reducing and eliminating errors, streamlining activities, and continuously making production processes better is called ___________ ____________ management
total quality
A management system that focuses on continually improving production processes is called ______.
total quality management
True or false: Presenting fixed costs on an average per unit basis makes them look like they are variable costs.
true
Installing parts on an automobile is what?
unit-level activity
The perceived value of a product or service to the customer is enhanced by ________ - __________ activities
value - added
The linked set of activities required to design, produce, and deliver products and provide aftermarket service to customers is called the ________ __________
value chain
To ensure that activities deliver what matters to customers, the concept of the ____________ ____________ begins with the customer and works
value chain
A cost that changes in direct proportion to changes in the activity level is a __________ cost.
variable
which type of cost changes in total, in direct proportion to changes in activity level?
variable costs
A cost driver that is not strictly related to the number of units produced or customers served is a _____________ cost driver
volume-based
What are direct labor hours and machine hours examples of?
volume-based cost drivers
A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned how much overhead?
$1,200 (400x3)
Blanchard, Inc., is considering introducing a new product and wants to earn a 15% return on sales. If the market price is estimated to be $200, the most the company can spend and still achieve the goal (the target cost) is $ _________
$170
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.
$19.53 (625,000/(8000x4)
SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is what?
$2
Using an ABC system, a company has estimated overhead of $2,100,000. They expect to use 1,000,000 machine hours and 500,000 labor hours. ABC has identified this as a machine-hour related activity. The activity rate for this activity is ______.
$2.10 ($2,100,000 ÷ 1,000,000 = $2.10 per machine hour)
Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours?
$280 (35,000/5,000=7x40)
Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is what?
$500
A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______.
$6,000 ($2 × 3,000 = $6,000)
A company wants to offer a new product, but only if it can earn a 20% return on sales. If the marketing department estimates that the new product will sell for $850, what is the most the company can spend on one unit and still achieve the goal (the target cost)?
$680 ($850 - ($850 × 20%) = $680.)
Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.
$73,160 to Model XLT and $44,840 to Model TXT (620 ÷ 1000 or 62% × $118,000 = $73,160 to Model XLT and 380 ÷ 1000 or 38% × $118,000 = $44,840 to Model TXT)
Internal failure costs ______
- are preferred over external failures - result from defects discovered during inspection
fixed costs ...
- generally include rent and supervisor salaries - remain constant in total within the relevant range of activity - should not be expressed on a per unit basis when making decisions
Activity-based management focuses on ______.
- improving operations - increasing efficiency
A just-in-time (JIT) system ______.
- is used to help reduce costs - is a demand-pull system
Non-volume-based cost drivers ______.
-allow more indirect costs to be allocated to products -are used in ABC systems
Non-volume based cost drivers
-allow more indirect costs to be allocated to products -are used in ABC systems
step costs ...
-are fixed over some range of activity - may be either step-fixed or step-variable
Non-value-added activities ______.
-should be eliminated whenever possible -do not enhance the product or service
Indirect costs can be assigned to products or services using __________
-the activity proportion method -the activity rate method
Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ________________% of the total setup cost
30
In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?
Activity rate
What types of activities are performed each time a group units is processed, regardless of how many units are in the group?
Batch-level activities
Which of the following is NOT a value-added activity?
Storing inventory
True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.
True
what level of activity is performed each time a single item is produced?
Unit-level of activity
What is activity based costing?
a technique that attempts to assign overhead costs to products based on the actions they require
The percentage of the total cost driver that is attributable to each product line is called a(n) ____________ ____________
activity proportion
A predetermined overhead rate in an activity-based costing system is called a(n) ________ _________
activity rate
The formula to apply overhead to products is ______.
activity rate times activity
Improving operations and reducing costs are most likely to be involved in ______ management.
activity-based
What method attempts to assign overhead costs based on what is required to produce products?
activity-based costing
step-fixed costs _________.
are fixed over a fairly wide range of activity
The final step in activity-based costing is ______.
assigning indirect costs to products or services
At a minimum, an ABC system should have ______.
at least one non-unit-level activity cost pool
At minimum, an ABC system should have what?
at least one non-unit-level activity cost pool
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___________ -level activities.
batch
How total costs changes as some level or activity changes is called cost ___________
cost behavior
The formula to compute activity proportion is _______.
cost driver for product ÷ cost driver for all products
A company adds a markup to expenses required to produce the product when using _________ ___________ pricing, which is in stark contrast to
cost plus
A group of similar activities that have been combined together is an activity _________
cost pool
A group of similar activities that have been combined together is called an activity ________ ________
cost pool
Determining what a product costs and adding a markup is called ______.
cost-plus pricing
how do your calculate predetermined overhead rate
estimated total manufacturing overhead cost/estimated total cost driver
The worst type of quality costs for a firm are ______ costs
external failure
Warranty and recall costs and product replacement are ______ costs
external failure
What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?
facility-level
which is a value-added activity?
free delivery service to customers
Sales price per unit - manufacturing cost per unit = ______ per unit.
gross profit
A local tour company offers charter buses to corporations who have conventions or meetings in the city. Under activity-based costing, renting a bus to a corporation is a(n) _____________ -level activity
group-level activity
A fixed cost remains fixed________ ____________ within the relevant range of activity.
in total
a fixed cost remains fixed _________ within the relevant range of activity
in total
Costs incurred to identify defective products before they get to the customer are called _____________ costs.
inspection
What is target costing?
it is an approach managers use to determine how much the cost of a product should be
fixed costs should not be expressed on a per-unit basis because ___________.
it may make managers believe they can reduce costs by producing more
A system that pulls materials and products through the manufacturing system based on customer demand is called ______.
just-in-time
the duration of a product from its infancy through its eventual decline is represented by the product ___________ ______________
life cycle
In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate ______.
life cycle costs
All of the following are non-volume-based cost drivers except number of ______
machine hours
In order to compute the per-unit manufacturing costs, what do you add to direct materials and direct labor?
manufacturing overhead
To calculate manufacturing overhead cost per unit using ABC, divide the total ______.
manufacturing overhead cost by the number of units produced
Once Stage 2 allocation has been completed it is possible to compute total ______
manufacturing overhead per product
Inspection costs ____________
may lead to internal failure costs
A cost driver that is not strictly related to the number of units produced or customers served is a ______ cost driver.
non-volume-based
Total manufacturing overhead under activity-based costing consists of all _____.
overhead assigned during Stage 2 allocations
To keep quality problems from happening in the first place, companies incur __________ costs
prevention costs
activities performed to design a new type of service to be offered is what?
product-level activities
What "level activity" included research and development?
product-level activity
Implementing an ABC system ______.
provides information for cost management
cost assumptions are reasonably valid within the ___________ _____________ of activity.
relevant range
the level of activity over which cost behavior assumptions are true is known as the ___________ ______________
relevant range
What is NOT apart of the manufacturing cost per unit?
sales commission
