Acc2033 Ch.4 Smartbook
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 (external)
What types of activities are performed each time a group of units is processed, regardless of how many units are in the group?
batch
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 $
2
Activity-based costing systems typically include ______ cost drivers.
both volume- and non-volume-based
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
group-level activity
Activity-based management focuses on ______.
increasing efficiency improving operations
Under activity-based costing, a degree program at a university is considered a(n) -level activity
service/product
A method that attempts to assign overhead costs based on what is required to produce products is ______ costing. Multiple choice question.
activity-based Reason: Target costing is an approach managers use to determine how much the cost of a product should be.
All of the following are non-value-added activities except ______, which is a value-added activity.
free delivery service to customers
All of the following are non-value-added activities except ______, which is a value-added activity. Multiple choice question.
free delivery service to customers
A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______-level activity.
service
Under activity-based costing, a degree program at a university is considered a(n)
service-level activity
The final step in activity-based costing is ______.
assigning indirect costs to products or services
At a minimum, an ABC system should have ______. Multiple choice question.
at least one non-unit-level activity cost pool
A group-level activity for a service company is the same as a(n) _____-level activity for a manufacturing company
batch
A group-level activity for a service company is the same as a(n) ______-level activity for a manufacturing company.
batch
To keep quality problems from happening, companies incur _____ costs
prevention
To keep quality problems from happening, companies incur
prevention costs
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 Reason: $625,000/(8,000 × 4) = $19.53
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 Reason: $2,100,000/1,000,000 = $2.10 per machine hour
Activities performed to design a new type of service to be offered are ______-level activities.
product
In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver? Multiple choice question.
Activity rate
Which of the following statements are true?
Before implementing ABC, a company should weigh the benefits against the costs. The support of upper management is required for successful ABC implementation.
Fill in the Blank Question Fill in the blank question. 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
Which of the following are facility-level activities?
Human resource hiring fairsPaying factory insurance
Which of the following statements are true?
Implementing an ABC system is not a trivial task. Managing and reducing costs is the true benefit of ABC.
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
Direct labor hours and machine hours are both examples of ____ -based cost drivers
Volume
Improving operations and reducing costs is the focus of _____- ______management.
activity based
A technique that attempts to assign overhead costs to products based on the actions they require is called
activity based costing
The formula to apply overhead to products is ______.
activity rate times activity
The formula to compute activity proportion is ______.
cost driver for product / cost driver for all products
Target costing is in stark contrast to _______-______ pricing, in which the company adds a markup to expenses required to produce the product.
cost plus
A group of similar activities that have been combined together is an activity ______.
cost pool
Determining what a product costs and adding a markup is called ______. Multiple choice question.
cost-plus pricing
Warranty and recall costs and product replacement are ______ costs.
external failure
Scrapped or discarded products and rework are ______ costs.
internal failure
A just-in-time (JIT) system ______.
is a demand-pull system is used to help reduce costs
A system that pulls materials and products through the manufacturing system based on customer demand is called ______.
just-in-time
In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate ______.
life cycle costs
In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate ______. Multiple choice question.
life cycle costs
All of the following are non-volume-based cost drivers except number of ______.
machine hours
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
Implementing an ABC system ______.
provides information for cost management
The activity rate is computed by dividing the ______ by the ______. Multiple choice question.
total activity cost; total cost driver
A management system that focuses on continually improving production processes is called ______
total quality management
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 management
The perceived value of a product or service to the customer is enhanced by ______ - activities.
value added
The concept of the _____ _______ begins with the customer and works backward to ensure that activities deliver what matters to customers.
value chain
The linked set of activities required to design, produce, and deliver products and provide aftermarket service to customers is called the _________ ____________
value chain
The duration of a product from its infancy through its eventual decline is represented by the _____ _______ ________
product life cycle
Activities incurred for each product produced and not dependent on the number of units or batches are___
product-level activities
Gross profit margin calculates gross margin as a percentage of
sales
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 $
1200
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 Reason: $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 Reason: 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT
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%
Which of the following statements is true?
An existing ABC system can report sustainability-related information.
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
Which of the following is NOT a value-added activity?
Storing inventory
Which of the following is NOT a volume-based cost driver? Multiple choice question.
Machine setups
Which of the following statements are true?
Most experts believe that incurring prevention costs is the most effective way to manage quality costs. Quality training is an example of a prevention cost.
Costs incurred to identify defective products before they get to the customer are called
appraisal or inspection
Indirect costs ______.
are not easily traced to products or services
Non-volume-based cost drivers ______.
are used in ABC systemsallow more indirect costs to be allocated to products
Costs at the batch level depend on the number of ______.
batches processed
Inspection costs ______.
may lead to internal failure costs
A ______ cost driver is not strictly related to the number of units produced or customers served.
non-volume-based
Indirect costs are also referred to as ___ costs
overhead
Total manufacturing overhead under activity-based costing consists of all ______.
overhead assigned during Stage 2 allocations
The activity proportion method uses to assign overhead costs to products
percentages
Non-value-added activities ______.
should be eliminated whenever possible do not enhance the product or service
A proactive approach managers use to determine what costs should be is called ______. Multiple choice question.
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
Indirect costs can be assigned to products or services using ______.
the activity proportion method the activity rate method
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
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. The activity rates are ______. Multiple choice question.
$8 per customer call and $15 per development hour Reason: $200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour.
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
Which of the following statements are true?
Appraisal costs identify defective products before they get to the customer. Appraisal costs are also known as inspection costs.
Which of the following statements are true?
Managing and reducing costs is the true benefit of ABC. Implementing an ABC system is not a trivial task.
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?
Reason: Predetermined overhead rate = $35,000/5,000 or $7 per direct labor hour × 40 hours = $280.
