ACCT 3301 - Cost Accounting I: Chapter 9

Which of the following are true of activity-based costing?

(1) Activity-based costing is a two-stage product costing method. (2) Activity-based costing is based on the concept that products consume activities and activities consume resources

Time equations

(1) allow managers to adjust the times for orders with different characteristics (2) can be written if there is a maximum size of an order

Which of the following is true?

Low-volume, complex products require more machine-setups.

The two-stage product costing method that assigns costs first to activities and then to the products based on each product's use of activities is called _____.

activity-based costing

As companies have become more automated, including those in the service sector such as banks,

direct labor has become less appropriate as a basis for allocating overhead

The product costs produced by an ABC system

may be worse than a traditional system in some cases

Given the following information, assign overhead costs to Product B using ABC. Activity Costs Cost Driver Assembling costs $200,000 Machine-hours Setup costs $75,000 Number of setups Inspecting costs $50,000 Direct labor-hours Activity Product A Use Product B Use Assembling costs 500 machine-hours 300 machine-hours Setup costs 10 setups 15 setups Inspecting costs 25 direct labor-hours 15 direct labor-hours

$138,750

Given the following information, assign overhead costs to Product A using ABC. Activity Costs Cost Driver Assembling costs $200,000 Machine-hours Setup costs $75,000 Number of setups Inspecting costs $50,000 Direct labor-hours Activity Product A Use Product B Use Assembling costs 500 machine-hours 300 machine-hours Setup costs 10 setups 15 setups Inspecting costs 25 direct labor-hours 15 direct labor-hours

$186,250

Which of the following are true regarding activity-based costing?

(1) Activity-based costing requires more recordkeeping. (2) Activity-based costing requires teamwork

Which of the following statements are true?

(1) Allocating overhead on the basis of labor signals labor is more expensive than it really is. (2) Small errors in assigning labor to products are magnified when overhead rates are several hundred percent or more of labor costs.

Which of the following statements are true?

(1) Assigning overhead based on direct labor produces an incentive to decrease the labor content of products. (2) In modern manufacturing, a proportionality between machine hours and labor hours is uncommon.

Which of the following statements are true?

(1) Companies are not likely to announce they have discontinued the use of ABC. (2) ABC means different things to different observers. (3) ABC may be applied to parts of an organization but not everywhere.

Place the following activity-based costing steps in order.

(1) Identify the activities. (2) Identify the cost driver(s). (3) Compute the cost driver rate(s). (4) Assign costs to products.

Which of the following are true?

(1) If the company manufactures products that are quite similar and that use the same set of resources, the plantwide rate is probably sufficient. (2) Managers need to choose between plantwide and departmental rates based on the costs and benefits of each. (3) The choice of whether to use a plantwide rate or departmental rates depends on the products and the production process.

Which of the following are true of activity-based costing?

(1) In the ABC two-stage cost system, the first stage consists of activities. (2) With activity-based costing, each activity has an associated cost pool.

Which of the following are problems with identifying users of ABC?

(1) Organizations may not use ABC throughout their organization. (2) ABC means different things to different organizations.

Which of the following are true regarding TDABC?

(1) TDABC can be extended to accommodate cost drivers other than time. (2) TDABC is based primarily on time estimates for different activities.

Which of the following are true? The death spiral can occur even in firms with increasing demand. Only firms with decreasing demand can experience the death spiral. The death spiral will always lead firms to downsize operations. The death spiral can begin because of a recession.

(1) The death spiral can occur even in firms with increasing demand. (2) The death spiral can begin because of a recession.

Examples of a company experiencing a death spiral include _____.

(1) increasing a product's price when the product is experiencing a decrease in demand (2) a major customer no longer purchasing a product causing a company to increase the product's price

ABC systems

(1) must be maintained and updated (2) allocate cost using volume and batch bases

In the plantwide allocation method, _____.

(1) one overhead allocation rate, or set of rates, is used to allocate overhead for all departments (2) the cost pool is the entire plant

When compared to a two-stage cost flow, activity-based costing

(1) recognizes that costs are caused by activities (2) allocates costs to activities

Activity-based costing

(1) requires teamwork between accounting and nonaccounting employees (2) helps managers identify cost drivers that were previously unknown (3) provides more detailed information than plantwide and two-stage allocation

Select all that apply Examples of batch related activities include _____.

(1) setup costs (2) material handling

The choice of whether to use a plantwide rate or departmental rates depends on _____.

(1) the costs and benefits of information provided by each system (2) the products and the production process

Time-driven activity-based costing requires the

(1) time it takes to complete the various activities of the department (2) cost of the resources supplied to a department

Assuming that 4 employees work 48 weeks each year, and 35 hours per week, the minutes of capacity available equals

403,200

If budgeted overhead cost is $250,000, and budgeted direct labor cost is $400,000, the overhead rate based on direct labor cost is _____.

62.5% of direct labor cost

Which of the following statements is false regarding cost drivers?

Finding a cost driver that is causally related to the cost being allocated is always possible.

Testing for environmental compliance and design and specification costs are examples of which of the following hierarchy level?

Product related

Analyzing processes used to produce goods and services can uncover nonvalue-added steps that can be eliminated. At which step does this primarily occur?

Step 1 - Identify the activities.

With TDABC, the managers Blank______ asked to estimate what proportion of the time the employees spend on each activity.

are not

The final step in the activity-based costing system is to

assign the activity costs to products

Time-driven activity-based costing Blank______ the need to conduct surveys or interviews of multiple managers and employees.

avoids

Plantwide allocation can be used in _____.

both manufacturing and nonmanufacturing organizations

Overhead rates based on machine-hours are calculated as _____.

budgeted overhead costs divided by budgeted machine-hours

Activity-based costing _____ be applied to administrative activities.

can

TDABC is based primarily on time estimates for different activities, and

can easily be extended to accommodate other cost drivers

Analyzing the processes managers follow to produce a good or service

can often uncover many nonvalue-added steps that can be eliminated

When low-volume products require more machine setups, overhead should be allocated based on

complexity

A factor that causes, or "drives," an activity's costs is called a(n)

cost driver

To assign overhead costs to a product, multiply the cost driver rates by the number of units of the

cost driver in each product

Costs are assigned to individual cost objects (products or services) using appropriate cost allocation bases, or _____ _____.

cost drivers

The second step of the two-stage cost allocation identifies _____.

cost drivers

The first step in the two-stage cost allocation separates overhead costs into two or more _____.

cost pools

The process where a company attempts to recover costs by increasing the price for a product with decreasing demand describes the _____ _____.

death spiral

The vicious cycle of attempting to cover a fixed amount of costs with fewer and fewer units until the firm is producing no units is known as the _____ _____.

death spiral

Automation has caused direct labor costs in companies to (increase/decrease)

decrease

When a company uses a single allocation base, it gives the appearance that when a company drops a segment, all overhead costs will _____.

decrease

When overhead is allocated using the department allocation method, there is one cost pool per _____.

department

The formula for calculating a cost driver rate is

estimated indirect cost ÷ estimated volume of allocation base

Identifying the activities is the ______ step in developing an ABC system.

first

With TDABC, the manager is asked to estimate

how much time each activity takes for a single transaction

The first step in activity-based costing is to

identify the activities

The second step in activity-based costing is to

identify the cost drivers

The best cost driver is one that

is causally related to the cost being allocated

The basic approach in product costing is to allocate costs in the cost pools to individual cost _____.

objects

Activity-based costing can be applied to administrative activities to compute the cost of

performing an administrative service

Which of the following is a facility-related cost?

plant depreciation

A single cost pool is used to allocate overhead costs to products for all departments using the _____ allocation method.

plantwide

Which of the following is NOT a typical allocation base companies use when calculating a single plantwide rate?

purchase orders

Activity-based costing

recognizes that overhead costs are caused by activities

Identifying the cost drivers is the _____ step in developing an ABC system.

second

The cost driver rate per minute for an activity is calculated as

the cost of the activity divided by minutes available

The major difference between department allocation and plantwide allocation is _____.

the number of cost pools used to allocate overhead costs

A modified version that addresses the costs of maintaining an ABC system is called _____ _____ activity-based costing.

time driven

If a company is concerned about the cost of maintaining an ABC system, they can consider a modified version called

time-driven activity-based costing

TDABC

uses time equations to allow for differences among orders

When a company uses only one rate to allocate overhead costs, the accounting system treats all overhead as if the costs were _____ with respect to the allocation base.

variable