Ch.7 ACCT201

Activity cost pool

A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system.

In the 1st stage allocation of overhead costs, products, customer orders, and customers are examples of _____. A. Activity levels B. Activity rates C. Cost objects D. Cost pools

C. Cost objects

External reports are (more/less) detailed than internal reports.

less

Unit-level activities

performed each time a unit is produced. it is proportional to the number of units produced. -ex. providing power to run processing equipment because power tends to be consumed in proportion to the number of units produced.

Usually, traditional costing _____ high volume products and _____ low volume products. undercosts; undercosts undercosts; overcosts overcosts; overcosts overcosts; undercosts

undercosts; overcoats

What are the 2 types of manufacturing overhead costs that ABC does NOT assign to products?

Organization-sustaining Unused capacity costs

Designing and advertising a product are _____ level activities.

Product

Customer-level activities

Relate to specific customers and include activities such as sales calls, catalog mailings, general technical support not tied to any specific product.

Activity-based costing uses activity rates to apply overhead costs to products in ______ allocation. A. 4th stage B. 3rd stage C. 1st stage D. 2nd stage

Second stage

Activity-based costing

Supports internal decision making by assigning costs to cost objects based on the activities performed by the cost objects.

Activity Rate equation

Total Cost x Total Activity

Which system relies exclusively on allocation bases that are driven by the volume of the product?

Traditional cost system

True or False? An activity rate calculates the average figures.

True

How do you compute activity rates?

Total cost for activity / Total activity

In (traditional absorption costing system/absorption costing system), the cost of unused capacity is assigned to products.

Traditional

True or False? Traditional absorption costing assigns organization-sustaining costs and unused capacity costs to products.

True

In activity-based costing, each cost pool accumulates costs that relate to a single _______ measure in the ABC system.

activity

Activity measure

an allocation base in an ABC system. AKA "cost driver"

activity

any event that causes consumption of overhead resources

Organization-sustaining activities

-Carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. -Ex. heating the factory, cleaning executives office, providing computer network

Product-level activities

-Relate to specific products and must be carried out regardless of how many batches are run or units are produced or sold

In ABC, the greater the number of activities, the: A. more costly the system will be to design B. easier the system will be to implement and maintain C. more accurate the costs are likely to be

A & C- B is not true because more activities make a system more complex.

When managers allocate organization-sustaining and unused capacity costs to products: (check all that apply) A. product margins will be overstated B. Prices will be more accurate than under traditional costing C. costs will be overstated D. incorrect decisions will be made

C. Costs will be overstated D. incorrect decisions will be made Product margins will be UNDERstated

An activity cost pool accumulates cost for ____ activity cost measure. A. Exactly one B. Less than one C. Multiple

Exactly one

Activity

any event that causes the consumption of overhead resources

Transaction driver

simple counts of the # of times an activity occurs

Duration drivers

the amount of time required to perform an activity. more accurate measure of resource consumption

Under ABC, product cost calculations include all indirect costs IF...

they are caused by products.

Under ABC, product cost calculations include all direct costs IF....

they can be traced to products.

Batch-level activities

-Performed each time a batch is handled or processed no matter how many units are in the batch. -Incurred once for each batch (or customer order) -Costs depends on the number of batches processed -Ex. Placing purchase orders, arranging for shipments to customers, setting up machine for batch processing

Comparing _____ is the basis of benchmarking. A. performance within the same industry B. traditional and ABC systems C. manufacturing and nonmanufacturing costs D. performance in different industries

A. performance within the same industry

Overhead Cost of product equation

Activity Rate x Activity

In (traditional absorption costing system/absorption costing system), products are charged only for the cost of capacity they use- not for the cost of the capacity they don't use.

Activity-based costing

What causes traditional and activity-based costing systems to report different product margins? (check all that apply) A. the traditional cost system assigns period costs to all products that are produced during the period. B. The ABC system assigns nonmanufacturing overhead costs to products on a cause-and-effect basis as appropriate. C. Traditional cost systems allocate all manufacturing overhead costs to products. D. Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-realated allocation base.

B, C, and D

Traditional absorption costing systems used for internal or external purposes?

External financial reporting purposes

True or False? In the "other" category of costs, an activity rate is computed.

False. The "other" cost pool consists of organization-sustaining costs and unused capacity costs that are not allocated to products and customers.

Absorption costing systems used for internal or external purposes?

Internal decision making purposes

Power to run production equipment would be a(n) ____ level activity.

unit