Chapter 4 accounting

Activity based costing includes some __________________ costs and _____________ some manufacturing costs (those not affected by _________________).

Includes, excludes, production.

Example of facility level activity

Insurance for a factory, salaries, property taxes, and building depreciation.

Activity based costing is used ______________ and doesn't replace ________________ costing.

Internally, traditional.

Plant wide rates has this many number of overhead rates and has this type of allocation base

One, volume based.

Example of batch level activity

Switching the paint color for each car so each car can separated by color.

Activity based costing has this number of overhead rates and has this type of allocation base

Two or more, activity based

Departmental rates has this number of overhead rates and has this type of allocation base

Two or more, volume based

An activity that must be done for each item produced is an ____________ level activity

Unit

Activities that arise as a result of the total volume of goods and services that are produced, and that are performed each time a unit is produced

unit level activities

If the total cost in an activity cost pool is $150,000 and the total expected activity setup is 1,000 machines what is the activity rate?

$150 per machine (150,000 / 1,000)

A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is Blank______.

$360,000 (900,000 / 30,000 *12,000)

A two-stage costing method in which overhead costs are assigned to products on the basis of the activities they require.

Activity based costing

Shifts batch level plus product level Overhead from high volume to low volume products. These are the effects of......

Activity based costing

A "bucket" in which costs are accumulated that relate to a single activity (exactly one) measure in an activity-based costing system.

Activity cost pool.

An allocation base in an activity-based costing system; ideally, a measure of whatever causes the costs in an activity cost pool.

Activity measure

Example of unit level activity

An inspection and testing of each product made

Processing purchase orders is considered to be an _____________ level activity.

Batch

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch. The amount of resources consumed depends on the number of batches run rather than on the number of units in the batch

Batch level activities

Setting up equipment, purchase orders, and packing shipments are examples of what kind of level activity?

Batch-level activity.

A systematic approach to identifying the activities with the greatest room for improvement. It is based on comparing the performance in an organization with the performance of other, similar organizations known for their outstanding performance.

Benchmarking

Example of product level activity

Changing or upgrading a certain product

The cycle of the activity based costing model?

Cost objects, customer order requirements (activities), activities consume (resources), and consumption of resources incurred (costs).

Activity base costing total MOH rate formula for cost pool's?

Cost pool's budgeted overhead/ cost pool's budgeted activity * actual activity.

Disadvantages of additional based costing

Costly to implement and maintain, resistance to change, can have some overhead cost distortion.

Activity that Relates to specific customers

Customer level

What is a predetermined overhead rate formula?

Estimated total manufacturing overhead cost divided by estimated total amount of the allocation base.

For decision-making purposes, the distinction between manufacturing costs and selling and administrative expenses is important true or false?

False

Overhead costs can be easily traced into products true or false?

False

Product level costs are larger for high-volume products than for low-volume products true or false?

False

Activity based costing systems may use direct labor hours and/or machine hours to assign unit-level costs to products true or false?

True

Bar code readers, and other technology have made more complex costing systems less expensive to maintain true or false?

True

Direct materials + direct labor + manufacturing overhead = unit product cost. True or false?

True

An event that causes the consumption of overhead resources

activity

A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects

activity-based management

activity rate formula

estimated overhead cost / total expected activity

a single predetermined overhead rate that is used throughout a plant

plantwide overhead rate

Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run

product-level activities

A predetermined overhead rate in an activity-based costing system is called an ______________ _________.

Activity rate.

An overhead rate in activity-based costing. Each activity cost pool has its own activity _______ which is used to assign overhead to products and services.

Activity rate. (Rate).

When a company has extensive product diversity and complex overhead, it is best to assign overhead using

Activity-based costing

Example of customer level

Customer service calls, sales calls.

Activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made

facility-level activities

departmental overhead rates correctly assign overhead costs in situations where a company has a range of products and complex overhead costs. True or false?

False

From most complex to least complex, the simplest method is plant wide overhead rate, departmental overhead rate, and activity based costing. True or false?

False (other way around).

Direct _____________ and direct _____________ can be directly traced into _______________.

Labor, materials, products.

Example of activity based management?

Manufacturing companies, hospitals, and the U.S marine corps.

Advantages of additional based costing

More accurate overhead costs, better pricing decisions, better understanding of overhead, can identify areas of improvement.

Example of activity based costing

Nordstrom buying women's skirts from Calvin Klein

Example of activity measure

Number of patients admitted to the hospital.

Usually, traditional costing Blank______ high-volume products and Blank______ low-volume products.

Over costs, under costs.

Under the traditional direct labor costing system, what is the predetermined overhead rate?

Predetermined overhead rate = Estimated total manufacturing overhead cost/Estimated total direct labor-hours

example of activity in activity based costing?

Setting up machines, admitting patients to the hospital, scheduling production, billing customers, maintaining equipment, stocking shelves at a store, and preparing shipments.