Chapter 4. Activity-Based Costing
product
Activities such as research and development that are not dependent on the number of units or batches are ____-level activities.
- increasing the number of cost pools used to accumulate overhead cost. - Using cost pools that are more homogeneous than departmental cost pools. - Using a variety of activity measures to assign overhead costs to products.
Activity-based costing improves the accuracy of product costs by:
- overhead costs are high and increasing and no one knows why - products differ substantially in batch size and the activities they require
Activity-based costing is most likely to be beneficial when:
allocation
An activity measure is a(n) _____ base in an activity-based costing system.
batch
Customer orders are considered to be a(n) ____-level activity.
- may use different allocation bases in different departments - may not assign overhead correctly when a company has a range of products
Departmental overhead rates:
performance within the same industry
The basis of benchmarking is comparing ______.
activity rates
Total cost of each activity divided by the total activity is the computation by _____.
$30 $900,000 /$30,000 = $30
Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $ ____ per machine hour.
two
Under activity-based costing, the manufacturing overhead costs are allocated to products via a ____-stage process
overcosts, undercosts
Usually, traditional costing __ high-volume products and __ low-volume products
- A variety of products are made by companies - Direct labor is no longer directly correlated to overhead for many products. - Many tasks are now done with automated equipment
Which of the following are reasons that companies are moving away from a plantwide overhead rate like direct labor?
- The cost in each activity cost pool may not be strictly proportional to its activity measure - The cost of designing and implementing the system may outweigh the benefits of the system.
Which of the following issues needs to be considered when implementing an ABC system?
- products do not all use resources in the same way -traditional costing systems can distort product costs.
Which of the following statements are true?
activity rate
A predetermined overhead rate in an activity based costing system is called a(n) ____ ____
both service and manufacturing companies
ABC can be used in _______.
$6,000 $2 × 3,000 = $6,000
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 ______.
$8 per customer call and $15 per development hour $200,000/25,000 = $8 per customer call $300,000/20,000 = $15 per development hour
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 ______.
-heating a manufacturing plant -setting up a computer network -preparing annual reports
Facility-level activities include:
activity based
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of ______ _____ management.
they fall within the same level in the cost hierarchy
Generally, when simplifying an activity based costing system, activities and costs should only be combined if:
$41 $10 + $15 + $16 = $41
Given direct material cost of $10, direct labor cost of $15, direct-labor based overhead of $12 and Activity-Based Costing overhead of $16, the total cost of the product using Activity-Based costing is $ ______.
activity
In activity-based costing, each cost pool accumulates costs that relate to a single ____ measure in the ABC system.
activity
In activity-based costing, each cost pool accumulates costs that relate to a single ______ measure in the ABC system.
an activity
In activity-based costing, the consumption of overhead resources is caused by:
unit
Power to run production equipment is a(n) ____-level activity.
- ignores other significant causes of overhead - may result in selling products at a loss - may result in overcharging customers for products
using direct-labor hours or another volume based cost driver to assign overhead