Chapter 7 SmartBook

Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity?

Activity-based

Which costing system does not assign selling and administrative costs to products when computing product margin?

Traditional

True or false: Activity-based costing can be used for process improvement.

True

A characteristic essential for successful implementation of ABC is ______.

a link to how people are evaluated and rewarded

The first major step in implementing ABC is to identify the _____ that will form the foundation for the system.

activities

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

activity

Total cost of each activity divided by the total activity is the computation of ______.

activity rates activity rates = total cost of each activity / total activity

Some manufacturing costs may be excluded from product costs when using ______ costing.

activity-based

In activity-based costing, the consumption of overhead resources is caused by ______.

an activity

Time-driven activity-based costing (TDABC) performs _____ _____ to evaluate employee idle time.

capacity analysis

A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.

customer-level

Organization-sustaining activities include ______.

heating a factory setting up a computer network preparing annual reports

ABC is generally used for ______ reporting.

internal

Activity-based costing is not used for external reporting because ______.

it is difficult to make changes in the existing accounting system external reports are less detailed than internal reports ABC does not comply with GAAP

Time-driven activity-based costing (TDABC) ______.

overcomes some important limitations of ABC does not assume employees will self-report idle time

In activity-based costing, first-stage allocation assigns _____ costs to activity cost pools.

overhead

The final step in implementing ABC is ______.

prepare management reports

The most common reports prepared using ABC data are the product and customer _____ reports.

profitability

Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation.

second

Customer service employees are a ______ cost.

step-fixed

Activity based costing provides managers with information that affects ______.

both fixed and variable costs

Time-driven activity-based costing (TDABC) ______ require extensive interviews with employees.

does not

Under activity-based costing, nonmanufacturing costs ______.

may be allocated to products based on cause

Identifying the activities that will form the foundation for the system ______.

can be time-consuming involves a great deal of judgment often involves interviewing employees

An activity-based costing system ______.

requires substantial resources is costly to maintain produces different numbers than a traditional system

Strengths of time-driven activity-based costing (TDABC) include ______.

employees do not have to self-report idle time it helps estimate the financial impact of aligning capacity with demand it is easy to update

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. Using activity-based costing, calculate the appropriate activity rate(s).

$8 per customer call and $15 per development hour $200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.

Place the steps for implementing ABC in order.

Define activities, activity cost pools, and activity measures. Assign overhead costs to activity cost pools. Calculate activity rates. Assign overhead costs to cost objects. Prepare management reports.

True or false: A benefit of TDABC is that it only requires about half the number of employee interviews that are needed with traditional ABC.

False

True or false: Traditional cost systems tend to undercost standard products and overcost specialty products.

False

Which of the following help companies channel their resources into the most profitable growth opportunities?

Product and customer profitability reports

Costs of unused or idle capacity are assigned to products when using a(n) _____ costing system.

absorption

What are some of the limitations of activity-based costing systems?

Managers and employees may resist the change to ABC. ABC procedures produce numbers that do not match traditional costing. ABC requires substantial resources.

Costs assigned and/or traced when computing product margin in a traditional cost system are ______.

direct material manufacturing overhead direct labor

If some products are overcosted and some are undercosted the errors will ______.

offset each other in cost of goods sold and inventory valuations

Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are facility-level or _____-_____ activities.

organization-sustaining

What level of activity is performed each time an item of a product is produced?

Unit-level

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of _____-_____ _____.

activity-based management

An activity cost pool accumulates costs for ______ activity measure(s).

exactly one

Individual product costs calculated using ABC are not listed on ______ reports.

external

In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation.

first

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

less

Customer-level activities include ______.

mailing catalogs sales calls

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

overcosts; undercosts

Activity rates are used to apply overhead costs to products and customers in the _____-stage allocation.

second

Costs that can be easily traced to individual products include ______.

shipping costs warranty repair costs sales commission

Customer cost analysis using time-driven activity-based costing (TDABC) ______.

uses estimates based on practical capacity assists with measuring customer profitability helps manage customer mix enables estimating customer service employee needs does not require employee interviews

Activity-based costing uses numerous _____ cost pools.

activity

In ABC, any event that causes consumption of overhead resources is a(n) _____.

activity

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC.

Unit-level activities are ______.

proportional to the number of units produced

An ABC system usually ______ a traditional cost system.

supplements