CMA Chapter 5 SmartBook

Time-driven activity based costing ______.

relies on the accuracy of time estimates must be modified for activities that are not time driven

Order processing and invoicing are ______ costs.

customer batch-level

The net present value of estimated future profits from a customer is ______.

customer lifetime value

Sales commissions is a ____ cost.

customer unit-level

Order processing and billing, collection and payment processing are examples of

customer-specific activities

Designing a product is a(n) ______ activity.

high value-added

Product delivery is a(n) ______ activity.

high value-added

Customer satisfaction decreases imperceptibly or remains unchanged if a(n)

low-value

Examples of low-value activities include ______.

moving parts product storage rework

Calculate the total customer unit-level cost assigned to this customer.

$2,740

If Gargus Co. uses an activity-based costing system, how much overhead will be assigned to the product for total machine related overhead costs (setups plus maintenance)?

$220

Total support staff cost for SST, Inc. is budgeted at $150,000. Budgeted activity is 12,000 hours and practical capacity is 15,000 hours. If the overhead rate is calculated based on practical capacity and 12,000 hours are actually used, the cost of unused capacity equals ______.

$30,000

Typical questions ABC project team members typically ask when gathering activity data include ______.

What value does the activity have for the product or cost object? How much time is spent performing an activity? What resources are required to perform the activity?

Activity-based costing (ABC) assigns costs to ______.

activities and then to cost objects

Gathering data from existing records and collecting additional data using questionnaires, observations, or interviews of key personnel is included in an ABC

activity analysis

A two-stage cost assignment procedure assigns resource costs to ______.

activity pools and then to cost objects

ABC and ABM are common in ______.

all sectors of the economy

The third step in the ABC development process is to ______.

assign costs of activities to items of interest, generally called cost objects

The third step in developing an activity-based costing system is ______.

assigning activity costs to cost objects

Operating costs of a regional warehouse is a ______ cost.

distribution-channel

Operational ABM can be used to ______.

enhance operational efficiency enhance asset utilization

TDABC can be expanded to include activity complexities which is called a time

equation

Relevant factors to consider before determining the action appropriate for each customer include ______.

importance of the customer to the firm cross-selling potential growth potential of the customer

Using ABM can help management identify ways to ______.

increase value to the customer reduce costs improve operations

The net present value of estimated future profits from a customer for a specified time is the customer

lifetime

Potential drawbacks to using a volume-based costing system include ______.

little incentive is provided for managers to control indirect costs disproportionate assignment of indirect costs inaccurate product costs

An activity that consume time, resources, or space, but has little impact on meeting customer needs is a(n) ______ activity.

low value-added

The process of assigning resource costs to certain activities, which, in turn, are assigned to other activities before being assigned to the final cost object is known as

multistage ABC

The process of assigning resource costs to certain activities, which, in turn, are assigned to other activities before being assigned to the final cost object is known as ______.

multistage ABC

Calculate the total sales sustaining cost assigned to this customer.

$0

CMCS is a small medical center that employs two full-time medical coding specialists, each earning $46,080 annually. Each person has 32 productive hours per week and actually works 48 weeks per year. The time-driven ABC rate for their time is ______ per minute.

$0.50

If Gargus Co. uses a volume-based overhead rate based upon machine hours, the manufacturing overhead for this product is ______.

$1,300

If Gargus Co. uses an activity-based costing system, total manufacturing overhead for this product is ______.

$731

Calculate the total customer batch-level cost assigned to this customer.

$895

If Gargus Co. uses a volume-based overhead rate based upon direct labor hours, the manufacturing overhead for this product is ______.

$975

Which of the following statements is incorrect?

A product-level activity can always be traced to a manufacturing facility.

True or false: A facility-level activity can usually be traced to a product.

False

True or false: ABC systems are similar to volume-based costing systems because they both link uses of resources to activities and then link activities to cost objects.

False

Which of the following is NOT a part of an activity-based two-stage allocation procedure?

Plant or departmental level costs are assigned to cost objects.

Which of the following is NOT a customer-specific activity?

Product processing

Which of the following is a dynamic, fully integrated, principle-based, and comprehensive management accounting approach?

Resource consumption accounting

Which of the following relies on the concept of attributable cost or only attaching costs to a cost object when causality exists?

Resource consumption accounting

Which government entity was identified in the text as an example of one using ABC/M to better understand its cost structure?

U.S. Patent and Trademark Office

A specific task, action, or unit of work done is called a(n)

activity

When developing an ABC system, the work performed to carry out a firm's operations is identified by a(n)

activity analysis

A cost object is ______.

an output resulting from the firm's activities an item of interest

Machine setups is an example of a ______ activity.

batch level

Materials handling is an example of a ______ activity.

batch-level

Measured or quantified amounts of

cost drivers

Under resource consumption accounting ______.

costs are only matched to cost objects when causality exists cost characteristics are inherent to the underlying resource

The overcosting/undercosting that can occur when using volume-based product costing is sometimes called

cross subsidization

The process of identifying activities and cost drivers related to servicing customers is ______.

customer cost analysis

The process of identifying activities and cost drivers related to servicing customers is called

customer cost analysis

Monthly statement processing is a ______ cost.

customer-sustaining

Potential problems from having an inaccurate costing system include ______.

increasing sales with decreasing profits continually losing competitive bids a difficult time determining which product is most profitable

A disadvantage of time-driven-activity based costing is ______.

it relies on accurate time estimates

A limitation of a volume-based costing system is the ______.

potential for products to be charged too much or too little overhead

The capacity available with the current resources of people, equipment, policies, and facilities is called ______ capacity.

practical

A diagram that identifies each step that is currently involved in making a product or providing a service is known as a(n)

process map

Which of the following is NOT a customer service activity?

product design

Volume-based costing is likely to provide inaccurate cost information when ______.

the firm produces a diverse mix of products support activity usage is not proportional to units produced or hours used

The process that assigns resource costs directly to cost objects using the cost per time unit of supplying the resource is ______.

time-driver activity-based costing

The second step in the ABC development process is to ______.

use resource consumption drivers to assign resource costs to activities

True or false: Activity-based costing assigns overhead to products based on resources consumed per unit produced.

False

True or false: Beneficial discretionary activities are good candidates for elimination.

False

There are several processes found in many successful ABC/M implementations.Match the process with the expected benefit.

Involving management and employees-- Allows people to become more familiar with ABC/M Using ABC/M on a job that will succeed-- Shows people how and why the process works Keeping the ABC/M design simple-- Helps keep costs down

Which of the following statements is incorrect?

Most overhead costs relate directly to final products or services.

True or false: Managers may want to prepare a process map to ensure that no activities are missed in the value-added analysis.

True

In ABC costing a(n)

activity

A foundational concept of resource consumption accounting is that

capacity

A factor that causes or relates to a change in the cost of an activity is a(n)

cost driver

A successful ABC/M implementation does NOT require close cooperation among ______.

customers

An activity-based costing system is likely to help a company develop and execute strategy by providing accurate information about the cost of ______.

dealing with suppliers products and services serving customers

The first step in the ABC development process is to ______.

determine the resources that are consumed by each identified activity

Something that significantly increases the value of a product or service to a customer is called a(n) ______ activity.

high value-added

Time-driven ABC is a direct method of measuring ______.

idle capacity

Using volume-based costing tends to ______.

overcost high-volume products and undercost low-volume products

In a volume-based allocation procedure factory overhead costs are first assigned to ______.

plant or departmental cost pools

The analysis of customer revenues and customer cost is the basis of customer

profitability

Labor and supplies are examples of

resources

The salary of the general sales manager is a ______ cost.

sales-sustaining

Customer profitability analysis allows managers to ______.

shift customers' purchases mix choose types of after-sales services to provide manage customers' costs-to-serve introduce profitable new products and services

Volume-based costing systems can be a good strategic choice for firms ______.

that offer professional services to clients that produces a fairly homogeneous set of products with a relatively small level of common costs

Which of the following is NOT one of the major benefits of activity-based costing identified in the text?

Higher firm profitability

Which of the following is NOT an expected benefit of an activity-based costing system?

Higher priced products and services

Which of the following is NOT identified as part of the three-step sequence for developing an activity-based costing system?

Identify cost objects.

Sustaining activities for an organization include ______.

regulatory compliance building security

A(n) economic element needed or consumed in performing activities is called a(n)

resource

Developing a costing system requires understanding relationships among

resource

Ideally a firm should choose ________________ consumption cost drivers based upon cause-and-effect relationships.

resource