SB 5

An example of a duration driver is the:

time spent preparing invoices

All manufacturing costs are assigned to products in __ costing.

traditional

A systematic approach to identifying the activities that need the most improvement is called __

Benchmarking

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

Capacity analysis

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

traditional

Simple counts of the number of times an activity occurs are __ drivers.

transaction

True or false: Some manufacturing costs may be excluded from product cost when using ABC.

true

Which of the following might be included in a customer relations cost pool?

Customer entertainment & Cost of sales calls

When making decisions using ABC data:

unavoidable fixed costs should be ignored

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

unit

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

uses estimates based on practical capacity assists with measuring customer profitability

Traditional cost systems allocate all manufacturing costs using ______ allocation base(s).

volume-related

Costs that can be easily traced to individual products include:

warranty repair costs; shipping costs; sales commission

T/F: A strength of TDABC is that it can be easily updated by interviewing employees.

False

True or false: In an activity-based costing system, it is best to combine activities that are not highly correlated.

False

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

False

In activity-based costing, first-stage allocations are usually based on the results of

Interviews with employees

Overhead includes both manufacturing and nonmanufacturing costs under:

activity-based costing

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

activity-based management

Under activity-based costing, overhead includes:

all indirect costs

An activity measure in activity-based absorption costing is used as a(n) __ base.

allocation

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

an activity

In activity-based absorption costing an activity measure is:

an allocation base

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

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

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

Activity-based costing only charges products for the cost of the capacity used because:

it results in a more stable unit product cost products are only assigned the costs of resources they actually use

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

less

Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity.

more

The greater number of activities in an ABC system, the (more/less) costly it is for the company to develop.

more

In ABC, the greater the number of activities, the:

more accurate the costs are likely to be more costly the system will be to design

An example of a transaction driver is the:

number of bills sent out to a customer

Time-driven activity-based costing (TDABC):

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

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

overcosts; undercosts

If ABC is not implemented correctly and organization-sustaining costs are included in product costs, then product costs will be ______ and margins will be ______.

overstated, understated

Comparing ______ is the basis of benchmarking.

performance within the same industry

Activity-based costing treats organization-sustaining costs as __ expenses.

period

Unlike activity-based costing, traditional costing ignores ______ costs when calculating product margins.

period

Activities such as research and development that are not dependent on the number of units or batches are __-level activities

product

Designing and advertising a product are __ -level activities.

product

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

second stage

Customer service employees are a ______ cost.

step-fixed

An ABC system usually _____ a traditional cost system.

supplements

A reason that activity-based costing is not often used for external reporting is

the ABC system may not conform to GAAP

A company has two activity cost pools—Customer Orders and Product Design. The activity rates are $300 per order for Customer Orders and $500 per design for Product Design. How much overhead cost would be assigned to a customer placing 4 orders and requiring 10 designs?

$300 x 4 + ($500 x 10) = $6200

What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages?

$500,000

If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $

$65 x 120 = $7800

Place the steps for implementing ABC in order.

1. define activities, activity cost pools, and activity measure. 2. assign overhead costs to activity cost pools. 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.

If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $

7,800

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

customer-level

In the 19th and 20th centuries:

direct labor hours was a satisfactory overhead allocation base

The amount of time required to perform an activity is measured by a(n) __ driver.

duration

Which of the following is NOT an ABC level of activity?

employee

True or false: Most companies that use activity based costing replace their traditional accounting system with it.

false

ABC is generally used for ______ reporting.

internal

Identifying the activities that will form the foundation for the system:

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

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

manufacturing overhead; direct material; direct labor

In activity based costing another term for activity measure is:

cost driver

The term __ is also used when referring to an allocation base or activity measure in activity-based costing

cost driver

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:

$360,000

In recent years, direct labor as a percentage of total cost began declining, which caused overhead to .

increase

An activity-based costing system:

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

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

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $

$900,000 / 30,000 = 30

When managers allocate organization-sustaining and unused capacity costs to products:

- Costs will be overstated - Incorrect decisions may be made

ABC does not conform to GAAP because it:

- Includes some non manufacturing costs - Excludes some manufacturing costs

What causes traditional and activity-based costing systems to report different product margins?

-Traditional cost systems allocate all manufacturing overhead costs to products -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base -The ABC system assigns non manufacturing overhead costs to products on a cause-and-effect basis as appropriate.

If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, the total number of customer orders is:

1,700

Which costing system assigns nonmanufacturing overhead on a cause-and-effect basis?

ABC

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

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

the best team to create an ABC system should include employees from:

Marketing

Activity-based costing ____ include activities that do not relate to the number of units produced.

May

Activity-based costing uses more cost __ than traditional costing.

Pools

In activity-based costing, ______ are different from those calculated using traditional costing.

Product Margins

A customer relations cost pool would include the cost of:

Sales calls

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

True

True or false: As the number of activities increases, the cost to implement an ABC system also increases.

True

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

True

In activity-based costing, what costs are not assigned to products?

Unused capacity Organization-sustaining

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

activity

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

activity

ABC is not used for external reporting because __ would not be comfortable using allocations based on employee interviews

auditors

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of __ level activities.

batch

What type of activities are performed each time a group of units is processed, regardless of how many units are in the group?

batch level

Activity-based costing data

can be easily misinterpreted

In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ______ basis.

cause and effect

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

does not

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

does not require employee interviews helps manage customer mix

The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs. The total cost assigned to a customer who had 7 designs done is $

$200,000 / 1600 = $125 $125 x 7 = $875

The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $

400 x $20 = 8000

A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was $.

750,000 - 360,000 = 390,000 390,000 - 215,000 = 175,000

The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $

8000

The most appropriate activity measure for a cost pool consisting of the costs of resources consumed taking and processing individual customer sales is the number of:

customer orders

Activities that could be combined into one batch-level activity are the number of:

customer orders and shipped orders.

The first major step when implementing an ABC system is:

identify the activities

The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is

machine hours

In the 19th and 20th centuries, cost systems relied on allocation bases such as:

machine hours labor hours

Customer-level activities include:

mailing catalogs sales calls

In a traditional cost accounting system, what type of costs are assigned to products even if the costs are not caused by the products?

manufacturing

In traditional costing, ______ costs are assigned to products.

manufacturing

Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer __

margin

Under activity-based costing, nonmanufacturing costs:

may be allocated to products based on cause

A product's _________ is a function of sales and the direct and indirect costs that the product causes.

product margin

The most common management reports using ABC data are:

product profitability; customer profitability

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

profitability

Which of the following is not essential for the successful implementation of an ABC system?

Top managers must design the ABC system.

Which of the following items are the same under both ABC and traditional costing?

Total costs Total sales Net operating income

Which costing method assigns only manufacturing costs to products?

Traditional absorption costing

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

A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n)

activity cost pool

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

Costs that are totally unaffected by which products are made during a period are ________ costs.

organization sustaining

What type of activities are carried out regardless of which customers are served, which products are produced, how many batches are run or how many units are produced?

organization sustaining

Activity-based costing uses numerous __ cost pools.

overhead

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

overhead

Unit-level activities are:

proportional to the number of units produced

What is the benefit of a cross-functional team designing an ABC system?

resistance to change is reduced

Individual customer __ minus individual customer __ equals customer margin.

sales - costs

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

second

To reconcile ABC product margin to net income:

subtract overhead costs not assigned to products

Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of:

units produced

Types of costs that might be included in a cost pool based on order size include:

factory supplies; equipment depreciation

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

first stage

Employees may be asked to estimate their time spent dealing with cost pool activities so that

first-stage allocations will be more accurate

A company has four cost pools—customer relations, order size, product design and customer orders. Indirect labor is used 15% for customer relations, 30% for order size, and 35% for product design. The percentage is used for customer orders is:

20%