SmartBook chapter 7
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.
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
Power to run production equipment is a(n)______-level activity.
unit
In activity-based costing, first-stage allocation assigns _______ costs to activity cost pools
overhead
Organization-sustaining activities include ______.
preparing annual reports heating a factory setting up a computer network
The most common reports prepared using ABC data are the product and customer ______ reports.
profitability
A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity
customer-level
In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation.
first
Costs of unused or idle capacity are assigned to products when using a(n) costing system
full
ABC is generally used for ______ reporting.
internal
Customer-level activities include ______.
mailing catalogs sales calls
Usually, traditional costing ______ high-volume products and ______ low-volume products.
overcosts; undercosts
Activity-based costing uses numerous__________cost pools.
overhead
Activity rates are used to apply overhead costs to products and customers in the _______ -stage allocation.
second
Unit-level activities are
proportional to the number of units produced
Costs that can be easily traced to individual products include ______.
warranty repair costs shipping costs sales commission
In recent years, direct labor as a percentage of total cost began declining, which caused overhead to_____
increase
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
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 Reason: $425,000 ÷ $250 = 1,700
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of - .
Blank 1: activity Blank 2: based Blank 3: management
Time-driven activity-based costing (TDABC) performs to evaluate employee idle time.
Blank 1: capacity Blank 2: analysis
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
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ______.
activity cost pool
In activity-based costing, the consumption of overhead resources is caused by ______.
an activity
The first major step when implementing an ABC system is
identify the activities
Identifying the activities that will form the foundation for the system ______.
can be time-consuming often involves interviewing employees involves a great deal of judgment
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 Reason: $200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.
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 of the following is not essential for the successful implementation of an ABC system?
Top managers must design the ABC system.
Which costing system does not assign selling and administrative costs to products when computing product margin?
Traditional
True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.
True
What level of activity is performed each time an item of a product is produced?
Unit-level
A characteristic essential for successful implementation of ABC is ______.
a link to how people are evaluated and rewarded
In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ______ basis.
cause-and-effect
An activity-based costing system ______.
is costly to maintain requires substantial resources produces different numbers than a traditional system
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
Under activity-based costing, nonmanufacturing costs ______.
may be allocated to products based on cause
The most common management reports using ABC data are ______.
product profitability customer profitability
Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation. Multiple choice question.
second
Customer service employees are a ______ cost.
step-fixed
An ABC system usually ______ a traditional cost system.
supplements
True or false: Traditional cost systems tend to undercost standard products and overcost specialty products.
False
Why is top management support needed when ABC is implemented?
Leadership is instrumental in motivating employees to embrace ABC.