Topic 10: Activity-Based Costing

Facility support activities

Activities necessary to have a facility in order to participate in the development and production of products or services; activities are not related to any particular line of products or services.

Unit-level activities

Activities that take place each time a unit of product is produced.

Batch-level activities

Activities that take place in order to support a batch or production run, regardless of the size of the batch.

Product-line activities

Activities that take place in order to support a product line, regardless of the number of batches or individual units produced.

cost drivers

Numerical measure used to reflect the amount of a specific cost that is associated with a particular activity.

Manufacturing overhead

The allocation of which of the following can cause the greatest errors when computing product costs?

Products consume overhead costs

Traditional product costing systems (e.g. job order costing and process costing) usually assume that:

Multiple-product firm where products are quite different

Usually activity-based costing would be significantly more accurate than traditional product costing in a:

activity-based costing (ABC)

A method of attributing overhead costs to products based on measurable factors that relate to activities that create overhead costs.

Cost drivers

A more accurate allocation of manufacturing overhead and product costing can take place when costs are assigned on the basis of:

D. All of these are correct

Activity-based costing is most useful when there are variations in: A. Production volume B. Size of products C. of products D. All of these are correct

Number of set-ups performed

An appropriate cost driver for engineering changes is:

Have a reasonable number of cost pools

For greater accuracy when using activity-based costing, management accountants should:

No cost driver should be selected; the costs should be treated as common costs

If a cost activity does NOT have any production-related cost driver that matches up with changes in the amount of overhead cost associated with the activity then:

Storage in warehouse

Which of the following activities would most likely NOT be considered a batch activity: A. Hours required for set-up B. Accounting for materials C. Storage in warehouse D. Hours required for inspection

B. Machine setups

Which of the following is an example of a cost driver? A. Procurement B. Machine setups C. Maintenance D. Engineering

C. Identify overhead cost activities, analyze individual overhead costs in terms of those cost activities, identify measurable cost drivers, assign overhead, and use the cost data to make decisions

Which of the following is the correct sequence of the five steps of implementing and using an activity-based costing system? A. Identify overhead cost activities, identify measurable cost drivers, assign overhead, analyze individual overhead costs in terms of those cost activities, and use the cost data to make decisions B. Use the cost data to make decisions, analyze individual overhead costs in terms of those cost activities, identify measurable cost drivers, assign overhead, and identify overhead cost activities C. Identify overhead cost activities, analyze individual overhead costs in terms of those cost activities, identify measurable cost drivers, assign overhead, and use the cost data to make decisions D. Identify measurable cost drivers, assign overhead, identify overhead cost activities, analyze individual overhead costs in terms of those cost activities, and use the cost data to make decisions

D. Low-volume unique products

Which of the following products usually consumes the highest amount of overhead costs per unit? A. High-volume unique products B. High-volume standard products C. Low-volume standard products D. Low-volume unique products

A. In-house training for special services

Which of the following would most likely NOT be considered a source of a product line activity? A. In-house training for special services B. Product manager C. Maintenance of machinery D. Depreciation on the product warehouse