Acc 132 Ch 5

Which of the following is true of activity-based costing? a. It is used by organizations that manufacture only one product. b. It applies only before the production section of the value chain. c. It uses a single, plantwide rate to assign overhead costs to the products. d. It is used to determine only the downstream costs of customers.

A. Activity-based costing can be useful to organizations that have only one product, homogeneous products, or a just-in-time (JIT) structure where direct tracing diminishes the value of activity based costing (ABC) for product costing.

The whale curve of cumulative customer profitability: a. identifies customers to the far right of the curve who severely decrease the firm's profitability and should be terminated. b. depicts cumulative costs compared against cumulative customers. c. takes the shape of a "U" when the firm is profitable. d. depicts activity-based costing compared against revenues of the firm.

A. The Whale Curve shows cumulative profits compared against cumulative customers. Customers to the far right severely decrease the firm's profitability and should be terminated. The curve is shaped like a whale cresting the water's surface, not like a "U".

An activity driver is a measure of the demands placed on an activity and is also called: a. input measure. b. output measure. c. cost measure. d. product measure.

B. The output measure is a measure of the demands placed on an activity and is also called an activity driver.

Wave Crest Cosmetics produces cosmetic products for 11 major buyers. One customer accounts for ½ of the sales, the other 10 customers account for the remaining sales. The 10 smaller customers place orders of about equal size. The large customer purchases 1,000,000 units per year by placing 4 orders per year, and the 10 smaller customers order 1,000,000 units in total by placing 400 orders per year. Order filling costs total $808,000 per year. How much would be assigned to the large customer as ordering costs using activity-based customer costs? a. $7,400 b. $8,000 c. $800,000 d. $404,000

B. Total ordering filling cost = $808,000 / 404 orders = $2,000 per order Order filling cost allocated to the large customer = $2,000 x 4 = $8,000

A key component of activity-based costing is: a. determining a single cost driver for all activities. b. identifying the direct costs in a manufacturing environment. c. assigning costs and overheads to activities. d. calculating single activity rates for all activities.

C. Once activities are identified and described, the next task is to determine how much it costs to perform each activity. When resources are exclusively used by an activity, direct tracing is used. For shared resources, driver tracing is used, and the drivers used to assign resource costs to activities are called resource drivers.

Which of the following is an example of a value-added activity? a. Scheduling goods b. Moving raw materials c. Product inspection d. Factory supervision

D. A managerial activity is specifically designed to manage other value-added activities—to ensure that they are performed in an efficient and timely manner. Therefore, supervision certainly satisfies the enabling condition of being a value-added activity.

The proportion of each activity used by a product is called: a. overhead rate. b. product ratio. c. facility rate. d. consumption ratio.

D. Consumption ratio is the proportion of each activity consumed by a product. Activity drivers measure activity output and thus can be used as measures of activity consumption.

The purpose of interviewing managers or representatives of functional work areas is to: a. identify customers. b. determine the cost associated with activities. c. determine the number of direct labor hours. d. identify activities.

D. Identifying activities usually is accomplished by interviewing managers or representatives of functional work areas (departments).

An example of a cost driver for a machining activity could be the: a. number of products requiring the machine. b. number of units being machined. c. number of machines being used. d. number of machine hours.

D. The number of machine hours is the best driver related to the costs of machining activity.

Carr Manufacturing makes a product that incurs prime costs of $300,000. Production uses 1,200 setup hours and 2,000 machine hours. Activity rates are $75 per setup hour and $50 per machine hour. Carr's total product cost is: a. $300,000. b. $190,000. c. $100,000. d. $490,000.

D. Total product cost is $490,000. This consists of prime costs $300,000 plus overhead of $190,000. Overhead = Setup + Machining Cost = $90,000 (1,200 x $75) + $100,000 (2,000 x $50)