Accounting 2: Chapter 7 (exam 2)

Which of the following is not a management report that is normally prepared with ABC data? a) Product profitability b) Customer margins c) Customer profitability

answer: b) Customer margins

Which of the following costs would not be allocated to products or customers? a) Customer service b) Other c) Machine setup d) Product design

answer: b) Other

Shipping orders to a grocery store would be considered a(n) ________. a) unit-level activity b) batch-level activity c) product-level activity d) customer-level activity e) organization-sustaining activity

answer: b) batch-level activity

Which of the following costs would not be allocated using ABC? a) Marketing. b) Factory equipment depreciation. c) Direct labor. d) Factory utilities

answer: c) Direct labor.

1) Do all manufacturing and nonmanufacturing costs have to be included in ABC costing? 2) ABC excludes ____-____ costs and idle ____ costs from product cost.

1) No, they include some from each category 2) organization-sustaining; capacity

1) Advertising is an example of a __________activity. 2) Activity-based costing accumulates costs for each __________. 3) Activity-based costing estimates the costs of the resources consumed by _________.

1) Product-level 2) Activity 3) Cost objects

Characteristics of a Successful ABC Implementation 1) ____ top management support. -Without leadership from top management, some managers may not be motivated to embrace the need to change. 2) Linked to how people are evaluated and ______ -If employees continue to be evaluated and rewarded using traditional (non-ABC) cost data, they will quickly get the message that ABC is not important and they will abandon it.

1) Strong 2) rewarded.

1) In ABC, nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a ___-___-___ basis. - manufacturing costs include BOTH traditional and ABC. - Nonmanufacturing costs are only included in ABC

1) cause-and-effect

Activity Measure 1) The term ___ ___ is also used to refer to an activity measure. 2) An ____ base in an activity-based costing system.

1) cost driver 2) allocation

what are the two stages of allocation in activity-based costing?

1) costs must first be allocated to activity cost pools 2) then they are allocated from the activity cost pools to products, customers, and other cost objects.

Two common types of activity measures: Transaction driver 1) Simple ____ of the number of times an activity occurs. Duration driver 2) A measure of the amount of ____ needed for an activity.

1) count 2) time

1) Each ABC cost pool has its own unique measure of activity, while traditional cost systems usually rely on ___ labor hours and/or machine hours to allocate all overhead costs to products. 2) Direct labor and machine hours work correctly when changes in the quantity of the base are correlated with changes in the ___ ___ being assigned using the base.

1) direct 2) overhead costs

Product Margin Calculations (ABC) 1) The first step in computing product margins is to gather each product's sales and ____ cost data. 2) The second step in computing product margins is to incorporate the previously computed activity-based cost assignments pertaining to each ____. 3) The third step in computing product margins is to deduct each product's ___ and ___ costs from sales.

1) direct 2) product 3) direct; indirect

5 limitations of ABC 1) Substantial resources required to ___ and maintain. 2) Desire to fully ____ all costs to products. 3) Does not conform to ____. Two costing systems may be needed. 4) Potential ____ of unfamiliar numbers. 5) Resistance to unfamiliar numbers and reports

1) implement 2) allocate 3) GAAP 4) misinterpretation

- Activity-based management is used in conjunction with ABC to identify areas that would benefit from process improvements by focusing on activities to eliminate waste, decrease processing time, and reduce defects. 1) ABC activity rates can also provide valuable clues concerning where there is waste and the opportunity for ____. 2) ____ can be used to compare activity cost information with standards of performance achieved by other organizations.

1) improvement 2) Benchmarking

Most companies do not use ABC for external reporting because . . . 1. External reports are ___ detailed than internal reports. 2. It may be ___ to make changes to the company's accounting system. 3. ABC does not conform to ___. 4. Auditors may be suspect of the subjective allocation process based on interviews with ___.

1) less 2) difficult 3) GAAP 4) employees

1) Customer Orders (pool) - assigned all costs of resources that are consumed by taking and processing customer ____. (measure) 2) Design Changes - assigned all costs of resources consumed by customer requested ____ ___. 3) Order Size - assigned all costs of resources consumed as a consequence of the number of ___ ___ 4) Customer Relations - assigned all costs associated with maintaining relations with ____. 5) Other - assigned all ____-_____ costs and unused ____ costs.

1) orders 2) design changes 3) units produced. 4) customers 5) organization-sustaining; capacity

1) Activity- An event that causes the consumption of ___ ___ 2) Activity Cost Pool- A "cost bucket" in which costs related to a ___ activity measure are ____

1) overhead resources. 2) single; accumulated

Differences Between ABC and Traditional Product Costs There are three reasons why the reported product margins for the two costing systems differ from one another. 1) Traditional costing allocates all manufacturing overhead to ____. 2) ABC costing only assigns manufacturing overhead costs consumed by ___ to those ___.

1) products 2) products; products

BUT, for traditional... Product margin 1) first step in computing product margins is to gather product ___ and ___ cost data 2) The second step in computing product margins is to compute the plantwide overhead rate. 3) The third step in computing product margins is to allocate manufacturing overhead to each product. 4) The fourth step is to actually compute the product margins. sales - cogs - DL, DM, MOH = product margin - selling & admin expenses = net operating income

1) sales; direct

Customer Margin Calculation (ABC) 1) The first step in computing Acme Auto Parts' customer margin is to gather its ___ and ___ cost data. 2) The second step is to incorporate Acme Auto Parts' previously computed activity-based ___ assignments. 3) The third step is to compute Acme Auto Parts' customer margin by deducting all its ___ and ____ costs from its sales.

1) sales; direct 2) cost 3) direct; indirect

1) Unit-level activities are performed for each ___ that is produced. 2) Batch-level activities are performed for each batch regardless of... 3) Product-level activities must be carried out to support a ___ regardless of how many batches are run or units produced. 4) Customer-level activities must be carried out to support ____ regardless of what products or services they ___. 5) Organization-sustaining activities are carried out regardless of the company's precise product ___ or mix of customers.

1) unit 2) how many units are in the batch. 3) product 4) customers; buy 5) mix

1) Traditional cost systems rely exclusively on allocation bases that are driven by the ____ of production. 2) ABC defines ____ levels of activity that largely do not relate to the volume of units produced.

1) volume 2) five

when activity-based costing is used, why do manufacturing overhead costs often shift from high volume products to low volume products?

In traditional cost systems, product-level costs are indiscriminately spread across all products using direct labor-hours or some other allocation base related to volume. As a consequence, high-volume products are assigned the bulk of such costs. If a product is responsible for 40% of the direct labor in a factory, it will be assigned 40% of the manufacturing overhead cost in the factory—including 40% of the product-level costs of low-volume products. In an activity-based costing system, batch-level and product-level costs are assigned more appropriately. This results in shifting product-level costs back to the products that cause them and away from the high-volume products. (A similar effect will be observed with batch-level costs if high-volume products are produced in larger batches than low-volume products.)

Ordering materials, setting up machines, assembling products, and inspecting products are examples of ________. a) cost drivers b) cost pools c) cost activity levels

answer: b) cost pools

what types of costs should not be assigned to products in an activity-based costing system? and why?

Organization-sustaining costs customer-level costs costs of idle capacity should not be assigned to products. - Why? Because these costs are not consumed by the products.

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

Overcosts, undercosts

under activity costing, overhead includes...

all indirect costs (direct costs are never apart of overhead)

All of the following are differences between ABC and traditional absorption costing except ________. a) ABC system may assign nonmanufacturing costs to products b) ABC allocates all manufacturing costs to products c) ABC system uses many cost pools d) ABC system may exclude some manufacturing costs, such as organization-sustaining costs

answer: b) ABC allocates all manufacturing costs to products

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs? a) Number of batches. b) Direct labor-hours. c) Indirect materials. d) Number of customer orders.

answer: b) Direct labor-hours.

In the second-stage allocation of overhead costs, products, customer orders and customers are examples of ________. a) activity levels b) activity rates c) cost objects d) cost pools

answer: c) cost objects

First-stage allocation of overhead costs to each cost pool is accomplished using all of the following except________. a) employee interviews b) grouping batch and unit level activities c) percentages

answer: b) grouping batch and unit level activities

•Traditional costing _____ selling and administrative expenses because they are assumed to be period expenses. ABC costing directly traces shipping costs to products and includes ____-____ overhead costs caused by products in the activity cost pools that are assigned to products.

disregards; non-manufacturing

Characteristics of a Successful ABC Implementation 1) Cross-______ teams should be created. -Cross-functional employees possess intimate knowledge of operations that is necessary for designing an effective ABC system.

functional

"Other" in "Activity Cost Pools" These are organization-sustaining costs and will ___ be assigned to ___ or ___

not; products; customers

ABC differs from traditional cost accounting because ____ overhead cost pools are used.

numerous

Relying exclusively on direct labor hours and/or machine hours to assign overhead costs to products has come under increased scrutiny since, on an economy-wide basis, direct labor and overhead costs have been moving in ____ directions and the variety of products produced by companies has _____.

opposite; increased

ABC is a costing method designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and therefore, "fixed" as well as variable costs. It is ordinarily used as a supplement to, rather than as a ________ for, the company's usual costing system.

replacement

organization-sustaining activities include...

setting up computer network, preparing annual reports, and heating a factory

Traditional costing allocates all manufacturing overhead costs using a ______-related allocation base. ABC costing also uses ____-____ related allocation bases.

volume; non-volume