accounting 2: chapter 7

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.

Identifying the activities that will form the foundation for the system ______.

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

Costs that can be easily traced to individual products include ______.

- warranty repair costs - shipping costs - sales commission

Arrange the steps for implementing ABC in the correct order.

1. Define activities, activity cost pools, and activity measures 2. assign overhead costs to activity cost pools 3. calculate activity rates 4. assign overhead costs to cost objects 5. prepare management reports

Activity-based costing uses numerous _______ cost pools.

activity

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

activity

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

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

cause and effect

An activity cost pool accumulates costs for ______ activity measure(s).

exactly 1

Individual product costs calculated using ABC are not listed on ______ reports.

external

Traditional cost systems tend to undercost standard products and overcost specialty products.

false The opposite is true - traditional systems undercost specialty products that tend to consume more overhead.

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

first

The first major step when implementing an ABC system is ______.

identify the activities

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

increase

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

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

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

overhead

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

pools

The final step in implementing ABC is ______.

prepare management reports

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

profitability

Unit-level activities are ______.

proportional to the number of units produced - batch level

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

second

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

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

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

- direct materials - MOH - direct labor

Activity-based management is focused on ______.

- eliminating waste - reducing defects

Activity-based costing is not used for external reporting because ______.

- external reports are less detailed than internal reports - ABC does not comply with GAAP - it is difficult to make changes in the existing accounting system

An activity-based costing system ______.

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

Customer-level activities include ______.

- mailing catalogs - sales calls

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 $425,000 ÷ $250 = 1,700

Which of the following help companies channel their resources into the most profitable growth opportunities?

Product and customer profitability reports

A characteristic essential for successful implementation of ABC is:

a link to how people are evaluated and rewarded.

Some manufacturing costs may be excluded from product costs when using ______ costing

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 driver

Total cost of each activity divided by the total activity is the computation of ______.

activity rates

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

an activity

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

customer level

ABC is generally used for ______ reporting.

internal - Reason: ABC is generally not used for external reporting as it does not comply with GAAP.

Under activity-based costing, nonmanufacturing costs ______.

may be allocated to products based on cause - Reason: ABC only assigns costs on a cause and effect basis.

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

more

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

overcosts, undercosts

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

second

Costs of unused or idle capacity are assigned to products when using a(n) _______ costing system

traditional

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 - Reason: Traditional allocation bases tend to overcost high volume and undercost low volume products.

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

true - Since ABC is more detailed than other costing systems, it can provide information that can improve the business process.

Providing power to run production equipment is generally considered a(n) ________ -level activity.

unit-level