Accounting Quiz 2

Just-in-time processing

a processing system dedicated to having the right ammonite of materials, parts, or products arrive as they are needed, thereby reducing the amount of inventory

batch-level activities

activities performed for each batch of products rather than for each unit

unit-level activities

activities performed for each unit of production

product-level activites

activities performed in support of an entire product line, but not always performed every time a new unit or batch of products is produced

Faculty-Level activites

activities required to support or sustain an entire production process

value-added activity

an activity that increases the perceived worth of a product or service to a customer

non-value-added activty

an activity that, if eliminated, would not hinder the company's operations or reduce the perceived worth of its product or service

activity-based costing

an overhead cost-allocation system that allocates overhead to multiple activity cost pools and assigns the activity cost pools to products or services by means of cost drivers that represent the activities used

activity

any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service

cost driver

any factor or activity that has a direct cause-effect relationship with the resources consumed. In ABC, cost drivers are used to assign activity cost pools to products or services.

examples of variable costs

commission

mixed costs

costs that contain both a variable and a fixed cost element and change in total but not proportionately with the changes un the activity level

fixed costs

costs that remain the same in total regardless of changes in the activity level

variable costs

costs that vary in total directly and proportionately with changes in the activity level

Examples of unit activities

drilling, cutting milling, trimming, pressing (machine hours) assembling, painting,sanding, sewing (direct labor hours or cost)

Examples of batch-level activities

ex. # of equipment set ups # of purchasing # of purchase ordering # of inspection

limitations of ABC

expensive to use some arbitrary allocations continue

activity-base management

extends ABC from product costing to a comprehensive management tool that focuses on reducing costs and improving processes and decision-making

activity based costing

individual costs

benefits of activity based costing

leads to more cost pools leads to enhanced control over overhead costs leads to better management decisions

traditional

lump sum

Examples of facility-level activities

plant management salaries plant depreciation property taxes utilities

examples of fixed costs

poperty taxes, insurance

Examples of product-level activites

product design engineering changes number of product designs number of changes

activity cost pool

the overhead cost attributed to a distinct type of activity or related activties

cost behavior analysis

the study of how specific costs respond to changes in the level of business activity