ACCT 3030 Ch. 7

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, the activity rates are Blank______.

$8 per customer call and $15 per development hour Reason: $200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.

Activity-based costing only charges products for the cost of the capacity used because:

- products are only assigned the costs of resources they actually use. - it results in a more stable unit product cost.

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

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

An activity-based costing system

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

Which of the following is not essential for the successful implementation of an ABC system?

Top managers must design the ABC system.

Which costing system does not assign selling and administrative costs to products when computing product margin?

Traditional

Fill in the blank question. In ABC, the term cost driver is used to refer to a(n) ___________ because it should "drive" the cost being allocated

activity measure

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

first

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

first Reason: In second-stage allocation, activity rates are used to apply overhead costs to products.

Activity-based costing uses activity rates to apply overhead costs to products in Blank______ stage allocation. Multiple choice question.

fourth

The first major step when implementing an ABC system is

identify the activities

Fill in the Blank Question Fill in the blank question. In recent years, direct labor as a percentage of total cost began declining, which caused overhead to ____________

increase

An example of a transaction driver is the

number of bills sent out to a customer Reason: Transaction drivers are simple counts of the number of times an activity occurs.

If some products are overcosted and some are undercosted the errors will

offset each other in cost of goods sold and inventory valuations

Providing power to run production equipment is a(n)____________ -level activity because power tends to be consumed in proportion to the number of units produced.

unit-level activity

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

warranty repair costs shipping costs sales commission

An activity-based costing system _________.

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

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 Reason: $425,000 ÷ $250 = 1,700

Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity?

Activity-based

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC.

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

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

Product and customer profitability reports

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.

What level of activity is performed each time an item of a product is produced?

Unit-level

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

activity

A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n)

activity cost pool

Some manufacturing costs may be excluded from product costs when using Blank______ costing.

activity-based

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of __________-__________ __________

activity-based management

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

an activity

Activity based costing provides managers with information that affects ____________.

both fixed and variable costs

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

cause and effect

In activity based costing another term for activity measure is Blank______.

cost driver

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

cost pools

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

customer-level

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

direct labor direct material manufacturing overhead

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

exactly one

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

Under activity-based costing, nonmanufacturing costs _____________

may be allocated to products based on cause

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

more

Identifying the activities that will form the foundation for the system

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

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

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

overcosts; undercosts Reason: Traditional costing uses a volume-related allocation base and assigns more costs to high-volume products, resulting in overcosting. In contrast, it assigns fewer costs to low-volume products, resulting in undercosting.

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

overhead

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

overhead

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

Customer-level activities include:

sales calls mailing catalogs

'' Activity rates are used to apply overhead costs to products and customers in the ___________-stage allocation

second

Fill in the blank question. Activity rates are used to apply overhead costs to products and customers in the ___________-stage allocation.

second

An ABC system usually Blank______ a traditional cost system.

supplements

Simple counts of the number of times an activity occurs are _____________ drivers.

transaction drivers

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

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