ACTG 211: Chapter 7
A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is ______.
$360,000
What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages?
$500,000
A company has two activity cost pools—Customer Orders and Product Design. The activity rates are $300 per order for Customer Orders and $500 per design for Product Design. How much overhead cost would be assigned to a customer placing 4 orders and requiring 10 designs?
$6,200
If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $_____________.
$7800
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
True or false: In an activity-based costing system, it is best to combine activities that are not highly correlated.
False
In a traditional cost accounting system, what type of costs are assigned to products even if the costs are not caused by the products?
Manufacturing
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 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
True or false: As the number of activities increases, the cost to implement an ABC system also increases.
True
True or false: Some manufacturing costs may be excluded from product cost when using ABC.
True Reason: Not all manufacturing costs are included when allocating product cost. ABC do not assign two types of manufacturing overhead costs to products (Organization-sustaining costs and unused capacity costs also called idle capacity costs)
In activity-based costing, what costs are not assigned to products?
Unused capacity Organization-sustaining
A characteristic essential for successful implementation of ABC is ______.
a link to how people are evaluated and rewarded also: -Top management must strongly support the implementation. -A cross-functional team should design and implement the system.
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
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ______.
activity cost pool
Total cost of each activity divided by the total activity is the computation of ______.
activity rates
Some manufacturing costs may be excluded from product costs when using ______ costing.
activity-based
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
Activity based costing provides managers with information that affects ______________.
both fixed and variable costs
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 material direct labor manufacturing overhead
The amount of time required to perform an activity is measured by a(n) __________driver.
duration
ABC does not conform to GAAP because it ______.
excludes some manufacturing costs includes some nonmanufacturing costs
Individual product costs calculated using ABC are not listed on ______ reports.
external
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.
ABC is generally used for ______ reporting.
internal Reason: ABC is generally not used for external reporting as it does not comply with GAAP.
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
External reports are__________ (more/less) detailed than internal reports.
less
Customer-level activities include ______.
mailing catalogs sales calls and general tech support
Under activity-based costing, nonmanufacturing costs ______.
may be allocated to products based on cause
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
The greater number of activities in an ABC system, the (more/less) costly it is for the company to develop.
more
In ABC, the greater the number of activities, the ______.
more costly the system will be to design more accurate the costs are likely to be
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.
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
In activity-based costing, first-stage allocation assigns __________________costs to activity cost pools.
overhead
Activity-based costing uses numerous ____________________cost pools.
overhead or activity
Activity-based costing uses more cost ________________________than traditional costing.
pools, drivers, or measures
The final step in implementing ABC is ______.
prepare management reports
An activity-based costing system ______.
produces different numbers than a traditional system is costly to maintain requires substantial resources
A product's _________ is a function of sales and the direct and indirect costs that the product causes.
product margin
The profit from a product is also called the ____________________ ______________
product margin
Unit-level activities are ______.
proportional to the number of units produced
Activity rates are used to apply overhead costs to products and customers in the _____________-stage allocation.
second
Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation.
second Reason: First-stage allocation assigns costs to cost pools.
Activities that could be combined into one batch-level activity are the number of ______.
shipped orders customer orders received (highly corelated and in same level)
(nonmanufacturing) Costs that can be easily traced to individual products include ______.
shipping costs warranty repair costs sales commission
To reconcile ABC product margin to net income ______.
subtract overhead costs not assigned to products
A reason that activity-based costing is not often used for external reporting is ______.
the ABC system may not conform to GAAP
An example of a duration driver is the ______.
time spent preparing invoices
All manufacturing costs are assigned to products in ______________costing.
traditional, absorption, or full
Simple counts of the number of times an activity occurs are _____________drivers.
transaction
Power to run production equipment is a(n) _______________-level activity.
unit
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, calculate the appropriate activity rate(s).
$8 per customer call and $15 per development hour
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.
Steps for Implementing Activity-Based Costing:
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 resports
A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was $ _____________
175,000
A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was $__________
175000
A company has four cost pools—customer relations, order size, product design and customer orders. Indirect labor is used 15% for customer relations, 30% for order size, and 35% for product design. The percentage is used for customer orders is:
20%
Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $ ___________per machine hour.
30
The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $ __________.
8000
The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs. The total cost assigned to a customer who had 7 designs done is $ ___________.
875
