ACTG 2300 - Chapter 7

The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000, the amount allocated to this cost pool in the first-stage allocation is:

$125,000 Reason: $500,000 × 0.25 = $125,000

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 Reason: ($300 × $4) + ($500 × 10) = $6,200

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

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% Reason: 100% - (15% + 30% + 35%) = 20%

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

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

Activity Cost Pool

A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system.

Batch-level activities

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.

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

Activity measure

An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool.

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

Blank 1: absorption , traditional, or full

The amount of time required to perform an activity is measured by a(n) ________ driver.

Blank 1: duration

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

Blank 1: increase, rise, or grow

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

Blank 1: pools, drivers, or measures

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

Blank 1: second or 2nd

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

Traditional

Which costing method assigns only manufacturing costs to products?

Traditional absorption costing

Second stage allocation

Transaction driver

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

True

Activity-based costing

a costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs

Organization-sustaining activities

activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made

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

Overhead includes both manufacturing and nonmanufacturing costs under ______ costing.

activity-based

Under activity-based costing, overhead includes ______.

all indirect costs

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

first

Employees may be asked to estimate their time spent dealing with cost pool activities so that ______.

first-stage allocations will be more accurate

ABC is generally used for ______ reporting.

internal

In activity-based costing, first-stage allocations are usually based on the results of ______.

interviews with employees

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

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

manufacturing overhead direct material direct labor Reason: Traditional cost systems include only manufacturing costs.

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

An example of a transaction driver is the ______.

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

In traditional costing, ______ costs are assigned to products.

only manufacturing

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

overcosts; undercosts 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

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

second

An ABC system usually ______ a traditional cost system.

supplements

First stage allocation

the process by which overhead costs are assigned to activity cost pools in an activity-based costing system

An example of a duration driver is the ______.

time spent preparing invoices

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

transaction

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

warranty repair costs sales commission shipping costs