Ch 4 SB ACCT 252

n ABC, any event that causes consumption of overhead resources is an______?

activity

A predetermined overhead rate in an activity-based costing system is called_______?

an activity rate

Using volume-based cost drivers to assign overhead when ABC is appropriate?

may lead to overpriced or underpriced goods

The cost of implementing and maintaining an activity-based costing system ______ the benefits received.

may outweigh

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

overcosts; undercosts

A significant limitation of the ABC model is that the product costs computed will most likely be?

overstated for purposes of decision making

The basis of benchmarking is comparing ______.

performance within the same industry

Select all that apply When cost systems were developed in the 1800's, most companies_______?

produced a small number of similar products focused on simplicity

Designing and advertising a good are both _______ level activities.

product

Designing and advertising a good are both ______level activities.

product

The ABC model is useful when an organization is making decisions about how?

some selling and administrative expenses should be assigned to products

The activity rate is computed by dividing the ______ by the ______.

total cost in the activity cost pool; activity level in the activity cost pool

For decision-making purposes, the distinction between manufacturing costs and selling and administrative expenses is _______?

unimportant Reason: Managers needs to know what causes a product's costs, regardless of type.

An activity that must be done for each item produced is an______ level activity.

unit

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

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

Setting up machines, billing customers, and performing tests at a lab are all examples of a(n)______?

activity

_______, ________ management involves focusing on activities to eliminate waste, decrease processing time, and reduce defects.

activity based

A cost bucket in which costs related to a particular activity measure are accumulated is called?

activity cost pool

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ________level activities.

batch

Select all that apply Activity-based management is focused on ______?

eliminating waste reducing defects

Costs that cannot be traced on a cause-and-effect basis to individual products are _______ level costs.

facility

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

activity

A predetermined overhead rate in an activity-based costing system is called an _______, ________

activity rate

When a company has extensive product diversity and complex overhead, it is best to assign overhead using ______.

activity-based costing

In activity-based costing an activity measure is

an allocation base

Select all that apply: Using direct-labor hours or another volume based cost driver to assign overhead?

may result in overcharging customers for products ignores other significant causes of overhead may result in selling products at a loss

Implementing activity-based costing?

requires substantial resources should be done by a cross-functional team requires taking employees away from other tasks

Activity-based costing improves the accuracy of product costs by ______?

sing a variety of activity measures to assign overhead costs to products. increasing the number of cost pools used to accumulate overhead cost. using cost pools that are more homogeneous than departmental cost pools

An activity that must be done for each item produced is an_____, ______ activity

unit level

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

activity cost pool

How much of an activity is carried out is expressed by a(n) ______, which is used as the allocation base for applying overhead costs to products and services.

activity measure

A systematic approach that can identify improvement opportunities is_________

benchmarking

When evaluating ABC product costs, managers should be particularly alert to costs that contain allocations of?

facility -level costs.

True false question. When two variables move together, they are said to be negatively correlated.

false Reason: Two variables that move together are highly correlated.

Activity-based costing _____?

computes product costs in the same way as traditional costing

A plantwide overhead rate based on direct labor hours is ______ appropriate.

sometimes

Processing purchase orders is considered to be a(n) ________level activity.

batch

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $_______

$30 reason: ($900,000 / 30,000 = $30)

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 Reason: ($900,000 ÷ 30,000) × 12,000 = $360,000

For each unit of a product, the direct material cost is $10, the direct labor cost is $15, and the manufacturing overhead is $16. The total unit product cost using activity-based costing is

$41 Reason: Unit product cost = Direct material cost + Direct labor cost + Manufacturing overhead = $10 + $15 + $16 = $41

For each unit of a product, the direct material cost is $10, the direct labor cost is $15, and the manufacturing overhead is $16. The total unit product cost using activity-based costing is________

$41 Reason: Unit product cost = Direct material cost + Direct labor cost + Manufacturing overhead = $10 + $15 + $16 = $41

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine set ups. The activity rate is $_______-

$500 Reason: ($400,000/800=$500)

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 Reason: 400*20=8000

Select all that apply Which of the following are facility-level activities?

Paying factory insurance Property taxes on plant

_______, __________ activities relate to specific products and typically must be carried out regardless of how many batches or units of the product are manufactured.

Product Level

True or false: Activity-based costing relies on a number of critical assumptions which could distort information for making decisions.

True Reason: There are critical assumptions which need to be considered when using ABC for decisions.

true or false: When using activity rates, overhead is assigned the same way as when using plantwide or departmental rates.

True: Reason: The only difference when using activity rates is the allocation base.

Activity-based costing improves the accuracy of product costs by ________?

using cost pools that are more homogeneous than departmental cost pools increasing the number of cost pools used to accumulate overhead cost using a variety of activity measures to assign overhead costs to products

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_____?

$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.

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 $_________

65*120=$7800

True or False: 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.

True false question. Departmental overhead rates correctly assign overhead costs in situations where a company has a range of products and complex overhead costs.

False Reason: This is false. Unfortunately, even departmental overhead rates will not correctly assign overhead costs in situations where a company has a range of products and complex overhead costs.

Benefits of activity-based costing include?

more accurate product costs helping managers understand the nature of overhead costs helping target areas for process improvement

Which of the following statements are true?

On an economy wide basis, direct labor and overhead costs have been moving in opposite directions for a long time. Technology has made more complex costing systems less expensive to develop and maintain.

Which of the following statements are true?

On an economywide basis, direct labor and overhead costs have been moving in opposite directions for a long time. Technology has made more complex costing systems less expensive to develop and maintain.