chapter 3 t/f
When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.
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If a company has a great deal of product diversity, activity-based costing will generally yield more accurate product costs than traditional overhead application rates based on direct labor or machine hours.
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In activity-based costing, there are a number of activity cost pools, each of which is allocated to products using its own unique measure of activity.
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Product-level activities relate to specific products and typically must be carried out regardless of how many batches are run or units of product are made.
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The activity rates in activity-based costing are not intended to set targets for how quickly a task should be completed.
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The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to activity cost pools.
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Direct labor-hours should never be used as a measure of activity in an activity-based costing system.
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Facility-level activities are activities that support specific products.
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In activity-based costing, unit product costs computed for external financial reports include manufacturing overhead costs that are computed by multiplying activity rates by the direct labor-hours required to produce a product.
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In the second-stage allocation in activity-based costing, costs that were not allocated in the first stage are assigned to the company's most profitable products.
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The activity rates in activity-based costing are computed by dividing the overhead in each production department by its direct labor-hours.
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Costs classified as batch-level costs should depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume.
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