Chapter 4. Activity-Based Costing

which of the following statements is true?

abc may be useful to a company whose costs have changed substantially since the existing cost system was developed

focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of (1) management

activity based

a technique that attempts to assign overhead costs more accurately to products is known as:

activity-based costing

an activity measure is an (1) base in an activity-based costing system

allocation

customer orders are considered to be a (1)-level activity

batch

activity-based costing:

computes product costs in the same manner as traditional costing

which of the following is not a common method used to assign overhead to products?

direct tracing of overhead

an activity cost pool accumulates costs for (1) activity measure(s)

exactly one

direct labor hours is accurate allocation base when:

factors other than direct labor have an insignificant effect on overhead costs

which of the following is not generally part of the design of an activity-based costing system?

identifying and including all activities that cause overhead costs

the cost of implementing and maintaining an activity-based costing system:

may outweigh the benefits received

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 (1) activites

organization-sustaining

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

the basis of benchmarking is comparing

performance within the same industry

the activity rate is computed by dividing the (1) by the (2)

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

when making decisions:

some selling and administrative expenses should be assigned to products

in the 1800s:

- cost systems emphasize simplicity - direct labor and overhead was believed to be highly correlated

which of the following are reasons that companies are moving away from a plantwide overhead rate like direct labor?

- direct labor is no longer directly correlated to overhead for many products - many tasks are now done with automated equipment - a variety of products are made by companies

facility-level activities include

- heating a manufacturing plant - setting up a computer network - preparing annual reports

true or false: the abc system for applying overhead works just like a job-order costing system

true

under activity-based costing, the manufacturing overhead costs are allocated to products via a (1)-stage process

two

activity-based costing improves the accuracy of product costs by:

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

departmental overhead rate

- may not assign overhead correctly when a company has a range of products - may use different allocation bases in different departments

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

which of the following statements are true?

- products do not all use resources in the same way - traditional costing systems can distort product costs

total cost of each activity divided by the total activity is the computation of

activity rates

unit-level activities are

proportional to the number of units produced

a predetermined overhead rate in an activity based costing system is called an

activity rate

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

an activity

which of the following is not an abc level of activity?

employee-level

true or false: activity-based costing was designed to be used for a manufacturing company and should not be used in service industries

false

true or false: traditional cost systems tend to undercost standard products and overcost specialty products

false

designing and advertising a product are all (1)-level activities

product

benefits of activity-based costing include:

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

activity-based costing is most likely to be beneficial when

- products differ substantially in batch size and the activities they require - overhead costs are high and increasing and no one knows why

implementing activity-based costing:

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

which of the following issues needs to be considered when implementing an abc system?

- the cost of designing and implementing the system may outweigh the benefits of the system - the cost in each activity cost pool may not be strictly proportional to its activity measure